First Circuit affirms district court's exercise of jurisdiction over Ukrainian agencies and instrumentalities, holding that by contracting with a private American company to perform asset-recovery work they fall within the "commercial activity" exception of the Foreign Sovereign Immunities Act.
Universal Trading & Inv. Co. v. Bureau for Representing Ukrainian Interests in Int'l & Foreign Courts, Case No. 12-2283 (1st Cir. Aug. 12, 2013) [click for opinion]
Plaintiff Universal Trading and Investment Company, Inc. (“UTICo”) is a Massachusetts corporation that engages in international asset-recovery operations. Defendant Ukrainian Prosecutor General’s Office ("UPGO") hired UTICo to help recover assets on behalf of the Republic of Ukraine. Defendant Bureau for Representing Ukrainian Interests in International and Foreign Courts ("Bureau") was responsible for paying and supporting foreign firms that were acting under contract in the interests of Ukraine. Both Defendants are instrumentalities or agencies of the Ukrainian government. UTICo filed a breach-of-contract suit against UPGO and the Bureau, alleging that Defendants failed to pay UTICo for services rendered.
UTICo and UPGO executed several agreements and Powers of Attorney for UTICo and its agents to pursue investigations and actions on behalf of UPGO outside of Ukraine. UTICo alleged that it was instrumental in freezing hundreds of millions of dollars on behalf of Ukraine and that it also collected evidence in multiple jurisdictions around the world, which allowed UPGO to prosecute claims in Ukraine for stolen assets in excess of $1 billion, but that Defendants failed to pay for the work. Defendants moved to dismiss the complaint on the grounds of sovereign immunity. The district court denied the motion under the "commercial activity" exception to foreign sovereign immunity. The First Circuit affirmed.
The Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1602, et seq., provides the sole basis for federal courts to obtain jurisdiction over a foreign state. Under the FSIA, a foreign sovereign is not entitled to immunity if it has waived its immunity either explicitly or by implication. UTICo invoked the FSIA's “commercial activity” exception, which deprives a foreign state of 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. . . that. . .causes a direct effect in the United States.”
Defendants argued that UTICo failed to show the existence of a contract between the parties and that as a result no particular transaction or act came within the definition of "commercial activity." The court rejected this argument and found that UTICo had met its burden of showing that a transaction or act had occurred that would fall within the FSIA exception. Defendants also argued that they were acting in a sovereign capacity when they engaged UTICo, and that UTICo, in furnishing assistance with a criminal investigation and asset forfeiture, performed a "uniquely governmental, non-commercial, service." The court concluded that Defendants failed to meet their burden of showing by a preponderance of the evidence that UTICo's claims were not encompassed by the commercial-activity exception. The court further noted that Defendants incorrectly focused on the purpose of UTICo's activities rather the nature of the activities. The court held that UTICo performed typical asset-recovery services that constituted commercial activity.
The court also rejected Defendants' argument that UTICo's claim lacked a required nexus to the United States. Even though UTICo rendered its asset-recovery services predominately abroad, the court found ample connection to the United States: UTICo is a Massachusetts corporation with offices there; the contract was executed in the United States; and accounts for payment were located in the United States. The First Circuit thus held that Defendants were not immune from jurisdiction.