ECKERT INTERN. v. Government of Republic of Fiji

• Decision Date: 24 September 1993
• Docket Number: Civ. A. No. 93-CV-457.
• Citation: 834 F. Supp. 167
• Parties: ECKERT INTERNATIONAL, INC., Plaintiff, v. GOVERNMENT OF the SOVEREIGN DEMOCRATIC REPUBLIC OF FIJI, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

834 F. Supp. 167

ECKERT INTERNATIONAL, INC., Plaintiff, v. GOVERNMENT OF the SOVEREIGN DEMOCRATIC REPUBLIC OF FIJI, Defendant.

Civ. A. No. 93-CV-457.

United States District Court, E.D. Virginia, Alexandria Division.

September 24, 1993.

Joseph Buford Tompkins, Jr., Sidley & Austin, Washington, DC, for plaintiff.

Nelson Joel Kline, Kline and Joseph, Washington, DC, for defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

I.

This diversity contract action against a foreign government presents the threshold question whether a private American corporation's breach of contract claim against the Sovereign Democratic Republic of Fiji ("Fiji") is barred by sovereign immunity, or is otherwise nonjusticiable by virtue of the act of state or political question doctrines. For the reasons set forth here, the Court concludes that the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602 et seq., does not shield defendant Fiji from liability because Fiji's contract with plaintiff Eckert International, Inc. ("Eckert") falls under the FSIA's exceptions for waiver and commercial activity. Further, because the act of state and political question doctrines do not apply to this contract, Fiji's Rule 12(b)(6) motion to dismiss must be denied.

Also before the Court are Fiji's motions for certification under 28 U.S.C. § 1292(b) and for a stay pending appeal on the sovereign immunity claim and Eckert's motion for certification that the case proceed to trial. Fiji's motion for § 1292(b) certification is denied because the act of state and political question arguments do not constitute substantial claims likely to succeed. Eckert's motion for certification that the case proceed to trial is denied because Fiji's FSIA immunity arguments, while unpersuasive here, cannot be said to be frivolous. And finally, it follows that Fiji's motion for a stay pending appeal must be denied as moot because Fiji's interlocutory appeal divests this Court of jurisdiction pending resolution of the appeal.

II.

In 1988, Fiji and Eckert entered into a three-year contract under which Eckert was to provide Fiji with government and public relations consulting services in Washington, D.C. in return for payment of $250,000 per year. Substantially all of Eckert's services under the contract were to be performed in the Washington area, and the contract itself contained a provision stating that Virginia law governed any questions of interpretation.¹ Both parties apparently performed their obligations satisfactorily for the three year period. In 1991, the contract was renewed, without change, for an additional three years.

Both the 1988 and 1991 agreements were signed by the Prime Minister of Fiji, Ratu Sir Kamisese Mara ("Ratu Mara"). As with the 1988 contract, the parties apparently performed their obligations satisfactorily for the first year of the 1991 contract. Then, in 1992 Sitiveni Rabuka succeeded Ratu Mara as Prime Minister and Rabuka's new government terminated the contract and refused to pay Eckert for the two years remaining under the 1991 contract. Thereafter, Eckert sued Fiji for breach of contract, claiming that Fiji terminated the contract without cause or legal justification and therefore owes Eckert $500,000, the total remaining payments due under the 1991 agreement. Fiji responded by moving to dismiss on the basis of sovereign immunity, the act of state doctrine, and the political question doctrine.

III.

The FSIA establishes the scope of sovereign immunity for foreign states in United States courts.² Foreign states are entitled to immunity from suit unless one of the FSIA's specific exceptions applies. 28 U.S.C. § 1604; see also Republic of Argentina v. Weltover, Inc., ___ U.S. ___, ___, 112 S.Ct. 2160, 2164, 119 L.Ed.2d 394 (1992). Two of these exceptions, waiver and commercial activity, are at issue here.

The "waiver" exception provides that foreign states lose their claim to sovereign immunity in any case

"in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver...." 28 U.S.C. § 1605(a)(1).

Eckert contends that Fiji waived its immunity when it agreed to the "choice of law" clause contained in the consulting contract. Although the FSIA does not define waiver "by implication," the Act's legislative history makes clear that implicit waivers occur in "cases where a foreign state ... has agreed that the law of a particular country should govern a contract." H.R.Rep. No. 1487, 94th Cong., 2d Session 18, reprinted in 1976 U.S.C.C.A.N. 6604, 6617. Courts have found this legislative history persuasive and have therefore consistently held that contractual choice of law clauses constitute waiver of immunity "by implication" in claims for breach of contract. See Maritime Ventures Int'l, Inc. v. Caribbean Trading & Fid., Ltd., 689 F.Supp. 1340, 1351 (S.D.N.Y.1988) (holding that the naming of New York as the forum in an arbitration agreement acts as a waiver of immunity under the FSIA); Marlowe v. Argentine Naval Comm'n, 604 F.Supp. 703, 709 (D.D.C.1985) ("if the parties to a contract agree that the laws of one country will govern contractual interpretations, they have implicitly waived the defense of sovereign immunity") (emphasis added); Ohntrup v. Firearms Center, Inc., 516 F.Supp. 1281 (E.D.Pa.1981) ("A waiver of sovereign immunity may be inferred from an agreement to arbitrate a dispute in another country or to refer disputes to the laws of another country"); see also Transamerica S.S. Corp. v. Somali Democratic Republic, 767 F.2d 998, 1005 (D.C.Cir.1985) (Wald, J., concurring).

Fiji seeks to distinguish these decisions by noting that the choice of law provision found in the 1991 contract is different from those clauses recognized as waivers in the cases cited above. Specifically, Fiji notes that the clauses in the cited cases all contain language explicitly stating what law will "govern" the contract, while the choice of law clause in the 1991 contract merely states that Virginia law will be used to "construe" or "interpret" the contract. From this, Fiji argues that there is no waiver; instead, the reference to state law exists only to aid the parties in performing and interpreting the contract.

Fiji's argument is wholly unpersuasive. The FSIA choice of law waiver principle is based on the sensible notion that a choice of law provision specifically agreed to in a contract signals a foreign state's agreement to be sued on the contract. In this connection, it makes no difference whether the contract states it is "governed" by Virginia law or that it is to be "interpreted" in accordance with Virginia law. This difference in language cannot bear the weight of Fiji's argument. Indeed, no case cited by Fiji or found by the Court holds or suggests that a contractual choice of law provision that uses the term "govern" is a valid FSIA waiver, while one that uses the terms "interpret" or "construe" is not. Nor is this surprising for both choice of law formulations invite the inference that the parties, including the foreign state, contemplate legal enforcement of the contract. Were this not so, a choice of law provision would be unnecessary.³

Quite apart from the choice of law waiver, the FSIA's "commercial activity" exception operates here to preclude Fiji's immunity defense.⁴ This exception differentiates between a foreign state's public acts performed in its sovereign capacity and a foreign state's private acts performed as a market participant. See Republic of Argentina v. Weltover, Inc., ___ U.S. ___, ___, 112 S.Ct. 2160, 2166, 119 L.Ed.2d 394 (1992); LeDonne v. Gulf Air, Inc., 700 F.Supp. 1400, 1407 (E.D.Va.1988). Yet, the FSIA itself does not draw a sharply defined, bright line between a foreign state's public and private acts. Instead, the statute provides only a somewhat question begging definition of "commercial activity" as "either a regular course of commercial conduct or a particular commercial transaction or act." 28 U.S.C. § 1603(d). Significantly, however, the Act goes on to mandate that the focus in drawing the distinction between public and private acts must be on of the nature of the act performed rather than on its purpose. Id. The drafters of the FSIA emphasized the primacy of the nature of the act by noting that

The fact that goods or services to be procured through a contract are to be used for a public purpose is irrelevant; it is the essentially commercial nature of an activity or transaction that is critical. Thus, a contract by a foreign government to buy provisions or equipment for its armed forces or to construct a government building constitutes a commercial activity. H.R.Rep. No. 1487, 94th Congress, 2d Sess. 16, reprinted in 1976 U.S.C.C.A.N. 6604, 6615.

See also LeDonne v. Gulf Air, Inc., 700 F.Supp. 1400, 1407 (E.D.Va.1988).

Measured by this standard, Fiji's act in entering into the 1991 contract was plainly a private act for the consulting contract is "inherently commercial in nature" and is governed by the rules of the marketplace. See Chisholm & Co. v. Bank of Jamaica, 643 F.Supp. 1393, 1400 (S.D.Fla.1986) (holding that contract between private Florida corporation and bank wholly owned by Jamaican government was commercial in nature, regardless of the purpose behind it). Fiji's argument that its contract was governmental, rather than commercial, in nature because Eckert represented Fiji in its "political and diplomatic relationship" with the United States is unpersuasive. This reasoning mistakenly focuses on the contract's purpose, while ignoring its essentially commercial nature. Indeed, the 1991 contract and its predecessor are simply garden variety consulting contracts, no different from myriad other consulting contracts between organizations and lobbyists. Foreign states entering into such contracts cannot be permitted to...