Practical Concepts, Inc. v. Republic of Bolivia

Decision Date29 August 1985
Docket NumberCiv. A. No. 82-3706.
Citation615 F. Supp. 92
CourtU.S. District Court — District of Columbia

Neil I. Levy, Melrod, Redman & Gartlan, Washington, D.C., for plaintiff.

William R. Joyce, Jr., Thomas T.F. Huang, Vance, Joyce, Carbaugh & Huang, Washington, D.C., for defendant.

L. Marc Zell, Topf, Zell, Kolodny & Goldlstein, Bethesda, Md., for garnishee.



This matter comes before the Court upon the motion of plaintiff, Practical Concepts, Inc. ("PCI"), to reconsider its Memorandum Opinion and Order of July 11, 1985, 613 F.Supp. 863. In that ruling the Court decided, among other issues, whether the action was based upon a "commercial activity" within the meaning of the Foreign Sovereign Immunities Act ("FSIA" or "the Act"), 28 U.S.C. § 1605(a)(2) (1982). The Court applied the test of Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2nd Cir.1981, cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982) and held that the activity at issue was not commercial since "many of the obligations undertaken by Bolivia in the contract contemplated activity in which, by nature, a private party could not engage." Mem.Op. at 18, citing Gibbons v. Udaras na Gaeltachta, 549 F.Supp. 1094, 1110 n. 6 (S.D.N.Y.1982). PCI believes that these obligations are "incidental" to the contract and "do not affect the essence of the bargained-for exchange, namely, consulting services for payment." Pl.Mem. at 3.1 Since the Act itself does not define "commercial activity," PCI relies almost entirely upon the legislative history. H.Rep. No. 94-1487, 94th Cong., 2d Sess. 16 (1976), U.S.Code Cong. & Admin.News 1976, pp. 6604, 6614 (hereinafter "House Report").

The Court adheres to its decision. The House Report states that "a single contract, if of the same character as a contract which might be made by a private person, could constitute a commercial activity." Id. (emphasis added). This is exactly the analysis undertaken by the Court in its Memorandum Opinion. Stated only somewhat differently, a court presented with a contract action against a foreign state must determine whether the state, in entering the contract, "acted in a sovereign or essentially private capacity." Trans-american Steamship Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002 (D.C.Cir.1985). Where, as here, a state exempts a private party from taxation, grants preferential bureaucratic treatment, and diplomatic privileges, it is acting in a sovereign capacity.

To hold, as PCI urges, that because they are "essentially" private acts, contracts are per se actionable under the FSIA, would be to read the underscored qualification out of the House Report. This is precisely the sort of wooden approach which Congress rejected when it left the term "commercial activity" deliberately vague and instead entrusted the courts with "a great deal of latitude" to define it. H.Rep. at 16. In executing that commission, the Court has given a purposive, rather than a mechanical, construction to the Act.

The Act confers jurisdiction where the action is "based upon a commercial activity." The basis of the present action is the contract between PCI and Bolivia. Therefore, as PCI recognizes, that contract must be viewed "as a whole," Pl.Mem. at 2, and it would be wrong to sift out whichever of its terms do not support a certain preconceived characterization of its nature.

Although contracts for goods or services may presumptively be "commercial activity," courts have not, as mentioned in the Memorandum Opinion, shown any reflexive tendency to treat all contractual activity as "commercial" without first examining whether the activity is of a kind in which a private party might engage. E.g., Gittler v. German Information Center, 95 Misc.2d 788, 408 N.Y.S.2d 600 (Sup.Ct.1978) (no FSIA jurisdiction over suit on contract to produce motion pictures).2 The same point has been made by a commentator:

A section-by-section analysis of the Act published in a House Report implies that the sale of a service is an inherently commercial act. Nevertheless, cases indicate that courts will make fine distinctions in this area.

Note, Establishing Jurisdiction Under the Commercial-Activities Exception to the Foreign Sovereign Immunities Act of 1976, 19 Hous.L.Rev. 1003, 1013 (1982), citing, inter alia, Castro v. Saudi Arabia, 510 F.Supp. 309, 312 (W.D.Tex.1980). The Note goes on to observe that where, as here, the contract pertains to development of a nation's natural resources, courts have examined the jurisdictional question with special care. Id. at 1014.

The Court is unaware of any case, other than the hypothesis in Gibbons, supra, that decides whether a contract for goods or services loses its presumptively commercial character by the associated exercise of fundamental sovereign powers.3 It is not true, as PCI suggests, that a foreign state could easily evade the intended jurisdiction of American courts by incorporating promises to perform sovereign acts into otherwise commercial contracts. A foreign state could not unilaterally change a "commercial" contract into a "governmental" one, any more than a private party could unilaterally insert a waiver of immunity or arbitration clause into the same contract. The essence of contract is mutuality. Since the commercial activity exception is rooted in the concepts of estoppel and reliance, it is reasonable to say that when a private party bargains for and agrees to accept the benefit of a state's exercise of its sovereign powers, that party should not be surprised when the state invokes its sovereign right of immunity.

PCI argues that "Congress clearly intended to subject AID grant contracts to the jurisdiction of the United States courts" and that the Court's holding defeats that intention since the provisions on which it relied "are required as an integral part of the AID program." Pl.Mem. at 6-7. First, the Court divines no such Congressional intention. The only direction of the House Report is that AID participation is irrelevant to the nature of the activity. If Congress had so clearly intended American courts to have jurisdiction, it could easily have mandated, through regulation, a waiver of immunity clause in all AID grant contracts. Second, the Court finds it significant that PCI cannot cite AID regulations requiring most of the provisions of this contract on which the Memorandum Opinion relied,...

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1 cases
  • Practical Concepts, Inc. v. Republic of Bolivia
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • March 6, 1987
    ...1604-1605, shielded Bolivia from PCI's lawsuit. Practical Concepts, Inc. v. Republic of Bolivia, 613 F.Supp. 863, recon. denied, 615 F.Supp. 92 (D.D.C.1985). Having ruled dispositively on the threshold jurisdictional issue, the district court did not reach Bolivia's alternate pleas, includi......

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