TEXAS TRADING, ETC. v. Federal Republic of Nigeria

• Decision Date: 18 August 1980
• Docket Number: No. 78 Civ. 2395(JMC).,78 Civ. 2395(JMC).
• Citation: 500 F. Supp. 320
• Parties: TEXAS TRADING & MILLING CORP., Plaintiff, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants.
• Court: U.S. District Court — Southern District of New York

500 F. Supp. 320

TEXAS TRADING & MILLING CORP., Plaintiff, v. FEDERAL REPUBLIC OF NIGERIA and Central Bank of Nigeria, Defendants.

No. 78 Civ. 2395(JMC).

United States District Court, S. D. New York.

July 16, 1980.

As Amended August 18, 1980.

Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, New York City (Richard H. Webber, New York City, of counsel), for plaintiff.

Kissam, Halpin & Genovese, New York City (James G. Simms and Laurence May, New York City, of counsel), for defendants.

MEMORANDUM AND ORDER

CANNELLA, District Judge:

The defendants' motion to dismiss the complaint for lack of subject matter and personal jurisdiction is granted. Fed.R. Civ.P. 12(b)(1), (2).

FACTS

Plaintiff, a New York corporation with its principal place of business in New York City, has commenced this action under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1391, 1441, 1601-1611, for anticipatory breach of a contract for the purchase of cement and of a documentary letter of credit established pursuant to that contract. On March 8, 1975, plaintiff entered into a contract with the Federal Republic of Nigeria "Nigeria", wherein Nigeria agreed to buy from plaintiff 240,000 metric tons, plus or minus 10% at seller's option, of Portland Cement for the price of $60 (U.S.) per ton, or a total of $14,400,000. Nigeria agreed to establish within 21 days after the contract was signed, "an Irrevocable, Transferable abroad, Divisible and Confirmed Letter of Credit in favour of the seller for the total purchase price through Fidelity International Bank of 99 William Street, New York, U.S.A." Defendants' Notice of Motion, Exhibit 2, at 2 (filed Dec. 20, 1979). Shipment was to be made at the rate of 20,000 metric tons per mensem commencing 30 days after receipt of the letter of credit. The contract provided for the payment of demurrage not exceeding $4,000 per diem per vessel, whenever the discharge of cargo was not completed at the rate of at least 1,000 tons per diem, provided the seller gave notice to the buyer of the departure from the port of loading of each consignment. Demurrage was to be payable, under the terms of the letter of credit, on presentation at the bank of time-sheets and statements of facts duly certified as correct by the ship's master and the ship's agents in Lagos Apapa, the main port of Nigeria. The contract further provided that it would be governed by the laws of Nigeria, and that all disputes arising under it would be submitted to arbitration before the International Chamber of Commerce, Paris, France.

On April 23, 1975, the Central Bank of Nigeria "Central Bank", which is an "agency or instrumentality of a foreign state" within the meaning of the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1603(b), established and confirmed its Documentary Credit No. CBN/BO/75/86 in favor of plaintiff for the full contract price. The letter of credit is governed by the Uniform Customs and Practice for Documentary Credits (The International Chamber of Commerce Brochure No. 222) (1962 Revision). The confirmed, irrevocable letter of credit was advised and made payable through Morgan Guaranty Trust Company "Morgan" in New York, with instructions that the credit be advised through Fidelity International Bank in New York. Morgan did not, however, add its own confirmation to the letter of credit.

Plaintiff alleges that it thereafter entered into a contract with a Spanish supplier for the purchase of 240,000 metric tons of Portland Cement, and delivered 39,590 metric tons to Nigeria. During the course of these deliveries, $4,484,476.87 in demurrage was incurred, of which $2,102,305.20 was paid by Nigeria.

Plaintiff's cement purchase contract was only one in a massive cement purchase program undertaken by Nigeria's Ministry of Defense.¹ What the Ministry appears not to have anticipated, however, is that the huge quantities of cement ordered exceeded the unloading capacity of Nigeria's deep water ports, so that by August 1975, Nigerian ports were so congested with vessels carrying cement that other essential imports could not be unloaded. To deal with this problem, a new Nigerian government issued regulations that required every ship intending to enter a Nigerian port to notify the Nigerian Port Authority two months prior to its departure in order to obtain approval of its arrival date. No ship could thereafter enter a Nigerian port without prior approval. See Defendants' Notice of Motion, Exhibits 10, 11. Plaintiff contends that these actions by the defendants constitute an anticipatory breach of the contract.

In mid-September 1975, Central Bank informed its correspondent banks, including Morgan, that it had unilaterally amended all irrevocable letters of credit issued in connection with the cement contracts. On September 30, 1975, Morgan cabled plaintiff to advise that Morgan had been directed to stop demurrage payments against documents unless they had been sent to and certified for payment by Central Bank. Plaintiff was further advised that no payments would be made for those shipments that were not cleared and approved two months prior to their arrival, and plaintiff was invited to meet with Nigeria's Cement Contracts Negotiating Committee. See id., Exhibit 7. There is no doubt that this unilateral amendment of the irrevocable letter of credit violated the provisions of Article 3 of the Uniform Customs and Practice for Documentary Credits. See id., Exhibit 9.

Although not alluded to in plaintiff's complaint, in January 1976, plaintiff's president met with the Cement Contracts Negotiating Committee which was established by the Nigerian Government for the purpose of renegotiating the cement contracts. See id., Exhibit 10, ¶ 5. Plaintiff contends that under conditions that amounted to economic duress, it was forced to enter into a settlement agreement with the Negotiating Committee which reduced the demurrage rate and cancelled the letter of credit and the balance of the cement contract. See Affidavit of Richard L. Trotman, ¶ 7 and Exhibit D (filed April 21, 1980). Plaintiff further contends that, even were the Court to conclude that the settlement agreement is valid, there are still substantial amounts of demurrage payments owed to plaintiff under the settlement. See Affidavit of Richard H. Webber, ¶ 4 (filed April 21, 1980).

As a result of the alleged breach of the contract and letter of credit, plaintiff seeks to recover damages for loss of profits on the sale of 200,410 metric tons of Portland Cement in the amount of $1,382,829 and unpaid demurrage in the amount of $2,382,171.67, as well as reasonable attorney's fees, costs and expenses. The defendants now move to dismiss the complaint on the grounds that this Court lacks subject matter and personal jurisdiction, Fed.R.Civ.P. 12(b)(1), (2), and that the complaint fails to state a claim upon which relief can be granted because of the alleged settlement agreement, Fed.R.Civ.P. 12(b)(6).

DISCUSSION

Plaintiff alleges that this Court has jurisdiction under the Foreign Sovereign Immunities Act of 1976 "the Immunities Act", 28 U.S.C. §§ 1330, 1391, 1441, 1601-1611. The Immunities Act provides the district courts with both subject matter and personal jurisdiction over nonjury civil actions against foreign states, in actions in which, pursuant to 28 U.S.C. §§ 1605-1607, foreign states are not immune. Id. § 1330. In this respect, the Immunities Act codifies the "restrictive" principle of sovereign immunity which affords immunity to a foreign state's public acts, but not to suits based upon its commercial or private acts. See H.R.Rep.No.94-1487, 94th Cong., 2d Sess. 7, reprinted in 1976 U.S.Code Cong. & Admin.News, pp. 6604, 6605 "the House Report". The Act operates as a federal long-arm statute over foreign states and their instrumentalities, and embodies the due process requirements of minimum jurisdictional contacts and adequate notice. Id. at 13, reprinted in 1976 U.S.Code Cong. & Admin.News at 6612. The Act, however, "authorizes the exercise of less than the complete personal jurisdiction that might constitutionally be afforded American courts under traditional concepts of fairness and due process." Harris v. VAO Intourist, Moscow, 481 F.Supp. 1056, 1059 (E.D.N.Y. 1979).

Significantly, each of the immunity provisions in the bill, sections 1605-1607, requires some connection between the lawsuit and the United States, or an express or implied waiver by the foreign state of its immunity from jurisdiction. These immunity provisions, therefore, prescribe the necessary contacts which must exist before our courts can exercise personal jurisdiction.

House Report at 13, reprinted in 1976 U.S. Code Cong. & Admin.News at 6612.

Although the allegations of plaintiff's complaint predicate jurisdiction upon the defendants' alleged conduct of commercial activity within the United States through their purported agent, Morgan, plaintiff appears to have abandoned that theory,² and now relies on the portion of section 1605(a)(2) that provides:

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 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. § 1605(a)(2).³

The term "commercial activity" is defined by the Immunity Act as follows:

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. § 1603(d). See House Report at 16, reprinted in 1976 U.S.Code Cong. & Admin.News at 6614-15.

The defendants assert that jurisdiction does not exist under this section...