Wye Oak Tech., Inc. v. Republic Iraq

• Citation: 24 F.4th 686
• Decision Date: 04 February 2022
• Docket Number: No. 19-7162,C/w 19-7169,19-7162
• Parties: WYE OAK TECHNOLOGY, INC., Appellee v. REPUBLIC OF IRAQ and Ministry of Defense of the Republic of Iraq, Appellants
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

24 F.4th 686

WYE OAK TECHNOLOGY, INC., Appellee

v.REPUBLIC OF IRAQ and Ministry of Defense of the Republic of Iraq, Appellants

No. 19-7162

C/w 19-7169

United States Court of Appeals, District of Columbia Circuit.

Argued September 23, 2021

Decided February 4, 2022

Boaz S. Morag argued the cause for appellants/cross appellees. With him on the briefs were Andrew A. Bernstein and Timothy B. Mills.

Neal Kumar Katyal argued the cause for appellee/cross-appellant. With him on the briefs were C. Allen Foster, Eric C. Rowe, John H. Quinn, Jr., Patrick M. Klemz, Mitchell P. Reich, Reedy C. Swanson, and Sundeep Iyer.

Before: Henderson and Jackson, Circuit Judges, and Sentelle, Senior Circuit Judge.

Jackson, Circuit Judge:

This appeal arises from a fully litigated contract dispute between an American defense contractor and a foreign government that resulted in a multimillion-dollar plaintiff's judgment. Wye Oak Technology, Inc. first filed its complaint against the Republic of Iraq in the U.S. District Court for the Eastern District of Virginia ("EDVA"). Finding improper venue, that court transferred the case to the U.S. District Court for the District of Columbia ("DDC"), but not before flatly denying Iraq's motion to dismiss the complaint on sovereign immunity grounds. And when the DDC eventually entered judgment in Wye Oak's favor nearly a decade later, after an eight-day bench trial, it did so partly in reliance on an intervening ruling from the Fourth Circuit, which rejected Iraq's contention that none of the exceptions to sovereign immunity in the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 et seq ., applied to Wye Oak's breach of contract claims.

To be specific, the Fourth Circuit held that because Wye Oak alleged that it had engaged in various acts inside the United States pursuant to the parties’ agreement, the lawsuit could proceed under the second clause of the FSIA's commercial activities exception. See 28 U.S.C. § 1605(a)(2) (abrogating foreign sovereign immunity with respect to claims that are "based upon ... an act performed in the United States in connection with commercial activity of the foreign state elsewhere"). Thus, we are now called upon to decide whether we agree with our sister circuit's FSIA interpretation (as applied in the context of the post-trial judgment in Wye Oak's favor that the DDC has entered against Iraq). We must also determine, incidentally, whether the law of the case doctrine somehow constrains our own assessment of Iraq's alleged immunity at this stage of the case.

In the opinion that follows, we first reject Wye Oak's argument that Iraq's participation in the DDC bench trial implicitly waived its sovereign immunity for the purpose of the FSIA's waiver exception. We then explain that the law of the case doctrine does not require us to adhere to the Fourth Circuit's conclusions about the applicability of the FSIA's commercial activities exception, and, indeed, unlike the Fourth Circuit, we conclude that the second clause of 28 U.S.C. § 1605(a)(2) does not apply to the established facts of this case. But we do discern a plausible basis for sustaining the district court's jurisdictional ruling in the language of the commercial activity exception's third clause. See 28 U.S.C. § 1605(a)(2) (abrogating immunity if 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"). And we find that the district court is best positioned to evaluate (or develop) the record as necessary to determine, in the first instance, whether the facts support application of that provision of the FSIA.

Therefore, the district court's post-trial judgment is vacated to the extent that it is premised on a finding of subject-matter jurisdiction that rests on an erroneous interpretation of the second clause of the commercial activities exception, and this matter is remanded to the district court for a determination of whether Iraq's breach of contract caused "direct effects" in the United States for the purpose of the third clause of 28 U.S.C. § 1605(a)(2).

I

The FSIA, 28 U.S.C. § 1602, et seq ., affords the "sole basis for obtaining jurisdiction over a foreign state" in United States courts. Argentine Republic v. Amerada Hess Shipping Corp ., 488 U.S. 428, 434, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989) ; see also Samantar v. Yousuf , 560 U.S. 305, 314, 130 S.Ct. 2278, 176 L.Ed.2d 1047 (2010). That statute "bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and ... confers jurisdiction on district courts to hear suits ... when a foreign state is not entitled to immunity." Diag Hum., S.E., v. Czech Republic-Ministry of Health , 824 F.3d 131, 134 (D.C. Cir. 2016).

The FSIA establishes the general rule for granting foreign sovereign immunity, 28 U.S.C. § 1604, and it also makes that grant of immunity subject to nine exceptions, see id . §§ 1605–1607; Mohammadi v. Islamic Republic of Iran , 782 F.3d 9, 13–14 (D.C. Cir. 2015). The FSIA exceptions are exhaustive; if none applies to the circumstances presented in a case, the foreign state has immunity and the court lacks subject-matter jurisdiction. Odhiambo v. Republic of Kenya , 764 F.3d 31, 34 (D.C. Cir. 2014).

The two FSIA exceptions that are relevant to this appeal—waiver and commercial activity—appear at 28 U.S.C. § 1605(a)(1) and (2). In its entirety, that section of the statute provides:

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

(1) in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver;

(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.

Section 1605(a)(1) recognizes two species of waiver. Where "explicit[ ]" waiver occurs, the foreign state expressly consents to forgo its sovereign immunity with respect to a certain class of disputes or a particular subject matter. See World Wide Mins., Ltd. v. Republic of Kazakhstan , 296 F.3d 1154, 1162 (D.C. Cir. 2002). Generally speaking, because explicit waivers of sovereign immunity are narrowly construed "in favor of the sovereign" and are not enlarged "beyond what the language requires[,]" id . (quoting Library of Cong. v. Shaw , 478 U.S. 310, 318, 106 S.Ct. 2957, 92 L.Ed.2d 250 (1986) ), a foreign state "will not be found to have [explicitly] waived its immunity unless it has clearly and unambiguously done so[,]" id.

The waiver provision that is most relevant here is the FSIA's reference to "implicit[ ]" waivers of sovereign immunity, which the statute "does not define." Creighton Ltd. v. Gov't of the State of Qatar, 181 F.3d 118, 122 (D.C. Cir. 1999). However, this circuit has "followed the ‘virtually unanimous’ precedents construing the implied waiver provision narrowly." Id. (internal citations omitted). Thus, we have long held that "implicit in § 1605(a)(1) is the requirement that the foreign state have intended to waive its sovereign immunity." Id. (emphasis added). The legislative history of the FSIA provides only three examples of implicit waivers by a foreign state, H.R. Rep. No. 94-1487, at 18 (1976), and courts have been reluctant to recognize an implicit waiver of sovereign immunity in other circumstances. See Foremost-McKesson, Inc. v. Islamic Republic of Iran , 905 F.2d 438, 444 (D.C. Cir. 1990) (explaining that an implied waiver occurs if the foreign state agrees to arbitration, agrees that the law of a particular country governs a contract, or has filed a responsive pleading without raising the defense of sovereign immunity).

Under Section 1605(a)(2), a foreign state's sovereign immunity is subject to abrogation based on the state's commercial activities. This statutory exception codifies the "restrictive theory" of sovereign immunity that the United States Department of State first endorsed in 1952, Republic of Argentina v. Weltover, Inc ., 504 U.S. 607, 612, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), pursuant to which foreign states were not afforded immunity in cases "arising out of purely commercial transactions[,]" id . at 613, 112 S.Ct. 2160 (quoting Alfred Dunhill of London, Inc. v. Republic of Cuba , 425 U.S. 682, 703, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976) ). The Supreme Court had long held that when "a foreign government acts, not as regulator of a market, but in the manner of a private player within it," id . at 614, 112 S.Ct. 2160, its private acts might be sufficient to justify the invocation of the jurisdiction of American courts, see id. (distinguishing acts of the state as a market participant from undertakings aimed at "fulfilling its uniquely sovereign objectives"); see also Permanent Mission of India to the United Nations v. City of New York , 551 U.S. 193, 199, 127 S.Ct. 2352, 168 L.Ed.2d 85 (2007). Thus, the FSIA's commercial activities exception carves out, and exempts from sovereign immunity, a sphere of private commercial action that foreign states sometimes undertake.

Notably, as Congress has worded it, the commercial activities exception is also designed to ensure that there is a sufficient connection between the foreign state's commercial activity and the United States to warrant the exercise of jurisdiction. See Jam v. Int'l Fin. Corp ., ––– U.S. ––––, 139 S. Ct. 759, 766, 203 L.Ed.2d 53 (2019). Thus, the first clause of section 1605(a)(2) requires a plaintiff's...