Magnus Electronics, Inc. v. Argentine Republic

• Decision Date: 07 May 1986
• Docket Number: No. 85 C 10557.,85 C 10557.
• Citation: Magnus Electronics, Inc. v. Argentine Republic, 637 F.Supp. 487 (N.D. Ill. 1986)
• Parties: MAGNUS ELECTRONICS, INC., Plaintiff, v. ARGENTINE REPUBLIC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

637 F. Supp. 487

MAGNUS ELECTRONICS, INC., Plaintiff, v. ARGENTINE REPUBLIC, Defendant.

No. 85 C 10557.

United States District Court, N.D. Illinois E.D.

May 7, 1986.

Scott A. Brainerd, Brainerd & Bridges, Chicago, Ill., for plaintiff.

Gordon B. Nash, Gardner, Carton & Douglas, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER¹

SHADUR, District Judge.

Magnus Electronics, Inc. ("Magnus") has sued the Argentine Republic ("Argentina") for damages for converting Magnus' goods. Argentina has now moved under Fed.R.Civ.P. ("Rule") 12(b)(1) to dismiss Magnus' Complaint² for lack of subject matter jurisdiction.³ Argentina also seeks reimbursement of its expenses under Rule 11. For the reasons stated in this memorandum opinion and order, the first motion is granted, while the second is granted in part and deferred in part.

Facts⁴

In October 1981 Magnus entered into a written contract to sell goods to Argentine purchaser Alfredo DiLullo ("DiLullo") (¶ 2). Magnus' understanding was that DiLullo bought the goods for resale to Argentina after he had been the low bidder in a competitive bidding process (¶ 3). Under the sale contract Magnus was to deliver the goods to DiLullo in Buenos Aires through the Royal Bank of Canada ("Bank") (¶ 4), which in turn was to deliver the goods to DiLullo only against payment of the purchase price (¶¶ 4 and 6). Magnus hired a freight forwarder to ship the goods from Chicago to Miami (¶ 5). On October 19 the goods were delivered to Aerolineas Argentinas ("Aerolineas") under an airway bill that designated Bank as sole consignee (¶ 5).

In early November Aerolineas flew the goods from Miami to Buenos Aires (¶ 7). On November 11 agents of Aerolineas and the Argentine Air Force "conspired together" and seized the goods in Argentine customs (¶ 8). At least one forged document was used to implement that conversion (id.). Aerolineas and DiLullo then "conspired" to conceal that conversion (¶ 10).

Magnus also alleges:

7. Aerolineas, a wholly-owned instrumentality and agent of the Argentine government is a "foreign state" within the parameters of 28 U.S.C. § 1603. Aerolineas carries on "commercial activity" within the United States on behalf of Argentina and has substantial contact with the United States; it regularly conducts business operations throughout the United States. Indeed, Aerolineas, a corporation whose profits inure to the benefit of the Argentine government, is an alter-ego of Argentina.

* * * * * *

11. Argentina's conspiring with and use of its wholly-owned instrumentality and agent, Aerolineas, a commercial agent which does business in and regularly exercises the privileges and benefits of protections of conducting business in the United States, subjects Argentina to suit under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2), in its first and third clauses. The cause of action herein set forth arises out of a commercial activity maintained by Argentina in the United States. Aerolineas', Argentina's and DiLullo's conspiring to cause plaintiff injury in the United States has proximately and foreseeably caused tortious financial injury to plaintiff corporation in the United States.

As n. 6 reflects, the Complaint also includes some brief conclusory allegations about the alleged Argentina-Aerolineas relationship.

Subject Matter Jurisdiction

Magnus' Complaint ¶ 1 first seeks to ground this Court's jurisdiction on diversity of citizenship under 28 U.S.C. § 1332.⁵ But Argentina, as a sovereign state, is amenable to suit only under the Foreign Sovereign Immunities Act of 1976 (the "Act"), Sections 1330 and 1602-1611. As Frolova v. Union of Soviet Socialist Republics, 761 F.2d 370, 372 (7th Cir.1985) put it:

The comprehensive scheme established by the Act is the exclusive means by which foreign countries may be sued in American courts.

This very point was made (and the same Frolova language was quoted) in this Court's opinion (the "Opinion," 620 F.Supp. 387) dismissing Magnus' earlier-filed lawsuit (84 C 7630, "Magnus I"). It is nothing less than irresponsible for Magnus' counsel to have advanced this wholly groundless diversity basis for jurisdiction.

Apparently in tacit (though belated) recognition of that groundlessness, Magnus' memorandum on the current motion does not assert Section 1332 as a jurisdictional source (though no explanation is given for having alleged it in the first place). Instead Magnus attempts to invoke this Court's jurisdiction under the first and third clauses of Section 1605(a)(2):

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —

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(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or 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.

On that score Magnus argues:

1. Aerolineas acted as Argentina's "agent" (¶¶ 7, 10, 11), "wholly-owned instrumentality" (¶¶ 7, 11) and "alter-ego" (¶ 7). Hence Magnus claims Aerolineas' United States activities constitute "a commercial activity carried on in the United States" by Argentina within the first clause of Section 1605(a)(2).

2. Under the last clause of Section 1605(a)(2), Magnus' financial loss in the United States was a "direct effect" of Argentina's theft of the goods in Buenos Aires.

Argentina disputes both those contentions.

What is dispositive as to those legal theories, however, is Argentina's related claim that the Opinion and Magnus I itself bar this action on res judicata grounds.⁶ Because that argument prevails and is fatal to Magnus' present action (except perhaps as to facts newly-alleged in the Complaint), this opinion initially addresses the parties' substantive contentions in that matrix.

Res judicata principles encompass both "claim preclusion," which prohibits litigants from splitting a single cause of action into more than one proceeding, and "issue preclusion," which forbids litigants from relitigating issues actually resolved in an earlier proceeding. Migra v. Warren City School District, Board of Education, 465 U.S. 75, 77 n. 1, 104 S.Ct. 892, 894 n. 1, 79 L.Ed.2d 56 (1984) thoroughly explains that terminology. Claim preclusion applies to bar theories that were or that could have been raised in the prior case, Nevada v. United States, 463 U.S. 110, 129-30, 103 S.Ct. 2906, 2917-18, 77 L.Ed.2d 509 (1983):

Simply put, the doctrine of res judicata provides that when a final judgment has been entered on the merits of a case, "it is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Cromwell v. County of Sac, 94 U.S. (4 Otto. 351) 351, 352 24 L.Ed. 195 (1877). The final "judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever." Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948).

Here Magnus' Complaint plainly alleges the same "cause of action" over which this Court earlier concluded it lacked subject matter jurisdiction. Magnus simply advances a new theory of jurisdiction over that selfsame cause of action. What res judicata teaches is that because Magnus had the ability to (but did not) assert that theory to refute Argentina's challenge to this Court's jurisdiction in Magnus I, this Court's decision the first time around precludes relitigation of that issue now.

Lest there be any question on that score, Magnus Mem. 1 makes the relationship between this action and Magnus I plain:

The instant complaint is a re-filing of Magnus Electonics sic, Inc. v. The Argentine Republic, No. 84 C 7630 (N.D. Ill., 1984) (Shadur, J.). Facts underlying the instant cause of action are detailed in the record of that and the present case, and are well known to this Court.

And Magnus Mem. 15 n. 8 says:

Although not mentioned or raised by defendant, this Court speculated in open Court on March 21, 1985 sic — should be 1986, on the question of whether plaintiff's refiling of this action was barred by the doctrine of res judicata. Plaintiff respectfully submits that crucial facts and legal theories were not before the Court in its Oct. 8, 1985 Opinion.

But what is conspicuously absent from Magnus' submission is any statement that the asserted "crucial ... legal theories" were not equally available to Magnus and its counsel at the time of Magnus I. They clearly were.

Despite that, Magnus Mem. 15 n. 8 suggests the dismissal of Magnus I for lack of subject matter jurisdiction has no res judicata effect on Magnus' present action. That contention wholly lacks merit as to the key issue here: the existence vel non of subject matter jurisdiction itself. Oglala Sioux Tribe of Pine Ridge Indian Reservation v. Homestake Mining, 722 F.2d 1407, 1411 (8th Cir.1983) states the applicable rule:

Res judicata, however, applies to questions of jurisdiction as well as to other issues.... Dismissal of a suit for lack of subject matter jurisdiction precludes relitigation of the same issue of subject matter jurisdiction in a second federal suit on the same claim. 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4402, at 11.

And see Harper Plastics, Inc. v. Amoco Chemicals Corp., 657 F.2d 939, 943 (7th Cir.1981). Magnus simply cannot refile its lawsuit every time it dreams up a new theory of subject matter jurisdiction.

That doctrine clearly bars this action if what Magnus Mem. 15 n.8 characterizes as newly-advanced "crucial facts" were not crucial at...