Rush-Presbyterian-St. Luke's Medical Center v. Hellenic Republic

• Decision Date: 14 June 1989
• Docket Number: RUSH-PRESBYTERIAN-ST,No. 88-2663,88-2663
• Citation: 877 F.2d 574
• Parties: LUKE'S MEDICAL CENTER, the Chicago Regional Organ and Tissue Bank, Dr. Frederick K. Merkel, June D. Bajor and South Chicago Community Hospital, Plaintiffs-Appellees, v. The HELLENIC REPUBLIC, a Foreign Country, the Hellenic Republic National Agricultural Insurance Institute, a Greek Institution, and the Social Insurance Institute of Greece, a Greek Institution, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 574

877 F.2d 574

RUSH-PRESBYTERIAN-ST. LUKE'S MEDICAL CENTER, the Chicago Regional Organ and Tissue Bank, Dr. Frederick K Merkel, June D. Bajor and South Chicago Community Hospital, Plaintiffs-Appellees, v. The HELLENIC REPUBLIC, a Foreign Country, the Hellenic Republic National Agricultural Insurance Institute, a Greek Institution, and the Social Insurance Institute of Greece, a Greek Institution, Defendants-Appellants.

No. 88-2663.

United States Court of Appeals Seventh Circuit.

Argued April 14, 1989.

Decided June 14, 1989.

George C. Pontikes, Foss, Schuman, Drake & Barnard, Theodore Rodes, Jr., Porikos, Rodes & Economos, Arlington Hills, Ill., for defendants-appellants.

Before CUDAHY, POSNER and RIPPLE, Circuit Judges.

CUDAHY, Circuit Judge.

The principal issue in this appeal is whether the Greek government's execution of a contract to reimburse physicians and an organ bank for the costs of kidney transplants performed on Greek nationals constitutes a "commercial activity" under the Foreign Sovereign Immunities Act of 1976 ("FSIA" or "the Act"). ¹ The district court held that the Greek government's execution of the contract constituted a "commercial activity," and therefore the defendants were not immune from suit under the exceptions to sovereign immunity contained in the Act. Rush-Presbyterian-St. Luke's Medical Center v. The Hellenic Republic, 690 F.Supp. 682 (N.D.Ill.1988). The defendants appeal; we affirm.

I.

Under the Greek constitution, the government has a broad obligation to provide health care services to Greek citizens. Apparently, kidney transplants are not widely performed in Greece; in order to fulfill its constitutional mission to provide medical services to Greek nationals, the Greek government entered into a contract with Dr. Frederick Merkel, June Bajor and the Chicago Regional Organ and Tissue Bank in December, 1983. The agreement was negotiated in Greece, but executed in the United States. The contract provided that the Greek government would send its citizens to Chicago for transplant operations at local hospitals. The estimated cost for the transplant operations was $35,000; however, the contract stated that "these costs are not secure" and that additional charges might arise due to unforeseen complications in a patient's treatment. Bills for medical costs were to be submitted to the Greek consulate in Chicago; the contract also provided that the Greek government would maintain an account at a local bank in order to pay for the services rendered.

Several kidney transplants governed by the contract were performed at Rush-Presbyterian-St. Luke's Medical Center and South Chicago Community Hospital. After performing the medical services in question, Rush and South Chicago submitted to the organ bank bills ostensibly based on their costs. The organ bank in turn submitted the bills for payment to the Greek government. Apparently, the bills submitted by Rush and South Chicago were substantially higher than the Greek government had anticipated, or were not properly documented; as a result, only partial payment was made, leaving an outstanding, unpaid balance of $346,915.81 owing to Rush-Presbyterian and approximately $203,219.48 to South Chicago.

Rush filed the present suit on March 24, 1986, seeking to recover the balance owed for the kidney transplants under theories of breach of contract and quantum meruit. Dr. Merkel, Bajor and the organ bank, the parties to the contract with Greece, were later added as involuntary parties-plaintiff. In January, 1987, South Chicago successfully moved to intervene in the case; its complaint in intervention also sought recovery based on contract and quantum meruit theories.

The district court denied the defendants' motions to quash the summons and dismiss the complaints on July 11, 1988. Rush-Presbyterian-St. Luke's Medical Center v. The Hellenic Republic, 690 F.Supp. 682 (N.D.Ill.1988). The court found that Greece's execution of the contract was a commercial activity, since "[t]he essence of the contract here was the exchange of money for kidney transplant services," an activity which private parties could perform, whatever the purposes for which Greece had entered this particular transaction. Id. at 685-86. The court also held that the transaction bore a sufficient connection to the United States to support subject matter and personal jurisdiction, since "[t]he transplants were performed, payments for them collected and documentation of these transactions presented in the United States." Id. at 686. The court additionally noted that the plaintiffs had allegedly suffered a direct financial injury in the United States due to Greece's breach of contract. Id. For these reasons, the court found that sovereign immunity did not bar the suit under the "restrictive theory of sovereign immunity" codified in the FSIA. Greece appeals. ²

II.

Plaintiffs concede that the defendants are either foreign states or instrumentalities of foreign states as those terms are employed in the FSIA. 28 U.S.C. Sec. 1603(a), (b). Therefore, in order for the defendants to be amenable to suit in a United States court, their conduct must fall within one of the exceptions to sovereign immunity contained in the Act. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 493-94, 103 S.Ct. 1962, 1971-72, 76 L.Ed.2d 81 (1983).

In what remains one of the leading decisions interpreting the FSIA, Judge Irving Kaufman noted that "[i]n structure, the FSIA is a marvel of compression." Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 306 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982). However, as Judge Kaufman also observed, "[t]his economy of decision has come [ ] at the price of considerable confusion." Id. at 307; see also Gibbons v. Adaras na Gaeltachta, 549 F.Supp. 1094, 1105, 1106 (S.D.N.Y.1982) (characterizing FSIA as "remarkably obtuse," a "statutory labyrinth [with a] bizarre structure and [ ] many deliberately vague provisions"). Fortunately, in the eight years since the Texas Trading decision, many difficult interpretive questions have been answered; our resolution of the current appeal is accordingly a fairly straight-forward matter.

The FSIA provides that

The district courts shall have original jurisdiction without regard to the amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.

28 U.S.C. Sec. 1330(a). Thus subject matter jurisdiction over a foreign state is expressly conditioned on a finding that the defendant is not entitled to sovereign immunity. Verlinden, 461 U.S. at 493, 103 S.Ct. at 1971 ("subject matter jurisdiction in any [ ] action [against a foreign sovereign] depends on the existence of one of the specified exceptions to foreign sovereign immunity"). Insofar as relevant here, the FSIA provides that

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

* * *

(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.

28 U.S.C. Sec. 1605. The only definition of "commercial activity" contained in the Act states that

A "commercial activity" means either 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. Sec. 1603(d). In order to determine whether the defendants are immune from suit, we must answer two related questions: (1) did the defendants engage in a "commercial activity" in the United States or abroad?; and (2) if so, does this activity bear a significant relation to the United States, and is plaintiffs' action "based upon" the defendants' commercial activity? It is to these questions we now turn.

A.

As a number of other courts have recognized, the definition of "commercial activity" in the FSIA is not especially helpful, and is in fact somewhat circular. "Commercial activity" is defined by reference to "commercial conduct" and "commercial transaction[s] or act[s]." Yet nowhere in the Act's text or legislative history is the crucial term "commercial" defined. It appears from the FSIA's legislative history that the term "commercial" was deliberately left undefined; Congress placed its trust in the courts to develop, through an evolving body of case law, a workable definition of a "commercial activity." ³

An important starting point in determining whether a particular transaction or course of conduct constitutes "commercial activity" is the Act's admonition that the court look to the conduct's nature, rather than its purpose. Certainly, "nature" and "purpose" do not demark hermetically sealed, separate domains; "[o]ften, the essence of an act is defined by its purpose." De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1393 (5th Cir.1985). However, while "nature" and "purpose" may not be neatly separable concepts in all cases, this court has stressed that "the command of Congress embodied in 28 U.S.C. Sec. 1603(d) requires that we confine any consideration of purpose as closely as we can, considering that purpose only so far as is absolutely necessary to define the nature of the act in question." Segni v. Commercial Office of Spain, 835 F.2d 160, 164 (7th...