The First Circuit has upheld a finding by the Massachusetts federal district court that it may assert jurisdiction over the Republic of Ukraine under the Foreign Sovereign Immunities Act ("FSIA") where the Republic engaged in activity of a commercial nature that had a direct impact in the United States.
The plaintiff is a Massachusetts company that engages in international asset recovery operations. It alleged that in 1998, it had entered into a unilateral contract and powers of attorney with the Republic to assist it in recovery assets expatriated from the Republic by former Republic officials and their companies. The first agreement was partially negotiated in New York City. This contract was on the letterhead of an agency of the Republic and included the Republic's seal and the signature of its acting prosecutor general. The agreement was delivered to the plaintiff's offices in Massachusetts. The powers of attorney authorized plaintiff or attorneys plaintiff hired to conduct investigations on the Republic's behalf in various jurisdictions outside the Republic. Plaintiff alleges that it was instrumental in freezing hundreds of millions of dollars of assets and providing information vital to the prosecution of the former Republic officials. It filed suit to recover its unpaid fee for this work.
The Republic moved to dismiss the complaint arguing it was entitled to sovereign immunity under FSIA. FSIA includes a "commercial activity" exception pursuant to which a foreign sovereign is not immune where plaintiff's action is based:
•1) Upon a commercial activity carried on or in the United States by a foreign state; or
•2) Upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or
•3) Upon an act outside the territory of the United States in connection with a commercial activity elsewhere and that act causes a direct effect in the United States.
28 U.S.C. 1605(a)(2). FSIA defines "commercial activity" as:
"either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of the transaction shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose." 28 U.S.C. 1603(d).
The First Circuit noted that it had not previously addressed the parties' respective burdens in an FSIA action. It adopted the Second Circuit's burden-shifting framework. Accordingly, the initial burden of production is on plaintiff to show evidence that it was entitled to one FSIA's exceptions. However, the ultimate burden of persuasion is on the Republic to show that none of the exceptions applies.
The First Circuit first found under Massachusetts law that the district court had properly found that the initial agreement was a unilateral contract consisting of an offer by the Republic that plaintiff accepted through performance in accordance with the terms of the offer.
The Court then turned to the issue of whether the underlying activity was "governmental" or "commercial." It said the allegations indicate that plaintiff's performance under the contract was "indistinguishable from ordinary asset recovery services." It met with government officials regarding the fraud allegations against the former Republic officials, it secured discovery orders and obtained evidence about assets, applied for protective orders freezing assets, and submitted evidence to the Republic's officials.
The Court said the statute was clear that courts were to examine the "nature" and not the "purpose" of the commercial activities. If the activities are not those peculiar to sovereigns but can also be exercised by private citizens, they are commercial, not governmental. Here, plaintiff was not performing governmental functions; rather, it was assisting governmental officials so they could later carry out governmental functions. The Republic had tried unsuccessfully to collect the assets. It then "entered the marketplace to obtain information and assistance in recovering those assets." To the extent, the collection efforts required governmental actions, the Republic performed them. The Court held plaintiff had met its initial burden of production and the Republic had not met its burden of persuasion.
The Court also rejected the Republic's argument that plaintiff had failed to show a nexus to the United States. The district court had not addressed this argument but the First Circuit found a sufficient nexus had been alleged. Contractual negotiations allegedly occurred in the United States. The contractual documents were sent to the U.S. The plaintiff is a Massachusetts corporation with its office in Massachusetts. The declaration of plaintiff's chairman says that more than 90 percent of plaintiffs work was performed in Massachusetts. As such, there were sufficient allegations that plaintiff's work was "carried on in the United States."
Moreover, there sufficient allegations that plaintiff's activity occurred outside the United States but caused a direct effect in the United States. If the Republic paid plaintiff for its work the funds would have been received in plaintiff's accounts in Massachusetts.
Accordingly, the First Circuit affirmed the district court's denial of the motion to dismiss.
Universal Trading & Investment Co., Inc. v. Bureau for Representing Ukrainian Interests in International and Foreign Courts, No. 12-2283, 2013 WL 4051880 (1st Cir. Aug. 12, 2013)
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