Theo. H. Davies & Co., Ltd. v. Republic of Marshall Islands

• Decision Date: 23 April 1999
• Docket Number: No. 96-16876,96-16876
• Citation: 174 F.3d 969
• Parties: 99 Cal. Daily Op. Serv. 2941 THEO. H. DAVIES & CO., LTD., dba Pacific Machinery, Plaintiff-Appellant, v. REPUBLIC OF THE MARSHALL ISLANDS; Kwajalein Atoll Development Authority; Kwajalein Atoll Joint Utilities Resources, Defendants-Appellees, and International Bridge Construction, Inc., Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 969

174 F.3d 969

99 Cal. Daily Op. Serv. 2941

THEO. H. DAVIES & CO., LTD., dba Pacific Machinery, Plaintiff-Appellant, v. REPUBLIC OF THE MARSHALL ISLANDS; Kwajalein Atoll

Development Authority; Kwajalein Atoll Joint

Utilities Resources, Defendants-Appellees,

and

International Bridge Construction, Inc., Defendant.

No. 96-16876.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 16, 1998.

Decided Nov. 17, 1998.

Amended April 23, 1999.

Wesley H. Sakai, Jr., Bendet, Fidell, Sakai & Lee, Honolulu, Hawaii, for the plaintiff-appellant.

James McCaffrey, San Ysidro, California, and John T. Hoshibata, Crabtree & Hoshibata, Honolulu, Hawaii, for the defendants-appellees.

Thomas C. Sterling, Klemm, Blair, Sterling & Johnson, Agana, Guam, for the defendant.

Appeal from the United States District Court for the District of Hawaii Alan C. Kay, District Judge, Presiding. D.C. No. CV-95-01014-ACK/BMK.

Before: REINHARDT, NOONAN and THOMPSON, Circuit Judges.

ORDER

The opinion filed November 17, 1998 and published at 161 F.3d 550 (9th Cir.1998) is amended as follows:

1. At page 553, right-hand column, just after the cite to 28 U.S.C. 1603(d), the paragraph which begins with the language "PacMac's claim in this case" is amended to read:

PacMac's claim in this case is based on the commercial conduct of KADA and KAJUR in the United States. In response to the improper functioning of the generator purchased in 1990, PacMac and representatives of KADA, KAJUR and IBC met in Guam and Hawaii 2. At page 553, right-hand column, the paragraph which immediately follows the above paragraph and begins with the language "Because KADA and KAJUR carried on" is amended to read:

and entered an agreement that required PacMac to overhaul the generator and guarantee its proper functioning. This commercial transaction, even though a single transaction, is sufficient to constitute a commercial activity within the meaning of 28 U.S.C. § 1603(d). See Adler v. Federal Republic of Nigeria, 107 F.3d 720, 724-725 (9th Cir.1997) (holding that Nigeria engaged in commercial activity within meaning of section 1603(d) by entering into a single agreement).

Because KADA and KAJUR carried on a commercial activity in the United States within the meaning of section 1603(d) and the first clause of section 1605(a)(2), they are not entitled to sovereign immunity. The district court, therefore, had subject matter jurisdiction under 28 U.S.C. § 1330(a). We next consider the question of personal jurisdiction.

3. At page 554, right-hand column, in the first full paragraph which begins with the language "For many years, KADA and KAJUR", the third sentence beginning with the words "In that year, IBC bought" is amended to read:

"In that year, IBC bought a generator from PacMac in Hawaii for eventual use by KADA and KAJUR at the Ebeye Power Plant."

With the foregoing amendments, the panel has voted unanimously to deny the petition for rehearing. Judge Reinhardt voted to deny the petition for rehearing en banc, and Judges Noonan and Thompson recommended denial of the petition for rehearing en banc.

The petition for en banc rehearing has been circulated to the full court, and no judge of the court has requested a vote on the petition for rehearing en banc. Fed. R.App. P. 35(b).

The petition for rehearing and the petition for rehearing en banc are denied.

OPINION

DAVID R. THOMPSON, Circuit Judge:

This case presents the question whether instrumentalities of a foreign state conducted commercial activity within the United States which deprived them of immunity from suit under the Foreign Sovereign Immunities Act ("FSIA").

Theo. H. Davies & Co., Ltd., doing business as Pacific Machinery ("PacMac"), filed suit in Hawaii state court against the Republic of the Marshall Islands ("RMI"), Kwajalein Atoll Development Authority ("KADA"), Kwajalein Atoll Joint Utilities Resources ("KAJUR") and International Bridge & Construction, Inc. ("IBC") seeking damages for breach of an agreement relating to the overhaul of a Caterpillar generator. After removal to the United States District Court for the District of Hawaii, the district court granted the motion of defendants KADA and KAJUR to dismiss the action as to them for lack of personal jurisdiction, and denied PacMac's subsequent motion for reconsideration. PacMac appeals.

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse. We conclude that because KADA and KAJUR carried on commercial activity in the United States pertaining to PacMac's breach of contract claim, they are denied sovereign immunity by 28 U.S.C. § 1605(a)(2), that subject-matter jurisdiction exists pursuant to 28 U.S.C. § 1330(a), personal jurisdiction is proper under 28 U.S.C. § 1330(b), and the exercise of personal jurisdiction complies with the due process clause of the Constitution.

I FACTS

PacMac is a Hawaii corporation which does business in Honolulu, Hawaii and throughout the Pacific. The Republic of the Marshall Islands ("RMI") is a sovereign nation, KADA is an RMI statutory corporation and KAJUR is an ordinary for-profit corporation. KAJUR is 100% owned by KADA, and was formed by KADA to be the owner and operator of the Ebeye Island, Kwajalein Atoll, electrical generation and water desalinization plant. KADA and KAJUR do not contest being characterized as agencies, instrumentalities, and/or political subdivisions of RMI. IBC is an Ohio corporation based in Guam; it operated the Ebeye plant under contract with KADA.

In 1990, KADA, through its agent IBC, bought a Caterpillar 3612 diesel-powered electric generator from PacMac for use in the power plant and desalinization facility in Ebeye, RMI. After the generator was installed, a dispute arose. KADA claimed the generator was defective; it did not function properly from the outset, constantly broke down, and required extensive repairs. PacMac countered that the problems were a result of faulty installation, operation and maintenance by IBC. On May 22, 1993, representatives of KADA, KAJUR, IBC and PacMac met in Guam to discuss the problems with the generator. Technical experts from IBC and PacMac disagreed about the cause of the problems but agreed that an overhaul was necessary.

At the Guam meeting, it was agreed that PacMac would be paid to overhaul the generator, and in return, PacMac would ensure that the generator would function properly. KADA then paid an initial 25% down payment toward the cost of the overhaul. On October 13, 1993 and April 19, 1994, further meetings with respect to the overhaul were held in Honolulu, Hawaii between representatives of PacMac, KADA and KAJUR.

PacMac overhauled the generator. KADA paid two installment payments for the overhaul work, but then refused to pay the balance of $149,680.43. KADA, KAJUR and IBC contended PacMac hadn't fixed the generator so that it would run to its full capacity and work properly with the desalinization unit.

When PacMac didn't get paid the balance it claimed was due, it sued the defendants in Hawaii state court. RMI removed the action to the United States District Court for the District of Hawaii, and KADA and KAJUR then moved to dismiss the complaint on the grounds of lack of personal jurisdiction, forum non conveniens, insufficiency of service of process, and failure to join an indispensable party under Federal Rule of Civil Procedure 19. RMI did not join in the motion but filed a statement of non-opposition. The district court granted the motion to dismiss. It determined it lacked personal jurisdiction over KADA and KAJUR, and did not reach the other grounds of the motion.

IBC was dismissed from the suit in the state court proceeding. With the district court's dismissal of the action as to KADA and KAJUR, the sole remaining defendant in the district court action was RMI. The district court entered a final judgment as to KADA and KAJUR pursuant to Federal Rule of Civil Procedure 54(b), and this appeal followed.

II DISCUSSION

KADA and KAJUR contend that, under the FSIA, they are entitled to immunity. If they are, the district court lacked jurisdiction, and it correctly dismissed the action as to them. The fundamental issue, therefore, might simply be stated: Did the district court have jurisdiction over KADA and KAJUR?

To state the jurisdiction issue this simply, however, fails to provide sufficient focus for the analysis. "Jurisdiction" consists of subject-matter jurisdiction and personal jurisdiction. Moreover, even if the district court had jurisdiction, its exercise of that jurisdiction must comport with the requirements of the Constitution.

Consistent with these particularized considerations, the Second Circuit provided a framework for addressing the jurisdictional inquiry in Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981). There, Judge Kaufman, writing for the majority, stated that in a commercial case involving a claim of foreign sovereign immunity, the court should consider five questions:

1. Does the conduct the action is based upon or related to qualify as a "commercial activity"?

2. Does that commercial activity bear the relation to the cause of action and to the United States described by one of the three phrases of [28 U.S.C.] § 1605(a)(2), warranting the Court's exercise of subject matter jurisdiction under § 1330(a)?

3. Does the exercise of this congressional subject matter jurisdiction lie within the permissible limits of the "judicial power" set forth in Article III?

4. Do subject matter jurisdiction under § 1330(a) and service under § 1608 exist, thereby making personal jurisdiction proper under § 1330(b)?

5. Does the exercise of personal jurisdiction under § 1330(b) comply with the due process clause, thus making personal jurisdiction proper?

Id. at 308.

We are persuaded that the Second Circuit's analytic framework is the appropriate framework within which to consider the jurisdictional issues in this case. The first step is...