Community Finance Group, Inc. v. Rep. of Kenya, No. 11-1816 (8th Cir. Dec. 15, 2011) [click for opinion]
Plaintiffs-Appellants, Community Finance Group, Inc. ("CFG") and its general manager Andrew Vilenchik, brought suit against Defendants-Appellees, the Republic of Kenya, Kenya Revenue Authority, Kenya Department of Customs, and Kenya Central Bank, for breach of fiduciary duty, improper taking in violation of international law, conversion, conspiracy to commit a tort, aiding and abetting an improper taking and fraudulent scheme, and unjust enrichment. The action arose out of a complaint filed by Plaintiffs with the Kenya Central Bank Fraud Investigations Department ("BFID"), and a resulting investigation by the Kenyan police, as to an allegedly fraudulent commercial interaction between Plaintiffs and other private parties located in Kenya. Following Defendants' motion to dismiss, the district court dismissed the action for lack of subject matter jurisdiction.
Plaintiffs sought to establish subject matter jurisdiction under three of the Foreign Sovereign Immunities Act's enumerated exceptions to sovereign immunity: (1) the commercial activity exception under § 1605(a)(2); (2) the expropriation exception under § 1605(a)(3); and (3) the tort exception under § 1605(a)(5).
The Eighth Circuit affirmed the district court's conclusion that the commercial activity exception did not apply because none of the acts or alleged breaches of duty attributed to Defendants were commercial in nature. CFG alleged that the Defendants: (1) failed to investigate the underlying commercial transaction between CFG and Zilicon Freighters, Ltd. to ensure that it was legitimate; (2) failed to secure the gold stored by customs and place a hold on the funds transferred by CFG until the transaction could be verified; (3) failed to investigate the criminal activities of alleged wrongdoers; and (4) failed to return as restitution funds seized from alleged wrongdoers. The court noted that decisions regarding whether or how to investigate an allegedly fraudulent commercial transaction between the parties, regulate exports, enforce criminal laws, and seize property during criminal investigations are governmental rather than commercial activities. As a result, the court held that the alleged acts fall outside the scope of the commercial activity exception to sovereign immunity.
The court further ruled that the expropriation exception did not apply in the case. CFG alleged that Defendants improperly retained monetary funds owned by Plaintiffs, and improperly retained gold purchased by Plaintiffs. The court found that neither could constitute a taking because Plaintiffs never paid for, or acquired the gold that they alleged was taken from them, and they do not allege that the $350,000 paid to Great Lakes Auto Tech Int'l Ltd. was ever transferred to Defendants. Moreover, the exception did not apply because even if such property had been taken by Defendants, CFG failed to establish that the property was present in the U.S. or that the expropriating Defendants engage in commercial activity in the U.S.
Finally, the court found that the tort exception did not apply because it covers only torts occurring within the territorial jurisdiction of the U.S. regardless of whether the alleged tort may have had effects in the U.S.
Thus, the Eighth Circuit affirmed the district court's order of dismissal based on lack of subject matter jurisdiction.