United States District Court, Northern District of Illinois, E.D
October 8, 1985
MAGNUS ELECTRONICS, INC., PLAINTIFF,
ROYAL BANK OF CANADA, ET AL., DEFENDANTS.
MEMORANDUM OPINION AND ORDER
Magnus Electronics, Inc. ("Magnus") originally sued Aerolineas
Argentinas ("Aerolineas") and Royal Bank of Canada ("Bank")
because of the nondelivery of Magnus' goods sold to Argentine
purchaser Alfredo DiLullo ("DiLullo"). When Magnus struck out
against Aerolineas (see this Court's three opinions reported
beginning at 611 F. Supp. 436), it shifted to an attack on the
Argentine Republic ("Argentina") via its Second Amended Complaint
(the "Complaint"). Argentina promptly moved for dismissal for
lack of jurisdiction (both over it, Fed.R.Civ.P. ("Rule")
12(b)(2), and over the subject matter, Rule 12(b)(1)). It is
right on both grounds, and this action is dismissed.
In October 1981 Magnus entered into a written contract to sell
goods to DiLullo (Complaint ¶ 3). Under the contract Magnus
was to cause the goods to be delivered to DiLullo in Buenos Aires
through Bank, which was to assure that the goods were delivered
only against payment of the purchase price (Complaint ¶ 4).
Magnus' freight forwarder caused the goods to be shipped to
Miami, where Aerolineas took possession under an airway bill
designating Bank as sole consignee (id.).
On November 11, 1981 (shortly after the goods had arrived in
Buenos Aires) "agents of the Argentine Air Force, acting in their
capacity on behalf of the Argentina [sic] military, unlawfully
seized and took possession of [Magnus'] goods in Argentine
customs" (Complaint ¶ 7). That conversion
was implemented by use of at least one forged document (id.),
information of the seizure and conversion was suppressed and the
goods were classified as "War Secret" material (Complaint ¶ 8).
Magnus believes DiLullo "also participated in the aforesaid fraud
and withheld information of the unauthorized release" (id.).
"In so acting to cause [Magnus'] goods to be fraudulently
converted for Argentine military purposes, the Country of
Argentina has acted in violation of international law"
(Complaint ¶ 9). Those acts of fraud and conversion are alleged
to be "without the scope of sovereign judicial immunity"
(Complaint ¶ 10).
Lack of Personal Jurisdiction
Argentina is a sovereign state. As with any sovereign, it is
amenable to suit only by strict and literal compliance with the
Foreign Sovereign Immunities Act of 1976 (the "Act"), 28 U.S.C. § 1330
and 1602-1611,*fn2 for "the comprehensive scheme
established by the [Act] is the exclusive means by which foreign
countries may be sued in American courts." Frolova v. Union
of Soviet Socialist Republics, 761 F.2d 370, 372 (7th Cir. 1985)
Section 1608(a)(3) mandates service on Argentina's Ministry
of Foreign Affairs "by any form of mail requiring a signed
receipt." In this case it appears Magnus arranged for delivery
to the Argentine Ministry by an Argentine notary, instead of
service by mail.
That noncompliance with the Act's literal requirements (though
it certainly did provide notice) deprives this Court of personal
jurisdiction.*fn3 But because such a procedural defect is
obviously curable, this opinion goes on to deal with the
noncurable subject matter deficiency in Magnus' claim.
Lack of Subject Matter Jurisdiction
Again the sovereign status of Argentina forces Magnus to invoke
the Act, without whose provisions Argentina is invulnerable to
suit here. Magnus seeks to call into play Section 1605(a)(2):
(a) 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 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.
First it is clear the action, predicated on an alleged
fraudulent seizure and conversion of Magnus' goods in Argentina,
is not within the statute's first clause, referring to
"commercial activity carried on in the United States by the
foreign state." Though Magnus, playing fast and loose with the
rules, goes outside the record to ascribe Aerolineas' United
States activities to Argentina, even it does not say that
provision applies. And of course the second clause of the statute
is plainly inapplicable. Magnus claims instead under the last
clause of Section 1605(a)(2).
But on that score Magnus has double difficulty: It fails to
satisfy both the "commercial activity" requirement and the
"direct effect" test. This opinion will deal with each in turn.
As for the "commercial activity" ingredient, Magnus attempts to
gloss over the
consequence of the fact that, by its own description of the
transaction, it "was of a commercial nature, [Magnus] sending
goods to an Argentine buyer [DiLullo] in a regular, for-profit
commercial transaction" (Magnus Mem. 7). Argentina was not in
that conceded "commercial activity" — indeed Magnus' grievance
is that Argentina wrongfully sidetracked that commercial
transaction by intercepting the goods before they reached their
rightful destination. Magnus simply cannot force its lawsuit
based on that allegedly tortious conduct (an act of international
piracy, as Magnus would have it) into the mold of "commercial
activity of a foreign state."
That common sense meaning of "commercial activity" comports
with the gravamen of the Section 1605(a)(2) exception. As
Harris v. VAO Intourist, Moscow, 481 F. Supp. 1056,1064
(E.D.N.Y. 1979) put it:
As it is used in section 1605(a)(2), "commercial
activity" is meant to distinguish activity which
results from what in our society would be termed
governmental, public or sovereign enterprises —
e.g., running police departments or parks — from
those resulting from the acts of foreign state
agencies or instrumentalities acting in what we would
deem a commercial capacity — e.g., operating
hotels or cruise ships. See Yessenin-Volpin v.
Novosti Press Agency, Tass, 443 F. Supp. 849
For better or worse, governmental expropriation of private
property is the paradigmatic instance of activity coming under
the first rubric and not the second. Whatever else Argentina's
alleged conduct may be termed, it is not "commercial activity."
As for "direct effect," Magnus seeks to read that requirement
as though mere economic impact on a United States party, caused
by a foreign government's actions on its own soil, were enough to
subject the foreign sovereign to suit here. That construction of
course would prove too much: It would eliminate sovereign
immunity altogether, for all the United States plaintiff would
have to show would be damages caused by the alleged
wrongful conduct of the foreign government in its own territory.
Due process constraints preclude such a broad sweep against
private litigants (see e.g., State Security Insurance Co. v.
Frank B. Hall & Co., 530 F. Supp. 94, 98-100 (N.D.Ill.
1981)),*fn4 and it would be anomalous indeed if a foreign nation
could be haled into court here on so slender a connection when a
non-sovereign could not.
Not surprisingly, that has been the courts' approach to tort
litigation sought to be carried on in the United States against
foreign governments. Harris, 481 F. Supp. at 1064-65; Upton v.
Empire of Iran, 459 F. Supp. 264 (D.D.C. 1978), aff'd mem.,
607 F.2d 494 (D.C.Cir. 1979); Verlinden B.V. v. Central Bank of
Nigeria, 488 F. Supp. 1284, 1298 (S.D.N.Y. 1980), aff'd on other
grounds, 647 F.2d 320 (2d Cir. 1981), rev'd on other grounds,
461 U.S. 480, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). Among the
other inapplicable opinions Magnus seeks to reshape into
authority purportedly supporting its position is Carey v.
National Oil Corp., 592 F.2d 673 (2d Cir. 1979) (per curiam), a
case that in fact supports Argentina and the conclusion reached
in this opinion.
Accordingly Magnus has not established the predicate for suing
Argentina under the Act. This action is dismissed.*fn5