923 F.2d 380 (5th Cir. 1991), 90-2095, Stena Rederi AB v. Comision de Contratos del Comite Ejecutivo General del Sindicato Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C.

Docket Nº:90-2095.
Citation:923 F.2d 380
Party Name:STENA REDERI AB, a Swedish Corporation, Plaintiff-Appellee, v. COMISION de CONTRATOS del COMITE EJECUTIVO GENERAL del SINDICATO REVOLUCIONARIO de TRABAJADORES PETROLEROS de la REPUBLICA MEXICANA, S.C., a Mexican Corporation, Defendant, Petroleos Mexicanos, the nationalized petroleum company of the United Mexican States, Defendant-Appellant.
Case Date:February 11, 1991
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 380

923 F.2d 380 (5th Cir. 1991)

STENA REDERI AB, a Swedish Corporation, Plaintiff-Appellee,

v.

COMISION de CONTRATOS del COMITE EJECUTIVO GENERAL del

SINDICATO REVOLUCIONARIO de TRABAJADORES

PETROLEROS de la REPUBLICA MEXICANA,

S.C., a Mexican Corporation, Defendant,

Petroleos Mexicanos, the nationalized petroleum company of

the United Mexican States, Defendant-Appellant.

No. 90-2095.

United States Court of Appeals, Fifth Circuit

February 11, 1991

Page 381

[Copyrighted Material Omitted]

Page 382

Douglas S. Johnston, Houston, Tex., Charles C. Crady, III, Shelley A. Bush, Crady, Jewett & McCulley, Houston, Tex., for Amicus United Mexican States--Ambassador Alberto Szekely, Legal Advisor, Secretariat of Foreign Relations, United Mexican States, Houston, Tex., E.U.A.

Christopher O. Davis, James D. Wise, Jr., Brown, Sims, Wise & White, James N. Isbell, Houston, Tex., Phelps Dunbar, Sheryl Bey, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before THORNBERRY, JOHNSON and DAVIS, Circuit Judges.

JOHNSON, Circuit Judge:

During its brief lifetime, the Foreign Sovereign Immunities Act of 1976 ("FSIA") has been "a constant bane of the federal judiciary." 1 This Court is once again called upon to interpret the labyrinthine provisions of the FSIA, and the task is no easier now than it has been before. Stena Rederi AB ("Stena"), a Swedish corporation, initiated a negligent misrepresentation and breach of contract action in federal district court against Petroleos Mexicanos ("Pemex"), the nationalized petroleum company of the United Mexican States, 2 and Comision de Contratos del Comite Ejecutivo

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General del Sindicato Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C. ("Comision de Contratos"), a Mexican business entity. Unsure that it could obtain personal jurisdiction over Comision de Contratos, Stena secured a writ of garnishment on the credits and effects of Comision de Contratos in Pemex's possession. The district court denied Pemex's motion to dismiss for want of jurisdiction under the FSIA. Persuaded that Pemex is immune from suit, we reverse the judgment of the district court and remand with instructions that the district court dissolve the writ of garnishment and dismiss the claims against Pemex.

I. FACTS AND PROCEDURAL HISTORY

In the spring of 1984, Petroleos Mexicanos initiated a project to repair several offshore petroleum production platforms in the Bay of Campeche in Mexican territorial waters. Pemex's extensive plans for the repair project required an experienced contractor and specialized equipment. After lengthy negotiations, Comision de Contratos, a Mexican cooperative society which administers contracts for the national oil workers' union, entered into a contract to perform the necessary repairs on the production platforms. Comision de Contratos in turn retained Mexicana de Servicios Maritimos, S.A. de C.V. ("MSM"), a Mexican shipping corporation, to furnish equipment at the site of the repairs.

Among the equipment MSM supplied Comision de Contratos was the STENA SEAHORSE, a diving support vessel MSM acquired from a Swedish corporation, Stena Rederi AB. The circumstances of MSM's receipt of the STENA SEAHORSE are unclear, but Stena claims that a number of Pemex representatives attempted to persuade Stena officials to sell the vessel to MSM. One of these representatives, Captain Andres Mendez Cid, allegedly traveled to Brownsville, Texas, to convince Stena officials to release the STENA SEAHORSE. Whatever the involvement of these Pemex representatives, 3 Stena ultimately agreed that MSM could charter the STENA SEAHORSE with the understanding that MSM eventually would purchase the vessel. The STENA SEAHORSE arrived in the Bay of Campeche under a head charter between Stena and MSM and a subcharter between MSM and Comision de Contratos.

From December 28, 1984, to October 15, 1985, Comision de Contratos' employees utilized the STENA SEAHORSE in platform repairs. During most of this period of time, Stena was entitled to receive charter hire from MSM. However, MSM suffered a cash flow difficiency--allegedly because Pemex and Comision de Contratos diverted payments they owed MSM on the subcharter agreement to a secret bank account in Hidalgo, Texas--and was unable to meet its obligations under the charter agreement. In July 1985, MSM attempted to postpone the maturity of its growing debt with Stena; after the parties negotiated a long-term financing agreement that included two mortgages on the STENA SEAHORSE and Stena's guaranty of MSM's debt, MSM finally purchased the STENA SEAHORSE.

MSM's ownership of the STENA SEAHORSE was shortlived. On October 15, 1985, Pemex and Comision de Contratos permitted the vessel to leave the Bay of Campeche for its annual drydock inspection and repairs in Mobile, Alabama. MSM could not pay the shipyard for the costs of its repairs to the STENA SEAHORSE, and United States marshals subsequently arrested the vessel. After the marshals sold the vessel to one of Stena's sister corporations, MSM defaulted on payments of the indebtedness secured by one of the mortgages on the STENA SEAHORSE. Pursuant to its guaranty of MSM's debt, Stena paid approximately five million dollars to a New York bank to satisfy the indebtedness.

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In August 1986, Stena filed suit against MSM in a Mexican court alleging breach of the head charter agreement. As damages, the Mexican court awarded Stena all of MSM's claims against Comision de Contratos under the subcharter agreement. After diplomatic intervention from the Swedish and Mexican governments, Pemex and Stena attempted to negotiate a peaceful resolution to Stena's remaining claims. However, settlement negotiations in Mexico City and McAllen, Texas, were unsuccessful.

Stena then filed the instant action against both Comision de Contratos and Pemex in the Southern District of Texas. Stena alleged, as a third party beneficiary and judicial successor to the rights of MSM, that the defendants had wrongfully breached the subcharter agreement. Further, Stena alleged that defendant Pemex had negligently misrepresented that it would direct and supervise the operation of the STENA SEAHORSE in the Bay of Campeche. Asserting that Comision de Contratos had insufficient contacts to support in personam jurisdiction in the United States, Stena sought to acquire quasi in rem jurisdiction over Comision de Contratos through the issuance of a writ of garnishment on Comision de Contratos' credits and effects in Pemex's possession. 4

Pemex filed numerous motions in response to Stena's allegations, including a motion to quash service of the writ of garnishment and motions to dismiss for want of jurisdiction both the writ of garnishment and the direct claims against Pemex. In all of these motions, Pemex argued that it was immune from suit under the Foreign Sovereign Immunities Act of 1976. The district court denied the motions in a short interlocutory order from which Pemex appeals. 5

II. DISCUSSION

The doctrine of sovereign immunity has long roots in American jurisprudence. As early as 1812, the Supreme Court recognized that foreign sovereigns are immune from judicial process in the United States. In The Schooner Exchange v. M'Faddon, 11 U.S. (7 Cranch) 116, 3 L.Ed. 287 (1812), the venerable Chief Justice John Marshall remarked that sovereigns, as equal entities under international law and practice, have no authority over one another. Id. at 136. Although the opinion itself states nothing more than a narrow holding that the courts of the United States lack jurisdiction over an armed ship of a foreign state, The Schooner Exchange is generally regarded as the foremost expression of the concept of "absolute" sovereign immunity in American courts.

Over the years, however, Chief Justice Marshall's vision of absolute sovereign immunity engendered harsh and inequitable results. Particularly in commercial transactions with private parties, the doctrine of absolute sovereign immunity permitted foreign sovereigns to breach contractual relations with impunity. In the early years of the twentieth century, commentators advanced a "restrictive" theory of sovereign immunity designed to curb the inequitable effects of the mantle of immunity. Under the restrictive theory, sovereign immunity is limited to suits that arise from the foreign state's public acts; it does not extend to cases that arise from the state's strictly commercial acts. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 487, 103 S.Ct. 1962, 1968, 76 L.Ed.2d 81

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(1983); Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation, 730 F.2d 195, 198 (5th Cir.1984). The United States Government formally adopted the restrictive theory of sovereign immunity in 1952. See Letter from Jack B. Tate, Acting Legal Advisor of the Department of State, to Acting Attorney General Philip B. Perlman (May 19, 1952), reprinted in 26 Dep't of State Bull. 984 (1952).

The application of the restrictive theory proved troublesome. As in the past, the responsibility for resolving questions of sovereign immunity fell on the Executive acting through the State Department. However, in its attempt to accommodate political and diplomatic concerns, the State Department's immunity determinations proved inconsistent. At the request of both the State and Justice Departments, Congress intervened. In the Foreign Sovereign Immunities Act of 1976, Congress attempted to enact comprehensive legislation that would eliminate the role of the State Department in sovereign immunity determinations and provide a uniform statutory explication of the requirements for sovereign immunity. 28 U.S.C....

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