Virtual Defense and Dev. V. Republic of Moldova

• Citation: 133 F.Supp.2d 1
• Decision Date: 10 May 1999
• Docket Number: No. CIV.A.98-161(RMU).,CIV.A.98-161(RMU).
• Parties: VIRTUAL DEFENSE AND DEVELOPMENT INTERNATIONAL, INC., Plaintiff, v. The REPUBLIC OF MOLDOVA, Defendant.
• Court: U.S. District Court — District of Columbia

Page 1

133 F.Supp.2d 1

VIRTUAL DEFENSE AND DEVELOPMENT INTERNATIONAL, INC., Plaintiff, v. The REPUBLIC OF MOLDOVA, Defendant.

No. CIV.A.98-161(RMU).

United States District Court, District of Columbia.

May 10, 1999.

Gary Scott Silverman, Rockville, MD, for plaintiff.

Jeffrey Scott Neeley, Manatt, Phelps & Phillips, Washington, DC, for defendant.

Herbert Emerson Forrest, U.S. Dept. of Justice, Fed. Programs Branch, Washington, DC, for Central Intelligence Agency, non-party.

Anne L. Weismann, U.S. Dept. of Justice, Civil Div., Washington, DC, for John Todd Stewart, Dept. of State, A. Rich Jackson, movants.

MEMORANDUM OPINION

URBINA, District Judge.

Denying Defendant's Motion to Dismiss

This case is brought by the plaintiff, Virtual Defense and Development International, Inc. ("Virtual"), against the defendant, the Republic of Moldova ("Moldova"), for breach of contract and quantum meruit. By Order dated March 31, 1999, the court denied the defendant's motion to dismiss this case. This Memorandum Opinion sets forth the reasons for the court's denial of the defendant's motion to dismiss.

I. BACKGROUND

Following the dissolution of the Union of Soviet Socialist Republics, Moldova emerged as a sovereign nation facing severe economic turmoil. In an effort to bolster its weakening economy Moldova arranged to sell to Iran several MiG-29 planes, which were capable of firing nuclear weapons. The United States of America strongly opposed this sale on grounds of international security and, in early 1997, requested that Moldova cancel the scheduled transfer to Iran. Moldova agreed to comply.

Subsequently, in May and June of 1997, Boris Birshtein, the Economic and Commercial Advisor to the Moldovan President, contacted Marty Miller, an international consultant in New York, regarding economic opportunities in Moldova. Among the opportunities discussed was the sale of the MiG-29 planes. On August 5, 1997, Mr. Miller contacted Virtual to relay the message that Moldova was interested in having Virtual negotiate the sale of the MiG-29 planes to an entity approved by the United States. In September 1997 Virtual's President, Michael Spak, traveled to Moldova to work out the details of such an agreement. Subsequently, on September 17, 1997, Ion Ciubuc, the Prime Minister of Moldova, sent a letter to Virtual stating that "[o]n behalf of the Republic of Moldova the Company [Virtual] is provided with authorization to initiate and sustain discussions with governments and/or private business entities concerning the realization of these aircrafts. This authorization is provided taking into account that this deal will be carried out with partners from [the] United States of America or other states with the authorization of the USA Government." (Pl.'s Opp. to Def.'s Mot. to Dismiss, Ex. A.)

Virtual alleges that a contract existed between it and Moldova whereby Virtual would receive a commission of fifteen percent upon successfully negotiating the sale of the MiG-29 planes. In its complaint, Virtual alleges that it negotiated a sale of the MiGs from Moldova to the United States for $60 million for which Virtual is entitled to its fifteen percent commission. In actuality, the MiGs were sold to the United States for $40 million in cash and $100 million in the form of economic aid. Contrary to Virtual's assertion that it negotiated this sale, Moldova alleges that "the negotiations between the United States and Moldova were nearly complete by the time Virtual was provided authorization to explore whether other possible purchasers for the MiGs existed." (Def.'s Mot. to Dismiss at 2.)

Following the sale, Virtual demanded payment of its commission in the amount of $9 million and was denied the fees. Consequently, Virtual filed a complaint in this court seeking damages for breach of contract and quantum meruit.

II. DISCUSSION

A. Legal Standard

The defendants argue that the plaintiff's complaint should be dismissed for one of two reasons: (1) sovereign immunity prohibits the court from exercising subject-matter jurisdiction; and (2) the act of state doctrine requires the court to abstain from hearing the case. In deciding on a motion to dismiss, the court must accept as true all well-pled factual allegations and draw all reasonable inferences in favor of the plaintiff. See Antonelli v. Sheahan, 81 F.3d 1422, 1427 (7th Cir.1996). However, the court need not accept as true the plaintiff's legal conclusions. See Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986).

B. Foreign Sovereign Immunities Act

Under the Foreign Sovereign Immunities Act ("FSIA"), foreign states are immune from the jurisdiction of the courts of the United States unless one of a limited number of exceptions applies. See 28 U.S.C. § 1604. Among these exceptions is the so-called "commercial activity" exception. See 28 U.S.C. § 1605. There is a two-part analysis to determine whether the FSIA allows a United States court to exercise jurisdiction over a foreign state in the context of the commercial activity exception. First, it is necessary to determine whether the activity at issue is a commercial activity for purposes of the FSIA. If the activity is not "commercial," then the FSIA precludes this court from exercising its jurisdiction. On the other hand, if the activity is "commercial," then the court must determine whether there is a sufficient nexus between the commercial activity and the United States.

1. Commercial Activity

The alleged actions that give rise to this case constitute commercial activities for the purposes of the FSIA. "[W]hen a foreign government acts, not as 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." Republic of Argentina v. Weltover, 504 U.S. 607, 614, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992); see Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983) (stating that when the commercial exception applies "the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances"). In addition, 28 U.S.C. § 1602 states the well established maxim of international law that "states are not immune from the jurisdiction of foreign courts insofar as their commercial activities are concerned." As long as the action with which the suit is concerned could be undertaken by a private entity, then the action is commercial for the purposes of the FSIA.

In this case, the activities underlying the plaintiff's complaint are the steps taken by Virtual and Moldova to reach the alleged commission agreement and the eventual sale of the MiGs. Thus, in order to avoid dismissal, Virtual must establish that the commercial activity exception applies to these activities.

Moldova contends that the commercial activity exception does not apply in this instance because the type of action at issue, i.e., the sale of planes capable of firing nuclear weapons, is not the "type of action[] by which a private party engages in trade and traffic or commerce" because only sovereign nations own or sell these planes. Weltover, 504 U.S. at 614, 112 S.Ct. 2160 (internal quotations omitted). However, the legislative history surrounding the FSIA states that:

[T]he fact that goods or services to be procured through a contract are to be used for 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.

H. Rep. No. 94-1487, 94th Cong., 2d Sess., reprinted in 1976 U.S.Code Cong. & Ad. News 6604, 6615 (emphasis added). In addition "[s]everal cases construing FSIA also make clear that a contract by a foreign government to buy equipment for its armed services constitutes a commercial activity to which sovereign immunity does not apply." McDonnell Douglas Corp. v. Islamic Republic of Iran, 758 F.2d 341, 349 (8th Cir.1985) (citing Behring Int'l v. Imperial Iranian Air Force, 475 F.Supp. 383, 388-90 (D.N.J.1979) ("actions of Iranian Air Force in contracting for freight forwarding services is commercial and not sovereign"); Texas Trading & Milling v. Federal Republic of Nigeria, 647 F.2d 300, 309 (2d Cir.1981) (dictum) ("contract by foreign government `for the sale of army boots' constitutes a `commercial activity'"); National Amer. Corp. v. Federal Republic of Nigeria, 448 F.Supp. 622, 627, 641-42 (S.D.N.Y.1978)).

In the instant case, Moldova acted as a private participant in the market when in engaged in discussions with Virtual regarding the sale of the MiGs and when it eventually sold the MiGs to the United States. The mere fact that the goods sold by Moldova were MiG-29 planes does not change the nature of Moldova's actions. Accordingly, the court concludes that the relevant actions of Moldova constitute commercial activities within the definition espoused in the FSIA.

2. Nexus Between the Commercial Action and the United States

Having concluded that the activities upon which this lawsuit is based constitute commercial activities, the court must next determine whether there is a sufficient nexus between those activities and the United States such that this court may exercise jurisdiction. See Weltover, 504 U.S. at 617-18, 112 S.Ct. 2160. To demonstrate a sufficient nexus, Virtual must show that the actions in question satisfy one of the three clauses listed in the commercial activity exception to the FSIA. Under 28 U.S.C. § 1605(a)(2), a foreign state engaged in a commercial activity shall not be immune from the jurisdiction of the courts of the United States if

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...