Matter of Sedco, Inc.

• Decision Date: 30 March 1982
• Docket Number: H-79-2389,H-79-2157,H-79-2436 and H-81-120.,Civ. A. No. H-79-1880,H-79-1982
• Parties: In the Matter of the Complaint of SEDCO, INC., as Owner of the Mobil Drilling Unit Sedco 135, its Engines, Tackle, Apparel, etc., in a Cause of Exoneration from or Limitation of Liability.
• Court: U.S. District Court — Southern District of Texas

543 F. Supp. 561

In the Matter of the Complaint of SEDCO, INC., as Owner of the Mobil Drilling Unit Sedco 135, its Engines, Tackle, Apparel, etc., in a Cause of Exoneration from or Limitation of Liability.

Civ. A. Nos. H-79-1880, H-79-1982, H-79-2157, H-79-2389, H-79-2436 and H-81-120.

United States District Court, S. D. Texas.

March 30, 1982.

COPYRIGHT MATERIAL OMITTED

Theodore C. Dimitry, Eugene Silva, H. S. Morgan, Harold Watson, Vinson & Elkins, Francis Spagnoletti, Houston, Tex., for Sedco, Inc., petitioner.

Ted Hirtz, B. D. Daniel, Dave Elmers, Hirtz & McDonough, Houston, Tex., for Permargo.

Finis E. Cowan, Joseph Cheavens, Baker & Botts, Thomas Matlock, Houston, Tex., for Pemex.

Joseph D. Jamail, Richard Mithoff, Jamail & Kolius, Houston, Tex., for George F. Haylock, et al.

W. James Kronzer, Kronzer, Abraham & Watkins, Houston, Tex., Rollins M. Koppel, Michael Ezell, Koppel, Ezell & Deane, Harlingen, Tex., Roger Robinson, Raymondville, Tex., Paul Cunningham, Jr., South Padre Island, Tex., for Willacy County Navigation Dist., et al.

Sidney Ravkind, Mandell & Wright, Houston, Tex., Richard C. Arroyo, Brownsville, Tex., for Troy Giles, et al.

Douglas Caroom, Ken Cross, Austin, Tex., for Mark White, etc., et al.

William Robins Brice, Royston, Rayzor, Vickery & Williams, Houston, Tex., for Exploration Loggins, S. A.

Jack Shepherd, Asst. U. S. Atty., Houston, Tex., Wells D. Burgess, Charles W. Findlay, Washington, D. C., for United States of America.

Michael R. Ezell, Koppel, Ezell & Deane, Harlingen, Tex., Jack G. Carinhas, Jr., Carinhas, Dale & Morros, Brownsville, Tex., for AHCO, Inc., et al.

Norbert John Wilcox, pro se and for Terree Ann Wilcox.

Isabel C. Pelton, interpreter.

MEMORANDUM AND ORDER

O'CONOR, District Judge.

Introduction

The 1979 IXTOC I well disaster in the Bay of Campeche has produced a tangle of litigation. Before the Court, at this time, is a series of jurisdictional issues which must be untangled before discovery on the merits can begin. Each of these issues has been exhaustively briefed and oral argument by the parties was heard on October 5, 1981 and on December 14-15, 1981. The Court will consider each of these issues individually.

Pemex

Petroleos Mexicanos (Pemex), which is both a direct defendant to certain private and public plaintiffs and a third party defendant to claims asserted by Sedco, has moved to be dismissed from all claims on the basis of the grant of sovereign immunity provided by the Foreign Sovereign Immunity Act, 28 U.S.C. § 1602 et seq. (FSIA). By asserting this motion, Pemex alleges that this Court lacks jurisdiction to hear claims based upon acts purportedly done in its capacity as a foreign sovereign. The issues raised by such a motion strike to the very heart of the international nature of the IXTOC I disaster.

Federal courts generally have jurisdiction over actions against foreign states pursuant to 28 U.S.C. § 1330(a). This section provides that original subject matter jurisdiction lies in federal district courts "as to any claim for relief in personam with respect to which the foreign state is not entitled immunity under the FSIA or under any applicable international agreement." Personal jurisdiction over the foreign state is achieved through service of process under 28 U.S.C. § 1608 which provides for special service through international channels. 28 U.S.C. § 1330(b). In the present consolidated action, Pemex has not attacked the manner of service but, instead, has stridently asserted that it may avail itself of the immunity granted by the FSIA. 28 U.S.C. § 1604.

Prior to the passage of the FSIA, the doctrine of foreign sovereign immunity underwent a transformation. Initially, a foreign state was absolutely immune to suit in the Courts of the United States because a sovereign could not sit in judgment over an equal. Schooner Exchange v. M'Faddon, 11 U.S. (7 Cranch) 116, 3 L.Ed. 287 (1812). Gradually, a more restrictive view of the immunity evolved and was adopted by the United States State Department in 1952 through the now famous Tate letter. This restrictive view held foreign states accountable in U.S. courts for their private acts (jure gestionis) while they remained immune for their public acts (jure imperii). In pre-FSIA cases, courts often deferred to the State Department recommendation concerning immunity, see e.g., Republic of Mexico v. Hoffman, 324 U.S. 30, 65 S.Ct. 530, 89 L.Ed. 729 (1945); Spacil v. Crowe, 489 F.2d 614 (5th Cir. 1974), creating an inconsistent utilization of the doctrine. To alleviate this problem and to regularize the standards used by the judiciary in determining the scope of foreign sovereign immunity, Congress passed the FSIA in 1976. See generally Report of House Judiciary Committee Nos. 94-1487, reprinted in 1976 U.S.Code Cong. & Admin.News 6604. (House Report).

Generally, the statute grants immunity to foreign states and their agencies or instrumentalities, 28 U.S.C. § 1604. It thereafter creates five exceptions to this grant of immunity, of which two have been asserted by Plaintiffs in the present case: the "commercial activity" exception 1605(a)(2); and the "noncommercial tort" exception 1605(a)(5). Once a basis for jurisdiction is alleged, the burden of proof rests on that foreign state to demonstrate that immunity should be granted. Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1378 (5th Cir. 1980).

Section 1605(a)(2) — Commercial Activity Exception

Foreign states are denied immunity where they step down from their sovereign status and engage in commercial activity. The third clause of § 1605(a)(2), applicable here, requires that the lawsuit be based on acts in connection with commercial activity performed outside the United States which has direct effects in the United States. Therefore, this Court must first determine if Pemex is an agency or instrumentality of Mexico. If it is so found, the Court must then consider whether the acts of Pemex made the basis of this lawsuit were done in connection with commercial activity as contemplated by the act. Finally, if commercial in nature, the Court must determine whether the acts directly affected the United States.

Petroleos Mexicanos was created in 1938 as a decentralized governmental agency charged with the exploration and development of Mexico's hydrocarbon resources. Unlike in the United States, the government of Mexico owns its country's natural resources, in particular, its hydrocarbon deposits. Mex. Political Const. art. 27. The Regulatory Law passed pursuant to the Mexican Constitution specifically creates a national oil company, Pemex, to implement the National Development Plan for hydrocarbon resources. Pemex is not privately owned and is governed by a council (Consejo de Administracion) composed of Presidential appointees. Decisions made by the governing council are made in furtherance of Mexican National policy concerning its Petroleum resources. Beyond a doubt, Pemex is a "foreign state" as contemplated by § 1603(a) of the FSIA. See Carey v. National Oil Corp., 592 F.2d 673 (2nd Cir. 1979) (holding the government owned Libyan oil corporation was a foreign state for purpose of FSIA.)

Whether Pemex was engaged in commercial activity when it performed the acts complained of by Plaintiffs in this lawsuit is a difficult issue. The statute generally defines "commercial activity" as:

a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

28 U.S.C. § 1603(d). Undeniably, Pemex, as a national oil company, engages in a substantial amount of commercial activity. See e.g., S. T. Tringali Co. v. The Tug Pemex XV, 274 F.Supp. 227 (S.D.Tex.1967). However, this Court must focus on the specific acts made the basis of the present lawsuit in applying the FSIA. It is whether these particular acts constituted or were in connection with commercial activity, regardless of the defendant's general commercial or governmental nature that is in issue. Arango, supra at 1379; Yessenin Volpin v. Novosti Press Agency, 443 F.Supp. 849, 855-56 (S.D.N.Y.1978). The FSIA, unfortunately, provides little guidance in this determination, giving wide latitude to the judiciary to consider each case on its own facts. House Report, supra at 6615; Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308-09 (2nd Cir. 1981). Thus, this Court must decide whether the case before it is one which Congress intended it to hear.

There is little doubt that where a foreign nation enters into the world marketplace to purchase or sell goods, it has engaged in commercial activity for purposes of the FSIA. For example, in Texas Trading, supra, Nigeria entered into private contracts to purchase cement with companies throughout the world. Payment for the cement was based on a letter of credit arrangement between the Central Bank of Nigeria and Morgan Guaranty Trust Company of New York. The Second Circuit Court of Appeals concluded that a cause of action arising from the alleged breach of the cement contracts with American companies was the type of commercial activity envisioned by Congress when it enacted the FSIA. Id. at 310.

This is not to say that every act done by a foreign state which could be done by a private citizen in the United States is "commercial activity" under § 1605(a)(2). Such a world view unrealistically denies the existence of other types of governments and economic systems. In Arango v. Guzman Travel Advisors Corp., supra, the Fifth Circuit Court of Appeals held that the Dominican Republic could be sued in federal court through its state airline, Dominicana, for breach of contract based on miscarriage and nonperformance of a vacation tour. Id. at 1380. However, the Dominican Republic could not be sued for the alleged...