142 F.3d 887 (5th Cir. 1998), 97-20322, Voest-Alpine Trading USA Corp. v. Bank of China

Docket Nº:97-20322.
Citation:142 F.3d 887
Party Name:VOEST-ALPINE TRADING USA CORPORATION, Plaintiff-Appellee, v. BANK OF CHINA; Bank of China New York Branch, Defendants, Bank of China, Defendant-Appellant.
Case Date:June 12, 1998
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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142 F.3d 887 (5th Cir. 1998)



BANK OF CHINA; Bank of China New York Branch, Defendants,

Bank of China, Defendant-Appellant.

No. 97-20322.

United States Court of Appeals, Fifth Circuit

June 12, 1998

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[Copyrighted Material Omitted]

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J. Cary Gray, Edwin Armistead Easterby, Looper, Reed, Mark & McGraw, Houston, TX, for Plaintiff-Appellee.

Marsha Zimmerman Gerber, Butler & Binion, Houston, TX, Mary C. Mone, Christopher Brady, Hollyer, Brady, Smith, Jroxell, Barrett, Rockett & Hines, New York City, for Defendant-Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and REAVLEY and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The issue in this appeal is whether, having engaged in a commercial transaction with an American corporation, a foreign state's failure to remit funds to the corporation's designated bank account in the United States is sufficient to support jurisdiction over the foreign

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state under the commercial activity exception to the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1605(a)(2). The district court held that it is. We agree. Because a financial loss was incurred in the United States by an American plaintiff as an immediate consequence of the foreign state's commercial activity abroad, the loss constituted a direct effect within the scope of the third clause of the commercial activity exception. We, therefore, affirm.



In June 1995, Voest-Alpine Trading USA Corporation ("Voest-Alpine"), a New York corporation with its principal place of business in Houston, Texas, agreed to sell 1,000 metric tons of styrene monomer to the Jiangyin Foreign Trade Corporation ("JFTC") for USD $1,000 per metric ton. The shipment was to be delivered to the Port of Zhangjiagang, China, by July 1995. As security for performance of JFTC's payment obligation, the Bank of China issued an irrevocable letter of credit.

The Bank of China is an instrumentality of the People's Republic of China. On July 6, 1995, the Bank of China's Jiangyin Sub-Branch issued the letter of credit in the amount of USD $1.2 million. The letter of credit referred to JFTC as the applicant and Voest-Alpine as the beneficiary. The letter provided that upon proper presentment of all documents and drafts to the Jiangyin Sub-Branch, the Bank of China would pay Voest-Alpine the appropriate amount. It did not designate a particular place of payment, though it did state that it was to be governed by the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, Publication No. 500 ("UCP 500"). Its expiry date was August 10, 1995, and the United States was the place of expiry.

The Jiangyin Sub-Branch sent the letter of credit via telex to the Bank of China's New York Branch, requesting that the New York Branch "advise" Voest-Alpine of the letter's issuance. It did so, and on July 22, 1995, Voest-Alpine delivered 997.731 metric tons of styrene monomer to the Port of Zhangjiagang, China. Shortly after its arrival, the shipment was unloaded into a customs warehouse, whereupon it was seized by Chinese customs. 1 Voest-Alpine then provided its bank, the Texas Commerce Bank ("TCB") in Houston, Texas, with the necessary documents for presentment to the Bank of China. On August 3, 1995, TCB forwarded the documents by courier to the Jiangyin Sub-Branch, which received them on August 9.

The documents were accompanied by a cover letter requesting that the Bank of China notify TCB immediately of any discrepancies or confirm that the documents had been accepted for payment. The cover letter also stated that payment was to be sent by wire to Voest-Alpine's TCB bank account in Houston. On August 11, the Bank of China telexed TCB, alleging that the documents contained several discrepancies and stating that it was contacting JFTC as to whether the discrepancies should be waived. The Bank of China did not, however, reject the documents at that time. TCB and Voest-Alpine vigorously maintained that the documents were conforming. Finally, on October 4, 1995, after several correspondences between TCB, Voest-Alpine, the Bank of China, and JFTC, the Bank of China telexed TCB that JFTC insisted on refusal of payment and that the documents would be returned.


On October 20, 1995, Voest-Alpine filed the instant action against the Bank of China in the United States District Court for the Southern District of Texas in Houston, seeking damages for breach of the letter of credit. 2 The Bank of China responded with a

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motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), asserting lack of jurisdiction and improper venue. It argued to the district court that, as a "foreign state" under the FSIA, 28 U.S.C. § 1603, it is immune from suit in any federal or state court in the United States unless one of the enumerated exceptions to the FSIA applies. Because none of the exceptions apply, the Bank of China contended, the action should be dismissed. Voest-Alpine countered that the "commercial activity" exception applied because its action was based upon commercial activity conducted by the Bank of China (or its agents) in the United States and upon commercial activity by the Bank of China outside the United States that caused a direct effect in the United States.

On June 30, 1997, the district court denied the Bank of China's motion, concluding that Voest-Alpine had alleged facts sufficient to demonstrate the applicability of the commercial activity exception. Based on the pleadings, the court determined that the lawsuit was based upon an act outside the United States, in connection with the Bank of China's commercial activity outside the United States, that caused a direct effect in the United States. Thus, the court held, the lawsuit fell within the scope of the third clause of the commercial activity exception and, as a result, judgment on the pleadings dismissing the case would be inappropriate. The Bank of China appeals. 3


The district court's conclusion as to whether the Bank of China enjoys sovereign immunity under the FSIA is a question of law for which the standard of review is de novo. See Stena Rederi AB v. Comision de Contratos, 923 F.2d 380, 386 (5th Cir.1991). As a procedural matter, the case comes to us on appeal of the district court's refusal to dismiss the action on a motion for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). Judgment on the pleadings is appropriate only if material facts are not in dispute and questions of law are all that remain. See Hebert Abstract Co. v. Touchstone Properties, Ltd., 914 F.2d 74, 76 (5th Cir.1990). Here, the parties have not yet conducted discovery and, therefore, we must assume the truth of factual allegations in the complaint. See Saudi Arabia v. Nelson, 507 U.S. 349, 351, 113 S.Ct. 1471, 1474, 123 L.Ed.2d 47 (1993); compare Baker v. Putnal, 75 F.3d 190, 197-98 (5th Cir.1996) (if the district court bases its ruling on facts developed outside the pleadings, we review the ruling as an order granting summary judgment). 4 With these standards in mind, we turn to the merits.



"The FSIA sets forth 'the sole and exclusive standards to be used' to resolve all sovereign immunity issues raised in federal and state courts." Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 532 (5th Cir.) (quoting H.R.Rep. No. 1487, 94th Cong., 2d Sess. 12 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6610), cert. denied, 506 U.S. 956, 113 S.Ct. 413, 121 L.Ed.2d 337 (1992). Under the FSIA, foreign states and their agencies or instrumentalities are generally immune from suit in the courts of the United States. Stena Rederi, 923 F.2d at 386 (citing 28 U.S.C. § 1604). There are, however, exceptions to the rule. Our case today turns on the "commercial activity" exception. This exception abrogates sovereign immunity in any case based upon a foreign

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state's commercial activity that has a jurisdictional nexus with the United States. See 28 U.S.C. § 1605(a)(2).

The commercial activity exception is broken down into three clauses, each identifying an act that is sufficiently connected to the United States to satisfy the jurisdictional nexus requirement. Specifically, the exception provides jurisdiction over a foreign state in any case:

in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or 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). All three clauses require that the cause of action be "based upon" a certain act or activity of the foreign state, that is, the act or activity must form the basis of at least some element of the cause of action. See Nelson, 507 U.S. at 357, 113 S.Ct. at 1477. All three clauses further require some "commercial" aspect to the foreign state's actions. Because the FSIA provides that the commercial character of an act is to be determined by reference to its "nature" rather than its "purpose," see 28 U.S.C. § 1603(d), the question is not whether the foreign state is acting with a...

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