Tonoga v. Ministry of Public Works and Housing

• Decision Date: 13 March 2001
• Docket Number: No. 99-CV-0803 LEK DRH.,99-CV-0803 LEK DRH.
• Citation: 135 F.Supp.2d 350
• Parties: TONOGA, LTD., d/b/a Taconic Plastics Ltd., Plaintiff, v. MINISTRY OF PUBLIC WORKS AND HOUSING OF THE KINGDOM OF SAUDI ARABIA, the Kingdom of Saudi Arabia, Werner Voss Architects and Engineers, and Werner Voss, Defendants.
• Court: U.S. District Court — Northern District of New York

135 F.Supp.2d 350

TONOGA, LTD., d/b/a Taconic Plastics Ltd., Plaintiff, v. MINISTRY OF PUBLIC WORKS AND HOUSING OF THE KINGDOM OF SAUDI ARABIA, the Kingdom of Saudi Arabia, Werner Voss Architects and Engineers, and Werner Voss, Defendants.

No. 99-CV-0803 LEK DRH.

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

March 13, 2001.

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E. Guy Roemer, Roemer Law Firm, Albany, NY, Michael D. Savage, pro hac vice, steven R. Popofsky, pro hac vice, Gersten, Savage law firm, New York City, for Tonoga, Ltd.

Alexandra A. E. shapiro, pro hac vice, Latham Watkins Law Firm, New York City, Matthew T. Martens, Latham, Watkins Law Firm, Newark, NJ, for Ministry of Public Works and Housing of Kingdom of Saudi Arabia, Kingdom of Saudi Arabia.

Margaret J. Gillis, Whiteman, Osterman Law Firm, Albany, NY, for Werner Voss Architects and Engineers, Werner Voss.

MEMORANDUM — DECISION AND ORDER

KAHN, District Judge.

Presently before the Court is a motion to dismiss by Defendants Ministry of Public Works and Housing of the Kingdom of Saudi Arabia and the Kingdom of Saudi Arabia (collectively the "Sovereign Defendants"). For the following reasons the Sovereign Defendants' motion is DENIED.

I. BACKGROUND

Plaintiff Tonoga, Ltd., d/b/a Taconic Plastics Ltd. ("Taconic") is a materials manufacturer incorporated in Ireland with its principal place of business located in Petersburgh, New York. The Sovereign Defendants are foreign states within the meaning of the Foreign Sovereign Immunities Act ("FSIA"). See 28 U.S.C. § 1603(a); see Reiss v. Societe Centrale Du Groupe Des Assurances Nationales, 235 F.3d 738, 746 (2d Cir.2000).

In 1997 Taconic entered into a contract with a German construction company to supply specialized membrane material for a Saudi Arabian tent project designed to shelter religious pilgrims visiting holy sites there. Shortly after entering into this contract, the German construction company failed to make scheduled payments to Taconic and eventually filed for bankruptcy. Defendant Voss and his engineering firm, defendant Werner Voss Architects and Engineers, acting, for the purposes of this motion, as the Sovereign Defendants' authorized agent,¹ allegedly guaranteed the payments due Taconic via a series of three letter agreements in order to induce it into completing the tent project.²

Taconic completed manufacturing of the material needed for the tent project and received two of the three payments due, the source of which is in dispute,³ but did not receive the final payment due. Claiming that each of the named defendants breached the guarantee, Plaintiff brought suit in this Court seeking to collect, in part, DM 5,560,530.70, or about $3 million,⁴ the final payment owed under the alleged guarantee. The Sovereign Defendants brought the current motion to dismiss based upon lack of subject matter jurisdiction, lack of personal jurisdiction, and forum non conveniens.

II. DISCUSSION

A. Subject Matter Jurisdiction

A court may dismiss a case for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure when it lacks the constitutional or statutory power to adjudicate the case. See Fed R. Civ. P. 12(b)(1). In fact, because federal courts are courts of limited jurisdiction and can adjudicate "only those cases within the bounds of Article III of the United States Constitution and Congressional enactments stemming therefrom," Walsh v. McGee, 899 F.Supp. 1232, 1236 (S.D.N.Y.1995), whenever "it appears by suggestion of the parties or otherwise" that this Court lacks jurisdiction of the subject matter it must affirmatively dismiss the action, Fed.R.Civ.P. 12(h)(3).

As such, the burden of proving that a federal court has subject matter jurisdiction over an action rests upon the party attempting to invoke the court's jurisdiction, see Thomson v. Gaskill, 315 U.S. 442, 446, 62 S.Ct. 673, 86 L.Ed. 951 (1942), and no presumption of truth attaches to the non-moving party's allegations, see Brown v. American Legion Cortland City Post, 64 F.Supp.2d 96, 97 (N.D.N.Y.1999). Moreover, since a dismissal under 12(b)(1) is not a dismissal on the merits and is without res judicata effect on the underlying merits of the claims, when a court dismisses a case pursuant to 12(b)(1), it is precluded from exercising supplemental jurisdiction over related state claims. See Cushing v. Moore, 970 F.2d 1103, 1106 (2d Cir.1992).

i. Subject Matter Jurisdiction Under the FSIA Generally

Under the FSIA, a foreign state is presumptively immune "from the jurisdiction of the United States and of the States" unless one of several statutory exceptions applies. 28 U.S.C. § 1604; see Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610-11, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992). The most significant of these exceptions, and the one at issue here, is the "commercial activity" exception codified under 28 U.S.C. § 1605(a)(5). See Weltover, 504 U.S. at 610-11, 112 S.Ct. 2160. In relevant part, this portion of the FSIA states that a foreign state is not immune from suit in any case

in which the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state or elsewhere; or [3] 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). Plaintiff argues that the first ("commercial activity clause") and third ("direct effect clause") clauses of 28 U.S.C. § 1605(a)(2) confer subject matter jurisdiction in the present case. Because the Court concludes that the commercial activity clause provides it with subject matter jurisdiction, it does not address whether the direct effect clause also provides it with subject matter jurisdiction.

ii. Subject Matter Jurisdiction Under Clause One of 28 U.S.C. § 1605(a)(2)

Under the commercial activity clause, a state does not have sovereign immunity for claims "based upon commercial activity carried on in the United States." 28 U.S.C. § 1605(a)(2). Thus, courts analyzing whether subject matter exists under the commercial activity clause must consider two factors. First, the lawsuit must be based upon commercial activity of the foreign state defendants. See Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1018 (2d Cir.1991). Second, that activity must be carried on in the United States. See id.

a. Based Upon Commercial Activity

The FSIA defines commercial activity as "either a regular course of commercial conduct or a particular commercial transaction or act." 28 U.S.C. § 1603(d). A particular transaction, course of conduct, or act undertaken by a foreign state qualifies as commercial activity when the state "acts not in its governmental or public role, but rather as a private player in the marketplace." United States Fid. and Guar. Co. v. Braspetro Oil Serv. Co., 199 F.3d 94, 98 (2d Cir. 1999). Here, the Sovereign Defendants allegedly engaged in a series of guarantee transactions that allowed it to step into the shoes of a financially troubled "private player", the German construction company, in order to ensure that the tent project was completed. Because of this, the Court concludes that the Sovereign Defendants' guarantee of the underlying material contract was commercial activity under the FSIA. See, e.g., id. at 99 (holding that a foreign state's assumption of liability under a collection of performance guarantee bonds constituted commercial activity under the FSIA).

A suit is "based upon" this commercial activity when the elements of plaintiff's claim, if proven, entitle it to relief under its theory of the case. See Saudi Arabia v. Nelson, 507 U.S. 349, 357, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). This means that Plaintiff's claims must have something more "than a mere connection with, or relation to, [the] commercial activity" in question. Id. at 358, 113 S.Ct. 1471. Since Plaintiff's claim is premised upon the Sovereign Defendants' alleged breach of and fraudulent inducement into these guarantees, it has more than a mere connection to the commercial activity. As such, the Court concludes that Plaintiff's claim is based upon the Sovereign Defendants' commercial activity. See Gemini Shipping, Inc. v. Foreign Trade Org. for Chems. and Foodstuffs, 647 F.2d 317, 319 (2d Cir.1981).

b. Carried on in the United States

A commercial activity is carried on in the United States when it "has substantial contact" with this country, 28 U.S.C. § 1603(e). In order for a commercial activity to have substantial contact with this country, a significant nexus must exist between the commercial activity alleged to occur in this country and plaintiff's cause of action. See Reiss, 235 F.3d at 747. This nexus standard is tighter "than the `minimum contacts' standard for due process," Shapiro, 930 F.2d at 1019, and if the state alleging sovereign immunity engages only in "isolated or transitory contacts with the United States," subject matter jurisdiction under the commercial activity clause will not lie. Zedan v. Saudi Arabia, 849 F.2d 1511, 1513 (D.C.Cir. 1988).

In this case, both Plaintiff and the Sovereign Defendants sharply dispute the facts relating to the guarantee's negotiation and execution. Plaintiff claims that defendant Voss negotiated portions of the guarantees with it during a visit to Plaintiff's New York plant on November 6, 1997. The Sovereign Defendants argue that no such negotiations took place during defendant Voss' visit to this country. Additionally, the Sovereign Defendants claim that, because the first alleged guarantee was executed in Saudi Arabia during a visit by Plaintiff's chief operating officer there and called for payments to an account in Germany, the commercial activity in question here had no substantial contacts with this...