Segni v. Commercial Office of Spain

• Decision Date: 08 December 1987
• Docket Number: No. 87-1154,87-1154
• Parties: Enrique SEGNI, Plaintiff-Appellee, v. COMMERCIAL OFFICE OF SPAIN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 160

835 F.2d 160

56 USLW 2407

Enrique SEGNI, Plaintiff-Appellee, v. COMMERCIAL OFFICE OF SPAIN, Defendant-Appellant.

No. 87-1154.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 22, 1987.

Decided Dec. 8, 1987.

Franklin P. Auwarter, Mayer, Brown & Platt, Chicago, Ill., for defendant-appellant.

Richard J. Witry, McCarthy, Duffy, Neidhart & Snakard, Chicago, Ill., for plaintiff-appellee.

Before WOOD, FLAUM and EASTERBROOK, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

In August of 1984 the Commercial Office of Spain hired Enrique Segni to develop a market for Spanish wines in the midwestern United States. In March of 1985 Segni was fired, whereupon he filed this lawsuit in the district court. The Commercial Office moved for dismissal, claiming immunity from suit under the terms of the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1602 et seq. ("FSIA"). The district court denied the motion, and the Commercial Office appeals. We affirm for the reasons expressed herein.

I.

We accept the allegations in Segni's complaint as true for purposes of this appeal. Those allegations indicate that Segni is a citizen of Argentina and a lawful permanent resident of the United States. He was hired by the Commercial Office on August 1, 1984 pursuant to a written "Contract of Labor." The Commercial Office is an arm of the National Institute for Fostering Exports ("INFE") and is charged under Spanish law with the directing and coordinating of INFE's activities in the United States. The contract was to run for three years and provided that Segni would be engaged in "developing the marketing of Spanish wines in the midwest area of the United States." The contract further provided that Segni would receive a set monthly salary subject to increase upon annual review and that he would be reimbursed for expenses. Under the contract Segni was entitled to choose between Spanish and United States Social Security. He was given 30 days vacation each year and all Spanish and American holidays off, and was required to own an automobile suitable for his business, for which he was to receive mileage reimbursement.

The Commercial Office terminated Segni's employment on March 31, 1985. Segni filed suit in federal district court, charging that the Commercial Office had breached the contract and seeking payment for the remainder of the contract term as damages. Initial service of the complaint in the Commercial Office itself was quashed by the district court, ¹ but proper service was later effected on the Spanish Ministry of Justice in Madrid.

The Commercial Office moved to dismiss the complaint. It argued that Segni had been hired to execute the policy of the Spanish government, i.e. the fostering of exports of Spanish wines to the American midwest, and that his employment by the Commercial Office was a public act for which the Office, as an arm of the Spanish government, was entitled to sovereign immunity under the FSIA, 28 U.S.C. Sec. 1604. The district court disagreed, finding Segni's hiring to be commercial in nature and therefore subject to the "commercial activity" exception to the FSIA, 28 U.S.C. Sec. 1605(a)(2). The motion to dismiss was accordingly denied. Segni v. Commercial Office of Spain, 650 F.Supp. 1042 (N.D.Ill.1986). This appeal followed. ²

II.

The concept of sovereign immunity embraces two forms: absolute and restrictive. The former of these was the governing principle of this nation for most of the first 175 years of its history. Absolute sovereign immunity shields all acts in which a foreign sovereign is formally involved from judicial scrutiny, and is based on the principle that each domestic sovereign waives its judicial power over foreign sovereigns in the interest of compelling intercourse among them, recognizing the "perfect equality and absolute independence of sovereigns." The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116, 136, 3 L.Ed. 287 (1812). This rule remained in force until 1952, when the Department of State renounced the absolute position in favor of the second, "restrictive" form, which shields the public acts of foreign sovereigns but does not protect them from liability for such private acts as they may undertake. ³ The extension of immunity was thereafter resolved by the Department of State on a case-by-case basis until 1976, when Congress enacted the FSIA, thereby placing into the hands of the federal courts the task of determining the extent to which particular actions of foreign nations are immune from their power.

The FSIA provides immunity to foreign states as a general matter, but subject to enumerated exceptions. The general principle of immunity is stated at 28 U.S.C. Sec. 1604:

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.

Exceptions are listed at Sec. 1605. The exception most frequently invoked, and the one that Segni argues is applicable to his hiring, is the "commercial activity" exception set forth at 28 U.S.C. Sec. 1605(a)(2), which provides, in relevant part, that:

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 upon a commercial activity carried on in the United States by the foreign state ....

Obviously the critical function of the courts in administering this exception to the FSIA is the interpretation of the phrase "commercial activity". The definition provided in the text of the Act is not by itself very helpful:

For purposes of this chapter--

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). As the Fifth Circuit has noted, this definition is "somewhat circular," defining "commercial activity" in terms of "commercial conduct" and "commercial transaction." Callejo v. Bancomer, S.A., 764 F.2d 1101, 1108 n. 6 (5th Cir.1985). Nevertheless the definition does direct our attention to the nature, rather than the purpose, of the act under scrutiny. As we will see below, this distinction will guide us to our ultimate resolution.

Although the statutory definition of "commercial activity" is broad, the legislative history provides some useful guidance. In fact, the corresponding House Report specifically indicates that Congress intended to afford the federal courts "a great deal of latitude in determining what is a 'commercial activity' " under the FSIA. H.Rep. No. 94-1487, 94th Cong., 2d Sess. at 16, reprinted at 1976 U.S. Code Cong. & Ad. News 6604, 6615. The Report emphasizes that an underlying public purpose will not provide a foreign state with protection for an act which is private by nature:

As the definition indicates, the fact that goods or services to be procured through a contract are to be used for a public purpose is irrelevant; it is the essentially commercial nature of an activity or transaction that is critical. Thus, a contract by a foreign government to buy provisions or equipment for its armed forces or to construct a government building constitutes a commercial activity. The same would be true of a contract to make repairs on an embassy building. Such contracts should be considered to be commercial contracts, even if their ultimate object is to further a public function.

Id. Contracts for the purchase of goods or services are mentioned several times in the report as activities that ought normally to be considered commercial.

Despite Congress' clear pronouncement of the nature/purpose distinction, application to a given activity is not as simple as it may seem, primarily because the terms "nature" and "purpose" are not totally discrete. The Fifth Circuit has commented on the difficulty in separating these concepts:

We do not interpret this provision, however, to bar us totally from considering the purposes of different types of activities. Indeed, we do not believe that an absolute separation is always possible between the ontology and the teleology of an act. Often, the essence of an act is defined by its purpose--gift-giving, for example. Unless we can inquire into the purposes of such acts, we cannot determine their nature. Indeed, commercial acts themselves are defined largely by reference to their purpose. What makes these acts commercial is not some ethereal essence inhering in conduct itself; instead, as Congress recognized, acts are commercial because they are generally engaged in for profit.

De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1393 (5th Cir.1985).

The difficulty of the nature/purpose distinction has resulted in differing approaches on the parts of different courts. In De Sanchez, for example, the court considered a national bank's sale of U.S. dollars and found it to be governmental in nature. The purpose of the sale, regulation of national currency reserves, was deemed to "define[ ] the conduct's nature" rather than serving as an ancillary factor. 770 F.2d at 1393-94. This result may be compared with that in Practical Concepts, Inc. v. Republic of Bolivia, 811 F.2d 1543 (D.C.Cir.1987), in which a contract for consulting services was found to be commercial. The contract called for the plaintiff to create and implement "a comprehensive program for development of Bolivia's rural areas," 811 F.2d at 1545, but that much of its purpose did not figure in the court's analysis, which simply rejected the notion that certain subsidiary contract terms defined the nature of the agreement. The court concluded that the contract at bottom was one for services and was therefore commercial.

These two ca...