Diag Human v. Czech Rep. - Ministry of Health, No. 14-7142, 2016 U.S. App. LEXIS 9770 (D.C. Cir. May 31, 2016) [click for opinion]
In 1990, Diag Human—a medical technology company—entered into a Framework Agreement with the Czech Ministry of Health. Under the Agreement, the Ministry agreed to purchase the necessary technical equipment and to provide training for medial personnel to ensure that blood products could be transported throughout the Czech Republic. Diag Human would assist in this production and receive a share of the total volume of fractionated plasma produced for this project. Once the plasma was produced, it was sent to Novo Nordisk which, in turn, distributed the plasma.
In 1991, the Ministry opened a second tender to supersede the original agreement. Diag Human bid on this project, but the Ministry accepted the bid of Novo Nordisk. In communicating its acceptance to Novo Nordisk, the Ministry informed Novo Nordisk that it had denied Diag Human's request because the Ministry was concerned about Diag Human's "business ethics."
Diag Human filed suit, alleging that the Ministry's statement caused Novo Nordisk to cease working with it. The parties agreed to resolve their dispute through arbitration. In 2008, the tribunal awarded Diag Human over $325 million in damages and interest.
Later that same year, Diag Human filed suit in the United States District Court for the District of Columbia to enforce the award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the New York Convention"). The district court sua sponte dismissed the suit for lack of subject matter jurisdiction. The court held that no exceptions to the Foreign Sovereign Immunities Act (the "FSIA") applied. According to the district court, the relationship between Diag Human and the Ministry was not "commercial" in nature and, therefore, not governed by the New York Convention.
The Court of Appeals disagreed and reversed the district court, citing the FSIA's arbitration exception to sovereign immunity:
[a] foreign state shall not be immune from the jurisdiction of courts of the United States … in any case … in which the action is brought … to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, … if … the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.
In dispute was whether Diag Human shared a defined legal relationship with the Czech Republic, and whether the arbitration award was governed by a treaty or other international agreement in force for the United States. According to the court, the answer to both questions was yes. The Czech Republic and Diag Human shared a legal relationship because, at the time of the events, the parties had been operating under the open-ended Agreement. The court had no doubt that the Agreement was sufficient to constitute a legal relationship because it imposed corresponding duties on each side which each side had been performing. The court further held that the relationship was governed by a treaty—the New York Convention. Having met the requirements for an exception to sovereign immunity, there was subject matter jurisdiction.
Judge Sentelle dissented on the ground that the district court had properly determined that the commercial relationship had ended by the time the letter had been sent to Novo Nordisk.