877 F.2d 793 (9th Cir. 1989), 88-1657, America West Airlines, Inc. v. GPA Group, Ltd.

Docket Nº:88-1657.
Citation:877 F.2d 793
Party Name:AMERICA WEST AIRLINES, INC.; Protection Mutual Insurance Company, Plaintiffs-Appellants, v. GPA GROUP, LTD.; Aer Linte Eireann Teoranta; Aircraft Technical Services, Inc., Defendants, and GPA Corporation; Airmotive Ireland, Ltd.; United Technologies Corporation; Pratt & Whitney, Defendants-Appellees.
Case Date:June 12, 1989
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 793

877 F.2d 793 (9th Cir. 1989)

AMERICA WEST AIRLINES, INC.; Protection Mutual Insurance

Company, Plaintiffs-Appellants,

v.

GPA GROUP, LTD.; Aer Linte Eireann Teoranta; Aircraft

Technical Services, Inc., Defendants,

and

GPA Corporation; Airmotive Ireland, Ltd.; United

Technologies Corporation; Pratt & Whitney,

Defendants-Appellees.

No. 88-1657.

United States Court of Appeals, Ninth Circuit

June 12, 1989

Argued and Submitted Dec. 16, 1988.

Page 794

Arthur S. Beeman, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., for plaintiffs-appellants.

Eileen J. Moore, Snell & Wilmer, Joseph A. Schenk, Beus, Gilbert, Wake & Morrill, and James Ackerman, Jennings, Strouss & Salmon, Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before FLETCHER and BEEZER, Circuit Judges, and KING, [*] District Judge.

FLETCHER, Circuit Judge:

America West Airlines appeals the district court's judgment dismissing its suit to

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recover damages allegedly occurring as a result of faulty engine maintenance by one of the defendants. We affirm.

I. FACTS

This lawsuit arises as a result of damages sustained by America West Airlines ("AWA") when one of its aircraft engines stalled and caught fire shortly after takeoff from Omaha, Nebraska. Although the aircraft landed safely, the engine was destroyed. AWA alleges that it suffered damages in excess of $500,000 due to the loss of the engine. Many of the relevant jurisdictional facts, including the identities of the parties, are disputed.

This litigation has its genesis in a July 18, 1984 aircraft purchase agreement between AWA and GPA Leasing (NA) N.V., a corporation organized and existing under the laws of the Netherlands Antilles. The agreement provided that AWA would purchase a Boeing 737-200 jet aircraft, and that the fitted engines on the aircraft would be replaced with two freshly overhauled JT8D-9A Pratt & Whitney engines. 1 The agreement provided that the law of Arizona would govern its interpretation. Prior to shipment to AWA, one of the engines was serviced, inspected, repaired and overhauled by Airmotive Ireland, Ltd. ("Airmotive"), a subsidiary of Aer Lingus, PLC. 2

The engine was installed on November 3, 1984 on another Boeing 737 aircraft owned by AWA. On November 24, 1984, the aircraft, which was bound for Phoenix from Omaha, Nebraska, experienced difficulty. The engine stalled and caught fire. Although the pilot landed the aircraft, the engine was destroyed. AWA asked GPA Corporation to replace the engine, and GPA refused, agreeing "to process a warranty claim against Airmotive." AWA never received a replacement engine.

On October 29, 1986, AWA filed a complaint in the United States District Court for the District of Arizona against Aerlinte, Airmotive, GPA Group, Ltd. and GPA Corporation, alleging negligence, breach of express and implied warranties, strict liability, fraud and negligent misrepresentation. One day later, AWA filed a similar action in Arizona state court.

On February 10, 1987, Airmotive and Aerlinte filed a motion to dismiss for lack of personal and subject matter jurisdiction, insufficient service of process, and failure to state a claim. On February 23, 1987, AWA filed an amended complaint, adding Protection Mutual Insurance Company as a plaintiff and United Technologies Corporation and Pratt & Whitney as defendants. Aerlinte and Airmotive moved to dismiss the amended complaint on March 4, 1987.

On May 8, 1987, AWA submitted a motion for leave to file a second amended complaint in which it attempted to add an allegation of breach of contract against Aer Lingus. One week later, appellee GPA Corporation filed a motion to dismiss the amended complaint for lack of personal jurisdiction and failure to state a claim. On June 17, 1987, United Technologies and Pratt & Whitney filed a motion to dismiss the amended complaint for lack of personal and subject matter jurisdiction and failure to state a claim.

Oral argument on all outstanding motions was heard on July 27, 1987. On January 11, 1988, the district court issued an order granting all of the motions to

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dismiss and denying AWA's motion for leave to amend. AWA timely appeals.

II. JURISDICTION UNDER THE FSIA

The district court concluded that it lacked subject matter jurisdiction over this action. The existence of subject matter jurisdiction is a question of law which we review de novo. Peter Starr Production Co. v. Twin Continental Films, Inc., 783 F.2d 1440, 1442 (9th Cir.1986). With respect to the claims against Aerlinte and Airmotive, the only basis for federal jurisdiction asserted by AWA is the jurisdiction-conferring provision of the Foreign Sovereign Immunities Act ("FSIA," or "the Act"), codified at 28 U.S.C. Sec. 1330(a). Section 1330(a) creates in the district courts

original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.

It is undisputed that Aerlinte and Aer Lingus, which are fully owned by the Republic of Ireland, fall within the definition of a "foreign state" under section 1603(a). Subject matter jurisdiction in this dispute therefore depends upon whether the defendants are entitled to sovereign immunity. The FSIA provides that a foreign state and its instrumentalities are immune from suit unless one of the specific exceptions enumerated in the Act applies. 28 U.S.C. Secs. 1604, 1605-07; Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 485 n. 5, 103 S.Ct. 1962, 1967 n. 5, 76 L.Ed.2d 81 (1983).

AWA asserts that one or more of the "commercial activities" exceptions outlined in section 1605(a)(2) operates to divest the defendants of sovereign immunity. That section provides:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case--

* * *

* * *

(2) 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. Sec. 1605(a)(2).

In this case there is no dispute that Airmotive's engine overhaul work is "commercial activity." The issue is whether there was a sufficient nexus with the United States to fall within section 1605(a)(2). AWA asserts that both the first clause (commercial activities carried on in the United States) and the third clause (commercial activities carried on outside the United States having a "direct effect" in the United States) apply in this case. These arguments are addressed in turn.

  1. Commercial Activities "in the United States"

    AWA first asserts that this action falls within the first clause of section 1605(a)(2), being based upon commercial activity carried on in the United States by the Republic of Ireland through its wholly-owned commercial subsidiaries. The fact that the Republic of Ireland carries on commercial activities in the United States is, in itself, insufficient to create jurisdiction under the first clause of section 1605(a)(2). There must be a nexus between the defendant's commercial activity in the United States and the plaintiff's grievance. See Compania Mexicana de Aviacion, S.A. v. United States Dist. Court, 859 F.2d 1354, 1360 (9th Cir.1988); see also Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation, 730 F.2d 195, 199-204 (5th Cir.1984); Sugarman v. Aeromexico, Inc., 626 F.2d 270, 272-73 (3d Cir.1980). The commercial activity relied upon by AWA to establish jurisdiction must be the activity upon which the lawsuit is based. See Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445,

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    452 (6th Cir.1988). The focus must be solely upon "those specific acts that form the basis of the suit." Joseph v. Office of the Consulate General, 830 F.2d 1018, 1023 (9th Cir.1987),cert. denied, --- U.S. ----, 108 S.Ct. 1077, 99 L.Ed.2d 236 (1988) (emphasis in original).

    There is no nexus between AWA's cause of action and any commercial activities carried on by the Republic of Ireland in the United States. The only commercial activities alleged by AWA to be carried on in the United States by the Republic of Ireland involve Aerlinte's operation of a commercial airline which carries passengers between the United States and Ireland. However, AWA's claim does not in any way relate to Aerlinte's commercial operations. 3 The "specific acts that form the basis of the suit," Joseph, 830 F.2d at 1023, are the engine maintenance activities of Airmotive, which took place solely in Ireland. Thus, the first clause of section 1605(a)(2) does not divest these defendants of sovereign immunity.

  2. Commercial Activities Causing a "Direct Effect" in the United States

    AWA also argues that the third clause of section 1605(a)(2), which excepts from the rule of immunity commercial activities carried on abroad causing a "direct effect" in the United States, divests Aerlinte and Aer Lingus of sovereign immunity. AWA argues that the financial losses it incurred as a result of Airmotive's allegedly faulty maintenance constitute a "direct effect" for purposes of section 1605(a)(2).

    AWA relies principally upon the Second Circuit's decision in Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982), which AWA asserts has been approved by this Circuit...

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