Foreign Sovereign Immunities Act. District court finds Ukrainian instrumentalities engaged in “commercial activity” by contracting with a private company to recover assets, such that an exception to sovereign immunity was met under the Foreign Sovereign Immunities Act.
Plaintiffs were Universal Trading and Investment Company, Inc. (“UTICo”), a Massachusetts corporation engaged in international asset recovery operations, and Foundation Honesty International, Inc. ("Foundation"), a Massachusetts nonprofit to which UTICo made a commitment to allocate a portion of the fees paid for UTICo's work. Defendants were Ukrainian Prosecutor General’s Office ("UPGO") and Bureau for Representing Ukrainian Interests in International and Foreign Courts ("Bureau"), both instrumentalities of the Ukrainian government. UPGO had retained UTICo to facilitate the recovery of assets on behalf of Ukraine. The Bureau was responsible for paying and supporting foreign firms acting under contract in the interests of Ukraine, but UTICo had not been paid for its work.
UPGO had granted Powers of Attorney to UTICo to pursue multiple different investigations and identify and freeze assets in various nations. UTICo identified real estate in California acquired by former Ukrainian Prime Minister Pavlo Lazarenko and his assistant Petro Kiritchenko using expropriated Ukrainian assets. UPGO, not wishing to become a party in litigation in the U.S., purported to assign its claim to the real estate to UTICo as compensation for UTICo's past work (the "Assignment"), whereupon UTICo filed a claim in its own name in California district court. But Kiritchenko and Lazarenko challenged the Assignment in Ukrainian courts and it was found to be invalid. The California district court ruled likewise under Ukrainian law and found that UTICo lacked standing because UPGO had lacked authority to assign Ukraine’s claims.
UTICo believed that the intervening Ukrainian court proceedings and judgments, to which UTICo had no access and Defendants failed to make available, would have bolstered its position in the California district court. Plaintiffs then filed several causes of action against Defendants in Massachusetts district court, alleging that Defendants breached the Assignment by failing to support its validity and breached contracts with UTICo by failing to pay the agreed fees for UTICo's asset recovery work.
Defendants invoked the sovereign immunity defense, argued that venue was improper in Massachusetts, and argued that Plaintiffs failed to state a claim upon which relief could be granted.
The Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602, et seq., provides the sole basis by which courts in the United States may obtain jurisdiction over another nation. Under the FSIA, a foreign sovereign is not immune from the federal courts’ jurisdiction in any case “in which the foreign state has waived its immunity either explicitly or by implication.” Because there was no dispute that Defendants were instrumentalities of a foreign state within the scope of the FSIA, the only consideration was whether any of the FSIA’s exceptions to sovereign immunity applied. If not, the district court would lack both statutory subject matter jurisdiction and personal jurisdiction over Defendants.
The court focused here on the “commercial activity” exception under the FSIA. The exception displaces sovereign immunity where “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 carried on in the United States by the foreign state elsewhere; or upon an act outside … 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.” Defendants denied having engaged in a “commercial activity.”
The court focused on opinions in which other courts had determined that “commercial activity” is not defined by whether the foreign state was motivated by profits but instead by whether its actions are of the type whereby a private party engages in “trade and traffic or commerce.” The court identified the action at issue as Ukraine’s contracting with an outside agent, UTICo, to recover assets on Ukraine’s behalf. Recognizing highly persuasive authority indicating that a foreign state’s retention of a private company to recover assets was a “commercial activity” -- as well as legislative history stating that a government’s undertaking of a contract to purchase goods and services constitutes “commercial activity” -- the court ruled that UPGO's contract with UTICo was a “commercial activity” and thus that Defendants were not immune from jurisdiction.
As to Defendants’ argument that venue was improper, the court disagreed. By statute, a civil action against a foreign state may be brought in any judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated. But given the unrefuted evidence that ninety percent of the work performed under the contracts occurred in Massachusetts, as well as other facts, the court found that a substantial part of the events had occurred there. Thus, venue was proper.