Rote v. Zel Custom Manufacturing LLC, No. 2:13-cv-01189 (6th Cir. Mar. 7, 2016)

This case arises from negligence and products liability claims that Plaintiffs brought against Dirección General Fabricaciones Militares (“DGFM”), an instrumentality of Argentina, after a rifle round, allegedly manufactured by DGFM, exploded in one of the plaintiff’s hands and caused substantial injuries.  DGFM moved to dismiss on the basis that it was immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602 et seq.  Plaintiffs responded that DGFM’s conduct fell squarely within the “commercial activity” exception of the FSIA.  The district court, agreeing with Plaintiffs, denied DGFM’s motion to dismiss.

On appeal, DGFM argued in relevant part that: (1) the design and manufacture of a product does not constitute a “commercial activity” under the FSIA; and (2) as part of its “direct effect” analysis under the FSIA, the court should have evaluated whether there were minimum contacts with the United States.  The Sixth Circuit ultimately rejected both of these arguments, instead affirming the decision of the lower court and finding that Plaintiffs had adequately alleged the elements of the commercial activity exception, including that an act outside of the United States, in connection with a commercial activity in a foreign state, caused a direct effect in the United States.

In order for an activity to be “commercial in nature” for purposes of the FSIA exception to immunity, the court must determine both that the activity is of the type private individuals engage in and that the FSIA plaintiff is not simply using creative nomenclature to recast governmental activities as commercial ones.  DGFM argued that Plaintiffs could not rely on the design and manufacture of ammunition to satisfy both elements, adding that a commercial activity must consist of either marketing, sale, or distribution of the ammunition, rather than its mere design or manufacture.  The Sixth Circuit rejected this argument as reading “unexpressed requirements” into the FSIA.  DGFM additionally argued that the design and manufacture should not be considered commercial because the ammunition at issue was not intended for a non-governmental end-user.  The court likewise rejected this argument, reasoning that Congress had mandated that courts must look to the nature of the activity at issue rather than its purpose.

DGFM separately argued that the “direct effect” element of the commercial activity exception incorporated the “minimum contacts” test of the Due Process Clause of the Fifth Amendment, citing to the legislative history of the FSIA and to Ninth Circuit case law endorsing such an approach.  The Sixth Circuit remained unpersuaded, finding that DGFM was again attempting to read into the FSIA “unexpressed requirements” when the plain meaning of the statute was apparent on its face.  The court added that, in the context of products liability cases, such as this one, courts have routinely held that an injury caused by an allegedly defective product meets the “direct effect” element of the exception.  In so doing, the Sixth Circuit affirmed that the exercise of subject-matter jurisdiction over DGFM was proper under the FSIA’s commercial activity exception.