Alberti v. Empresa Nicaraguense de la Carne

• Decision Date: 18 April 1983
• Docket Number: No. 82-2095,82-2095
• Citation: 705 F.2d 250
• Parties: Lawrence R. ALBERTI and Alberti International, Inc., Plaintiffs-Appellants, v. EMPRESA NICARAGUENSE DE LA CARNE and the Republic of Nicaragua, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 250

705 F.2d 250

Lawrence R. ALBERTI and Alberti International, Inc. Plaintiffs-Appellants, v. EMPRESA NICARAGUENSE DE LA CARNE and the Republic of Nicaragua, Defendants-Appellees.

No. 82-2095.

United States Court of Appeals Seventh Circuit.

Argued Jan. 7, 1983.

Decided April 18, 1983.

Paul G. Simon, Keck, Mahin & Cate, Chicago, Ill., for plaintiffs-appellants.

Paul S. Reichler, Powell, Goldstein, Frazer & Murphy, Washington, D.C., for defendants-appellees.

Before PELL and ESCHBACH, Circuit Judges, and NEAHER, Senior District Judge. ^*

PELL, Circuit Judge.

Plaintiffs-appellants appeal from the district court's dismissal of their two-count complaint. Although this case presents complex legal questions, the factual background of the dispute is relatively simply. Lawrence Alberti and Alberti International, Inc. owned 35 percent of the stock of Empacadora Nicaraguense, S.A., a Nicaraguan corporation engaged in the business of slaughtering livestock and packaging beef. During September of 1979, the Government of Nicaragua nationalized Empacadora and began operating the business through its agent, Empresa Nicaraguense De La Carne (ENCAR). Plaintiffs, who valued their Empacadora stock at $1,163,630.30 at the time of expropriation, have not received any compensation nor have they sought to obtain compensation through whatever channels are available in Nicaragua.

After the nationalization Alberti International ordered $739,306.45 worth of frozen beef from ENCAR. ENCAR delivered the beef to Alberti International in Florida, but Alberti International has not yet paid any of the amount owed. Instead, plaintiffs filed a two-count complaint in Illinois state court. Count I sought recovery for wrongful conversion of plaintiffs' Empacadora stock. Count II sought a declaratory judgment approving plaintiffs' right to offset the value of their converted stock against the value of the beef purchased. Plaintiffs alleged that defendants had transacted business and committed tortious acts within Illinois. The complaint and summons were served by mail upon the Ambassador of Nicaragua in Washington, D.C.

Shortly after plaintiffs filed suit, ENCAR filed suit in Florida state court requesting recovery of the amount owed by plaintiffs for the shipment of beef. This suit has been stayed pending the outcome of the litigation before us.

Defendants removed the Illinois suit to federal court and moved to dismiss on the basis of improper service of process, lack of subject matter jurisdiction, lack of personal jurisdiction and because judicial examination of the nationalization was precluded by the act of state doctrine. Defendants supported their motion with an affidavit of the Minister Counselor of the Embassy of Nicaragua stating that procedures were available for plaintiffs to seek compensation in Nicaragua. Plaintiffs did not respond to this motion. The district court granted the motion on all grounds presented by defendants without a written opinion.

I. Statutory Framework

In 1976 Congress enacted the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Secs. 1602-1611, which sets forth "the sole and exclusive standards to be used in resolving questions of sovereign immunity raised by foreign states before Federal and State courts in the United States." H.R.Rep. No. 1487, 94th Cong., 2d Sess., reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6610 (hereinafter referred to as House Report). FSIA starts from a premise of immunity from jurisdiction for foreign states and then provides several exceptions under which a foreign state may be subject to the jurisdiction of a court of the United States. 28 U.S.C. Sec. 1604; House Report at 6616. These exceptions, discussed hereinafter, allow the court to obtain subject matter jurisdiction over the case and provide the minimum contacts with the United States required by due process before a court can acquire personal jurisdiction. House Report at 6612. Under FSIA, subject matter jurisdiction coupled with proper service of process establishes personal jurisdiction. 28 U.S.C. Sec. 1330(b); House Report at 6612. The act of state doctrine, which does not affect the jurisdiction of the court, is not governed by FSIA but rather remains a creature of the judiciary.

FSIA defines a "foreign state" as including an agency or instrumentality of a foreign sovereign. There is no question but that ENCAR falls within this definition and accordingly our decision is directed by the act.

II. Service of Process

Section 1608 of FSIA, which establishes a federal long-arm statute for suits against foreign states, delineates the "exclusive procedures" for effecting service of process upon a foreign state. Of the four methods provided by section 1608 only that set out in paragraph (3) is of any relevance. Paragraph (3) provides for service by:

sending a copy of the summons and complaint and a notice of suit, together with a translation of each into the official language of the foreign state, by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned.

Plaintiffs have argued that the Ambassador of Nicaragua can be "construed" as the head of the ministry of foreign affairs. The legislative history of FSIA, however, makes clear that this is not a permissible construction of section 1608(a)(3). In discussing methods of service used prior to the act the House Report states that:

A second means [of service], of questionable validity, involves the mailing of a copy of the summons and complaint to a diplomatic mission of the foreign state. Section 1608 precludes this method so as to avoid questions of inconsistency with section 1 of Article 22 of the Vienna Convention on Diplomatic Relations.... Service on an embassy by mail would be precluded under this bill.

House Report at 6625 (emphasis added). What case law there is supports this position. Hellenic Lines, Ltd. v. Moore, 345 F.2d 978 (D.C.Cir.1965); Purdy v. Argentina, 333 F.2d 95, 97 (7th Cir.1964), cert. denied, 379 U.S. 962, 85 S.Ct. 653, 13 L.Ed.2d 557 (1965).

Plaintiffs' service was simply inadequate under section 1608(a)(3). In apparent recognition of this plaintiffs have argued that the proper remedy is to provide them with a second chance at effecting proper service rather than dismissing their suit. If this argument has any merit it is only in a situation in which proper service can be made and jurisdiction obtained over the defendant. It would be a waste of judicial resources to allow plaintiffs to go through the motions of service if the suit will be later dismissed on some other ground. Resolution of plaintiffs' request, then, must abide our review of defendants' remaining grounds for dismissal.

III. Subject Matter Jurisdiction

Whether the district court was correct in holding that it lacked subject matter jurisdiction over this particular suit depends upon whether defendants are immune from suit regarding the nationalization under FSIA. It is uncontested that defendants bear the burden of establishing their immunity from this suit; therefore, the only issue is whether they have met this burden.

As previously noted, FSIA provides foreign states with immunity from suits regarding their public acts. FSIA then provides a number of exceptions to this immunity. The exceptions plaintiffs claim are relevant are those contained in sections 1605(a)(2), (3) and 1607(c). Section 1605 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;

(3) in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States ....

Section 1607 provides that:

In any action brought by a foreign state, or in which a foreign state intervenes, in a court of the United States or of a State, the foreign state shall not be accorded immunity with respect to any counterclaim--

....

(c) to the extent that the counterclaim does not seek relief exceeding in amount or different in kind from that sought by the foreign state.

We need spend little time discussing the claim that section 1605(a)(2) is applicable to this case. Plaintiffs argue that because they seek to offset their debt to ENCAR with their loss from the nationalization the "controversy is clearly an action based upon the commercial activity of defendants carried on within the United States and jurisdictional immunity cannot attach under Sec. 1605(a)(2)." We disagree. There is no "controversy" about plaintiffs' obligation to pay for the beef. The commercial transaction involved, the beef shipment, has nothing to do with this lawsuit beyond the fact that it gave rise to the debt plaintiffs seek to offset. The basis of this lawsuit is the nationalization of Empacadora, which is a quintessential Government act. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964); Empresa Cubana Exportadora, Inc. v. Lamborn & Co., 652 F.2d 231 (2d Cir.1981); Carey v. National Oil Corp., 453 F.Supp. 1097, 1102 (S.D.N.Y.1978), aff'd, 592 F.2d 673 (2d Cir.1979). Plaint...