Zappia Construction v. Emirate of Abu Dhabi

• Decision Date: 01 August 1999
• Docket Number: Docket No. 99-7272
• Citation: 215 F.3d 247
• Parties: (2nd Cir. 2000) ZAPPIA MIDDLE EAST CONSTRUCTION COMPANY LIMITED, Plaintiff-Appellant, v. THE EMIRATE OF ABU DHABI, ABU DHABI INVESTMENT AUTHORITY, and ABU DHABI COMMERCIAL BANK, Defendants-Appellees
• Court: U.S. Court of Appeals — Second Circuit

Page 247

215 F.3d 247 (2nd Cir. 2000)

ZAPPIA MIDDLE EAST CONSTRUCTION COMPANY LIMITED, Plaintiff-Appellant, v. THE EMIRATE OF ABU DHABI, ABU DHABI INVESTMENT AUTHORITY, and ABU DHABI COMMERCIAL BANK, Defendants-Appellees.

Docket No. 99-7272

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: December 14, 1999

Decided: June 12, 2000

Appeal from an order dated January 6, 1999, entered in the United States District Court for the Southern District of New York (Wood, Judge), granting appellees' motions to dismiss for lack of subject matter jurisdiction.

Affirmed.

[Copyrighted Material Omitted] E. LAWRENCE BARCELLA, Jr., Paul, Hastings, Janofsky & Walker LLP, Washington, DC, for Plaintiff-Appellant.

RONALD S. LIEBMAN, Patton Boggs LLP, Washington, DC, for Defendants-Appellees.

Before: FEINBERG, LEVAL, Circuit Judges, and PAULEY, District Judge.^*.

PAULEY, District Judge:

Plaintiff-appellant Zappia Middle East Construction Company Limited ("ZMEC") appeals from an order of the United States District Court for the Southern District of New York (Wood, J.) dismissing its complaint for lack of subject matter jurisdiction. The district court held that the plaintiff failed to establish facts sufficient to bring the action within the purview of the expropriation exception of the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1605(a)(3) (1994). We affirm.

BACKGROUND

On an appeal from an order granting a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), we review the district court's factual findings for clear error and its legal conclusions de novo. See Woodward Governor Co. v. Curtiss Wright Flight Sys., Inc., 164 F.3d 123, 126 (2d Cir. 1999).

ZMEC is a construction company incorporated in the British Virgin Islands with a place of business in Canada. ZMEC is owned by Joseph Zappia. Mr. Zappia is a citizen of Italy and Canada and a resident of Rome, though at all times relevant to this action he resided in the Emirate of Abu Dhabi. Defendant-appellee Abu Dhabi Investment Authority ("ADIA") is an investment institution wholly owned by Abu Dhabi. ADIA owns a majority of the shares of defendant-appellee Abu Dhabi Commercial Bank ("ADCB").

From 1979 to 1982, ZMEC entered into a series of eight construction contracts in Abu Dhabi to build public works facilities in the Emirate. The contracts called for the Emirate to make periodic progress payments to ZMEC. In mid-1982, the Emirate delayed making payments, and in some instances refused to pay ZMEC the monies due under the contracts. The Emirate also allegedly forced ZMEC to perform work beyond that specified in the contracts. To remain solvent, ZMEC borrowed funds from Emirates Commercial Bank ("ECB") on unfavorable terms.

In January 1983, ZMEC reached the limit of its credit with ECB. On January 10, 1983, ZMEC entered into an agreement with ECB (the "1983 Agreement") pursuant to which day-to-day management of ZMEC was turned over to another construction contractor, Bovis International Limited ("Bovis"), and supervision of ZMEC was turned over to a management committee comprised of three representatives of ECB, one representative of Bovis, and Mr. Zappia or alternatively his assistant. The 1983 Agreement also prevented ZMEC from incurring any further debts or liabilities without the written consent of ECB.

ZMEC alleges that Mr. Zappia signed the 1983 Agreement under threat of imprisonment. At the January 10, 1983 meeting, ECB also forced Mr. Zappia to surrender his passport. Thereafter, Mr. Zappia's passport was withheld until the Emirate's acting Interior Minister returned it months later.

Ten days after the 1983 Agreement was executed, ECB wrote to Sheikh Kalifa Bin Zayed Al Nahyan ("Sheikh Kalifa"), the Crown Prince of Abu Dhabi and the Chairman of Abu Dhabi's executive council, petitioning him to direct the various government departments to extend the duration of ZMEC's projects so that Bovis could complete them.

In July 1985, more than two years after the execution of the 1983 Agreement, ECB and two other banks were recapitalized by the Emirate and merged into the newly formed ADCB. By then, several of the construction projects had been completed and Bovis was liquidating ZMEC's construction equipment and preparing claims for compensation on ZMEC's behalf. After the merger, Bovis completed the remaining projects and sold the rest of ZMEC's construction equipment. No proceeds from the sales of equipment were paid to the Emirate or ADIA, and none of the equipment or the proceeds of the sales are present in the United States.

In 1994, ZMEC instituted this suit seeking payments under the original construction contracts. ZMEC alleged that the defendants had taken its property in violation of international law and asserted jurisdiction based upon the expropriation exception to the FSIA, 28 U.S.C. § 1605(a)(3). The case was referred to a magistrate judge for pretrial management and a report and recommendation on dispositive motions. The defendants promptly moved to dismiss the complaint for lack of subject matter jurisdiction. The parties subsequently conducted two years of discovery solely on the jurisdictional issue.

Based on the documentary evidence amassed by the parties, the magistrate judge concluded in a thorough report and recommendation that there was no evidence that ECB was controlled by the Emirate or the royal family. Consequently, the magistrate judge determined that no expropriation by the sovereign had taken place. Adopting the report and recommendation, the district judge also concluded that the evidence did not support ZMEC's assertions that the Emirate expropriated ZMEC's property and dismissed the complaint.

ZMEC appeals the district court's finding that rights in intangible property are not "rights in property" under the FSIA, and that there was no expropriation by Abu Dhabi and ADIA. ZMEC also asserts that the district court abused its discretion in failing to hold an evidentiary hearing on the jurisdictional issues.

DISCUSSION

I. The Expropriation Exception

It is undisputed that the defendants-appellees are either foreign sovereigns or instrumentalities of a foreign sovereign. In actions against foreign sovereigns or their instrumentalities, the FSIA provides the sole basis for obtaining subject-matter jurisdiction of United States courts. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-39, 109 S. Ct. 683, 688-90 (1989); Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 388 (2d Cir. 2000). The FSIA was enacted "to address 'the potential sensitivity of actions against foreign states.' [It] aimed 'to facilitate and depoliticize litigation against foreign states and to minimize irritations in foreign relations arising out of such litigation.'" Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993) (quoting H.R. Rep. No. 1487, at 45 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6631, 6634). Under the FSIA a foreign sovereign and its instrumentalities are immune from suit in the United States courts unless a specific statutorily defined exception applies.

Although this action involves a commercial contract dispute, the FSIA "commercial activities" exception, 28 U.S.C. § 1605(a)(2)(1994), does not apply because no commercial acts or their effects were felt in the United States. However, ZMEC contends that the FSIA expropriation exception applies.

The expropriation exception provides that a foreign sovereign is not immune from suit in any case

in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.

28 U.S.C. § 1605(a)(3). Thus, in order to establish jurisdiction pursuant to the FSIA expropriation exception, a plaintiff must show that: (1) rights in property are in issue; (2) that the property was "taken"; (3) that the taking was in violation of international law; and (4) that one of the two nexus requirements is satisfied. The district court found that ZMEC failed to satisfy the first two criteria because intangible contract rights are not rights in property and there was no governmental taking. We need not determine whether intangible contract rights are property under the statute, however, because defendants-appellees' actions did not constitute a taking within the meaning of the FSIA.

The FSIA does not define the term "taken." However, the legislative history makes clear that the phrase "taken in violation of international law" refers to "the nationalization or expropriation of property without payment of the prompt adequate and effective compensation required by international law," including "takings which are arbitrary or discriminatory in nature." H.R. Rep. No. 94-1487, at 19 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6618. The term "taken" thus clearly refers to acts of a sovereign, not a private enterprise, that deprive a plaintiff of property without adequate compensation. Accord Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 685, 96 S. Ct. 1854, 1857 (1976).

ZMEC argues that ECB and ADCB were alter egos of the Emirate, which surreptitiously expropriated ZMEC's property under the 1983 Agreement. However, government instrumentalities are presumed to be distinct and...