MINER, Circuit Judge:
Defendant-appellant Petroleo Brasileiro, S.A. ("Petrobrás" or the "Company") appeals from an Order filed September 27, 2010, in the United States District Court for the Southern District of New York (Gardephe, J.), pursuant to which the court, in a single Memorandum Opinion and Order, denied Petrobrás' motion to dismiss, for lack of subject matter jurisdiction, the plaintiffs-appellees', Dennis Rogers and Kevin Burlew (collectively, the "plaintiffs"), separate actions to recover for breach of contract.
This appeal presents us principally with two issues arising under the FSIA. We must determine, as regards "clause two" of the commercial activities exception, whether the plaintiffs' claims are sufficiently "based upon" any act that Petrobrás performed in the United States that is "in connection with [Petrobrás'] commercial activity" in Brazil. Id. § 1605(a)(2). We also must decide, with respect to "clause three," whether Petrobrás' extraterritorial commercial acts caused a "direct effect" in the United States. Id. In both cases, Petrobrás contends that the District Court erred in finding the requirements of the exceptions to be satisfied and thus argues that the court lacked jurisdiction over the actions. For the reasons that follow, we hold that Petrobrás is immune under the FSIA and therefore reverse the Order of the District Court.
On October 3, 1953, the Brazilian legislature enacted Brazil Law 2,004. As relevant to this appeal, the law (i) established Petrobrás as the Brazilian state-owned oil company and (ii) imposed a compulsory fee, to be paid annually from 1954 through 1957, on all owners of motor vehicles in Brazil. Approximately two years after Petrobrás' incorporation, on December 20,
The "conditions" of Petrobrás' Series 1 bearer bonds,
The following are conditions of this issuance:
Thus, a holder of any such Bond was entitled to collect bi-annual interest payments, at seven percent, throughout the specified redemption period. In addition, Petrobrás assumed the obligation to return to the Bondholder the nominal value— 1,000 cruzeiros—of the Bond. In the alternative, the "conditions" of the Bond permit its holder, after meeting certain conditions, to receive "preferred nominative shares without voting right"—specifically, a conversion right in lieu of payment.
Petrobrás apparently honored the Bonds—payment of interest and return of the nominal value of the Bond or, in the alternative, conversion—throughout the specified redemption periods. After the end of those redemption periods, it was Petrobrás' understanding that the Bonds lapsed (i.e., had no further value) based on "the conditions stated on the back of the
Petrobrás has taken certain steps to communicate the foregoing to its investors. Through its Investor Relations Department in Rio de Janeiro, Brazil, it drafted a notice (in Portuguese) dated March 23, 2003, explaining the history of the Bonds and setting forth the rationale for its decision to reject any untimely requests to convert or redeem the bonds on the ground that any redemption or conversion rights had lapsed. In relevant part, the notice states that the Bonds "are over twenty years old, and holders who did not assert their rights in good time may not now claim the redemption value or request conversion. The rights represented by these papers have lapsed, in accordance with Brazilian Civil Law and as stipulated on the back of these Bonds." That notice apparently has been translated, at least into English, and has been made available to an Investor Relations office that Petrobrás maintains in New York City.
This appeal arises out of an attempt by two United States citizens to convert these Bonds. Dennis Rogers (a citizen of Florida) and Kevin Burlew (a citizen of Connecticut) own Series 1, 3, and 4 Bonds. They claim that the Bonds were purchased in the United States with U.S. currency; however, the record does not provide additional detail regarding these transactions. On June 22, 2009, the plaintiffs each sent a letter to Petrobrás' New York office requesting the conversion of their Bonds into preferred shares.
Unsatisfied with the response received from Petrobrás, on September 25, 2009, the plaintiffs filed separate actions in the Southern District of New York claiming breach of contract based on Petrobrás' refusal to convert the Bonds into preferred shares. Specifically, the plaintiffs identify Helms' email and the attached notice as the act that allegedly constitutes the breach. Petrobrás filed separate motions to dismiss each action on January 6, 2010,
In a single Memorandum Opinion & Order filed on September 27, 2010, the District Court denied Petrobrás' motion. Rogers v. Petroleo Brasileiro, S.A., 741 F.Supp.2d 492, 496 (S.D.N.Y.2010). The court discussed two "commercial activity" exceptions into which it concluded that Petrobrás' actions fell: (1) an act performed in the United States in connection with commercial activity elsewhere ("clause two") and (2) an act outside the United States in connection with a commercial activity of the foreign state elsewhere and that causes a direct effect in the United States ("clause three").
As to clause two, the court first found that "[t]he threshold inquiry of whether Defendant was engaged in `commercial activity' sufficient to trigger the statutory exceptions to immunity is quickly resolved," noting that it is well-settled that "the issuing of public debt is a commercial activity within the meaning of Section 1605(a)(2)." Id. at 500 (citing Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1018-19 (2d Cir.1991)). The court also found to be satisfied the requisite nexus between Petrobrás' alleged act of breach (i.e., the sending of the email at issue) and the United States, finding that Petrobrás "used its New York office and its New York representative to carry out and finalize the `act' of alleged breach at issue." Id. at 501.
With respect to clause three, the court found that Petrobrás' act was "direct" because its Investor Relations representative communicated the Company's rejection of the plaintiffs' conversion request through its New York office, and the "immediate consequence" of that act deprived the plaintiffs of an alleged contractual right. Id. at 502. Moreover, the court found that the "effect" of the alleged breach was felt in the United States not only because the plaintiffs are United States citizens, but also, and more importantly, because the plain language of the Bonds did not specify or require a place of payment or conversion within the United States, but rather was open-ended. Id. at 503 ("That the [B]onds do not specify or require a place of payment or exchange within the United States does not foreclose that Plaintiffs reasonably expected they could make such a request in New York, given the open ended terms of the bonds and the fact that Petrobrás has a New York office.").
After the District Court issued its Memorandum Opinion and Order, Petrobrás filed a timely Notice of Appeal to the extent that the District Court "denied Petrobrás' motion to dismiss on grounds of sovereign immunity" under the FSIA and "asserted subject matter jurisdiction."
On appeal, Petrobrás challenges the District Court's assertion of jurisdiction over the action. With respect to clause two, Petrobrás argues that the plaintiffs' claims are not sufficiently "based upon" any act that it performed in the United States because the sending of an email was not the "but for" cause of the plaintiffs' claim for breach of contract. Moreover, Petrobrás contends that the Bonds can be converted only in Brazil, which by definition cannot be an "act performed in the United States," a necessary element of clause two. As to clause three, Petrobrás argues that
I. Standard of Review
Our jurisdiction in this case is based on the collateral order doctrine, which "allows an immediate appeal from an order denying immunity under the FSIA." Kensington Int'l Ltd. v. Itoua, 505 F.3d 147, 153 (2d Cir.2007) (internal quotation marks omitted). We review de novo "a district court's legal determinations regarding its subject matter jurisdiction, such as whether sovereign immunity exists," and review its factual findings for clear error. Filler v. Hanvit Bank, 378 F.3d 213, 216 (2d Cir.2004).
II. Subject Matter Jurisdiction
A. Applicable Law
The Foreign Sovereign Immunities Act "provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country." Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). The Act states that a "foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607." 28 U.S.C. § 1604 (2006). The District Court found, and the parties do not dispute on appeal, that Petrobrás is a "foreign state." We agree. U.S. Fidelity & Guar. Co. v. Braspetro Oil Servs., Co., 199 F.3d 94, 98 (2d Cir.1999) (per curiam) (noting that "acts of Petrobrás" were "[a]cts of the state"). That being the case, "the plaintiff has the burden of going forward with evidence showing that, under exceptions to the FSIA, immunity should not be granted." Kensington, 505 F.3d at 153 (internal quotation marks omitted). "Where the plaintiff satisfies [his or] her burden that an FSIA exception applies, the foreign sovereign then bears the ultimate burden of persuasion that the FSIA exception does not apply." Swarna v. Al-Awadi, 622 F.3d 123, 143 (2d Cir.2010).
Here, the "commercial activity" exception, set forth in section 1605 of the FSIA, is the only such exception at issue.
This section provides, in part:
28 U.S.C. § 1605(a)(2) (2006). "As is plain from the language of the section, each of its three clauses describes different categories of conduct for which the foreign state is denied immunity." Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69, 74 (2d Cir.2010). A showing that one condition is met is sufficient for the commercial activity exception to apply. Kensington, 505 F.3d at 154. The second and third clauses are at issue in this appeal.
B. Threshold Issue with the Complaints
Before venturing into our analysis of the commercial activity exceptions, we pause to address our concern with the way in which the plaintiffs have attempted to define their action (i.e., in terms of breach of contract). Based on an examination of the plain language of the Bonds, we are not convinced that there was a breach of contract at all.
To wit, the terms and conditions on the face of the Bonds define "Bearer Obligation" in terms of what Petrobrás owes to the Bondholders, namely the nominal value of 1,000 cruzeiros and bi-annual interest payments of seven percent "up to [the Bonds'] redemption." In the alternative, the sixth "condition of . . . issuance" in each of the series of Bonds at issue provides that "the holder of this obligation [is entitled to] the option for receiving preferred nominative shares without voting rights, after the [B]ond party meets [certain] requirements." From the very terms of the Bonds, however, an "obligation" existed only through 1977 (or as late as 1980, in the case of the Series 4 bonds), the exact date corresponding to a Bond's specified redemption period. After the expiration of the redemption period, we believe that the Bonds no longer had a residual benefit. Therefore, in all cases, there is no current "obligation" as contemplated by the terms of the Bonds, the latest redemption period (for the Series 4 Bonds) having expired on December 31, 1980. There being no obligation, Petrobrás has no duty to honor an attempt by a Bondholder to convert, and a decision not to convert cannot be a breach, as the Bondholder is not deprived of any contractual right.
Notwithstanding our grave concerns regarding the merits of the complaint, we proceed, as we must, first to determine issues of subject matter jurisdiction. Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 (2d Cir.2001) ("A . . . court does not. . . decide a case on the merits in order to decide if it has jurisdiction. Jurisdiction is not defeated by the possibility that averments might fail to state a cause of action." (internal quotation marks and alteration omitted)). For the following reasons, even if the Bonds continue to have a residual benefit, no exception to the FSIA affords the District Court subject matter jurisdiction.
C. Clause Two
The second clause of the commercial activities exception applies if a plaintiff's action is "based . . . upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere." 28 U.S.C. § 1605(a)(2) (2006). The Supreme Court has held that jurisdiction will lie where an action is "`based upon' some `commercial activity' . . . that had `substantial contact' with the United States. . . ." Saudi Arabia v. Nelson, 507 U.S. 349, 356, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). The Court explained that the "based upon" requirement is satisfied if the "act performed in the United States" constitutes an "element[ ] of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case." Id. at 357, 113 S.Ct. 1471. We have expounded on Nelson, holding that "based upon," at the very least, requires "but for" causation. Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 390 (2d Cir.2000).
However, to resolve whether clause two applies to provide the District Court with a jurisdictional basis in this case, we need not reach the "based upon" analysis. A threshold requirement under the statute itself (and therefore under both Nelson and Transatlantic) is that the relevant act was performed in the United States. That
Id. at 76.
Guirlando's observations are in line with other courts to have been confronted with a similar "conundrum." For example, in United States v. Swiss Am. Bank, Ltd., 274 F.3d 610 (1st Cir.2001), the First Circuit, in conducting a "minimum contacts" analysis, determined that a letter from a foreign bank to a district court "simply g[iving] notice that payment might not occur" was "only marginally instrumental to the alleged breach [of failing to turn over forfeited drug proceeds from an account-holder's account]" and therefore insufficient to satisfy a "contract-plus" requirement. Id. at 622 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478-79, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)); see also Elliott v. Armor Holdings, Inc. No. 99-337-B, 2000 WL 1466112, at *8 (D.N.H. Jan. 12, 2000) ("Properly construed, the correspondence and any related telephone calls constitute notice to [the plaintiff] of the alleged breach, rather than the actual mechanism of breach." (citing Ticketmaster-N.Y., Inc. v. Alioto, 26 F.3d 201, 207 (1st Cir.1994))).
Here, in accordance with Guirlando, Petrobrás' denial of the conversion sought by the plaintiffs was an act in Brazil based on the terms and conditions of the Bonds. The email sent to the plaintiffs by Helms, while sent from the Unites States, "constitute[d] notice to [the plaintiffs] of the alleged breach, rather than the actual mechanism of breach." Elliott, 2000 WL 1466112, at *8 (emphasis supplied). Thus this act simply cannot fall within the purview of clause two.
D. Clause Three
Clause three of the commercial activities exception strips a foreign sovereign of its immunity when a court determines that a plaintiff's action is "based . . . upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." 28 U.S.C. § 1605(a)(2) (2006) (emphasis supplied). The Supreme Court has held that "an effect is direct if it follows as an immediate consequence of the defendant's. . . activity." Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 618, 112 S.Ct. 2160,
In cases involving the default by a foreign state or its instrumentality on its commercial obligations, an act has a direct effect in the United States if the defaulting party is contractually obligated to pay in this country. Weltover, 504 U.S. at 611, 618-19, 112 S.Ct. 2160; see also Comm. Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 241 (2d Cir.1994); Texas Trading & Mill. Corp. v. Fed. Republic of Nigeria, 647 F.2d 300, 312 (2d Cir.1981), overruled on other grounds by Frontera Resources Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393 (2d Cir. 2009) (finding a direct effect where New York corporations sought unsuccessfully to enforce a contract in New York City, such that the financial loss and breach both occurred in the United States). In Weltover, the Republic of Argentina issued bonds with an explicit provision that permitted the holder to designate either London, Frankfurt, Zurich, or New York as the place for the payment of principal and interest. Id. at 609-10, 112 S.Ct. 2160. The Weltover plaintiffs so designated New York. Id. at 619, 112 S.Ct. 2160. At the time when the plaintiffs' principal and interest payments became due, Argentina instead rescheduled them. Id. Several bondholders rejected the rescheduled payments and instead demanded full payment in New York. Id. On these fact, the Supreme Court held that, because the plaintiffs "designated their accounts in New York as the place of payment, . . . New York was thus the place of performance for Argentina's ultimate contractual obligations, [and] the rescheduling of those obligations necessarily had a `direct effect' in the United States." Id.
Beyond this scenario, we have found the direct effect requirement satisfied where a defaulting party agreed in advance, pursuant to the terms of a letter of credit, to make payments "according to [a payee's] instruction," and the payee selected a New York bank. Hanil Bank v. PT. Bank Negara Indonesia (Persero), 148 F.3d 127, 132 (2d Cir.1998). On the other hand, we have held, in the RICO context, that there was no direct effect in the United States where (i) certain prepayment agreements were negotiated in France and governed by French law, (ii) did not require performance in the United States, and (iii) the plaintiff was a foreign corporation that did not suffer any demonstrable harm in the United States. Kensington, 505 F.3d at 158; see also Int'l Hous. Ltd. v. Rafidain Bank Iraq, 893 F.2d 8, 12 (2d Cir.1989) (finding no direct effect in the United States even though a payment had in fact been made to Rafidain's U.S. "correspondent" bank account because, inter alia, the "[p]ayment in New York City was not a contractual requirement" under the guaranty bonds); Filetech S.A. v. France Telecom, S.A., 212 F.Supp.2d 183, 197 (S.D.N.Y.2001) aff'd and opinion adopted and incorporated as the law of the Circuit by, 304 F.3d 180, 182 (2d Cir.2002) ("In [Weltover] and its progeny, the ultimate object of the contract—the contract's raison d'etre—was the payment of funds in the United States. In the case at bar, there is no evidence that [the defendant's] activities in France intended or contemplated a specific effect in the United States." (citation omitted)).
Here, as in Kensington, Rafidain Bank, and Filetech, there was no requirement that payment be made in the United
Finally, we note that the plaintiffs' status as United States citizens does not sufficiently outweigh the fact that payment was not contemplated in the United States so as to afford the District Court jurisdiction. See Virtual Countries, Inc. v. Republic of S. Africa, 300 F.3d 230, 240 (2d Cir.2002) (holding that the theory that "any U.S. corporation's financial loss constitutes a direct effect in the United States [to be] plainly flawed" and observing that its reasoning was equally applicable to a natural person); Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 999 F.2d 33, 36 (2d Cir.1993).
* * *
That no exception strips Petrobrás of its immunity in this case accords with the policies underlying the FSIA—policies that we are to "remain mindful of" in considering FSIA jurisdiction. Weltover, Inc. v. Rep. of Argentina, 941 F.2d 145, 151 (2d Cir.1991). To this end, we have held that "Congress did not intend to provide jurisdiction whenever the ripples caused by an overseas transaction manage eventually to reach the shores of the United States." Virtual Countries, 300 F.3d at 236 (internal quotation marks omitted). The ripples are indeed very faint in this case, and we easily conclude that "the United States does not have an interest in this action such that Congress would have wanted an American court to hear the case." Rafidain Bank, 893 F.2d at 12 (internal quotation marks omitted).
We have considered all of the plaintiffs' other arguments and find them to be without merit.
For the foregoing reasons, neither clause two nor clause three of the commercial activities exception strips Petrobrás of