American Telecom Co. v. Republic of Lebanon, 05-2408.

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Citation: 501 F.3d 534
• Docket Number: No. 05-2408.,05-2408.
• Parties: AMERICAN TELECOM CO., L.L.C.; American Telecom Group-USA, L.L.C., Plaintiffs-Appellants, v. REPUBLIC OF LEBANON, a foreign State, Defendant-Appellee.
• Decision Date: 29 August 2007

501 F.3d 534 AMERICAN TELECOM CO., L.L.C.; American Telecom Group-USA, L.L.C., Plaintiffs-Appellants,
v.
REPUBLIC OF LEBANON, a foreign State, Defendant-Appellee. No. 05-2408. United States Court of Appeals, Sixth Circuit. Argued: November 2, 2006. Decided and Filed: August 29, 2007.

[501 F.3d 536]

ARGUED: Sheldon L. Miller, Lopatin, Miller, Freedman, Bluestone & Herskovic, Southfield, Michigan, for Appellants. Carl Rashid, Jr., Butzel Long, Detroit, Michigan, for Appellee. ON BRIEF: Sheldon L. Miller, Lopatin, Miller, Freedman, Bluestone & Herskovic, Southfield, Michigan, Mayer Morganroth, Jeffrey B. Morganroth, Morganroth & Morganroth, Southfield, Michigan, for Appellants. Carl Rashid, Jr., James J. Boutrous, II, Butzel Long, Detroit, Michigan, Michael F. Smith, Butzel Long, Bloomfield Hills, Michigan, for Appellee.

Before: RYAN, BATCHELDER, and SUTTON, Circuit Judges.

OPINION

ALICE M. BATCHELDER, Circuit Judge.

American Telecom Company, LLC and American Telecom Group-USA, LLC (collectively "American Telecom") appeal from the order of the district court dismissing, under Fed. R. Civ. Pro. 12(b)(1) for want of federal subject-matter jurisdiction, their complaint against the Republic of Lebanon ("Lebanon"). The question presented is whether the district court erred by finding that Lebanon's conduct did not cause a direct effect in the United States and therefore that the 28 U.S.C. § 1605(a)(2) commercial activity exception to FSIA immunity did not apply. Finding no error, we affirm.

I.

American Telecom was a bidder for a contract to manage cellular telephone networks in Lebanon. Upon Lebanon's invitation to bid, American Telecom paid $25,000 to participate in an Auction Tender, but was disqualified without explanation during the pre-qualification stage. Due to questionable conduct by the officials conducting the Auction Tender, however, Lebanon cancelled it in favor of a New Public Tender. According to American Telecom, Lebanese officials persuaded American Telecom to pay another $5,000 and participate in the New Public Tender, with assurances of fairness and good faith. As a further condition to its being permitted to participate, American Telecom also had to submit two documents (an Expression of Interest and a Non-Disclosure Undertaking), both of which required American Telecom's acknowledgment that the bidding was not binding upon Lebanon in any way.

American Telecom claims that it spent over $500,000 preparing its bid in compliance

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with the Tender Information and Procedures (TIP) document, which required a $2 million tender bond. The TIP specified: "The Republic of Lebanon reserves the right to reject the offer to manage either of the Mobile Businesses through the Tender, and to discontinue the Tender at any time for any reason." Because the TIP structured the bidding to allow the qualified bidders to adjust their bids after the initial bids had been revealed, American Telecom intentionally bid $6.16 million per month, but was prepared to lower its bid to $3.99 million per month at adjustment time. In its rush to comply with the submission deadline, American Telecom submitted several documents, including the tender bond, via email (allegedly in reliance on a verbal approval by a Lebanese employee).

Lebanon disqualified American Telecom because the tender bond was an email and not an original document; it pre-qualified seven other companies, none of which was an American company. Ultimately, Detecom (a German company) won the management contract for one network ($4.2 million/month; $201 million total) and Mobile Telecom Co. (a Kuwaiti company) won the other ($4.25 million/month; $204 million total). The management contracts required each winning bidder to form a company in Lebanon, hire all the Lebanese-interim-management firm's employees who chose to remain, and deposit all revenues into a Lebanese bank account.

After its disqualification, American Telecom sued Lebanon in federal court, alleging breach of contract, fraud, promissory estoppel, and breach of quasi contract. Subject matter jurisdiction was predicated on 28 U.S.C. § 1330. American Telecom served Lebanon at its Office of the Counsel General in Detroit, Michigan, as had been agreed upon by the parties. When Lebanon failed to answer, American Telecom sought and obtained a clerk's entry of default, moved for default judgment, appeared for a motion hearing, and obtained a default judgment in the amount of $420 million. Counsel for Lebanon eventually responded, filed a special appearance in the district court, and moved to set aside the default judgment and the default. The court granted the motion and Lebanon then moved to dismiss the action for lack of subject matter jurisdiction. The district court granted this motion as well, and American Telecom now appeals both orders.

II.

Subject matter jurisdiction is always a threshold determination. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (there is no "doctrine of `hypothetical jurisdiction' that enables a court to resolve contested questions of law when its jurisdiction is in doubt"). A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction may involve a facial attack or a factual attack. Golden v. Gorno Bros., Inc., 410 F.3d 879, 881 (6th Cir. 2005). "When a Rule 12(b)(1) motion attacks the factual basis for jurisdiction, the district court must weigh the evidence and the plaintiff has the burden of proving that the court has jurisdiction over the subject matter." Id. We review factual findings for clear error and applications of law de novo. Id.

The Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. §§ 1602-11, "grants federal district courts jurisdiction over civil actions against foreign states `as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity' under either another provision of the FSIA or `any applicable international agreement.'" Republic of Austria v. Altmann, 541 U.S. 677, 681, 124

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S.Ct. 2240, 159 L.Ed.2d 1 (2004) (quoting 28 U.S.C. § 1330(a)). The statutes say:

The district courts shall have 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.

28 U.S.C. § 1330(a) (emphasis added).

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.

28 U.S.C. § 1604 (emphasis added).

The specific exception at issue here will be discussed in Section III, infra. The point at this stage is the peculiar manner in which jurisdiction is acquired: first, the court presumes immunity (§ 1604) but looks for an exception (§§ 1605-07); then, only if the court finds that the "foreign state is not entitled to immunity" will the court have subject matter jurisdiction (§ 1330(a)). As the Supreme Court has explained:

The statute must be applied by the District Courts in every action against a foreign sovereign, since subject matter jurisdiction in any such action depends on the existence of one of the specified exceptions to foreign sovereign immunity, 28 U.S.C. § 1330(a). At the threshold of every action in a District Court against a foreign state, therefore, the court must satisfy itself that one of the exceptions applies—and in doing so it must apply the detailed federal law standards set forth in the Act.

Verlinden B.V. v. Cent. Bank of Nig., 461 U.S. 480, 493-94, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). A footnote reads:

The House Report on the Act states that `sovereign immunity is an affirmative defense that must be specially pleaded,' H.R.Rep. No. 94-1487, at 17 [U.S.Code Cong. & Admin.News 1976, 6604, 6615]. Under the Act, however, subject matter jurisdiction turns on the existence of an...