Human v. Czech Republic—ministry of Health, 14-7142

• Decision Date: 31 May 2016
• Docket Number: No. 14-7142,14-7142
• Parties: Diag Human, S.E., Appellant v. Czech Republic—Ministry of Health, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

824 F.3d 131

Diag Human, S.E., Appellant

v.Czech Republic—Ministry of Health, Appellee.

No. 14-7142

United States Court of Appeals, District of Columbia Circuit.

Argued December 15, 2015

Decided May 31, 2016

Rehearing En Banc Denied August 8, 2016.

Hyman L. Schaffer argued the cause for petitioner and filed the briefs for appellant.

Alana E. Fortna, argued the cause for respondents. With her on the brief was Leonard Fornella. Dean A. Calland entered an appearance.

Before: Tatel^* and Brown, Circuit Judges, and Sentelle, Senior Circuit Judge.

Dissenting opinion filed by Senior Circuit Judge Sentelle.

Brown, Circuit Judge:

A medical technologies company, embroiled in a dispute with the Czech Republic Ministry of Health, appeals the district court's decision to dismiss, sua sponte , its claim for enforcement of a foreign arbitral award for lack of subject matter jurisdiction. We reverse.

I

Soviet rule, as the playwright and dissident Václav Havel said, left “a legacy of countless dead, an infinite spectrum of human suffering, profound economic decline, and above all enormous human humiliation.” President Václav Havel, Address Before a Joint Session of the U.S. Congress (Feb. 21, 1990). Eastern Europe's transition from Communist rule to democracy has not been easy. Centralized political systems were slow to respond to new or emerging needs, including in health care. For example, after the fall of its communist government, Czechoslovakia¹ faced a state-run health care system on the verge of collapse, stagnated health status indicators, and critical shortages of blood plasma. See Eur. Observatory on Health Care Systems, Health Care Systems in Transition: Czech Republic (2000), available at http://www.euro.who.int/__data/assets/pdf_file/0019/75151/E70931.pdf.

The government had little in the way of hard currency reserves, next to no access to credit, and numerous demands on its limited resources. See , e.g. , Anders Åslund, Building Capitalism : The Transformation of the Former Soviet Bloc (2002). The government was in no position to fund the nationwide infrastructure required to provide the country with adequate supplies of blood plasma. The Czech Ministry of Health needed to provide for blood plasma requirements without expending large amounts of money up front. Diag Human offered a creative solution.²

Thus in 1990, the Ministry of Health entered into an agreement with Diag Human, a blood plasma technologies and production company. Under the “Framework Agreement” crafted by the parties, the Ministry contracted to purchase the necessary technical equipment and to provide training for medical personnel to ensure fractionated blood products would be safely transported and made available to transfusion wards throughout the Czech Republic. In lieu of monetary compensation for its performance under the Framework Agreement, Diag Human agreed to accept a share of the total volume of fractionated plasma produced. This alternative funding arrangement made it possible for the Ministry to provide the necessary infrastructure despite the country's depleted coffers.

By all accounts, Diag Human performed competently under the Framework Agreement. The company quickly established cooperation agreements with twenty state-owned hospitals and outfitted fourteen transfusion stations with equipment for plasma collection. The plasma was delivered to Novo Nordisk, a company that fractionated the plasma outside the Czech Republic, and imported it back into the country. As agreed, Diag Human offset the cost of these modernization efforts and sustained a profitable business model by retaining a portion of the fractionated plasma.

Nevertheless, when the arrangement was only a few months old, the Ministry opened a bid tender seeking cooperation for the production of fractionated blood plasma—essentially looking to replace the Framework Agreement. Diag Human and two other companies submitted bids. But shortly after receiving those bids, the Ministry suspended the tender entirely—allegedly based on information received from the Czech Federal Police accusing Diag Human of illegally exporting drugs from the country. Although Diag Human won the bidding process and was ultimately cleared of any wrongdoing by the criminal investigation, the Ministry did not award the new tender to Diag Human. In the meantime, Diag Human continued to perform under the existing Framework Agreement.

In 1991, the Ministry opened a second tender to supersede the first tender, again seeking cooperation for the production of fractionated blood plasma. Diag Human again submitted a bid. But the Ministry rejected the company's bid because it relied on a third party (Novo Nordisk) for fractionation.

While the second tender was pending, Diag Human alleges the Ministry sent a letter to Novo Nordisk that has become the focal point of this dispute. The letter informed Novo Nordisk that Diag Human had not received the contract because of the Ministry's concerns over the company's business ethics. Diag Human says that this letter caused Novo Nordisk to discontinue its business relationship with Diag Human, Pl.'s Opp. at 7; Def.'s Mem. at 29, which led directly to the collapse of Diag Human's business in the Czech Republic. Compl. ¶ 9; Pl.'s Opp. at 8; Def.'s Mem. at 2. According to Diag Human, “[t]he clear intention of the letter was to cripple Diag Human's ability to perform its obligations with the Czech Republic by having Novo Nordisk cease doing business with Diag Human.” Diag Br. at 17. As a result, Diag Human could no longer perform under the Framework Agreement, which freed the Ministry to pursue other options for obtaining fractionated blood.

In 1996, Diag Human sued the Ministry in the Prague Commercial Court over the events outlined above, and the parties agreed to resolve their dispute in arbitration. The arbitration ended in 2008, with the tribunal concluding that the Czech Republic and the Ministry had breached their duties to Diag Human, resulting in commercial losses. The tribunal awarded damages and interest totaling more than $325 million to Diag Human.

Diag Human then filed suit in the district court for the District of Columbia, seeking to enforce the 2008 arbitration award against the Czech Republic. Diag Human invoked the Federal Arbitration Act, 9 U.S.C. § 201, which, among other things, codifies the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

The district court, however, dismissed the case sua sponte for lack of subject matter jurisdiction. The district court concluded that the relationship between Diag Human and the Ministry was not “commercial” in nature, and therefore the New York Convention did not apply. Additionally, the district court concluded the Czech Republic had not waived its sovereign immunity under the terms of the Foreign Sovereign Immunity Act, 28 U.S.C. § 1605(a)(1).

II

We review a district court's dismissal of a case for lack of subject matter jurisdiction de novo . Fisher–Cal Industries, Inc. v. United States , 747 F.3d 899, 902 (D.C. Cir. 2014). Where jurisdiction is sought over a foreign sovereign for the enforcement of an arbitral award, we have held two conditions must be satisfied: “First, there must be a basis upon which a court in the United States may enforce a foreign arbitral award; and second, [the foreign sovereign] must not enjoy sovereign immunity from such an enforcement action.” Creighton Ltd. v. Gov't of the State of Qatar , 181 F.3d 118, 121 (D.C. Cir. 1999). Here, we find these two conditions satisfied. For reasons that will be apparent, we will proceed in reverse order.

Absence of sovereign immunity . The Foreign Sovereign Immunities Act “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping Co rp . , 488 U.S. 428, 443, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). It “bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and ... confers jurisdiction on district courts to hear suits ... when a foreign state is not entitled to immunity.” Id . at 434, 109 S.Ct. 683 (emphasis in original). As relevant here, the FSIA's arbitration exception to sovereign immunity provides that

[a] foreign state shall not be immune from the jurisdiction of courts of the United States ... in any case ... in which the action is brought ... to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration any or all differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, ... if ... the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.

28 U.S.C. § 1605(a)(6).

Two aspects of that standard are in dispute here: (1) whether Diag Human shared with the Czech Republic “a defined legal relationship, whether contractual or not” and (2) whether the arbitration award “is or may be governed by a treaty or other international agreement in force for the United States.” Id . We answer both of these questions in favor of Diag Human and conclude that the arbitration exception of the FSIA is satisfied here.

First, the 1990 Framework Agreement defined a legal relationship with the Czech Republic beginning in 1990 with the Framework Agreement. The agreement set out the purposes of the cooperative arrangement between Diag Human and the Czech Republic as “ensur[ing] fractionation products from frozen human plasma for the needs of Czechoslovak health care system” and “equip[ping] cooperating transfusion wards with necessary technical equipment to increase plasma production possibilities.” JA at A765. It listed both of the parties to the arrangement and the “[l]egal conditions of the cooperation,” which included two...