Packsys, S.A. de C.V. v. Exportadora de Sal, S.A. DE C.V.

• Decision Date: 15 August 2018
• Docket Number: No. 16-55380,16-55380
• Citation: 899 F.3d 1081
• Parties: PACKSYS, S.A. DE C.V., a Mexican corporation, Plaintiff-Appellant, v. EXPORTADORA DE SAL, S.A. DE C.V., a Mexican corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

899 F.3d 1081

PACKSYS, S.A. DE C.V., a Mexican corporation, Plaintiff-Appellant,

v.EXPORTADORA DE SAL, S.A. DE C.V., a Mexican corporation, Defendant-Appellee.

No. 16-55380

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 8, 2017 Pasadena, California

Filed August 15, 2018

Rory S. Miller (argued) and Andrew Baum, Glaser Weil Fink Howard Avchen & Shapiro LLP, Los Angeles, California, for Plaintiff-Appellant.

Steven J. Olson (argued), Catalina Vergara, J. Jorge deNeve, and Esteban Rodriguez, O'Melveny & Myers LLP, Los Angeles, California, for Defendant-Appellee.

Before: Kim McLane Wardlaw and Andrew D. Hurwitz,^* Circuit Judges, and Wiley Y. Daniel,^** District Judge.

WARDLAW, Circuit Judge:

It has been the law of our circuit for over two decades that the activities of an agent who lacks the actual authority of a foreign state do not constitute the conduct of that foreign state for purposes of the Foreign Sovereign Immunities Act's commercial activity exception to immunity from suit. See 28 U.S.C. § 1605(a)(2). Here the Director General of a Mexican government-owned corporation, Exportadora de Sal, S.A. de C.V. ("ESSA"), entered into a long-term, multi-million dollar contract with another Mexican corporation, Packsys, S.A. de C.V. ("Packsys"), to sell the briny residue from its salt production process. As it turned out, the Director General did not have actual authority to execute the contract, and when suit was filed in the United States, ESSA invoked sovereign immunity. Packsys, not having proof of actual authority, asks us to create a new rule that would extend the commercial activity exception to embrace activities of a foreign agent having only apparent authority to engage in them. The district court declined to do so, and so do we. Nor do we accept that principles of ratification or waiver improve Packsys's position. We therefore affirm the district court's dismissal of this case for lack of jurisdiction.

I.

Exportadora de Sal, S.A. de C.V., is a Mexican salt production corporation with its principal place of business at the Ojo de Liebre Lagoon on the west coast of Baja California Sur, Mexico.¹ ESSA, one of the world's largest producers of sea salt, is 51-percent owned by the government of Mexico. The other 49-percent ownership stake is held by Mitsubishi Corporation. The Mexican government appoints a majority of ESSA's board of directors, and the company's Director General—a position equivalent to CEO—is appointed by the President of Mexico.

ESSA produces sea salt using an evaporation method. Seawater is transferred from one pool to another, becoming more and more concentrated until salt begins to crystalize out of the water. At this point, the water is drained from the pool and the salt crystals are harvested. But the water that is drained from the collection pool—known as residual brine—contains high concentrations of chemicals and is potentially hazardous. What to do with this waste byproduct is thus a perpetual question for salt producers using this method of production. ESSA historically dumped its residual brine back into the Ojo de Liebre Lagoon, but public pressure over environmental damage led it to stop this practice. Since 1996, ESSA has stored its brine on land, at great and mounting expense.

At a meeting of ESSA's board on October 28, 2013, the company's then-Director General, Jorge Lopez Portillo Basave ("Portillo"), presented the board with a proposal that would turn this liability into an asset: several companies had inquired about purchasing ESSA's residual brine for further processing into valuable industrial chemicals. At that meeting, the board passed Resolution 51, which approved Portillo's proposed "comprehensive commercialization scheme" for the brine. Resolution 51 states, in translation:

In keeping with Article 58(III) of the Federal Law on Government-Owned Entities, and due to the vital need to seek options for the use of the 17 million metric tons per year of residual brine originating from the process of producing sea salt, the approach is hereby approved for sales of residual brine in keeping with the criteria, factors, and alternatives presented for determination of sales prices on residual brine contained in the supporting report attached hereto as Annex 8.

Furthermore, and as part of any marketable transactions of residual brine that may take place, the Director General is hereby authorized to provide, assign, or transfer the related studies, investigations, records, or reports, that are not exclusively earmarked for use in the production process for natural salt (NaCl).

The board did not set prices or approve any particular contract for the sale of the brine.

In December 2013 or January 2014, Portillo executed a contract for the sale of residual brine to Packsys, S.A. de C.V., a Mexican corporation with its principal place of business in Mexico. The contract fixes the price for the brine at $4.00 USD or $6.50 USD per ton, depending on the delivery site, and commits ESSA to sell at least ten million tons of brine per year for at least forty years. It provides that the brine will be delivered at one of two locations, both in Mexico. And it contains the following "applicable law" provision: "For the event of controversy, interpretation or execution of the present agreement, the parties will subject themselves to the applicable federal laws of the City of Los Angeles California, thus renouncing to any other jurisdiction that might apply by virtue of their future or present domiciles." (as translated).

Portillo claims that he presented the executed contract to ESSA's board at a February 25, 2014 board meeting, and subsequently provided the board with additional updates on the arrangement. But multiple ESSA board members declared that the board never formally approved the contract, and Portillo's declaration does not contradict these statements.

Portillo was fired by ESSA's board in December 2014. Beginning in 2015, ESSA refused to honor Packsys's purchase orders for residual brine. And in September 2016, Mexican newspaper La Jornada reported that Portillo had been arrested by Mexican authorities for executing the residual brine contract without proper authority.²

Packsys sued ESSA in California state court on September 17, 2015, asserting breach of the long-term contract for brine that Portillo had executed. ESSA removed the action to the United States District Court for the Central District of California and moved to dismiss it under Federal Rule of Civil Procedure 12(b)(1), on the grounds that the suit was barred by the FSIA, that Mexico was a better forum under the doctrine of forum non conveniens , and that international comity required that the case be decided in Mexico.

The district court dismissed the action on foreign sovereign immunity grounds without reaching the other arguments. It held that because ESSA is a foreign state for FSIA purposes and Packsys's lawsuit does not fit into any of the FSIA's exceptions, ESSA is immune from suit in the United States. Packsys timely appealed.

II.

In evaluating a district court's dismissal for lack of jurisdiction under the FSIA, "[w]e review the district court's legal rulings de novo and its factual findings for clear error." Terenkian v. Republic of Iraq , 694 F.3d 1122, 1132 (9th Cir. 2012).

III.

The Foreign Sovereign Immunities Act provides that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided" in the Act. 28 U.S.C. § 1604. Thus, the FSIA "shields foreign states and their agencies from suit in United States courts unless the suit falls within one of the Act's specifically enumerated exceptions." OBB Personenverkehr AG v. Sachs , ––– U.S. ––––, 136 S.Ct. 390, 392, 193 L.Ed.2d 269 (2015).

It is undisputed that ESSA qualifies as a "foreign state" for FSIA purposes because it is 51-percent owned by the Mexican government. See 28 U.S.C. § 1603(a), (b) (defining "foreign state" to include "any entity ... which is a separate legal person, corporate or otherwise, and ... a majority of whose shares or other ownership interest is owned by a foreign state or other political subdivision thereof," with exceptions not relevant here). Indeed, we have already held, in a previous case, that ESSA is a foreign state under the FSIA. Schoenberg v. Exportadora de Sal, S.A. de C.V. , 930 F.2d 777, 779 n.1 (9th Cir. 1991). The dispute in this case is therefore limited to whether any of the FSIA's exceptions make ESSA subject to the jurisdiction of United States courts.

A. The Burden of Proof

Packsys argues that the district court improperly placed the burden of proof as to the applicability of the FSIA's exceptions on Packsys, rather than on ESSA. Packsys is incorrect.

A foreign defendant bears the initial burden to "make a prima facie case that it is a foreign state." Peterson v. Islamic Republic of Iran , 627 F.3d 1117, 1124 (9th Cir. 2010).³ "Once the court has determined that the defendant is a foreign state, the burden of production shifts to the plaintiff to offer evidence that an exception applies." Id. at 1125 (internal quotation marks omitted). "If the plaintiff satisfies her burden of production, jurisdiction exists unless the defendant demonstrates by a preponderance of the evidence that the claimed exception does not apply." Id.

The district court correctly explained this burden-shifting framework in its opinion. But Packsys argues that, notwithstanding its recital of the correct standards, the district court actually placed the burden of proof on Packsys. Packsys bases this contention on the fact that "the district court repeatedly refers to Packsys's arguments and material cited before rejecting those arguments," as well as the district court's use of "phrases such as ‘Packsys attempts to establish’ and ‘Packsys does not offer any evidence to the contrary.’ "

But as ESSA rightly points out, the passages cited by Packsys are in portions of the district...