Odhiambo v. Kenya, 764 F.3d 31 (D.C. Cir. 2014) [click for opinion]
The Kenyan Revenue Authority issued an ad promising monetary rewards for information about undisclosed taxes. Plaintiff, Peter Odhiambo, a bank employee, blew the whistle on hundreds of accountholders with potential tax deficiencies. While Kenya did make some rewards payments to Odhiambo, he claimed he was due millions more. After moving to the United States, with Kenya’s assistance, as a refugee, Odhiambo sued Kenya in federal court for the alleged underpayment of rewards. The district court determined that no exception to Kenya’s immunity applied.
The D.C. Circuit reviewed the decision de novo, and noted that the district court could only exercise jurisdiction over a foreign sovereign if Plaintiff’s claims fell within an enumerated statutory exception under the Foreign Sovereign Immunities Act (“FSIA”). The court explained that two exceptions were relevant to the case: waiver by the foreign sovereign and the commercial activity exception.
The waiver exception permits suit when the foreign sovereign has waived immunity either explicitly or implicitly. The commercial activity exception permits a suit when the action is based “(1) upon a commercial activity carried on in the United States by the foreign state; or (2) upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or (3) 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.” 28 U.S.C. § 1605(a)(2).
Odhiambo argued that Kenya had waived its immunity when it signed the 1951 Convention Relating to the Status of Refugees. As an initial matter, the D.C. Circuit noted that Odhiambo failed to mention the convention in his submissions to the district court, and thus waived this argument. The court added that, even if it overlooked this failure to timely raise this argument, the language of the convention failed to meet “the exacting showing required for waivers of foreign sovereign immunity.” Thus, the waiver exception did not permit the suit.
Turning to the commercial activity exception, the D.C. Circuit explained that meetings with Kenyan officials in the United States to discuss the disputed rewards was not a basis for applying the exception because those meetings did not make up an element of his cause of action. Only upon appeal did Odhiambo suggest that the rewards offer constituted the commercial activity and that the meetings with Kenyan officials in the United States meant that the commercial activity had substantial contact with the United States. The D.C. Circuit explained that “mere business meetings” alone are not sufficient to create substantial contact with the United States for the purposes of the FSIA. Furthermore, Odhiambo’s claim must be based on the commercial activity that creates the substantial contact with the United States. As these meetings were not necessary to make out any element of Odhiambo’s breach of contract claim, clause one of the commercial activity exception did not permit his suit. Clause two similarly did not permit suit, as it also requires that the suit be based on an action in the United States.
The D.C. Circuit acknowledged that the closest question arose in relation to clause three of the commercial activity exception, regarding the direct effect in the United States. However, the D.C. Circuit’s direct effect cases alleging breach of contract turn on whether the contract established the United States as the place of performance, much like the leading Supreme Court case, Republic of Argentina v. Weltover, Inc.The D.C. Circuit went through a series of cases, noting that even harm to a U.S. citizen, in and of itself, cannot satisfy the direct effect requirement.
Odhiambo argued that the contract established or necessarily contemplated the United States as a place of performance. But the court found that the contract, reasonably read, did not promise to perform specific obligations in the United States. Odhiambo also argued that Kenya’s assistance in his relocation to the United States altered the contract terms. However, the court found that he offered no evidence as to why assistance with an asylum application should alter the term of a rewards contract.
The dissent believed that the third clause of the commercial activity exception did apply, as Odhiambo’s relocation to the United States was an immediate consequence of the Kenyan rewards program. The dissent disagreed with the limitation of the direct effect breach of contract cases to those where the United States is named as the place of performance. According to the dissent, there should be a more holistic approach to direct effects. The fact that the whistleblower could come from anywhere, and demand payment anywhere, including the United States, meant that the focus on a place of performance clause was inappropriate. Furthermore, U.S. courts have enforced rewards contracts against foreign sovereigns in the past. The dissent also noted that Odhiambo is in the United States at the guidance of Kenya, and directly because of the Kenyan rewards contract at issue. The dissent therefore believed that the third clause of the commercial activities exception was met and that statutory exception to the FSIA should apply.
Eileen Flynn of the Chicago office contributed to this summary.