CRUISE CONNECTIONS CHARTER v. ATTY. GEN. OF CANADA, 09-7060.

Decision Date06 April 2010
Docket NumberNo. 09-7060.,09-7060.
Citation600 F.3d 661
PartiesCRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP and Cruise Connections Charter Management GP, Inc., Appellants v. ATTORNEY GENERAL OF CANADA, Representing the Royal Canadian Mounted Police, et al., Appellees.
CourtU.S. Court of Appeals — District of Columbia Circuit

Jack M. Strauch argued the cause and filed the briefs for appellants. Deborah J. Israel entered an appearance.

John M. Townsend argued the cause for appellees. With him on the brief was Scott H. Christensen.

Before: TATEL, Circuit Judge, and SILBERMAN and WILLIAMS, Senior Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

Under the Foreign Sovereign Immunities Act, foreign governments engaging in commercial activities outside the United States enjoy immunity from suit in U.S. courts unless those activities have a "direct effect" in the United States. In this case the Canadian government terminated a contract with a U.S. company to provide cruise ship services in Canada. Because this left the U.S. company unable to consummate fully negotiated, multi-million-dollar subcontracts with U.S.-based cruise lines to provide the necessary ships, we conclude that Canada's termination of the contract had a "direct effect" in the United States.

I

In 2008, Cruise Connections, a U.S. corporation based in Winston-Salem, N.C., signed a contract with the Royal Canadian Mounted Police (RCMP) under which Cruise Connections would provide three cruise ships to dock in Vancouver during the 2010 Olympic Winter Games. RCMP planned to use the ships to house security staff needed for the Games. The contract required Cruise Connections to subcontract with two U.S.-based cruise lines, Holland America and Royal Caribbean, to provide the necessary ships. For this service, RCMP agreed to pay Cruise Connections a little more than $54 million (Canadian) in three direct payments.

With the RCMP contract in hand, Cruise Connections entered "the final stages of negotiating" subcontracts, called Charter Party Agreements, with Holland America and Royal Caribbean to provide the three ships at a cost of approximately $39 million (U.S.). Tracey Kelly Aff. ¶ 7. Because the ships would remain in Vancouver for several weeks, the two companies demanded assurances that they would incur no liability for Canadian corporate income and payroll taxes. Although RCMP originally gave these assurances, promising to cover all taxes due, it reversed course just as Holland America and Royal Caribbean were set to sign the Charter Party Agreements and disavowed responsibility for any payroll and income taxes. Unprotected from tax liability, the two companies balked, leaving Cruise Connections unable to deliver signed Charter Party Agreements by the required date. RCMP then terminated its contract with Cruise Connections.

Cruise Connections sued RCMP, Her Majesty the Queen in Right of Canada, and the Attorney General of Canada in the United States District Court for the District of Columbia, alleging both breach of contract and unfair trade practices. Although acknowledging that RCMP, as an "agency or instrumentality" of the federal government of Canada, 28 U.S.C. § 1603(b), generally enjoys immunity from suit in U.S. courts under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602-11, Cruise Connections argued that the FSIA's commercial activities exception applies. As relevant here, that exception abrogates sovereign immunity

in any case ... in which the action is based ... 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.

Id. § 1605(a)(2). RCMP conceded that contracting for chartered ships qualifies as a commercial activity and that its alleged breach satisfies the "act" requirement. It argued, however, that the alleged breach had no "direct effect in the United States" and moved to dismiss for lack of jurisdiction. See 28 U.S.C. § 1330(a) (providing district courts with subject matter jurisdiction over cases against foreign governments only when an FSIA exception applies).

Cruise Connections responded with two arguments. First, it contended that the contract required RCMP to pay it via wire transfer to a U.S. bank and that RCMP's failure to make those payments qualified as a direct effect in the United States. Second, it argued that RCMP's cancellation also caused a direct effect in the United States because it resulted in the loss of U.S. business to Cruise Connections and the cruise lines. This loss included not only the millions of dollars to charter the three ships, but also an additional $4.5 million (U.S.) that Cruise Connections estimated it lost because the Charter Party Agreements contained standard provisions for on-board revenue—passenger purchases for alcoholic beverages, gift items, etc.—under which Cruise Connections would guarantee a set amount of revenue and then receive anything collected in excess of that base amount. In addition, Cruise Connections had arranged with a U.S. travel agency to charter one of the cruise ships as it sailed between San Diego, its home base, and Vancouver. Under that agreement, the travel agency would have paid Cruise Connections a flat rate of $1.25 million (U.S.).

The district court rejected both arguments. With respect to the place of payment, the court read the contract to require "payments to an account of Cruise Connections' choosing" rather than specifically to an account in the United States. Cruise Connections Charter Mgmt. 1, LP v. Attorney Gen. of Can., 634 F.Supp.2d 86, 89 (D.D.C.2009). Although Cruise Connections contended that it would have designated a recently opened account at a North Carolina bank as the place of payment had the contract progressed to the point of sending invoices with payment instructions (as the contract required), the district court concluded that "opening a bank account with the intention of demanding payment there is not an exercise of Cruise Connections' right" to direct payment. Id. at 89-90. Because Cruise Connections had yet to communicate its intent to request payment in North Carolina, the court concluded that the parties had never agreed that RCMP would pay in the United States, so its nonpayment could not constitute a direct effect. Id. As to the loss of business, the district court found that "Cruise Connections' inability to perform its contractual obligations to the third parties" constituted an intervening element between RCMP's breach and the broken third-party agreements. Id. at 90. Accordingly, the district court concluded that RCMP enjoyed sovereign immunity and dismissed the complaint for lack of jurisdiction.

Cruise Connections appeals, reiterating the arguments it made in the district court. We review the district court's jurisdictional determinations de novo. See Peterson v. Royal Kingdom of Saudi Arabia, 416 F.3d 83, 86 (D.C.Cir.2005). Because RCMP challenges "only the legal sufficiency of Cruise Connections' jurisdictional allegations," we take Cruise Connections' version of the facts as true. Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C.Cir.2000).

II

We begin with Cruise Connections' claim that any one of the losses caused by the termination of its contract with RCMP— the lost cruise ship business, the lost profit from on-board revenues, the lost travel agency fee—qualifies as a direct effect in the United States. In its brief, RCMP responds only to the latter two claims, arguing that each is "too attenuated or remote to amount to a `direct effect.'" Appellees' Br. 29.

RCMP's point regarding on-board revenue payments may have merit. Because Cruise Connections' opportunity to receive any payments under the on-board revenue provisions of the Charter Party Agreements depended entirely on whether security personnel housed on the ships chose to buy drinks or gifts, Cruise Connections might have received nothing even if RCMP had consummated the contract. Under this view, Cruise Connections' failure to earn any on-board revenue payments might be regarded as subject to an "intervening event" independent of RCMP's cancellation of the contract. See Princz v. Federal Republic of Germany, 26 F.3d 1166, 1172 (D.C.Cir.1994) ("A `direct effect' ... `is one which has no intervening element, but, rather, flows in a straight line without deviation or interruption.'" (quoting Upton v. Empire of Iran, 459 F.Supp. 264, 266 (D.D.C.1978))). In the end, however, we need not decide whether...

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