Unc Lear Services, Inc. v. Kingdom of Saudi Arabia
| Decision Date | 18 August 2009 |
| Docket Number | No. 08-50857.,No. 08-51103.,08-50857.,08-51103. |
| Citation | 581 F.3d 210 |
| Parties | UNC LEAR SERVICES, INC., and Lear Siegler Services, Inc., Plaintiffs-Appellees, v. KINGDOM OF SAUDI ARABIA, and Ministry of Defense and Aviation of the Kingdom of Saudi Arabia, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Charles W. Schwartz (argued), Wallis M. Hampton, Noelle M. Reed, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Houston, TX, for Plaintiffs-Appellees.
David B. Bergman (argued), Arnold & Porter, Washington, DC, for Defendants-Appellants.
Appeals from the United States District Court for the Western District of Texas.
Before DAVIS, OWEN and HAYNES, Circuit Judges.
The dispute before us is between the Kingdom of Saudi Arabia and the Ministry of Defense and Aviation of the Kingdom of Saudi Arabia (Defendants-Appellants, collectively the "Kingdom") and UNC Lear Services, Inc., a domestic corporation, and its subsidiary, Lear Siegler Services, Inc. (Plaintiffs-Appellees, collectively "Lear"). The Kingdom appeals the following rulings by the district court: (1) denial of the Kingdom's motion to dismiss based on its claim of immunity under the Foreign Sovereign Immunities Act, (2) denial of the Kingdom's motion to dismiss based on its argument that the contracts between the parties contain a mandatory forum-selection clause naming Saudi Arabia as the only available forum, and (3) denial of the Kingdom's motion to dismiss for forum non conveniens. For the following reasons, we reverse the district court's order denying the Kingdom's motion to dismiss based on sovereign immunity with regard to claims brought by Lear under one of the contracts (the TSP), and we affirm all other orders appealed from.
The Kingdom maintains a fleet of F-5 aircraft as part of its air defense systems. It purchased these aircraft from the United States under the Peace Hawk Foreign Military Sales Program. Initially, the United States contracted directly with the Kingdom to provide support and maintenance for the fleet. The United States then contracted with third-party service providers such as Lear to fulfill the terms of those support agreements. In the mid-1990s, the Kingdom began entering into agreements directly with the third-party service providers to obtain maintenance and support for the fleet of aircraft.
In 1995, Lear and the Kingdom entered into the F-5 Spare Parts and Ground Equipment contract ("SPAGE"). Under this contract, F-5 parts and components that needed repair were shipped from Saudi Arabia to Lear in San Antonio. Lear inspected the parts to determine what repairs were necessary, and communicated the expected cost to the Kingdom. If the Kingdom approved the repairs at that cost, Lear solicited bids for the repairs, and once the repairs were complete returned the parts to Saudi Arabia. To pay for the repairs, the Kingdom funded an irrevocable letter of credit ("LOC"). The SPAGE contract required Lear to provide monthly updates to the Kingdom of the current amount available through the LOC. If the amount was below the amount necessary to cover expected shipments of parts, Lear was to promptly notify the Kingdom, at which time the Kingdom, at its discretion, could replenish the LOC. Lear in turn was required to provide a performance bond to the Kingdom, also in the form of an LOC, equal to 5% of the contract value, or $1.2 million.
In 1996, the Kingdom awarded Lear a service contract, the F-5 Technical Support Program contract ("TSP"). Under the TSP, Lear sent hundreds of personnel to Saudi Arabia to provide training and support services to the Royal Saudi Air Force ("RSAF"). These employees were integrated with RSAF personnel, and provided training and support in post-ejection survival, photo reconnaissance, flight operations, tactics and weapons to the RSAF. They worked directly for and under the control of the RSAF. Lear employees were responsible for developing and coordinating emergency action procedures for the pilots of the F-5 aircraft. Others provided training to the RSAF in fighter weapons and tactics. As with the SPAGE contract, Lear was required to put up a performance guarantee bond for $5.6 million which represented 5% of the total cost of the contract. The Kingdom had the right to retain the bond until the contract was completed, and had the right to withhold the last payment due under the contract (to be no less than 10% of the total contract cost) until the contract was closed out. The final payment amount under the TSP was approximately $12.2 million, and Lear alleges the Kingdom has unjustifiably refused to pay this amount.1
Lear also alleges that in 1998, the Kingdom's LOC funding the SPAGE contract was depleted due to the Kingdom's failure to fund the LOC, and Lear had no mechanism to obtain payment for its services. After 1998, Lear alleges it worked with the Kingdom to prioritize repairs that needed to be made and that the Kingdom provided additional funds for these repairs. Lear also cancelled some outstanding repairs and continued to store other parts. Lear accepted at least one additional shipment of parts after the LOC was depleted. The Kingdom maintains that Lear should have rejected all shipments after the LOC funds were insufficient to cover repairs.
When the SPAGE contract expired in 1999, Lear had a number of F-5 parts in storage in its San Antonio facility and continues to store these. Lear has received no payment for the storage costs. The Kingdom argues that Lear retained these parts as a gesture of goodwill, that Lear had no obligation to store the parts, and that the Kingdom has no obligation to pay for the storage. The Kingdom states that it instructed Lear to return the parts and Lear refused. Lear argues that the United States Air Force instructed the Kingdom that the parts could not be returned until the contract was properly terminated. Lear communicated this in a letter to the Kingdom in 2002.
In 2003 and 2004, Lear met with the Kingdom in an attempt to resolve their contractual disputes and close out both contracts. In particular, Lear complained of the following:
• The Kingdom improperly withheld the final payment due under the TSP contract, approximately $12.2 million, due to the alleged failure by Lear to pay taxes. Lear claims the Kingdom's argument that back taxes have not been paid is the result of the Kingdom's misrepresentation of Lear's income under the TSP contract to the taxing authority.
• The Kingdom improperly extended and eventually drew down Lear's $5.6 million performance bond under the TSP contract.
• The Kingdom's order that Lear rent an expensive housing complex shifted inordinate and unjustified expense to Lear. Lear was forced to comply or risk losing the TSP contract.
• Under the SPAGE contract, Lear has incurred significant uncompensated storage costs for storing the F-5 parts in its San Antonio warehouse.
The meetings between Lear and the Kingdom did not resolve any of these issues.
In 2004, Lear filed this suit against the Kingdom in the Western District of Texas. Lear made claims under both the TSP and SPAGE contracts, alleging that the Kingdom breached both contracts in the manner stated above. The Kingdom moved to dismiss the suit on grounds that the contracts contained forum-selection clauses that required any litigation to take place in Saudi Arabia. The district court denied the motion, and determined that these clauses were permissive rather than mandatory forum-selection clauses. The Kingdom then moved to dismiss on the grounds of (1) sovereign immunity under the Foreign Sovereign Immunities Act ("FSIA"), (2) for forum non conveniens, and (3) the act of state doctrine. The district court allowed jurisdictional discovery on the FSIA and forum non conveniens issues. After conducting a hearing and reviewing the evidence presented, the district court found that the Kingdom's actions under both contracts fell within the commercial activities exception of the FSIA, therefore subjecting the Kingdom to the jurisdiction of the district court. The district court also denied the motion to dismiss on grounds of forum non conveniens. It found that Saudi Arabia was an available and adequate forum, but determined that the public and private factors weighed in favor of Texas.
At the Kingdom's request, the district court certified for appeal to this court under 28 U.S.C. § 1292(b) the orders denying the Kingdom's motions based on the forum-selection clauses and for forum non conveniens. The Kingdom also appeals the district court's order denying its motion to dismiss based on its claims of sovereign immunity under the FSIA. The denial of immunity under the FSIA is immediately appealable to this court and that issue is before us as well. The Kingdom also argues that the act of state doctrine bars American courts from considering the actions of the Saudi taxing authority and the Kingdom's actions related to the Al Bilad housing complex.
We consider below 1) whether the FSIA permits us to exercise jurisdiction over the Kingdom; 2) whether the forum-selection clauses in the contracts require us to yield to the Saudi forum; and 3) whether the district court abused its discretion in denying the Kingdom's motion to dismiss for forum non conveniens. For the reasons stated, we do not consider the Kingdom's act of state defense.
The issue of jurisdiction under the FSIA "is a question of law which this Court reviews de novo." Stena Rederi AB v. Comision de Contratos del Comite Ejecutivo General del Sindicato Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C., 923 F.2d 380, 386 (5th Cir.1991). Lear argues that the district court's decision to treat the TSP and SPAGE contracts as related is a finding of fact and as such must be reviewed for clear error, however, "[c]ontract interpretation is a question of law which we...
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