Universal Trading & Investment Co. v. Bureau for Representing Ukrainian Interests in International & Foreign Courts , 727 F.3d 10 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-2283
UNIVERSAL TRADING & INVESTMENT CO., INC.,
FOUNDATION HONESTY INTERNATIONAL, INC.,
Plaintiffs, Appellees,
v.
BUREAU FOR REPRESENTING UKRAINIAN INTERESTS IN INTERNATIONAL
AND FOREIGN COURTS; UKRAINIAN PROSECUTOR GENERAL'S OFFICE;
UKRAINE,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Howard, Circuit Judges.
David G. Hetzel, with whom Robert M. Shaw and Holland & Knight
LLP, were on brief for appellants.
Stephen F. Reardon, with whom Law Office of Stephen F.
Reardon, was on brief for appellee Universal Trading & Investment
Co., Inc.
August 12, 2013
TORRUELLA, Circuit Judge. We are asked to review a
district court's assertion of jurisdiction over a matter involving
a foreign sovereign, the Republic of Ukraine, and its agencies and
instrumentalities (the "Ukrainian defendants"), following an
alleged failure of those agencies and instrumentalities to pay for
asset recovery work performed by a private entity, Universal
Trading & Investment Co., Inc. ("UTICo"). Since we find that the
Ukrainian defendants' transactions with UTICo constitute commercial
activity exempt from immunity under the Foreign Sovereign
Immunities Act ("FSIA"), 28 U.S.C. § 1604, we affirm the district
court's exercise of jurisdiction over UTICo's breach of contract
claim.
I. Background
The following facts are alleged in UTICo's complaint and
were accepted as true by the Ukrainian defendants for the purposes
of the motion to dismiss. In our review, we accept as true all
well-pled facts alleged in the complaint and draw all reasonable
inferences in UTICo's favor. Santiago v. Puerto Rico, 655 F.3d 61,
72 (1st Cir. 2011).
A. Factual Background
Plaintiff UTICo is a Massachusetts corporation that
engages in international asset recovery operations. Defendants
Ukraine, the Ukrainian Prosecutor General's Office ("UPGO"), and
the Bureau for Representing Ukrainian Interests in International
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and Foreign Courts (the "Bureau") are charged in UTICo's complaint
with a breach of contract for services UTICo allegedly rendered to
them, but which remain uncompensated. This tale of international
dimensions begins when UPGO turned to UTICo for assistance to
recover assets expatriated from Ukraine by United Energy Systems of
Ukraine ("UESU"), its principals (including former Ukrainian Prime
Minister Pavlo Lazarenko ("Lazarenko") and Lazarenko's assistant,
Petro Kiritchenko ("Kiritchenko")), and its parent company, United
Energy International, Ltd.1 UPGO is the prosecutorial agency in
Ukraine, and the Bureau is responsible for paying and supporting
foreign firms acting under contract in the interests of Ukraine.
Both UPGO and the Bureau are agencies or instrumentalities of the
Ukrainian government.2
The service agreements ("Agreements") between UPGO and
UTICo at issue in this appeal arose in the context of UTICo's prior
work investigating Cube, Ltd. ("Cube"), which was reorganized to
1
UTICo's complaint included other claims dismissed by the
district court, namely, an additional claim for breach of
assignment and claims for unjust enrichment, breach of fiduciary
duty, negligence, and misrepresentation. The dismissal of those
claims was not appealed.
2
While the Ukrainian defendants challenge the district court's
description of UPGO and the Bureau as "agencies or
instrumentalities" of Ukraine, arguing instead that they are
political subdivisions of Ukraine, they concede that the
distinction is irrelevant to the immunity analysis. Thus, for the
purposes of our review here, we will treat all of the Ukrainian
defendants as meeting the definition of "foreign sovereign." See
28 U.S.C. § 1603(a) (defining "foreign state" as including
"political subdivision[s] of a foreign state").
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become UESU. UESU, through the intervention of Lazarenko, had been
awarded a lucrative government contract to handle the import of
natural gas for distribution and delivery in Ukraine, and the
proceeds collected by UESU for resale of natural gas had been
converted through UESU's parent company accounts and then hidden in
UESU's principals' secret accounts. In the course of UTICo's
independent collection case against Cube/UESU, it uncovered
evidence of Lazarenko's involvement in the control of UESU, and it
had contacted UPGO and other Ukrainian agencies to report the
uncovered fraudulent relationship. Ukraine's account agencies
subsequently estimated that the total proceeds misappropriated from
Ukraine by UESU amounted to over $2 billion. It was based on this
and other of UTICo's discoveries that UPGO, in 1998, "expressed
interest in contracting UTICo for continued investigation of the
whereabouts of UESU-related assets and for the freezing of those
assets, particularly those appropriated by Lazarenko, anywhere in
the world that they might be found." Prior to its outreach to
UTICo, the complaint alleges, UPGO had little success in its
efforts to collect evidence in foreign jurisdictions in its
investigations and prosecutions of Ukrainian nationals, most
importantly in its attempts at asset recovery.
UTICo and UPGO reached their first agreement on May 15,
1998, when the Ukrainian Deputy Prosecutor General, Nikolai
Obikhod, traveled to New York and discussed the terms of UTICo's
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provision of its services with UTICo's representatives ("May
Agreement"). That agreement stated as follows:
Taking into account information and assistance
that Universal Trading & Investment Co. is
providing in regard to the activities of
United Energy Systems of Ukraine (Ukraine,
Dnepropetrovsk) and United Energy
International Ltd. (London, U.K.), as well as
its principals, shareholders, and the assets
of the shareholders, the Prosecutor General's
Office of Ukraine has agreed that Universal
Trading & Investment Co. will be attributed a
commission of 12 (twelve) percent on all and
any above assets to be returned to Ukraine, in
connection with the Power of Attorney of the
Prosecutor General's Office of May 14, 1998.
The Prosecutor General's Office of Ukraine
confirms its commitment to engage for that the
appropriate State bodies of Ukraine and to
appropriately secure the permission for the
above remuneration, taking into account that
the remuneration is not payable from the State
budget of Ukraine but from the assets to be
repatriated to Ukraine from outside of
Ukraine.
The Agreement was addressed to the President of UTICo, Y. A.
Lambert, and bore the UPGO letterhead, including the Coat of Arms
of Ukraine, as well as the signature of B. Ferents, the Acting
Prosecutor General of Ukraine. It was delivered to UTICo's office
in Massachusetts.
According to the complaint, the May Agreement was
executed as the "first framework agreement" that was followed by 14
additional contractual instruments between UTICo and UPGO. The
most prominent of these instruments is an agreement dated
October 2, 1998, in which the newly confirmed Prosecutor General,
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Mikhailo Potebenko, confirmed the May Agreement ("October
Agreement"). That Agreement, also addressed to Y. A. Lambert as
President of UTICo, states:
With reference to our letter registered No.
12-01379-97 of May 15 of this year and the
follow-up Powers of Attorney of August 5 and
September 23 of this year, the present
statement is to certify the previously agreed
terms in regard to the unlawful assets outside
of Ukraine of the Ukrainian citizens who
illegally became the beneficiaries of PFG
United Energy Systems of Ukraine and of United
Energy International Ltd., and in regard to
work on the return of such assets to Ukraine.
The October Agreement letter also bore the UPGO letterhead,
including the Coat of Arms of Ukraine, and the signature of the new
Prosecutor General. It was delivered to UTICo by Ukrainian
officials during the Ukrainian Prime Minister's trip to Washington,
D.C.
Other instruments included Powers of Attorney ("POAs")
granted by UPGO to UTICo and/or attorneys selected by UTICo to
pursue a series of investigations and actions on its behalf in
multiple jurisdictions outside of Ukraine. Specifically, they
granted UTICo and its selected attorneys authority to investigate
and bring legal actions to reveal and secure the freezing of assets
in a variety of jurisdictions, including, inter alia, the United
States, the British Virgin Islands, the Bahamas, Panama, and
Barbados. UTICo used these POAs to accomplish its asset recovery
work on behalf of Ukraine.
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UTICo claims that it was instrumental in freezing
hundreds of millions of dollars for Ukraine through uncovering
fraud engaged in by the principals of UESU and providing evidence
vital to the prosecution of Lazarenko, Kiritchenko, and others.
For example, it states in the complaint that it provided the
evidence to UPGO that allowed UPGO to freeze $144 million of assets
in the Balford Trust and an additional unknown amount of assets in
the BL Trust maintained by Credit Suisse AG Bank in Guernsey, the
Channel Islands, in 1998. It also allegedly provided evidence to
UPGO allowing UPGO to freeze over $100 million of assets held in
Eurofed Bank in Antigua, Lithuania, and Switzerland in 1999 and
2000. Further, UTICO claims it collected evidence in the Bahamas,
Panama, Cyprus, Nauru, the Isle of Man, Jersey, St. Kitts, and the
Cayman Islands, which UPGO then used to prosecute claims for stolen
assets in excess of $1 billion in Ukraine.
B. Procedural History
On November 26, 2010, UTICo filed its complaint in the
instant action. The Ukrainian defendants accepted UTICo's facts as
true when they filed a motion to dismiss the complaint on grounds,
inter alia, that they were entitled to immunity under the FSIA.
The district court denied defendants' motion to dismiss
in part, allowing UTICo's breach of contract claim pertaining to
the 1998 Agreements to go forward on grounds that jurisdiction
could be asserted over that claim under the commercial activity
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exception to the FSIA. See Universal Trading & Inv. Co. v. Bureau
for Representing Ukrainian Interests in Int'l & Foreign Courts
(Universal I), 898 F. Supp. 2d 301 (D. Mass. 2012). Specifically,
the court found that, while "the Agreement's language is
ambiguous," and "extrinsic evidence will be necessary to establish
the parties' intent," plaintiffs had stated a claim for breach of
contract that was not jurisdictionally barred by the FSIA. Id. at
314-16, 319-20. In finding that the commercial activity exception
applied to UTICo's breach of contract claim, the court stated:
Ukraine hired an outside agent -- UTICo -- to
engage in asset recovery on its behalf. It is
the contract between those two parties, and
not the asset recovery itself, that is at
issue in this case. The contract between
Ukraine and UTICo is not inherently
governmental and does not address services
that could be rendered to or provided by only
a governmental entity.
. . . .
Ukraine . . . could have conducted its own
asset recovery program. Instead, . . . it
chose to enter the marketplace, and contracted
with UTICo in the same manner that a private
company seeking to recover misappropriated
assets would. The underlying activity at
issue -- the exchange of money for assistance
in recovering misappropriated assets on an
international scale -- is the type negotiated
among private parties . . . . Ukraine's
attempt to lower the level of generality from
a contract for the sale of asset recovery
services to a contract for the sale of
services to recover public assets
impermissibly focuses on the purpose rather
than the nature of the transaction.
-8-
Id. at 314-16 (emphasis in original). The Ukrainian defendants
timely appealed the court's immunity determination, and on April 4,
2013, the district court stayed proceedings pending this appeal.
See Ungar v. Palestine Liberation Org., 402 F.3d 274, 293 (1st Cir.
2005) (appeal on grounds of foreign sovereign immunity permissible
under collateral order doctrine).
II. Discussion
The Ukrainian defendants make three arguments on appeal,
all relating to the applicability of the commercial activity
exception to their sovereign immunity. First, they contend that
"the commercial act identified by the District Court in finding
jurisdiction -- UPGO's alleged entering into a contract with UTICo
-- did not occur," and thus, there was no particular transaction or
act that could come within the definition of "commercial activity"
under § 1603(d) of the FSIA. Second, they challenge the district
court's determination that the underlying conduct constituted
commercial activity rather than sovereign activity, claiming that
the court "conducted its jurisdictional analysis as though UTICo
provided run-of-the-mill asset recovery services." Instead, the
Ukrainian defendants characterize the underlying contracted-for
activity as assistance with a criminal investigation and asset
forfeiture, and insist that when a sovereign contracts with someone
to perform such "a uniquely governmental, non-commercial, service,"
the activity may not come within the commercial activity exception.
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Finally, the Ukrainian defendants contend that UTICo's claim lacks
the nexus to the United States required to establish jurisdiction
under the commercial activity exception. We address each issue in
turn.
A. Applicability of the Commercial Activity Exception
The existence vel non of subject matter jurisdiction
under the FSIA is a question of law reviewed de novo. Rodríguez v.
Republic of Costa Rica, 297 F.3d 1, 5 (1st Cir. 2002). Since the
Ukrainian defendants' first two arguments on appeal deal with
whether the underlying conduct constitutes commercial activity, we
consider them together.
The FSIA "provides the sole basis for obtaining
jurisdiction over a foreign state in federal court." Argentine
Republic v. Amerada Hess Shipping Co., 488 U.S. 428, 439 (1998).
It establishes a presumption of foreign sovereign immunity from the
jurisdiction of the courts of the United States unless one of its
enumerated exceptions to immunity applies. 28 U.S.C. §§ 1604,
1605, 1605A; Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480,
488 (1983). Unless such an exception applies, courts in the United
States lack both subject matter and personal jurisdiction over a
suit against a foreign sovereign. 28 U.S.C. § 1330; Verlinden, 461
U.S. at 485 n.5.
Under the "commercial activity exception" to immunity, a
foreign sovereign is not immune from jurisdiction where
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the action is based [(1)] upon a commercial
activity carried on in the United States by a
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).
Section 1603(d) of the FSIA defines "commercial activity"
as "either a regular course of commercial conduct or a particular
commercial transaction or act. The commercial character of the
activity shall be determined by reference to the nature of the
course of conduct or particular transaction or act, rather than by
reference to its purpose." The Supreme Court has noted that this
definition "leaves the critical term 'commercial' largely
undefined," and instead "simply establishes that the commercial
nature of an activity does not depend upon whether it is a single
act or a regular course of conduct; and the second sentence merely
specifies what element of the conduct defines commerciality (i.e.,
nature rather than purpose), but still without saying what
'commercial' means." Republic of Argentina v. Weltover, Inc., 504
U.S. 607, 612 (1992). Nevertheless, the Court did state that,
when a foreign government acts, not as a
regulator of a market, but in the manner of a
private player within it, the foreign
sovereign's actions are "commercial" within
the meaning of the FSIA. . . . [T]he question
is not whether the foreign government is
acting with a profit motive or instead with
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the aim of fulfilling uniquely sovereign
objectives. Rather, the issue is whether the
particular actions that the foreign state
performs (whatever the motive behind them) are
the type of actions by which a private party
engages in "trade and traffic or commerce."
Id. at 614 (citations omitted). The Court offered an example to
highlight the distinction between commercial and sovereign
activity:
a foreign government's issuance of regulations
limiting foreign currency exchange is a
sovereign activity, because such authoritative
control of commerce cannot be exercised by a
private party; whereas a contract to buy army
boots or even bullets is a "commercial"
activity, because private companies can
similarly use sales contracts to acquire
goods.
Id. at 614-15.
Further, the FSIA requires us to focus our commercial
activity inquiry on the activities carried on "by the foreign
state" upon which the civil action is based. 28 U.S.C. § 1605(a)(2). Therefore, our inquiry will turn on "the particular
actions that the foreign state performs," Weltover, 504 U.S. at
614, as opposed to the specific actions performed by the party with
whom the foreign state contracted.
The First Circuit has not directly addressed the burdens
of the parties with respect to an FSIA action. However, since the
parties do not challenge the district court's adoption of the
Second Circuit's burden-shifting framework, we adopt that framework
here for the purposes of this case. See Universal I, 898 F. Supp.
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2d at 309 (collecting cases showing that the Second Circuit
framework is consistent with the burden-shifting framework in the
Third, Fourth, Fifth, Seventh, Ninth, Tenth, Eleventh and D.C.
Circuits). For our purposes, then, having accepted that defendants
fit within the definition of "foreign sovereign," the burden of
production is on UTICo to offer evidence showing that, under one of
the listed exceptions, immunity should not be granted to the
Ukrainian defendants. See Virtual Countries, Inc. v. Republic of
S. Afr., 300 F.3d 230, 241 (2d Cir. 2002). The ultimate burden of
persuasion, however, rests with the foreign sovereign to show that
none of the pertinent exceptions apply. Id. "Determining whether
this burden has been met involves a 'review [of] the allegations in
the complaint, the undisputed facts, if any, placed before [the
court] by the parties, and -- if the plaintiff comes forward with
sufficient evidence to carry its burden of production on this issue
-- [resolution of] disputed issues of fact.'" Id. (quoting
Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 (2d Cir. 2001)).
Where the party asserting immunity does not contest the alleged
jurisdictional facts, "but rather, challenges their legal adequacy,
we review de novo the complaint's jurisdictional allegations to
determine whether they were sufficient to eliminate the appellants'
presumptive immunity." Butler v. Sukhoi Co., 579 F.3d 1307, 1313
(11th Cir. 2009).
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1. Particular Commercial Transaction or Act
We first consider whether UTICo met its burden of
production in showing that a particular commercial transaction or
act occurred. See Saudi Arabia v. Nelson, 507 U.S. 349, 356 (1993)
("We begin our analysis by identifying the particular conduct on
which the [plaintiff's] action is 'based' for the purposes of the
Act."). As we have noted in prior cases, "[t]he important question
is whether [a sovereign] in fact contracted with the [plaintiff]."
See Rodríguez, 297 F.3d at 6. In this circumstance, we examine
whether the complaint sufficiently alleges UPGO's entry into
contracts and then breach -- the commercial activity UPGO's action
is "based upon" -- even occurred. The Ukrainian defendants carry
the ultimate burden of persuasion that no exceptions to FSIA
immunity apply. Virtual Countries, 300 F.3d at 241.
The Ukrainian defendants make three arguments challenging
the existence of any contract on appeal. First, they claim that
the POAs at issue did not empower UTICo, but only non-party
lawyers, "presented to [UPGO] by UTICo."3 Second, they contend
3
Whether or not the POAs empowered UTICo itself, the May 14, 1998
POA was explicitly incorporated by reference into the May
Agreement, and the August 5, 1998 and September 23, 1998 POAs were
incorporated by reference into the October Agreement. Furthermore,
an October 1999 submission by the Deputy Prosecutor of Ukraine, in
which he stated that the "commission agreement" between UTICo and
UPGO was "deemed fulfilled," stated that the April 30, 1999 POA
"determined the subject and the scope of works that the entrusted
party, the firm UTICo, was to undertake." Since UTICo's contract
claim is based on these Agreements and the Ukrainian defendants'
concession that UTICo had performed under them, it is therefore
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that, since the Agreements were not signed by UTICo, they are at
best unilateral contracts that are valid only if the offeree
actually performed. Since, they claim, UTICo did not cause any
assets to be repatriated to Ukraine, UTICo failed to make a showing
that a contract in fact existed between itself and the Ukrainian
defendants. Third, they directly challenge the district court's
determination that UTICo's breach of contract claim stated a claim
under Rule 12(b)(6) since the court found the Agreement's language
to be "ambiguous." According to the district court, it was "not
clear from the Agreement what constitutes a 'return' [of assets to
Ukraine] -- such a return might require that the assets be
transferred to Ukraine's bank accounts or it might require only
that the assets simply be made available for Ukraine's collection."
Universal I, 898 F. Supp. 2d at 319. Defendants assert that,
without making a proper finding regarding UTICo's performance on
the alleged unilateral contract, the district court erred in
finding that UTICo had met its burden for Rule 12(b)(6) purposes in
showing that a contract was formed.
We review de novo the district court's determination that
a unilateral contract was formed. Mass. Eye & Ear Infirmary v. QLT
Phototherapeutics, Inc., 412 F.3d 215, 229 (1st Cir. 2005).
UTICo's proffered evidence of its contractual agreements with UPGO
consists of the May and October Agreements as well as accompanying
based on these POAs as well.
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and subsequently issued POAs. Aside from the terms of the
Agreements themselves, which reference UTICo's assent to agreed-
upon terms,4 the Agreements and POAs are signed by UPGO only.
Therefore, they cannot properly constitute "an exchange of
promises" as ordinarily understood under Massachusetts law, so they
at best may be construed as offers for unilateral contracts.5 See
United States v. Papaleo, 853 F.2d 16, 19 (1st Cir. 1998)
(distinguishing an agreement that is an "exchange of promises" from
a mere offer "for a unilateral contract"). Since the Ukrainian
defendants' arguments are premised on their characterization of the
Agreements solely as "offers," we move on to assess whether the
complaint pleads their terms were accepted.
Under Massachusetts law,
That an offer for a unilateral contract is
accepted by the act or acts of the offeree in
accordance with the offer is not questioned
. . . . [A]n acceptance of an offer must be in
accordance with its terms, that is, by full
performance by the offeree, in order that a
contract may come into existence.
Northampton Inst. for Sav. v. Putnam, 313 Mass. 1, 7 (1943).
4
From the October Agreement: "[T]he present statement is to
certify the previously agreed terms in regard to the unlawful
assets outside of Ukraine of the Ukrainian citizens who illegally
became the beneficiaries of PFG United Energy Systems of Ukraine
and of United Energy International Ltd., and in regard to work on
the return of such assets to Ukraine." (emphasis added).
5
The parties apply Massachusetts common law to the contract
claims in the briefing on appeal and in the briefing below. See
Universal I, 89 F. Supp. 2d at 318.
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We first examine what would constitute acceptance based
on the terms of UPGO's offer. The terms of the October Agreement,
which confirmed the May Agreement, do not appear to place a clear
obligation on UTICo to "return" assets to Ukraine in order to fully
perform thereunder. Rather, the May Agreement lists UTICo's
obligations in the first clause of its first sentence as providing
"information and assistance . . . in regard to the activities of
United Energy Systems of Ukraine . . . and United Energy
International Ltd., as well as its principals, shareholders, and
the assets of the shareholders." In return, the Agreement states,
UPGO "has agreed that [UTICo] will be attributed a commission of 12
(twelve) percent on all and any above assets to be returned to
Ukraine, in connection with the Power of Attorney of the Prosecutor
General's Office of May 14, 1998." While the Agreement references
returned assets to Ukraine, it appears to do so in terms of
defining the compensation to be provided UTICo. However, we agree
with the district court that, given the vagaries of the translation
and the lack of definition of what might constitute a "return"
under the terms of the Agreement, there remains some ambiguity as
to what that term means. We thus rest with the district court's
finding, concurring that the meaning of that term would surely
benefit from the introduction extrinsic evidence.
As for evidence proffered to demonstrate UTICo's
acceptance through performance, UTICo first points to a
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September 15, 2003 letter from the Prosecutor General of Ukraine to
the President of Ukraine, which demonstrates UPGO's recognition
that UTICo had accomplished performance at least as to assets
located and blocked in the banks of Guernsey, Antigua, and other
countries. Further, as referenced supra, UTICo submitted a letter
from Deputy Prosecutor Kudriavtsev to the President of Ukraine,
filed with the Ukrainian municipal court, admitting the existence
of a "commission agreement" by virtue of which:
one side (the entrusted party) undertakes to
act in the name of the other and at the
expense of the other side (the entrusting
party) undertaking certain legal actions.
. . . The firm UTICo in accordance with the
powers given to it embarked on accomplishing
those works, it accomplished those works in
the entire volume, by virtue of which under
Article 42 of the Civil Code of Ukraine that
agreement is deemed fulfilled.
Therefore, proffered evidence by UTICo indicates that a
representative of UPGO acknowledged UTICo's full performance under
the Agreements and POAs. Together with the other evidence offered,
we can conclude for the purposes of our review on a motion to
dismiss that sufficient facts have been pled indicating that a
unilateral contract was formed.
2. Commercial Act or Sovereign Act
We next turn to the question of whether the underlying
activity at issue in this case may be properly deemed "commercial"
as opposed to "sovereign" or "governmental." In doing so, we are
required to focus not on the purpose of the activity, but rather on
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the nature of the course of conduct or particular transaction or
act. See 28 U.S.C. § 1603(d); Weltover, 504 U.S. at 612. The
underlying conduct at issue here can be characterized as UPGO's
alleged contracting for UTICo's services and UPGO's alleged breach
thereof. Those Agreements, along with the POAs that followed them,
indicate that the purpose of contracting for UTICO's asset recovery
services is to "reveal, . . . establish the presence, and . . .
secure the freezing [of assets] . . . as well as to accomplish the
due measures for subsequent restitution and/or repatriation of
illegally created assets to Ukraine." The nature of UTICo's
contracted-for services, as listed in the Agreements and POAs,
included, inter alia, exchanging information and assistance,
"conducting the investigation of a number of criminal cases," and
"represent[ing] [UPGO] in various legal matters outside of
Ukraine."
The allegations in the complaint indicate that UTICo's
performance under the Agreements, taken on behalf of UPGO, were
indistinguishable from ordinary asset recovery services. UTICo's
complaint states that it: met with various government officials
regarding the fraud allegations against Lazarenko and Kiritchenko;
secured discovery orders and obtained evidence about assets;
applied for protective orders freezing assets; and submitted
evidence it gathered to UPGO, which entity was then responsible for
requesting foreign government issuance of subpoenas. These
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activities are actions that any asset recovery agent would perform
while entrusted with a power of attorney, whether from a sovereign
or a private party. Even if the final goal or purpose of the
information and assistance was uniquely governmental -- prosecuting
criminal conduct and repatriating stolen assets into a sovereign
treasury -- the FSIA is clear that courts are not to determine the
commercial character of an activity "by reference to its purpose."
28 U.S.C. § 1603(d).
Case law supports our construal of the underlying
activity as commercial. In Weltover, the Supreme Court held that
the Republic of Argentina was not entitled to immunity against a
breach of contract claim brought by two corporations and a bank
when Argentina unilaterally rescheduled the maturity dates on bonds
issued to them. 504 U.S. 607. The Court reasoned that the
issuance of bonds was a "commercial activity" because bonds were in
almost all respects garden-variety debt instruments, and it was
irrelevant why Argentina participated in the bond market as a
private actor. Id. at 615-17.
Most relevant for our discussion here is the Court's
elaboration of the distinction between the "nature" and "purpose"
of commercial activity. On appeal, Argentina insisted that, even
though a court is barred from considering an activity's purpose, it
must nonetheless fully consider the context of a transaction in
order to determine whether or not it is "commercial." Id. at 615.
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The Court rejected that argument, stating that, "[h]owever
difficult it may be in some cases to separate 'purpose' (i.e., the
reason why the foreign state engages in the activity) from 'nature'
(i.e, the outward form of the conduct that the foreign state
performs or agrees to perform), the statute unmistakably commands
that to be done." Id. at 618 (citations omitted). The nature of
those activities are firmly defined as those powers not peculiar to
sovereigns, but rather as "powers that can also be exercised by
private citizens." Alfred Dunhill of London, Inc. v. Republic of
Cuba, 425 U.S. 682, 704 (1976) (emphasis added). Ordinary asset
recovery services of the type described in UTICo's complaint are
exactly the sort for which private citizens contract.
Further, the services for which the Ukrainian defendants
contracted did not require UTICo to perform any governmental
functions, they merely obligated UTICo to assist the Ukrainian
defendants in later permitting those defendants to carry out
governmental functions themselves. Two Eleventh Circuit decisions
are illuminating in this regard. In Honduras Aircraft Registry,
Ltd. v. Government of Honduras, 129 F.3d 543 (11th Cir. 1997), the
Government of Honduras contracted with two plaintiff companies to
assist it in upgrading and establishing a modern civil aeronautics
program. Under the contract, the plaintiff companies were given
"the right to inspect commercial aircraft for certification in
Honduras and to charge the aircraft owners a fee for that service,"
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but only Honduras could perform the sovereign acts of actually
admitting aircraft to its registry: "[The contract] provide[d] only
that plaintiffs would provide the means and do the technical work
so that Honduras itself could then register the aircraft in
accordance with the contract." Id. at 546-48. Accordingly, the
court characterized Honduras' activity as "ventur[ing] into the
marketplace to find the expertise and resources needed to
accomplish [sovereign] tasks," and "exercis[ing] its business
judgment and contract[ing] in the marketplace with non-government
companies to do and supply what it needed." Id. at 547. "Without
plaintiff companies' private help," the court continued, "Honduras
likely would not have had a new aircraft inspection and
certification service." Id. Therefore, the court held that
Honduras was acting as a private actor would as it "did not enter
the technical assistance market to regulate that market as a
sovereign, but to participate in it as an individual could." Id.
at 548.
In a case even closer to the facts here, Guevara v.
Republic of Perú, 468 F.3d 1289 (11th Cir. 2006), the Eleventh
Circuit considered whether the Republic of Perú's offer of a reward
in return for information enabling it to locate and capture the
fugitive former head of Perú's National Intelligence System fell
within the commercial activity exception to sovereign immunity. In
that case, Perú, desperate for leads after an international manhunt
-22-
went stale, issued an emergency decree establishing a $5 million
reward for accurate information enabling the authorities to locate
and capture Vladimiro Lenin Montesinos Torres. Id. at 1293.
Plaintiff Guevara had assisted Montesinos in Venezuela by providing
him with a safe-house and a security detail; but he betrayed
Montesinos' whereabouts to FBI agents in exchange for, he believed,
immunity from federal prosecution and the high Peruvian monetary
reward. Id. When Perú refused to pay, Guevara filed a lawsuit in
Florida contending that Perú was not immune under the commercial
activity exception. Id. at 1294. The district court dismissed his
complaint on immunity grounds, and the Eleventh Circuit reversed,
holding that the "underlying activity at issue -- the exchange of
money for information -- is 'commercial in nature and of the type
negotiable among private parties.'" Id. at 1299 (citing Honduras
Aircraft Registry, 129 F.3d at 547). Specifically, the court found
central the fact that
Perú could have attempted to use its police
and investigatory powers to search for
Montesinos without offering money for
information from anyone outside the
government. However, Perú did not have the
resources or expertise it needed to get the
job done. After the trail ran cold, Perú
ventured into the marketplace to buy the
information needed to get its man. Guevara
provided that information for a price, the
price being the five million dollars that Perú
had offered to pay for it.
Id. (internal quotation marks and citations omitted). The court
sharply distinguished the roles of the sovereign from that of the
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private party with whom it contracted by separating out the police
powers and governmental functions retained by the former in the
transaction:
We think that information about a fugitive's
whereabouts is to a war on crime as military
supplies are to a more traditional war. Both
commodities are useful to a state's
performance of a sovereign function, but a
contract for the purchase of either does not
require the state to perform a sovereign
function. In both situations performance of
the contract by the private party enables the
state to engage in a sovereign function if it
wishes, but does not mandate that it do so.
What it mandates is that the state pay the
promised amount for the other party's
performance. Paying an amount owed under a
contract is not itself a sovereign act.
Id. at 1300. The court also rejected Perú's argument that Guevara
was a mere "subrogee" or agent of the sovereign's authority
performing a sovereign function, offering the following analogy:
"If a bail bondsman offered a reward for information enabling the
location and capture of a fugitive who had skipped out on a bond,
he could not successfully defend a lawsuit seeking to collect on
the reward by asserting sovereign immunity." Id. at 1301. The
court went on to conclude, "[i]f an agent acting for the sovereign
could not successfully claim sovereign immunity, the sovereign
could not either." Id.
We find this reasoning most closely applicable to the
facts alleged here. According to the complaint, the Ukrainian
defendants had tried on their own to obtain the converted assets
-24-
absconded from the country at the hands of Lazarenko, Kiritchenko
and others, and had failed in their own attempts. Defendants then
entered into the marketplace to obtain information and assistance
in recovering those assets, benefitting from the expertise and
resources of professional asset recovery services like those UTICo
brought to bear, and decided to contract with UTICo to accomplish
those tasks in exchange for a commissioned amount. As in Honduras
Aircraft Registry, the Ukrainian defendants "could have explored
the possibility of hiring plaintiffs and plaintiffs' personnel as
government employees," but instead, they "exercised their business
judgment and contracted in the marketplace with non-government
companies to do and supply what [they] needed." 129 F.3d at 547.
Further, UTICo was allegedly hired to provide the means
and the technical work to assist in asset return and evidence
gathering so that Ukraine itself could either return any assets
found by UTICo into its treasury or prosecute the UESU principals,
should it choose to do so. Just as was the case in Guevara, the
Agreements here do not impinge on Ukraine's sovereignty because
they do not force Ukraine's hand either way regarding the exercise
of its police power over Lazarenko and Kiritchenko, nor do they
require it to reappropriate any assets into the Ukrainian treasury
that defendants decide not to reappropriate.
It is for these reasons that this case is distinguishable
from the cases cited by the Ukrainian defendants. First, it is
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distinguishable from dicta in In re Estate of Ferdinand Marcos
Human Rights Litigation, 94 F.3d 539 (9th Cir. 1997), because, in
that case, the underlying activity at issue was not the contracting
for public asset recovery by a sovereign. Rather, the underlying
activity involved the direct pursuit by a governmental agency of
the Republic of the Philippines, under a statutory mandate, to
recover property allegedly converted by the dictator Ferdinand
Marcos, his wife, Imelda Marcos, and their associates, after the
couple fled to Hawaii. Id. at 542, 546. In that pursuit, the
agency utilized its full police power in its attempts to directly
reappropriate the assets into the Republic's treasury. Id. at 546.
Further, according to the allegations in the complaint, the assets
in this case were not absconded from the Ukrainian treasury, but
were rather alleged to have been received as illegal kickbacks from
public enterprises in Ukraine. The determination of whether or not
those assets in fact belonged within the Ukrainian treasury was one
only a sovereign could make, and was a task UTICo was not
contracted to perform.6 In any event, to the extent In re Marcos
6
There was extensive litigation in California in which UTICo
attempted to recover assets in the San Francisco area from
Lazarenko and Kiritchenko, pursuant to a purported assignment by
UPGO to UTICo of its interest in this property. See Universal
Trading & Inv. Co. v. Kiritchenko, 130 S. Ct. 3504 (Mem) (2010);
Universal Trading & Inv. Co. v. Kiritchenko, 346 Fed. Appx. 232(9th Cir. 2009); Universal Trading & Inv. Co. v. Kiritchenko, No.
C-99-3073, 2008 U.S. Dist. LEXIS 51307 (N.D. Cal. June 16, 2008);
Universal Trading & Inv. Co. v. Kiritchenko, No. C-99-3073, 2007
U.S. Dist. LEXIS 66317 (N.D. Cal. Sept. 7, 2007). While UTICo
brought some claims in the present action based on this California
-26-
supports a different result than the one we reach here, we disagree
with its analysis and decline to follow it.
The Ukrainian defendants attempt to liken this case to
cases involving military personnel. We have no need to determine
whether we will adopt a special "military personnel" rule as this
case does not directly raise the issue and is distinguishable. In
Butters v. Vance International, Inc., 225 F.3d 462 (4th Cir. 2000),
the Fourth Circuit held that a private security company was
entitled to derivative FSIA immunity from the Kingdom of Saudi
Arabia in a gender discrimination suit. The facts underlying the
case were that the plaintiff was allegedly discriminated against
when a private company, at the direction of the Saudi government,
refused to promote her into a command post. Id. at 464. The court
characterized the underlying activity as "a foreign sovereign's
decision as to how best to secure the safety of its leaders," which
it held to involve a core police power. Id. at 465. Here,
however, the contracted-for activity did not involve the direct
protection of foreign dignitaries, nor are there any alleged facts
alleging that the private party -- UTICo -- had been given by
contract the types of police powers at issue in Butters: according
litigation, the district court dismissed all of those claims, see
Universal I, 898 F. Supp. at 318-19, 323-24, and UTICo has not
appealed from this dismissal. This case is therefore not based on
the Ukrainian defendants' activity with respect to the California
litigation, and we need not consider whether the activity alleged
therein constitutes commercial activity under the FSIA.
-27-
to the complaint's allegations, UTICo personnel were not deputized,
had no powers of arrest, were not armed as traditional security
would be, and are not alleged to have had any law enforcement
authority. In fact, the allegations indicate that Ukraine had to
step in at various points to perform functions only it could
perform that the contractual agreement did not contemplate (for
example, using evidence submitted to it by UTICo to request from
the Bailiff (governor) of Guernsey the issuance of a subpoena to
Credit Suisse for document production in relation to the asset
recovery; using evidence obtained by UTICo to seek the detention of
Lazarenko in Switzerland; using evidence obtained by UTICo to file
an application to the Ukrainian parliament to strip Lazarenko of
parliamentary immunity and for his arrest, etc.).
This case is likewise distinguishable from UNC Lear
Services, Inc. v. Kingdom of Saudi Arabia, 581 F.3d 210 (5th Cir.
2009), where Saudi Arabia was held to be immune from an action
alleging breach of a service contract with a private company to
provide training and support services to the Royal Saudi Air Force
("RSAF"). There, the private employees performed their work in
Saudi Arabia and were found to be so integrated with the RSAF as to
be considered "military personnel." Id. at 216. The legislative
history of the FSIA is clear that employment contracts with
military personnel are not commercial in nature, H.R. Rep. No. 94-
1487, at 16 (1976), as reprinted in 1976 U.S.C.C.A.N. 6604, 6614,
-28-
and the private service personnel under the facts of that case were
indistinguishable from government personnel. Such are not the
facts here, as discussed above.
It is for the same reasons that this case is also
distinguishable from other government personnel cases cited by the
Ukrainian defendants, including Kato v. Ishihara, 360 F.3d 106 (2d
Cir. 2004) and the recent unpublished decision by the Ninth
Circuit, Eringer v. Principality of Monaco, No. 11-56570 (9th Cir.
July 10, 2013). In Kato, a civil service employee for the Tokyo
Metropolitan Government sued her employer for sexual harassment and
retaliation in violation of Title VII, attempting to assert a
commercial activity exception on the basis that her employment
activities involved the commercial promotion of Japanese companies
in the United States. 360 F.3d at 109. The court held that the
underlying activity at issue was not commercial in nature because
it consisted in providing "general business development assistance,
including product promotion, to business enterprises of [a] country
seeking to engage in commerce in the United States." Id. at 114.
Here, for the same reasons stated above, based on the complaint's
allegations, UTICo can neither be characterized as a government
employee nor was it contracted to provide services akin to those
provided by the plaintiff in Kato. Specifically, the Ukrainian
defendants, in contracting with UTICo, were allegedly not engaged
in the process of regulating and promoting commercial activity in
-29-
a foreign country in relation to itself, but were rather entering
into the marketplace in the United States to engage in commerce,
contracting for specific services to assist in fields such as
criminal prosecution and public asset reappropriation that they
retained the ultimate power to regulate.
In Eringer, the plaintiff was the former Director of
Monaco Intelligence Services and had assignments that only a
government employee could perform -- "liaising with other
intelligence agencies, investigating potential Government
appointments, investigating suspicions of corruption and other
illegal activity in Monaco, and protecting [Prince Albert II] from
improper foreign influence." No. 11-56570, at *1. Eringer's
facts, similar to those of Butters and Kato, are distinguishable
from those alleged here for the same reasons those two cases are:
UTICo employees can neither be characterized as government nor
military personnel, and the underlying activity did not involve
conduct that only a sovereign could perform. Nothing in the terms
of the Agreements, the POAs or the alleged facts of UTICo's
performance indicate that UTICo was either tasked with, had been
given the authority, or had the capacity to perform the kinds of
police-power activity that a director of an intelligence program
working inside a government could perform, nor did Ukraine allow it
to do so.
-30-
UTICo having met its burden of production on this score,
we now turn to whether the Ukrainian defendants have made
assertions at this stage to meet their burden, by a preponderance
of the evidence, to show that UTICo's claims do not fall within the
commercial activity exception. We find that they have not. The
Ukrainian defendants make an assertion that no assets have been in
fact "returned" to Ukraine. We have found that the actual return
of assets was not clearly stated one of UTICo's performance
obligations on the face of the October Agreement. The Ukrainian
defendants have concentrated instead on the purpose of the
agreements and the goal of its relationship with UTICo. Since we
have found it impermissible to focus on the purpose rather than the
nature of the underlying activity, we cannot find that the
Ukrainian defendants have met their burden of persuasion here.
B. Nexus to the United States
We now turn to the Ukrainian defendants' final argument:
that UTICo's claim on its pleadings lacks the nexus to the United
States required to establish jurisdiction under the commercial
activity exception. For a court to exercise jurisdiction over a
foreign sovereign under the commercial activity exception, the FSIA
requires that some form of nexus be established between the
sovereign's activity and the United States. As stated above, a
nexus between a defendant's commercial activity and the United
States may be shown under one of three circumstances under the
-31-
statute: (1) the activity was "carried on in the United States";
(2) the activity performed in the United States is "in connection
with a commercial activity of the foreign state elsewhere"; or (3)
the activity occurred "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). The Act further defines
"commercial activity carried on in the United States by a foreign
state" as meaning "commercial activity carried on by such state and
having substantial contact with the United States." Id. § 1603(e).
The Ukrainian defendants contend that the district court
erred in not analyzing whether the pleadings in UTICo's surviving
breach of contract claim pled a sufficient nexus with the United
States to establish jurisdiction. The district court in fact did
not consider the nexus requirement as mandated by the statute. In
doing so here, we conclude that plaintiff alleges sufficient facts
to support the nexus requirement for jurisdiction.
Having characterized the commercial activity at issue as
the Ukrainian defendants' contracting for information and
assistance in exchange for a commission, we begin by looking at the
facts alleged pertaining to the Agreements and the POAs. The
negotiations with UTICo's management and counsel pertaining to the
Agreements are alleged to have occurred in the United States, all
of the contractual instruments were directed to U.S. addresses in
-32-
Massachusetts, and those instruments were allegedly delivered in
either Massachusetts or Washington, D.C., to representatives of a
corporation organized under the laws of Massachusetts with its
principal place of business in Massachusetts.
UPGO does not contest that the Agreements were delivered
in the United States. However, it does point out in its briefing
that "UTICo does not allege that either of the two letters on which
[the breach of contract claim] is based were actually executed in
the United States." Even if the Agreements were executed outside
the United States, it is not dispositive as the Agreements were
actually unilateral contracts. As such, we may look to where the
unilateral contract was offered since it was the offer that in fact
established a nexus or link between the Ukrainian defendants in
this case and UTICo, and it was through that offer that the foreign
sovereign engaged in commerce and officially entered the
marketplace in the United States. Since the Ukrainian defendants
do not dispute that both Agreements were delivered to UTICo within
the United States, we conclude that UTICo alleged sufficient facts
that the commercial activity at issue was "carried on in the United
States." See also Guevara v. Republic of Perú ("Guevara II"), 608
F.3d 1297, 1307 (11th Cir. 2010) (finding insufficient nexus with
the United States to establish jurisdiction where the offer of a
reward for information enabling the capture of a fugitive
constituted the commercial activity at issue in the case, but the
-33-
offer was published as an Emergency Decree in an official
publication in Perú); Santos v. Compagnie Nationale Air France, 934
F.2d 890, 894 (7th Cir. 1991) (stating that an employment contract
made in the United States for foreign employment provides
jurisdiction for a claim for breach of that agreement since the
plaintiff claims a breach of duty that arose within the United
States).
We also note UTICo's submission to the district court of
a declaration from its chairman, W. Scott Thompson, stating that
the May Agreement was executed "[a]fter several months of
negotiations including in New York in April of 1998." See
Terenkian v. Republic of Iraq, 694 F.3d 1122, 1137 (9th Cir. 2012)
(finding the nexus requirement satisfied where "substantial prior
contractual negotiations . . . occurred within the United
States."). The declaration further stated that "more than 90% of
work" by UTICo in "implementing the 1998 Agreements" was "performed
in Massachusetts." See Zedan v. Kingdom of Saudi Arabia, 849 F.2d
1511, 1513 (D.C. Cir. 1988) (citing H.R. Rep. No. 1487, 94th Cong.,
2d Sess 17 (1976), as stating that the nexus requirement may be met
in "cases based on commercial transactions performed in whole or in
part in the United States.").
Even if we were to find that the Ukrainian defendants'
alleged commercial activity was not "carried on in the United
States," sufficient facts were alleged to establish a nexus based
-34-
on their activity "outside the territory of the United States in
connection with a commercial activity . . . [that] causes a direct
effect in the United States." 28 U.S.C. § 1605(a)(2). Thompson's
declaration indicates that the Bureau would have performed its
obligations under the Agreements in Massachusetts: "UTICo's
accounts payable concerning the Bureau (as well as any other
accounts payable) have been in Massachusetts," so "[i]f the Bureau
paid UTICo, the funds would have been received on its accounts in
Massachusetts." In Weltover, the Supreme Court discussed this
third type of nexus as not requiring "substantiality" or
"foreseeability" of effects in the United States, defining the
effect required instead as "'direct' if it follows 'as an immediate
consequence of the defendant's . . . activity.'" 504 U.S. at 618(quoting Weltover, Inc. v. Republic of Argentina, 941 F.2d 145, 152
(2d Cir. 1991)). The Court also noted that the sovereign
defendants
had designated their accounts in New York as
the place of payment, and Argentina made some
interest payments into those accounts before
announcing that it was rescheduling the
payments. Because New York was thus the place
of performance for Argentina's ultimate
contractual obligations, the rescheduling of
those obligations necessarily had a "direct
effect" in the United States: Money that was
supposed to have been delivered to a New York
bank for deposit was not forthcoming.
Id. at 619.
-35-
In addition, UTICo, as an American company, allegedly
suffered significant financial harm when the Ukrainian defendants
refused to remit the commission due under the Agreements, which
creates a sufficient direct effect to meet the requirements of the
exception. See, e.g., Byrd v. Corporación Forestal y Industrial de
Olancho S.A., 182 F.3d 380, 390-91 (5th Cir. 1999) (holding that an
American company suffering financial harm after a Honduran public
entity breached its contract created a "direct effect" sufficient
for jurisdiction); Voest-Alpine Trading USA Corp. v. Bank of China,
142 F.3d 887, 896 (5th Cir. 1998) (holding that an American
company's "nontrivial financial loss in the United States in the
form of funds not remitted to its account at a Texas bank" was a
direct effect). We therefore find that UTICo has put forward
sufficient facts to establish a nexus with the United States, and
the district court did not err in asserting jurisdiction over this
case. Since the Ukrainian defendants put forward no additional
facts beyond those contained in UTICo's complaint and affidavits
regarding nexus, but rather point to the significant international
asset recovery work UTICo performed, we cannot find that they have
met their burden of persuasion by a preponderance. UTICo's alleged
international recovery work, while substantial, is not the focus of
our inquiry. Instead, we focus on the Ukrainian defendants' own
commercial activity as alleged in the complaint as carried on or
creating an effect in the United States.
-36-
III. Conclusion
We conclude that the district court did not err when it
denied the Ukrainian defendants' motion to dismiss UTICo's breach
of contract claim under the commercial activity exception to
foreign sovereign immunity. Accordingly, the decision of the
district court is affirmed.
Affirmed.
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