Fagot Rodriguez v. Republic of Costa Rica

• Decision Date: 15 July 2002
• Docket Number: No. 01-1713.,01-1713.
• Citation: 297 F.3d 1
• Parties: Gabriel FAGOT RODRIGUEZ, et al., Plaintiffs, Appellants, v. THE REPUBLIC OF COSTA RICA, et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 1

297 F.3d 1

Gabriel FAGOT RODRIGUEZ, et al., Plaintiffs, Appellants, v. THE REPUBLIC OF COSTA RICA, et al., Defendants, Appellees.

No. 01-1713.

United States Court of Appeals, First Circuit.

Heard March 6, 2002.

Decided July 15, 2002.

COPYRIGHT MATERIAL OMITTED

José G. Fagot-Díaz, with whom Fagot & Castal was on brief, for appellants.

Verónica Ferraiuoli-Hornedo, with whom McConnell Valdés was on brief, for appellees.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and LIPEZ, Circuit Judge.

LIPEZ, Circuit Judge.

This case raises several questions of first impression for this circuit regarding the scope of the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1330, 1602-1611. The FSIA provides the exclusive basis for acquiring subject matter jurisdiction over foreign states and their agencies and instrumentalities. Id. §§ 1330, 1604. Under the statute, "a foreign state shall be immune from the jurisdiction of the courts of the United States," id. § 1604, unless the case falls within one of the exceptions to immunity set out in § 1605. At issue here are the exceptions for actions arising out of a foreign state's commercial or tortious activity, id. §§ 1605(a)(2) & (5), or involving rights in immovable property, id. § 1605(a)(4). The district court concluded that none of the exceptions applied. We affirm.

I.

The relevant facts are not disputed. Appellants, Gabriel Fagot Rodriguez and Angeles Diaz Rivera ("the Fagots"), own a house and surrounding property in San Juan, Puerto Rico. In September, 1991, the Fagots agreed to lease the property to Hilda Fournier and Angelo Greco Fournier ("the Fourniers") for two years, at a rate of $2,500 per month. Although the Fourniers were then the Consul and Vice-Consul of the Republic of Costa Rica, they signed the lease in their individual capacities. The lease agreement provided that the Fourniers were to use the property for residential purposes only and prohibited them from subleasing to third parties without the Fagots' prior written consent.

Notwithstanding the restrictions in the lease agreement, the Fourniers began to operate the Costa Rican Consulate ("the Consulate") from the property. The Fagots were unaware of their actions, however, and the Fourniers remained on the property without conflict for most of the two-year lease term. The trouble began in June of 1993, when — following a dispute over an air conditioner — the Fourniers failed to pay the monthly rent. On June 16, 1993, the Fagots notified the Fourniers by letter that the lease was terminated effective immediately, and that the Fourniers had to vacate the premises by July 16, 1993. The Fagots also demanded that the Fourniers pay them $10,000 — the total rent due for the balance of the lease term.¹

Two months passed, and the Fourniers neither vacated the property, nor paid the requested amount. On August 19, 1993, the Fagots sent another letter informing the Fourniers that "since a lease contract no longer exists that stipulates the rent to be paid for the use and enjoyment of the property, you will pay monthly, retroactively to July 16, 1993, the sum of $5,000.00, that is from the date you should have vacated the property." The letter specified that the new $5,000 rental charge was to be paid "for the months of July, August and September 1993."

Some time after mailing the August demand letter, the Fagots learned that the Fourniers had been operating the Consulate from the property.² On September 30, 1993 — the last day of the original lease term — they filed suit against the Fourniers, the Consulate, and the Republic of Costa Rica ("Costa Rica"), alleging breach of contract, personal injury, and damage to or loss of property. The complaint sought eviction as well as monetary damages.

The parties quickly filed a flurry of motions. The Fagots sought immediate eviction. Costa Rica and the Consulate rejoined with claims of sovereign immunity and inadequate service. In the meantime, the Fourniers and the Consulate remained on the property, still without paying rent. They finally vacated the property in October of 1994, 16 months after the Fagots terminated the lease.

In December of 1994, Costa Rica and the Consulate moved for summary judgment on the ground that they were immune from suit under the FSIA. The Fagots responded that the case fell into the exceptions to immunity for actions involving rights in immovable property, or arising out of commercial or tortious activity by a foreign state. The district court initially concluded that none of those exceptions applied and entered summary judgment for Costa Rica. Fagot Rodriguez v. Republic of Costa Rica, 934 F.Supp. 493 (D.P.R.1996) (Fagot Rodriguez I).³ The Fagots moved for reconsideration and for additional discovery. The court granted their requests and vacated its judgment. Eventually, the Fagots filed their own motion for summary judgment on the question of jurisdiction under the FSIA. This time, the court determined that the case could proceed under the commercial activity and tortious activity exceptions. Fagot Rodriguez v. Republic of Costa Rica, 99 F.Supp.2d 157 (D.P.R.1999) (Fagot Rodriguez II). After holding a hearing on the question of damages, it entered an order holding Costa Rica and the Consulate jointly liable with the Fourniers for non-payment of rent between August, 1993 and October, 1994. The court concluded that the Fourniers — but not Costa Rica and the Consulate — also were liable for rent due prior to August, 1993, and for property damage and mental distress. Fagot Rodriguez v. Republic of Costa Rica, 99 F.Supp.2d 170 (D.P.R.1999) (Fagot Rodriguez III). The Fagots again moved for reconsideration, arguing that Costa Rica and the Consulate were jointly liable for all damages. Again, the district court agreed to reconsider its judgment. However, instead of holding Costa Rica and the Consulate liable for more damages, it reverted to its earlier view that none of the exceptions provided a basis for jurisdiction under the FSIA, and dismissed the claims against Costa Rica and the Consulate. Fagot Rodriguez v. Republic of Costa Rica, 139 F.Supp.2d 173 (D.P.R.2001) (Fagot Rodriguez IV). This appeal followed.

II.

We review de novo the district court's conclusion that it lacked jurisdiction under the FSIA. See Honduras Aircraft Registry, Ltd. v. Gov't of Honduras, 129 F.3d 543, 546 (11th Cir.1997) (conducting de novo review of FSIA jurisdictional question); Export Group v. Reef Indus., Inc., 54 F.3d 1466, 1469 (9th Cir.1995) ("[T]he existence of subject matter jurisdiction under the FSIA is a question of law subject to de novo review."); cf. Irving v. United States, 162 F.3d 154, 162 (1st Cir. 1998) (en banc) (applying "plenary review" to the question of jurisdiction over the United States government under the Federal Tort Claims Act). As noted, the Fagots assert several bases for jurisdiction. First, they argue that Costa Rica⁴ can be held liable for non-payment of rent under the commercial activity exception, 28 U.S.C. § 1605(a)(2), based on an implied lease contract created by the August, 1993, demand letter. Second, they maintain that Costa Rica's use of the property amounted to a trespass, thus supporting jurisdiction under the tortious activity exception, id. § 1605(a)(5). Finally, the Fagots argue that they can recover for nonpayment of rent (or, in the alternative, damages for trespass) under the exception for actions involving "rights in immovable property," id., § 1605(a)(4). We address those claims in turn.

A. Commercial Activity

Under § 1605(a)(2), a foreign state is subject to jurisdiction in any case "in which the action is based upon a commercial activity carried on in the United States by the foreign state." The term "commercial activity" encompasses both "a regular course of commercial conduct" and "a particular commercial transaction or act." Id. § 1603(d). In assessing whether a certain transaction or course of conduct is commercial in character, courts must look to the "nature" of the activity rather than its "purpose." Id. Thus,

the question is not whether the foreign government [was] acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state perform[ed] (whatever the motive behind them) [were] the type of actions by which a private party engages in "trade and traffic or commerce."

Rep. of Argentina v. Weltover, Inc., 504 U.S. 607, 614, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992).

In order to qualify for the commercial activity exception, an action must be "based upon" commercial activity by the defendant foreign state. 28 U.S.C. § 1605(a)(2). The Supreme Court has explained that a claim is "based" on "those elements ... that, if proven, would entitle [the] plaintiff to relief under his theory of the case." Saudi Arabia v. Nelson, 507 U.S. 349, 357, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). Here, the Fagots seek damages for, inter alia, breach of contract. There is no dispute that contract formation is an essential element of that claim, and that entering into a contract for lease of property constitutes "commercial activity." See, e.g., Joseph v. Office of the Consulate General of Nigeria, 830 F.2d 1018, 1024 (9th Cir.1987); see also Walter Fuller Aircraft Sales, Inc. v. Rep. of the Philippines, 965 F.2d 1375, 1386 (5th Cir.1992) (noting the commercial nature of the making or breaching of a contract); Rush-Presbyterian-St. Luke's Med. Ctr. v. Hellenic Rep., 877 F.2d 574, 578 (7th Cir.1989) (noting that "contracts for the purchase or sale of goods or services are presumptively `commercial activities'"). The important question is whether Costa Rica in fact contracted with the Fagots for use of the property.

In the district court, the parties argued extensively over whether Costa Rica was bound by the original lease agreement between the Fourniers and the Fagots. The Fagots...