Randolph v. Budget Rent-A-Car, RENT-A-CA

Decision Date23 September 1996
Docket NumberD,Nos. 95-55402,RENT-A-CA,95-55465,A-C,s. 95-55402
Parties113 Ed. Law Rep. 79, 96 Cal. Daily Op. Serv. 7082, 96 Daily Journal D.A.R. 11,602 John RANDOLPH; Johanne Randolph, Plaintiffs-Appellees, v. BUDGETefendant, and Saudi Arabian Airlines, Defendant-Appellant. John RANDOLPH; Johanne Randolph, Plaintiffs-Appellees, v. AUTOMATED TRANSPORTATION, INC., dba, Budget Rent-ar ("Budget"), Defendant-Appellant, and Saudi Arabian Airlines, Defendant.
CourtU.S. Court of Appeals — Ninth Circuit

Honey Kessler Amado, Beverly Hills, California; Edward J. Horowitz, Los Angeles, California, for Plaintiffs-Appellees.

Stephen T. Swanson, Arter & Hadden, Los Angeles, California; Jay T. Rubin, Brumer, Rubin & Weston, Los Angeles, California; Henry J. Oechler, Jr., Chadbourne & Parke, Los Angeles, California, for Defendants-Appellants.

Appeals from the United States District Court for the Central District of California, A. Andrew Hauk, District Judge, Presiding. D.C. No. CV-93-05087-AAH.

Before: D.W. NELSON, T.G. NELSON and THOMAS, Circuit Judges.

OPINION

THOMAS, Circuit Judge:

This case presents the question of whether an instrumentality of a foreign nation may be held liable for negligent torts committed by a scholarship student trainee in the United States. We hold that the Foreign Sovereign Immunities Act precludes federal jurisdiction for such an action and reverse the district court's judgment against Saudi Arabian Airlines ("Saudia").

I. Facts and Procedural History

Fahad Abdullah Maghrabi (Maghrabi) is a subject of the Kingdom of Saudi Arabia who received a scholarship from an ongoing Saudia training program to study English and aircraft maintenance in the United States. Saudia provided Maghrabi with money for various living expenses, including clothing, medical and dental insurance, and books and tools needed for school. Saudia did not withhold taxes from any of the payments it made to Maghrabi as it normally does for its U.S. employees. Maghrabi was not promised he would be employed by Saudia after finishing his studies in the United States. Rather, he would be eligible to be considered for employment only after successfully completing additional training in Saudi Arabia.

Maghrabi signed a "Personal Responsibility" statement as a condition to participating in the training program which reads as follows:

I, the undersigned, understand that while I am in the United States as a student, I am solely responsible for my actions. If I intend to drive while in the United States, I will obtain a valid driver's license for the State in which I reside and will acquire sufficient insurance for protection against personal liability and property damage.

I understand that Saudia's sole interest in my activities in the United States is to have me meet the academic standards of my school and that Saudia does not supervise or control my personal conduct while in the United States. I further understand that my personal conduct is my own responsibility and that failure to conduct myself properly may be considered by Saudia in any subsequent offer of employment.

I further understand that the choice of whether to purchase or rent any vehicle is entirely up to me and that I am solely responsible for the costs of such vehicle, including the purchase price, rental and any insurance I may be required to carry.

Maghrabi studied English at Northrop University in Santa Monica, California from June 1990 to September 1991. He then moved to San Antonio, Texas, where he studied airframe and power mechanics at the Hallmark Institute of Technology, graduating on January 15, 1993. After graduation but before his scheduled return to Saudi Arabia on February 4, 1993, Maghrabi personally purchased a round-trip ticket from San Antonio to Los Angeles.

Saudia employees, unlike student trainees, are eligible for discounted travel on U.S. airlines. Maghrabi received neither reimbursement nor discount for his air travel from Saudia. He flew to Los Angeles on January 22, 1993 and personally rented a car from Budget. On January 26, 1993, in Malibu, California, Maghrabi negligently crashed his rented automobile into John Randolph's motorcycle, injuring his knee, left hand and pelvis.

John and Johanne Randolph filed this action against Maghrabi, Saudia, and Budget in Los Angeles Superior Court to recover damages for John Randolph's injuries and Johanne Randolph's loss of consortium. Saudia, a corporation wholly owned by the Saudi Arabian government, removed the action to federal district court pursuant to 28 U.S.C. § 1441(d) and asserted the Foreign Sovereign Immunities Act as a defense.

The district court denied Saudia's and granted Randolph's motion for summary judgment, ruling as a matter of law that Maghrabi was a Saudia employee acting within the scope of his employment at the time of the accident.

After a bench trial on damages, the district court entered a judgment of $914,253.83 against Saudia and $30,000 against Budget Rent-A-Car ("Budget"). Both Budget and Saudia appealed.

II. Jurisdiction Under the Foreign Sovereign Immunities Act

The threshold issue in this case is whether jurisdiction exists. Although neither party challenged the district court's jurisdiction on appeal, we are obliged to raise sua sponte issues concerning district courts' subject matter jurisdiction. Benavidez v. Eu, 34 F.3d 825, 830 (9th Cir.1994). This examination is particularly important in appeals examining the liability of foreign governments and their instrumentalities. Security Pac. Nat'l Bank v. Derderian, 872 F.2d 281, 283 (9th Cir.1989).

The Foreign Sovereign Immunities Act ("FSIA") is the exclusive basis for federal jurisdiction over a suit involving an agency or instrumentality of a foreign state. Export Group v. Reef Industries, 54 F.3d 1466, 1469 (9th Cir.1995). Federal jurisdiction does not attach until it is determined that the foreign sovereign lacks immunity under the provisions of the FSIA. Security Pac. Nat'l Bank, 872 F.2d at 283. As a question of law, we review the existence of subject matter jurisdiction under the FSIA de novo. Export Group, 54 F.3d at 1469. The district court's findings of fact relevant to its determination of subject matter jurisdiction must be accepted unless clearly erroneous. Wang v. Reno, 81 F.3d 808, 813 (9th Cir.1996).

The FSIA creates a statutory presumption that a foreign state is immune from suit unless one of the exceptions to immunity enumerated in 28 U.S.C. §§ 1605 to 1607 applies. 28 U.S.C. § 1604. Once a plaintiff offers evidence that an exception to immunity applies, the defendant bears the burden of proving by a preponderance of the evidence that the exception does not apply. Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 707-08 (9th Cir.1992), cert. denied, 507 U.S. 1017, 113 S.Ct. 1812, 123 L.Ed.2d 444 (1993).

Under the FSIA, an "agency or instrumentality of a foreign state" includes a corporation wholly owned by a foreign state, such as Saudia. 28 U.S.C. § 1603(b). Thus, Saudia is immune from suit unless a statutory exception exists.

A. The Commercial Activity Exception.

The district court exercised jurisdiction under the FSIA "commercial activity" exception contained in 28 U.S.C. § 1605(a)(2), which provides that a foreign sovereign is not immune to suits:

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.

The commercial activity exception only applies when "the particular conduct giving rise to the claim in question actually constitutes or is in connection with commercial activity." Joseph v. Office of Consulate Gen. of Nig., 830 F.2d 1018, 1023 (9th Cir.1987), cert. denied, 485 U.S. 905, 108 S.Ct. 1077, 99 L.Ed.2d 236 (1988) (quoting Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1379 (5th Cir.1980)). The FSIA requires courts to evaluate the nature rather than the purpose of the conduct in question. Id. Not only must the act in question be transactionally based, but the sovereign must be acting as a market participant, rather than a market regulator. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614, 112 S.Ct. 2160, 2166, 119 L.Ed.2d 394 (1992). The conduct involved here was not founded upon commerce, nor was it transactional in nature. Plaintiffs do not allege commercial loss. Rather, plaintiffs' personal injury lawsuit sounds in tort and centers on the non-commercial negligence of a purported employee. Because the questioned activity is non-business in nature, the commercial activity exception does not apply.

In addition, the plaintiff's cause of action must arise from the defendant's commercial activity in the United States. Gould, Inc. v. Mitsui Mining & Smelting Co., 947 F.2d 218, 221 (6th Cir.1991), cert. dismissed, 503 U.S. 978, 112 S.Ct. 1657, 118 L.Ed.2d 317 (1992). In other words, not only must the activity be commercial in nature, but the commercial activity must cause the harm alleged. In determining whether this required nexus has been established, the courts focus only on those specific acts that form the basis of the lawsuit. Joseph, 830 F.2d at 1023.

Here, a student trainee on a Saudia scholarship took a trip away from his Texas school to California at his own expense. While there, he negligently drove a privately-rented vehicle and injured a motorcyclist. The specific acts of which plaintiff complains did not arise out of Saudia's commercial activity in the United States. Accordingly, even though Saudia did not raise this issue either in district court or on appeal, we find that the district court clearly erred in...

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