Cruise Connections Charter v. Atty. Gen. of Canada

• Decision Date: 15 July 2009
• Docket Number: Civil Action No. 08-2054 (JR).
• Citation: 634 F.Supp.2d 86
• Parties: CRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP, et al., Plaintiffs, v. ATTORNEY GENERAL OF CANADA, et al., Defendants.
• Court: U.S. District Court — District of Columbia

Page 86

634 F.Supp.2d 86

CRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP, et al., Plaintiffs, v. ATTORNEY GENERAL OF CANADA, et al., Defendants.

Civil Action No. 08-2054 (JR).

United States District Court, District of Columbia.

July 15, 2009.

Cathy A. Hinger, Louis J. Rouleau, Womble Carlyle Sandridge & Rice, PLLC, Washington, DC, David J. Mazza, Womble, Carlyle, Sandridge & Rice, PLLC, Jack M. Strauch, Strauch & Fitzgerald, P.C., Winston-Salem, NC, for Plaintiffs.

John M. Townsend, Scott H. Christensen, Hughes Hubbard & Reed LLP, Washington, DC, for Defendants.

MEMORANDUM

JAMES ROBERTSON, District Judge.

The plaintiffs, the North Carolina limited partnership Cruise Connections Charter Management and its general partner, sued the Attorney General of Canada, the Royal Canadian Mounted Police (RCMP), and Her Majesty the Queen for breach of contract and violations of the North Carolina Unfair and Deceptive Trade Practices Act. The defendants moved to dismiss for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, or, in the alternative, pursuant to the doctrine of forum non conveniens. After hearing argument on June 9, 2009, I granted the defendants' motion for reasons given in open court. This memorandum explains that ruling in greater detail.¹

Background

Although I must settle any contested jurisdictional facts on a motion to dismiss for lack of subject matter jurisdiction, see Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C.Cir.2000), the following alleged facts are taken as true because they do not bear directly on the jurisdictional issue.

The RCMP is in charge of coordinating security for the 2010 Winter Olympic Games, which will be held in Vancouver, Canada. With space ashore limited, the RCMP decided to house extra security personnel for the Games in ships berthed in Vancouver Harbor. After soliciting bids, the RCMP selected Cruise Connections to provide the necessary ships.

In July 2008, after the RCMP and Cruise Connections reached agreement (the contract price was approximately $54 million Canadian), Cruise Connections, which had no ships of its own, began negotiating charter party agreements (CPAs) with two American cruise lines, Royal Caribbean International and Holland America Line. The cruise lines sought assurance that the RCMP was contractually obligated to pay any corporate or personal taxes the ships might incur in Canada. When asked, two RCMP representatives, Kelly Meikle and Michael Day, confirmed by email that the RCMP was so obligated.

Satisfied, the cruise lines executed their CPAs with Cruise Connections. Cruise Connections then turned to the task of securing financing from the Royal Bank of Canada (RBC). Before Cruise Connections could finalize the financing arrangements, however, the RCMP replaced Meikle and Day with a new representative, Normande Morin. Morin reversed the RCMP's stated position and asserted that the cruise lines' taxes were not reimbursable. She also demanded that Cruise Connections put up a 90% letter of credit—an obligation that had been cut from the final version of the contract. When Cruise Connections refused to proceed under Morin's terms, the RBC refused to provide financing. Shortly thereafter, on November 17, 2008, the RCMP terminated the contract, citing Cruise Connections' breach of its obligation to timely secure financing.

Analysis

The Foreign Sovereign Immunities Act (FSIA) "provides the sole basis for obtaining subject matter jurisdiction over a foreign state in the courts of this country." Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). In relevant part, the Act confers jurisdiction over actions based:

[1] upon a commercial activity carried on in the United States by the foreign state; or

[2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or

[3] upon an act outside of 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.

28 U.S.C. § 1605(a)(2).

The plaintiffs rely explicitly and exclusively on the third clause as the basis for jurisdiction. See Compl. ¶ 5. The defendants concede that their alleged breach of contract occurred in Canada, and that it came in connection with commercial activity in Canada, but they maintain that their alleged breach did not cause a "direct effect" in the United States. The defendants bear the burden of proving this claim by a preponderance of the evidence. Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934, 940 (D.C.Cir.2008).

Mere financial loss by an American individual or company does not constitute a "direct effect" in the United States. Zedan v. Kingdom of Saudi Arabia, 849 F.2d 1511, 1512 (D.C.Cir.1988). But, as the Supreme Court established in Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), a foreign sovereign's failure to deliver money that was supposed to be delivered to an American bank account does meet the "direct effect" requirement. In Weltover, the Argentine government issued bonds denominated in U.S. dollars that permitted the bondholder to specify one of four cities—London, Frankfurt, Zurich, or New York—as the place where payment was to be made. When the government realized that it did not have enough dollars to retire the bonds, it unilaterally extended the time for payment and offered the bondholders substitute instruments. The plaintiffs, two Panamanian corporations and a Swiss bank, refused to accept the substitute instruments and insisted on full payment, specifying New York as the place where payment should be made. The government refused to pay. The Court concluded that the government's failure to retire the bonds had a "direct effect" in the United States because "[m]oney that was supposed to have been delivered to a New York bank for deposit was not forthcoming." Id. at 619, 112 S.Ct. 2160.

Weltover and its progeny in the Court of Appeals establish four scenarios in which a foreign sovereign's breach of contract has a "direct effect" in the United States: (1) the contract expressly designates an American location as the place of payment; (2) the contract allows the payee to designate a place of payment, and he designates an American location before the breach occurs, see Weltover, 504 U.S. at 619, 112 S.Ct. 2160; (3) the contract is silent on payment location, but the payee asks to be paid at an American location, and the payer agrees to do so before the breach occurs, see I.T. Consultants, Inc. v. The Islamic Republic of Pakistan, 351 F.3d 1184 (D.C.Cir.2003); and (4) the contract is silent on payment location, and the parties do not subsequently agree on a payment location, but there is a "longstanding consistent customary practice" between the parties of payment at an American location, see Goodman Holdings v. Rafidain Bank, 26 F.3d 1143 (D.C.Cir. 1994) (Wald, J., concurring). In short, before the breach occurs, the parties must have agreed—either expressly or impliedly —that payment would occur in the United States. See Peterson v. Royal Kingdom of Saudi Arabia, 416 F.3d 83, 90 (D.C.Cir.2005).

Turning to the contract in the present case, the first page of the Articles of Agreement describes the "Payment Terms":

As agreed and upon the satisfactory completion of Terms under Annex A, the following payments shall be made by Direct Payment on or before the dates indicated:

80% of the Contract value on or before 30 April, 2009 $43,332,537.00 plus GST

15% of Contract value on or before 31 October, 2009 $8,124,850.00 plus GST

5% of Contract value on or before 30 March 2010 $2,708,295.00 plus GST

Dkt. 1, Ex. 1, at 2 (emphasis added).² On the same page, "1418-B S. Stratford Road, Winston-Salem, NC USA 27103" is designated as the "Contract Delivery Address." Id. The plaintiffs argue that these terms expressly obligated the defendants to provide "direct...