Gulf Resources America v. Republic of Congo

• Decision Date: 29 July 2003
• Docket Number: No. CIV.A. 98-2978(TPJ).,CIV.A. 98-2978(TPJ).
• Citation: 276 F.Supp.2d 20
• Parties: GULF RESOURCES AMERICA et al., Plaintiffs, v. REPUBLIC OF CONGO, Defendant.
• Court: U.S. District Court — District of Columbia

276 F.Supp.2d 20

GULF RESOURCES AMERICA et al., Plaintiffs, v. REPUBLIC OF CONGO, Defendant.

No. CIV.A. 98-2978(TPJ).

United States District Court, District of Columbia.

July 29, 2003.

Stuart Henry Newberger, Crowell & Moring, L.L.P., Washington, DC, for plaintiffs.

Michael Robert Lazerwitz, Cleary, Gottlieb, Steen & Hamilton, Washington, DC, for defendant.

MEMORANDUM & ORDER

JACKSON, District Judge.

Plaintiff Gulf Resources Corp. ("Gulf") is a Panamanian corporation with its principal place of business in Beirut, Lebanon. Gulf is engaged in the international petroleum industry. Plaintiff Gulf Resources America ("Gulf America"), a wholly owned subsidiary of Gulf, is a Delaware corporation with principal places of business in Washington, D.C. and Los Angeles.

Defendant Republic of the Congo ("Congo") is a sovereign African nation. One of its principal natural resources is petroleum, and from time to time it enters into commercial transactions with private corporate entities for the production, distribution, and sale of its indigenous oil.¹

This action arises out of a complex series of related bilateral agreements entered into by several parties, including Gulf and Congo, between April, 1993, and March, 1996, for the sale or exchange of Congo's "royalty oil."² Gulf alleges that Congo stopped delivery of royalty oil (or the cash proceeds from its sale) destined for Gulf, causing Gulf to sustain significant business losses. Specifically, as a result of Congo's illegal conduct, Gulf alleges that in addition to its expected earnings from its commerce in Congo royalty oil, a potentially profitable merger transaction with an American oil company fell through. The complaint states claims for breach of contract, conversion, tortious interference with contract, tortious interference with business relationships, and in quantum meruit, seeking damages of $100 million from Congo. It also asks for an accounting of all of Congo's assets relating to the transactions at issue and injunctive relief requiring Congo to cease its unlawful embargo on Gulf's share of its royalty oil.³

Plaintiff Gulf asserts that this Court has jurisdiction of the case pursuant to the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-1611 ("FSIA").⁴ Congo has moved to dismiss the complaint on jurisdictional grounds pursuant to Fed. R.Civ.P. 12(b)(1) and (2) citing its sovereign immunity. Gulf opposes the motion, contending that Congo is not entitled to immunity as a foreign sovereign state because Congo was engaged in commercial activity having direct effects in the United States. See 28 U.S.C. § 1605(a)(2). Gulf also argues Congo has waived any immunity to suit in the United States.⁵ 28 U.S.C. § 1605(a)(1).

I.

In somewhat simplified summary the complaint appears to allege as follows: in April, 1993, Occidental Congo, Inc. ("Occidental"), a U.S. corporation, entered into a purchase agreement ("Purchase Agreement") with Congo by which Congo sold 50 million barrels of royalty oil to Occidental for $150 million in cash and Occidental's promise of assistance for Congo's "structural adjustment program." The oil was to come from royalty oil produced from certain oil fields operated by Agip and Elf.⁶ The agreement specifically declared it to be a commercial transaction governed by French law; that disputes would be submitted to arbitration in Paris under the rules of the International Chamber of Commerce; and that Congo would not use its foreign nation status as a defense to claims made by Occidental.

Congo and Occidental then amended their agreement in February, 1994 (the "Amendment") because Congo was in default on its obligations under the Purchase Agreement. In one article of the Amendment, the parties recited that in the interim Occidental and Gulf had agreed that Gulf would assume Occidental's undertaking with respect to Congo's structural adjustment program and authorized Occidental to assign to Gulf a right to a share of Occidental's royalty oil. Gulf was not a party to the Amendment. Four days later Occidental and Congo executed a "protocol" (the "Occidental Protocol") to clarify the distribution of royalty oil pursuant to the Amendment: They agreed that the Amendment would not operate to diminish the share of royalty oil Occidental had purchased. Occidental remained entitled to receive 50 million barrels per the Purchase Agreement, and in lieu of an assignment of a portion of Occidental's share Congo committed itself to sell Gulf a quantity of royalty oil over and above Occidental's entitlement.

On May 2, 1994, Congo and Gulf agreed in a separate document (the "Gulf-Congo Protocol") that Gulf would pay Congo $30 million in cash in exchange for 10 million barrels of royalty oil to which it claims it had acquired rights pursuant to the Amendment. (When Congo later realized that it could not deliver that quantity, Gulf and Congo agreed that Gulf would receive 5 million barrels of royalty oil in exchange for $15 million it had already paid to Congo on account.)

Rather than accept physical delivery of the Congo royalty oil, however, Occidental and Gulf agreed to sell the oil to Agip. In August, 1994, Occidental entered into an agreement with Agip, allegedly on both its and Gulf's behalf (the "Agip Sales Agreement"), by which Agip agreed to purchase 100% of all Congo royalty oil produced. Agip made payments for both Occidental's and Gulf's shares of the royalty oil to Occidental, depositing the money in Occidental's New York bank account from which Occidental then paid Gulf its share of the cash receipts.

In the meantime Gulf had begun merger discussions with a U.S. corporation, Clark USA, Inc. ("Clark"), a transaction valued by Gulf at approximately $26 million, consideration for which was to be linked to Gulf's purchases of Congo royalty oil. Gulf and Clark had negotiated an agreement under which a Gulf subsidiary would merge into Clark, and Gulf would receive a stock share interest in Clark in exchange for the proceeds from the sale of Gulf's Congo royalty oil. In December, 1995, Occidental and Gulf entered into a Disbursement Agreement by which Gulf directed Occidental to remit its share of the royalty oil payments by Agip directly to Clark, and Clark began receiving Gulf's share of the oil proceeds in January, 1996.

In summary, in separate agreements Congo had sold royalty oil to Occidental and Gulf. Occidental, on behalf of itself and Gulf, then sold all of the royalty oil to Agip, and Agip paid Occidental. Occidental then paid Gulf (later Clark) for Gulf's share of the proceeds. As a practical matter, no oil changed hands. Agip collected all of the royalty oil it extracted, paid Occidental for it, and Occidental then paid Gulf its portion.

For a short while the arrangement worked smoothly when yet another bilateral agreement between Congo and Occidental — an Accord and Satisfaction Agreement dated March 1, 1996 — took effect. Under the Accord and Satisfaction, Congo bought back the oil it still owed Occidental pursuant to the Occidental Purchase Agreement. One article of this Accord and Satisfaction expressly stated that it was to have no impact on any non-party, so Gulf contends that Gulf/ Clark's interest in payment for its share of the royalty oil remained unimpaired. However, in July, 1996, Agip stopped making any payments to Occidental, apparently in accordance with instructions from Congo to suspend all disbursements of royalty oil to Occidental. Occidental in turn, made no payments to Gulf/ Clark. Clark then demanded that Gulf dismantle their merger.

II.

In moving to dismiss the complaint under Fed.R.Civ.P. 12(b)(1) and (2) Congo first argues that this Court has no subject matter jurisdiction over this case because Congo is immune from the jurisdiction of U.S. courts under the Foreign Sovereign Immunities Act. Under the FSIA, a foreign state is immune from suit in United States courts subject to certain exceptions. 28 U.S.C. § 1604. Gulf asserts jurisdiction based on the "commercial activity" exception. See 28 U.S.C. § 1605(a)(2). It also contends Congo has, expressly or by implication, waived its right to claim immunity. See 28 U.S.C. § 1605(a)(1).

Congo argues that the commercial activity exception does not apply because it was not required by any of its undertakings to perform any obligation or refrain from any action which had the requisite "direct effect" in this country, and that none of the agreements cited by the plaintiff explicitly or implicitly operate to effect a waiver of its statutory sovereign immunity to suit in U.S. courts. Finally, Congo argues that even if this Court has subject matter jurisdiction, it lacks personal jurisdiction because Gulf's complaint does not allege (nor does Gulf otherwise show) the "minimum contacts" by Congo with the United States required for an exercise of in personam jurisdiction over Congo by an American court, an argument which is now moot.⁷

III. The Commercial Activity Exception

Under the FSIA foreign nations relinquish their sovereign immunity to suit in U.S. courts when they engage in actionable conduct in the course of certain commercial (as distinguished from governmental) activity having some connection with the United States. The "commercial activity" exception, is set forth in 28 U.S.C. § 1605(a)(2):

A foreign state shall not be immune from the jurisdiction of the United States or of the States 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.

Congo concedes that its sale of its royalty oil was "commercial activity" but observes that its allegedly wrongful conduct...