Rote v. Zel Custom Mfg. LLC, 15–3156.

• Citation: 816 F.3d 383
• Decision Date: 07 March 2016
• Docket Number: No. 15–3156.,15–3156.
• Parties: Troy ROTE; Amanda Rote, Plaintiffs–Appellees, v. ZEL CUSTOM MANUFACTURING LLC, et al., Defendants, Dirección General De Fabricaciones Militares, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

816 F.3d 383

Troy ROTE; Amanda Rote, Plaintiffs–Appellees,

v. ZEL CUSTOM MANUFACTURING LLC, et al., Defendants,Dirección General De Fabricaciones Militares, Defendant–Appellant.

No. 15–3156.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 8, 2015.

Decided and Filed: March 7, 2016.

Rehearing En Banc Denied April 14, 2016.

ARGUED:Lawrence D. Walker, Taft Stettinius & Hollister LLP, Columbus, Ohio, for Appellant. Daniel N. Abraham, Colley Shroyer & Abraham Co., LPA, Columbus, Ohio, for Appellees. ON BRIEF:Lawrence D. Walker, Taft Stettinius & Hollister LLP, Columbus, Ohio, for Appellant. Daniel N. Abraham, Colley Shroyer & Abraham Co., LPA, Columbus, Ohio, for Appellees.

Before: KEITH, CLAY, and WHITE, Circuit Judges.

KEITH

, J., delivered the opinion of the court in which CLAY and WHITE, JJ., joined. WHITE, J. (pp. 397–98), delivered a separate concurring opinion.

OPINION

DAMON J. KEITH

, Circuit Judge.

Plaintiff Troy Rote injured his right hand when a round exploded as he loaded a rifle at a residence in Sunbury, Ohio. The round that exploded was allegedly manufactured by Defendant Fabrica Militar Fray Luis Beltran a/k/a Dirección General Fabricaciones Militares ("DGFM"). Rote and his wife (collectively, "Plaintiffs") filed this negligence and products-liability suit against several defendants, including DGFM.

DGFM moved to dismiss the Third Amended Complaint (or, "Complaint") for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1)

. In support of its motion, DGFM argued that, as an instrumentality of the Republic of Argentina, it is immune from suit under the Foreign Sovereign Immunities Act ("FSIA" or "Act"), 28 U.S.C. § 1602 et seq. In response, Plaintiffs argue that the "commercial activity" exception to the Act applies, and hence, DGFM is not immune. The district court denied the 12(b)(1) motion and DGFM appeals. For the reasons set forth below, we AFFIRM the district court's decision denying the motion.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Plaintiffs' Allegations in the Complaint.

For purposes of reviewing DGFM's Rule 12(b)(1)

motion, we take note of the following relevant allegations in the Complaint:

Troy Rote was invited to Gary and Judith Buyer's house, located in Sunbury, Ohio. (Third Am. Compl. ¶¶ 21–22.) On or about September 10, 2011, Rote, along with twelve to fifteen other guests, arrived at the Buyers' home. (Id. ¶ 21.) One of those guests, Edward Grimm, brought a rifle, consisting of a ".50 caliber upper and AR–15 lower receiver," as well as some ammunition. (Id. ¶ 23.) Grimm assembled the 0.50 caliber upper receiver and the lower receiver at the residence. (Id. ¶ 24.)

At Grimm's invitation, five or six guests fired the rifle. (Id. ¶ 25.) Grimm also invited and encouraged Rote to fire the rifle and provided loading and firing instructions. (Id. ¶ 27.) As Rote loaded the rifle, and before the bolt moved into a closed-and-secured position, the round exploded and a "loud sound" was heard. (Id. ¶¶ 28, 29.) Rote "sustained severe damage to his right hand." (Id. ¶¶ 28, 34.) The round that exploded came from a "box of ammunition bearing marks identifying it as being manufactured by [DGFM]." (Id. ¶ 34.) The allegedly defective ammunition was purchased online through a New Jersey-based company, Ammoman. (Id. ¶¶ 8, 33.) The Complaint does not indicate from whom Ammoman purchased the ammunition.

Plaintiffs allege that DGFM "designed, manufactured, and sold and/or otherwise introduced into the stream of commerce" the ammunition. (Id. ¶ 62.) Plaintiffs also allege that DGFM's wrongful acts consisted of defectively designing and manufacturing the rounds to have a "protruding primer." (See id. ¶ 106.) Plaintiffs further allege that DGFM failed to provide adequate warnings about the dangerous condition posed by this protruding primer. (Id. ¶¶ 90–93.)

Plaintiffs assert the following claims against DGFM: (1) product liability under Ohio Rev.Code Ann. §§ 2307.74

, 2307.75, and 2307.77 ; (2) supplier liability under Ohio Rev.Code Ann. § 2307.78 ; and (3) loss of consortium.

B. District court decision.

DGFM moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1)

, arguing that, as an instrumentality of the Republic of Argentina, it is immune from suit under the Act. The district court denied the motion. Rote v. Zel Custom Mfg., No. 2:13–cv–1189, 2015 WL 570973, at *10 (S.D.Ohio Feb. 11, 2015). In support of its ruling, the court held that the design and manufacture of the ammunition qualified as "commercial activity." Id. at *6–7. The court also noted that DGFM's actions caused a "direct effect" in the United States. Id. at *10. Thus, the commercial-activity exception to the FSIA applied and DGFM was not immune from suit. Id. at *1. DGFM timely appealed.

II. STANDARD OF REVIEW

An order denying a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1)

is reviewed de novo. Westfield v. Fed. Republic of Germany, 633 F.3d 409, 413 (6th Cir.2011). Rule 12(b)(1) motions "come in two varieties: a facial attack or a factual attack." O'Bryan v. Holy See, 556 F.3d 361, 375 (6th Cir.2009) (citation and quotation marks omitted). A facial attack—like the one DGFM mounts here—"questions merely the sufficiency of the pleading." Id. (citation and quotation marks omitted). In reviewing the facial attack, courts must accept all allegations as true, id., and when reviewing the complaint, we look for a "short and plain statement of the grounds for the court's jurisdiction." Fed.R.Civ.P. 8(a) ; see also Owens v. Republic of Sudan, 531 F.3d 884, 894–95 (D.C.Cir.2008). "[C]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." O'Bryan, 556 F.3d at 376 (citation omitted). If the allegations in the Complaint establish federal claims, the exercise of subject-matter jurisdiction is proper. Id.

III. ANALYSIS

A. Statutory framework: FSIA and its exceptions.

The FSIA provides the "sole basis" for the exercise of jurisdiction over a foreign state, including its instrumentalities.¹ Republic of Argentina v. Weltover, 504 U.S. 607, 611, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992)

(citation omitted); see also 28 U.S.C. §§ 1603(a) -(b), 1604. Under the Act, a foreign state is "immune from the jurisdiction of the courts of the United States and of the States" unless one of the statutory exceptions applies. 28 U.S.C. § 1604. At issue in this case is the commercial-activity exception, codified at 28 U.S.C. § 1605(a)(2).

Plaintiffs contend that the following clause of the exception, which is split into three elements, applies in this case:

A foreign state shall not be immune from the jurisdiction of courts of the United States ... in any case—

... in which the action is based ... [i] upon an act outside the territory of the United States [ii] in connection with a commercial activity of the foreign state elsewhere and [iii] that act causes a direct effect in the United States.

28 U.S.C. § 1605(a)(2)

. (See Appellee Br. 11.). The statute defines "commercial activity" as follows:

A ‘commercial activity’ means either a regular course of commercial conduct or a particular 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)

.

B. This appeal.

This court has jurisdiction over this appeal because an order denying a motion to dismiss under 28 U.S.C. § 1604

is immediately appealable under 28 U.S.C. § 1291. O'Bryan, 556 F.3d at 372.

Three issues are relevant on appeal: (1) whether the design and manufacture of a product constitutes a "commercial activity" under the FSIA; (2) whether a court must find that a foreign state has minimum contacts with the United States in order to conclude that the state's acts have a direct effect here; and (3) whether the Complaint lacks a short and plain statement of jurisdiction in violation of Federal Rule of Civil Procedure 8(a)(1)

.² (Appellant Br. 3.). We address each argument below.³

1. The design and manufacture of the ammunition qualifies as a "commercial activity. "

When we ascertain the applicability of the commercial-activity exception, two "distinct" limitations apply. O'Bryan, 556 F.3d at 379

. "First, the activity must be of the type in which private individuals engage...." Id. "[I]f the activities in question are not private, but sovereign in nature, then the commercial activity exception will not apply." Id.; see also Weltover, 504 U.S. at 614, 112 S.Ct. 2160 ("[W]hen a foreign government acts, not as a regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are ‘commercial’ within the meaning of the FSIA...."). Second, courts must "ascertain the claim's gravamen to determine whether the FSIA plaintiff is simply using creative nomenclature as a semantic ploy to shroud the true essence of its theory and obtain jurisdiction over a claim that Congress did not intend to be brought against a foreign sovereign." O'Bryan, 556 F.3d at 380 (citation and quotation marks omitted). In other words, courts must "avoid the artful pleading of plaintiffs and look to the core of the activities alleged to be commercial in nature." Id.

Under O'Bryan 's first limitation, we conclude that the design and manufacture of a product is the type of activity "in which private individuals engage." O'Bryan, 556 F.3d at 379

. Our sibling circuits have reached the same conclusion. See Aldy on Behalf of Aldy v. Valmet Paper Mach., 74 F.3d 72, 76 (5th Cir.1996) ; Vermeulen v. Renault, U.S.A., Inc., 985 F.2d 1534, 1544 (11th Cir.1993). For example, in Aldy, the Finland-based defendant manufacturer moved for summary judgment, arguing in part that it was immune under the FSIA. 74 F.3d at 74. The trial court denied the motion, and the Fifth Circuit affirmed...