BAE Systems Technology v. Republic of Korea's Defense , 884 F.3d 463 ( 2018 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1041
BAE SYSTEMS TECHNOLOGY SOLUTION & SERVICES, INC.,
Plaintiff - Appellee,
v.
REPUBLIC OF KOREA’S DEFENSE ACQUISITION PROGRAM
ADMINISTRATION; REPUBLIC OF KOREA,
Defendants - Appellants.
------------------------------
UNITED STATES OF AMERICA,
Amicus Curiae.
No. 17-1070
BAE SYSTEMS TECHNOLOGY SOLUTION & SERVICES, INC.,
Plaintiff - Appellant,
v.
REPUBLIC OF KOREA’S DEFENSE ACQUISITION PROGRAM
ADMINISTRATION; REPUBLIC OF KOREA,
Defendants - Appellees.
------------------------------
UNITED STATES OF AMERICA,
Amicus Curiae.
Appeals from the United States District Court for the District of Maryland, at Greenbelt.
Paul W. Grimm, District Judge. (8:14-cv-03551-PWG)
Argued: October 24, 2017 Decided: March 6, 2018
Before MOTZ, KEENAN, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Keenan
and Judge Thacker joined.
ARGUED: Danny Christopher Onorato, SCHERTLER & ONORATO, LLP,
Washington, D.C., for Appellants/Cross-Appellees. Gregory Michael Williams, WILEY
REIN LLP, Washington, D.C., for Appellee/Cross-Appellant. ON BRIEF: Robert J.
Spagnoletti, SCHERTLER & ONORATO, LLP, Washington, D.C.; Jason D. Wallach,
BLANK ROME LLP, Washington, D.C., for Appellants/Cross-Appellees. Richard W.
Smith, Ari S. Meltzer, Katherine C. Campbell, Scott A. Felder, WILEY REIN LLP,
Washington, D.C., for Appellee/Cross-Appellant. Chad A. Readler, Acting Assistant
Attorney General, Sharon Swingle, Benjamin M. Shultz, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C.; Stephen M. Schenning, Acting United
States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Baltimore,
Maryland, for Amicus Curiae.
2
DIANA GRIBBON MOTZ, Circuit Judge:
These appeals arise from a contract dispute between a United States defense
contractor, BAE Systems Technology Solutions & Services, Inc. (BAE), and the
Republic of Korea and its Defense Acquisition Program Administration (collectively
Korea). BAE sought a declaratory judgment that it had not breached any contractual
obligation to Korea and a permanent injunction barring Korea from prosecuting its suit
against BAE in Korean courts. The district court granted BAE the requested declaration
but refused to issue a permanent anti-suit injunction. Korea appeals, and BAE cross-
appeals. For the reasons that follow, we affirm.
I.
A.
The Arms Export Control Act (AECA), 22 U.S.C. §§ 2751 et seq., authorizes the
Executive Branch to engage in Foreign Military Sales (FMS) transactions when selling
certain U.S. military goods or services to a foreign government. This dispute centers on
such a transaction between the United States and Korea. 1
In an FMS transaction, the foreign sovereign contracts with the U.S. government
through a Letter of Offer and Acceptance. The U.S. government then contracts with a
U.S. contractor for the goods or services that the U.S. government will eventually resell
1
For present purposes, the term “FMS transaction” refers to the purchase by the
U.S. government of goods or services from U.S. contractors and subsequent resale to a
foreign government, as authorized under 22 U.S.C. § 2762(a). Not implicated in this case
are U.S. government sales from existing government stocks authorized under § 2761.
3
to the foreign sovereign. See 28 U.S.C. § 2762. Under the FMS structure, the U.S.
contractor is “directly obligated” to the U.S. government and “has no direct contractual
relationship” with the foreign government. Def. Inst. of Sec. Cooperation Studies, The
Management of Security Cooperation (Green Book) 9-3 (37.1 ed. May 2017). 2 For that
reason, this dual-contract structure precludes the foreign sovereign from directly suing
the U.S. contractor for its performance on an FMS contract. See Sec’y of State for
Defence v. Trimble Nav. Ltd., 484 F.3d 700, 707 (4th Cir. 2007).
The FMS structure also permits the U.S. government to exercise significant
control over the transaction. Once the two sovereigns agree on the terms of sale, the
foreign sovereign must “trust[]” the U.S. government “to negotiate a contract [with a U.S.
contractor] that will meet [the foreign government’s] needs.” Green Book at 15-8. The
U.S. government “determines the contract type, selects the contract source, and
negotiates prices and contract terms with individual contractors.” Id. Importantly here,
in an FMS transaction, the U.S. government retains control over price. Although the
sovereign-to-sovereign agreement contains an initial price estimate, the foreign
government must pay whatever the U.S. government contends the transaction costs —
even if that amount exceeds the previous estimate. See Def. Sec. Cooperation Agency,
2
The Green Book is a textbook published by the Defense Institute of Security
Cooperation Studies (DISCS), a part of the Department of Defense (DoD) that provides
research support to advance U.S. foreign policy through security assistance and
cooperation. “It does not set policy, precedent, or procedures,” but rather “describes
them.” Resources: Publications, DISCS, Def. Sec. Cooperation Agency,
http://www.discs.dsca.mil/_pages/resources/default.aspx?section=publications&type=gre
enbook (last visited February 15, 2018).
4
U.S. Dep’t of Def., Security Assistance Management Manual (SAMM), Fig. C5.F4
§ 4.4.1, http://www.samm.dsca.mil (last visited February 9, 2018). In sum, the FMS
structure provides advantages and disadvantages for a foreign purchaser. One potential
advantage is that, in an FMS transaction, the foreign purchaser benefits from the U.S.
government’s procurement expertise. See Green Book at 15-7, 15-8. One disadvantage,
however, is the loss of control over several aspects of the transaction.
In most instances, a foreign sovereign may choose whether to procure goods and
services through the FMS structure or whether to purchase them directly from the U.S.
contractor through a Direct Commercial Sales (DCS) transaction. For military sales it
deems particularly sensitive, however, the U.S. government requires the use of the FMS
structure. See Trimble, 484 F.3d at 710 (noting the President has discretion to designate
which military items must be sold exclusively through FMS channels); SAMM at
§ C4.3.5 (“The AECA gives the President discretion to designate which military end-
items must be sold exclusively through FMS channels. This discretion is delegated under
statutory authority to the Secretary of State. Generally, as a matter of policy, this
discretion is exercised upon the recommendation of DoD.”). 3
Although in an FMS transaction the foreign government and U.S. contractor do
not contract directly, the foreign sovereign and U.S. contractor may coordinate in
advance of the government-to-government talks in an attempt to pre-determine the
3
“Unless an item has been designated as ‘FMS Only,’ DoD is generally neutral as
to whether a country purchases U.S.-origin defense articles or services commercially [i.e.,
through a DCS transaction] or through FMS channels.” SAMM at § C4.3.4.
5
contents of the eventual government-to-government agreement. Before submitting its
FMS purchase request to the U.S. government, for instance, a foreign sovereign may
negotiate proposed pricing and technical specifications with a favored U.S. contractor
and then urge the U.S. government to provide a sole source award to that contractor
under the pre-negotiated terms. But the U.S. government need not agree to do so.
The dual-contract structure of an FMS transaction has important implications for
resolving legal disputes. The foreign sovereign cannot directly sue the U.S. contractor
for its performance on an FMS contract. Nor can the two sovereigns sue each other for
failure to perform on the government-to-government contract: their only recourse is to
hold bilateral consultations. SAMM at Fig. C5.F4 § 7.2.
B.
In 2011, Korea announced its intention to upgrade its fighter planes. Because this
upgrade program required Korea to obtain sensitive military technology, the U.S.
government barred Korea from purchasing directly from U.S. contractors through a direct
purchase DCS transaction and instead required Korea to procure the desired goods and
services through an FMS transaction.
In preparation for this FMS transaction, Korea solicited bids from U.S. defense
contractors, including BAE, as to the cost of providing the desired upgrades. BAE
responded and issued successive Letters of Guarantee to Korea. In those letters, BAE
agreed to pay Korea $43.25 million if BAE failed to “respond timely to the evaluation
formalities of the bidder’s qualification,” assuming BAE was “designated as an eligible
bidder,” or if BAE failed to execute a contract with Korea after Korea awarded its bid to
6
BAE. BAE issued the first Letter of Guarantee in late 2011; soon thereafter, Korea
selected BAE as its favored contractor for the upgrade program. In the ensuing years,
BAE renewed its Letter of Guarantee several times, including in 2013 and 2014.
Given the dual-contract structure in an FMS transaction, Korea and BAE
attempted to pre-negotiate key aspects of the inter-governmental talks. They agreed on
what Korea would request from the U.S. government and at what price. BAE promised
to “put forth its best effort” to convince the U.S. government to agree to those terms. In
exchange, Korea promised to recommend BAE as its favored contractor to supply the
requested goods and services to the U.S. government.
On August 1, 2012, BAE and Korea memorialized their understandings in a
Memorandum of Agreement. That BAE-Korea agreement authorized Korea to demand
payment of the $43.25 million promised in the Letters of Guarantee if (1) BAE failed to
use its “best effort” to secure the terms specified in the BAE-Korea agreement in the
separate agreement between the U.S. and Korean governments, and (2) BAE’s failure to
use its “best effort” delayed conclusion of the government-to-government negotiations.
The BAE-Korea agreement also contains a forum selection clause, which provides that
any dispute between BAE and Korea “shall be resolved through litigation and the Seoul
Central Court shall hold jurisdiction.” Finally, the BAE-Korea agreement provides that it
“automatically terminate[s]” upon execution of an FMS agreement between the U.S. and
Korean governments.
Korea then sent its formal purchase request to the U.S. government, initiating the
FMS government-to-government negotiations. In December 2013, the two sovereigns
7
signed an initial FMS agreement that covered preliminary issues and anticipated a
“follow-on amendment” to execute the core of the FMS transaction. With respect to the
anticipated follow-on amendment, the U.S. government initially signaled it could meet
Korea’s budget but later informed Korea that the price tag of the FMS transaction would
greatly exceed initial estimates. BAE, as the contractor chosen to provide the requested
goods and services, had participated in inter-governmental discussions related to price.
After the U.S. government raised its overall price estimate, Korea charged that BAE had
breached the BAE-Korea agreement by failing to use its best efforts to ensure the U.S.
government agreed to the price that Korea and BAE had worked out in advance. BAE
steadfastly denied this, explaining that the U.S. government increased its price for
reasons having nothing to do with BAE and despite its best efforts. Nonetheless, Korea
demanded that BAE pay $43.25 million pursuant to the BAE-Korea agreement.
BAE then filed this action in federal court, seeking a declaration that it had not
breached any obligations to Korea. After the court denied Korea’s motion to dismiss,
Korea answered the complaint and asserted a number of cross-claims against BAE.
Korea also initiated a suit in a Korean court to litigate essentially the same issues. The
district court issued the requested declaratory judgment to BAE but refused to enjoin the
litigation in Korea. This timely appeal followed.
II.
Korea initially grounds its appeal in the forum selection clause contained in the
BAE-Korea agreement. That forum selection clause provides that any dispute arising
8
from or relating to the BAE-Korea agreement “shall be resolved through a litigation and
the Seoul Central District Court shall hold jurisdiction.” Korea claims this is a
mandatory forum selection clause, requiring all litigation to occur in Korea, and thus
requires dismissal of BAE’s suit. BAE maintains that it is permissive, providing that
Seoul, Korea is an appropriate forum for litigation, but not barring litigation elsewhere.
A.
Although the parties agree that we consider this question de novo, and we
traditionally have done so, the more deferential, abuse-of-discretion standard of review
may be appropriate in light of Atlantic Marine Construction Co. v. U.S. District Court,
134 S. Ct. 568 (2013). 4 We need not resolve the correct standard of review here,
however, because the result remains the same under both standards of review.
4
We have treated motions to dismiss based on a forum selection clause as motions
to dismiss for improper venue under Fed. R. Civ. P. 12(b)(3) and reviewed de novo
dismissal of a complaint on the basis of a forum selection clause. See, e.g., Aggarao v.
MOL Ship Mgmt. Co., 675 F.3d 355, 365–66 (4th Cir. 2012). But in Atlantic Marine, the
Supreme Court clarified that a party may not seek to enforce a forum selection clause by
moving to dismiss for improper venue; instead, “the appropriate way to enforce a forum-
selection clause pointing to a . . . foreign forum is through the doctrine of forum non
conveniens.” 134 S. Ct. at 580. In cases not involving forum selection clauses, we have
reviewed dismissals pursuant to the doctrine of forum non conveniens for abuse of
discretion. See, e.g., DiFederico v. Marriott Int’l, Inc., 714 F.3d 796, 799 (4th Cir.
2013). Atlantic Marine thus raises the question of which standard of review applies here
— abuse of discretion (as is typical in forum non conveniens cases), de novo (as is typical
when reviewing dismissals based on forum selection clauses), or some combination of
both. Our sister circuits have taken varying approaches. See Weber v. PACT XPP
Techs., AG, 811 F.3d 758, 768 (5th Cir. 2016) (mixed standard of review); Martinez v.
Bloomberg LP, 740 F.3d 211, 217 (2d Cir. 2014) (not deciding the question).
9
As a general matter, courts enforce forum selection clauses unless it would be
unreasonable to do so. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).
This presumption of enforceability, however, only applies if the forum selection clause is
mandatory rather than permissive. See Albemarle Corp. v. AstraZeneca UK Ltd., 628
F.3d 643, 650–51 (4th Cir. 2010). A mandatory clause requires litigation to occur in a
specified forum; a permissive clause permits litigation to occur in a specified forum but
does not bar litigation elsewhere. Id. A permissive forum selection clause does not
justify dismissal on the grounds that the plaintiff filed suit in a forum other than the one
specified in the clause. See, e.g., Weber v. PACT XPP Techs., AG, 811 F.3d 758, 768
(5th Cir. 2016).
In Atlantic Marine, the Supreme Court held that a defendant seeking to enforce a
forum selection clause that points to a foreign forum should move to dismiss pursuant to
the common-law doctrine of forum non conveniens. See 134 S. Ct. at 580. 5 This doctrine
allows a court to dismiss a case when the original venue is highly inconvenient and an
adequate alternative venue exists. In the typical case, the defendant invoking forum non
conveniens “bears a heavy burden in opposing the plaintiff’s chosen forum.” Sinochem
Int’l Co. v. Malaysia Int’l Shipping Co., 549 U.S. 422, 430 (2007). In particular, the
defendant must prove that an alternative forum is available, adequate, and more
5
Although the Atlantic Marine Court clarified that the “appropriate way” to
enforce such a forum selection clause is through forum non conveniens, it left open the
question of whether a defendant could obtain dismissal under Fed. R. Civ. P. 12(b)(6).
134 S. Ct. at 580 & n.4.
10
convenient (in light of the public and private interests involved) than the forum selected
by the plaintiff. See DiFederico v. Marriott Int’l, Inc., 714 F.3d 796, 800–01 (4th Cir.
2013).
But that framework is modified, the Atlantic Marine Court explained, in the
context of a valid forum selection clause. Most importantly, a forum selection clause
reverses the presumptions that would otherwise apply: instead of heavily favoring the
plaintiff’s chosen forum and placing the burden on the defendant, the forum selection
clause is “given controlling weight in all but the most exceptional cases,” and the plaintiff
bears the burden of proving why it should not be enforced. See 134 S. Ct. at 581, 583 &
n.8 (internal quotation marks and citation omitted). 6 Atlantic Marine thus “reaffirms
Bremen’s identification of a strong federal public policy supporting the enforcement of
forum selection clauses,” even in the context of forum non conveniens analysis. See
Martinez, 740 F.3d at 219.
Although the Atlantic Marine Court did not expressly hold that only a mandatory
forum selection clause modifies the forum non conveniens framework, the Court’s
rationale makes clear that this is so. See 134 S. Ct. at 581–82 (suggesting the modified
6
The forum selection clause in Atlantic Marine pointed to another domestic forum
rather than (as here) a forum abroad. For that reason, the Atlantic Marine Court centered
its analysis on 28 U.S.C. § 1404(a), pursuant to which a district court may transfer a civil
action to another district, and held a valid forum selection clause modified the framework
for considering a § 1404(a) motion to transfer. However, the Atlantic Marine Court
suggested the traditional analysis under both § 1404(a) and forum non conveniens (where
no forum selection clauses are at issue) is similar. See 134 S. Ct. at 581 & n.6. It also
made clear the forum non conveniens framework must be modified in the same manner in
the presence of a forum selection clause. See id. at 583 n.8.
11
framework applies “when a plaintiff agrees by contract to bring suit only in a specified
forum” (emphasis added)); id. at 583 n.8 (modified framework applies “when the plaintiff
has violated a contractual obligation by filing suit in” another forum). Our sister circuits
appear to have reached the same conclusion. See Weber, 811 F.3d at 768, 775–76 (under
Atlantic Marine, a “mandatory” forum selection clause modifies the forum non
conveniens framework that would otherwise apply); GDG Acquisitions, LLC v. Gov’t of
Belize, 749 F.3d 1024, 1029–30 (11th Cir. 2014) (suggesting Atlantic Marine does not
apply in the context of permissive clauses); cf. Claudio-De Leon v. Sistema Universitario
Ana G. Mendez, 775 F.3d 41, 46 (1st Cir. 2014) (noting in a post-Atlantic Marine
decision that “the threshold question in interpreting a forum selection clause is whether
the clause at issue is permissive or mandatory” (internal quotation marks and citation
omitted)); Martinez, 740 F.3d at 216–17, 227 (discussing Atlantic Marine and concluding
that only “mandatory” clauses are presumably enforceable). This conclusion also accords
with the longstanding notion that only mandatory forum selection clauses enjoy a
presumption of enforceability. See Albemarle Corp., 628 F.3d at 650–51.
Accordingly, determination of whether the forum selection clause here is
permissive or mandatory is critical. If it is mandatory, then Atlantic Marine controls and
BAE bears the burden of proving why it should not be enforced. If it is permissive, then
the traditional forum non conveniens analysis applies and Korea bears a “heavy burden”
in opposing BAE’s alternative forum.
12
B.
A forum selection clause is permissive unless it contains “specific language of
exclusion.” See Albemarle Corp., 628 F.3d at 651 (quoting IntraComm, Inc. v. Bajaj,
492 F.3d 285, 290 (4th Cir. 2007)) (internal quotation marks omitted). “[A]n agreement
conferring jurisdiction in one forum will not be interpreted as excluding jurisdiction” in
another unless the clause expressly sets forth “specific language of exclusion.”
IntraComm, 492 F.3d at 290 (quoting John Boutari & Son, Wines & Spirits, S.A. v. Attiki
Imps. & Distribs., Inc., 22 F.3d 51, 53 (2d Cir. 1994)) (internal quotation marks omitted).
The forum selection clause at issue here does not contain any “specific language
of exclusion.” Id. Rather, it simply confers jurisdiction on a forum by stating that
disputes “shall be resolved through litigation and the Seoul Central Court shall hold
jurisdiction.” This clause, as the district court noted, differs significantly from forum
selection clauses found to be mandatory, which provide that a particular place constitutes
the “sole” or “only” or “exclusive” forum.
Contrary to Korea’s suggestion, the use of “shall” in the clause does not render it
mandatory. As we explained in IntraComm, the use of “shall” in a forum selection clause
is not dispositive, because, in context, the clause may still “permit[] jurisdiction in one
court but . . . not prohibit jurisdiction in another.” Id. (discussing Excell, Inc. v. Sterling
Boiler & Mech., Inc., 106 F.3d 318, 321 (10th Cir. 1997)). Nor does holding the clause
permissive render it, as Korea suggests, “meaningless and redundant.” Appellant’s
Opening Br. at 30. Korea contends this is so because the BAE-Korea agreement “could
always be enforced in the Korean courts.” Id. at 29–30. But Korea fails to explain why
13
the Seoul Central District Court in particular would necessarily hold jurisdiction absent
this clause. 7
Because the clause here is permissive, the modified framework outlined in Atlantic
Marine does not apply, there is no presumption in favor of enforceability, and we proceed
with a traditional forum non conveniens analysis. Pursuant to that analysis, Korea bears
the burden of proving, inter alia, that its proposed alternative forum (the Seoul Central
District Court) is more convenient in light of the public and private interests involved.
See DiFederico, 714 F.3d at 800–01. Korea does not even attempt to do this.
Accordingly, we agree with the district court that the BAE-Korea agreement’s permissive
forum selection clause provides no basis for dismissing this action.
III.
Korea also contends that the district court erred in refusing to accord it immunity
from suit under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602 et seq. (FSIA).
That statute provides that “a foreign state shall be immune from the jurisdiction of the
7
Korea’s heavy reliance on Sterling Forest Assocs. v. Barnett-Range Corp., 840
F.2d 249 (4th Cir. 1988), overruled on other grounds by Lauro Lines S.R.L. v. Chasser,
490 U.S. 495 (1989), is misplaced. In that case, we found mandatory a very different
clause that stated, “the parties agree that in any dispute jurisdiction and venue shall be in
California.” Id. at 250–52 (emphasis added). As other circuits have explained, “where
venue is specified with mandatory or obligatory language, the clause will be enforced;
where only jurisdiction is specified, the clause will generally not be enforced unless there
is some further language indicating the parties’ intent to make venue exclusive.” Paper
Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir. 1992); accord
K & V Sci. Co. v. BMW, 314 F.3d 494, 499 (10th Cir. 2002).
14
courts of the United States” unless one of the enumerated exceptions applies. 8 28 U.S.C.
§ 1604. BAE maintains that the district court properly exercised jurisdiction, because
two FSIA exceptions apply here: the waiver exception and the commercial activity
exception. We review applications of the FSIA de novo. Wye Oak Tech., Inc. v.
Republic of Iraq, 666 F.3d 205, 212 (4th Cir. 2011).
The FSIA waiver exception states:
A foreign state shall not be immune from the jurisdiction of
courts of the United States . . . in any case . . . in which the
foreign state has waived its immunity either explicitly or by
implication, notwithstanding any withdrawal of the waiver
which the foreign state may purport to effect except in
accordance with the terms of the waiver . . . .
28 U.S.C. § 1605(a)(1) (emphasis added).
“Waiver under the FSIA is rarely accomplished by implication,” and “the implicit
waiver provision of § 1605(a)(1) must be construed narrowly.” See In re Tamimi, 176
F.3d 274, 278 (4th Cir. 1999). In enacting the FSIA, however, Congress provided three
examples of implicit waivers. See H.R. Rep. No. 94-1487, at 18 (1976), as reprinted in
1976 U.S.C.C.A.N. 6604, 6617; S. Rep. No. 94-1310, at 17–18 (1976). These three
examples “involve circumstances in which the implicit waiver is unmistakable” and so
the FSIA exception applies. See Tamimi, 176 F.3d at 278–79. One of these unmistakable
8
The parties do not dispute that both the Republic of Korea and its Defense
Acquisition Program Administration (its instrumentality) are “foreign states” within the
meaning of the FSIA. We agree. See 28 U.S.C. § 1603 (defining “foreign state” under
the FSIA).
15
implicit waivers occurs when “a foreign state has filed a responsive pleading in a case
without raising the defense of sovereign immunity.” Id. at 278.
BAE initiated this lawsuit against Korea in November 2014. Korea moved to
dismiss the action in September 2015 but did not raise the sovereign immunity defense in
that motion. On February 18, 2016, after the district court denied Korea’s motion to
dismiss, Korea filed an answer to BAE’s complaint and several counter-claims against
BAE. This was Korea’s first responsive pleading. See Fed. R. Civ. P. 7 (an answer to a
complaint is a “pleading,” but a motion to dismiss is not); 28 U.S.C. § 1608(d) (outlining
timeline under FSIA for a foreign state to file “an answer or other responsive pleading”).
In this initial pleading, Korea failed to assert sovereign immunity but instead asserted
counter-claims against BAE for breach of contract, fraud, and negligent
misrepresentation. In sum, by February 18, 2016, this litigation had been ongoing for
over a year, Korea had not asserted a sovereign immunity defense, and Korea had filed a
responsive pleading in the form of an answer and counter-claims. It thus appears that
Korea impliedly waived its sovereign immunity defense.
Resisting this conclusion, Korea notes that it filed an amended answer and
counter-claims on March 10, 2016, in which it did refer to FSIA. Korea added the
following sentence in its amended answer and counter-claims:
Moreover, Defendants deny that the act upon which BAE
TSS bases its claim — Defendants’ demand for payment of
the amount of the bid bond required by Korean law — falls
within the commercial activities exception of the Foreign
Sovereign Immunities Act.
16
Although it referred to the FSIA in this amended answer and counter-claims, even then
Korea did not raise the FSIA as an affirmative defense. Rather, Korea simply denied
engaging in commercial activity under the FSIA.
Even assuming this statement in the amended answer sufficed to invoke FSIA
protections, Korea cannot defeat a holding of implied waiver unless its amended answer
and counter-claims rendered its initial answer and counter-claims irrelevant. Korea
contends that this is the case, because an amended pleading generally supersedes the
original, rendering the original of no legal effect. See Appellants/Cross-Appellees
Response/Reply Br. at 32–33 (citing Young v. City of Mount Ranier, 238 F.3d 567, 572
(4th Cir. 2001)). Regardless of the ordinary effect of an amended answer on the original
answer, a court cannot ignore the original answer for FSIA waiver purposes.
Korea’s proposed interpretation — that only the latest amended answer matters for
purposes of asserting sovereign immunity under FSIA — stands in tension with the
statutory text, which states that a foreign state cannot withdraw an implied waiver once it
is made. See 28 U.S.C. § 1605(a)(1); see also Flota Maritima Browning de Cuba, S.A. v.
Motor Vessel Ciudad de la Habana, 335 F.2d 619, 621, 625 (4th Cir. 1964) (in pre-FSIA
case, finding that Cuba waived its immunity “when it filed answers . . . without
suggesting its immunity,” because “once the immunity is waived . . . it cannot be
revived”). Korea’s interpretation could lead to absurd results, where a foreign state could
avoid implied waiver simply by obtaining permission from a court to file an amended
pleading.
17
We reject such an interpretation. Instead, we hold, as our sister circuits have, that
filing a responsive pleading generally provides the last opportunity to assert sovereign
immunity. See Haven v. Polska, 215 F.3d 727, 731 (7th Cir. 2000) (“If a sovereign files
a responsive pleading without raising the defense of sovereign immunity, then the
immunity defense is waived.”); Drexel Burnham Lambert Grp. Inc. v. Comm. of
Receivers for Galadari, 12 F.3d 317, 326 (2d Cir. 1993) (“[T]he filing of a responsive
pleading is the last chance to assert FSIA immunity if the defense has not been
previously asserted.”); Canadian Overseas Ores Ltd. v. Compania de Acero del Pacifico
S.A., 727 F.2d 274, 277 (2d Cir. 1984) (describing a responsive pleading as “the point of
no return for asserting foreign sovereign immunity”); cf. Princz v. Republic of Germany,
26 F.3d 1166, 1174 (D.C. Cir. 1994) (“[A]n implied waiver depends upon the foreign
government’s having at some point indicated its amenability to suit.” (emphasis added)). 9
Here, Korea participated in the litigation for over a year, including by filing a
motion to dismiss and a responsive pleading, without giving any indication it asserted
sovereign immunity. For that reason, it waived its immunity defense, and the district
court had jurisdiction. The fact that Korea never “raise[d] the defense of sovereign
9
In an earlier case, the D.C. Circuit rejected claims of implicit waiver when Iran
failed to assert immunity in its initial answer but then asserted immunity in a subsequent
answer. See Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 442–44
(D.C. Cir. 1990). However, the court stressed the unusual nature of that case, where the
first answer did not respond substantively to the complaint but rather noted the complaint
must proceed in another forum, which it then did. See id. at 443.
18
immunity,” even in its amended answer and counter-claims, but rather only asserted its
actions did not qualify for the commercial activity exception, supports this conclusion. 10
IV.
Although Korea largely relies on its forum selection clause and immunity
arguments, it also challenges on the merits the grant of summary judgment to BAE. The
district court concluded that Korea had no cause of action for an asserted breach of the
BAE-Korea agreement. We review the district court’s grant of summary judgment de
novo. Aikens v. Ingram, 811 F.3d 643, 647 (4th Cir. 2016).
A.
We briefly recap the undisputed facts underlying this claim. When Korea sought
to upgrade the avionics systems of its fleet of fighter planes, the United States insisted
that this upgrade could only occur through an FMS transaction, in which the U.S.
government retained control over price. Perhaps in recognition of the U.S. government’s
complete control over the FMS contract, Korea attempted to pre-determine its costs. To
that end, Korea entered into an agreement with BAE in which, in exchange for being
named as Korea’s preferred contractor, BAE agreed to put forth its “best effort” to ensure
the pricing to which BAE and Korea had agreed was accepted by the United States and
included in the agreement between the two governments. Although the United States and
Korea entered into a preliminary FMS contract, negotiations between them ultimately
10
Because we agree with BAE that the waiver exception applies, we do not
consider the commercial activity exception.
19
collapsed due to price differences. Korea claims that BAE did not use its best efforts to
ensure the U.S. government agreed to the price that BAE and Korea had worked out in
advance. BAE maintains that the U.S. government increased its cost estimate based on
“historical experience” with “previous F-16 upgrade programs” and that “no part of this
cost increase was the result of [BAE’s] actions.” Appellee/Cross-Appellant’s
Response/Opening Br. at 15. The principal issue for declaratory judgment purposes,
however, is not whether BAE failed to use its best efforts to advocate for a certain price,
but rather whether Korea can enforce its agreement with BAE (including this “best
effort” obligation) in light of U.S. national security interests.
We agree with the parties that this question turns on the relationship between the
BAE-Korea agreement and the FMS transaction and whether enforcement of the BAE-
Korea agreement would impact U.S. national security interests. Korea claims that the
BAE-Korea agreement relates to, but is entirely distinct from, the FMS transaction.
According to Korea, its agreement with BAE imposes obligations on BAE and Korea that
have “no impact on the U.S. government or its national security.” Appellant’s Opening
Br. at 49. BAE maintains that because the BAE-Korea agreement is intimately linked to
the government-to-government transaction and purports to influence its outcome, it
impacts U.S. national security and so is unenforceable. Appellee/Cross-Appellant’s
Response/Opening Br. at 28.
In Trimble, we explained that, where the U.S. government mandates use of the
FMS format (as opposed to a direct purchase by a foreign government from a U.S.
contractor via the DCS process), that requirement “reflects the national security interests
20
of the United States.” 484 F.3d at 707. We reasoned that a foreign state will not be
permitted “to gain an advantage of the DCS program in a situation where United States
policy (and the statutory scheme chosen to effectuate that policy) explicitly precludes a
DCS arrangement.” See id. We thus concluded that a foreign state participating in an
FMS transaction cannot sue the U.S. contractor under the theory that the foreign state is a
third-party beneficiary of the contract between the U.S. government and the U.S.
contractor. Recognizing such a cause of action “would allow the foreign purchaser to
hold the contractor directly liable for the purchased goods, a level of accountability that
may be achieved [only] through a DCS sale.” Id.
In sum, Trimble teaches that a foreign state cannot sue a U.S. contractor if doing
so would undermine the FMS structure and afford the foreign state advantages only
available in a direct purchase DCS transaction between a foreign state and a U.S.
contractor.
The district court concluded that Korea’s lawsuit would do just that. The court
reasoned that the BAE-Korea agreement is “inextricably intertwined” with the FMS
transaction. In reaching this conclusion, it relied on the fact that the explicit purpose of
the BAE-Korea agreement was to establish the technical specifications and prices that
BAE would then support for inclusion in Korea’s eventual FMS agreement with the U.S.
government. If BAE failed to adequately advocate for inclusion of those terms in an
inter-governmental deal, and that failure delayed conclusion of such a deal, the BAE-
Korea agreement subjected BAE to “punishment” in the form of a $43.25 million
payment. And, as the district court noted, the BAE-Korea agreement “automatically
21
terminate[d]” once the two governments reached an FMS agreement. Given these facts,
we agree that the BAE-Korea agreement is intimately linked to the FMS transaction: in
essence, it subjects BAE to potential liability if Korea is dissatisfied with developments
in the government-to-government FMS negotiations.
B.
If enforced as Korea seeks, the BAE-Korea agreement would undermine the FMS
structure in two critical ways. First, it would undermine the FMS dispute settlement
provisions. The FMS structure strictly circumscribes the availability of litigation. A
foreign state cannot sue the United States for failure to perform pursuant to the sovereign-
to-sovereign agreement, including with respect to price. The foreign state’s only recourse
is to consult with the U.S. government. See SAMM Fig. C5.F4 § 7.2. Nor can a foreign
state sue the U.S. contractor retained by the U.S. government to fulfill an FMS contract,
because the foreign state does not contract directly with that contractor for the goods and
services the contractor ultimately supplies (via the U.S. government) to the foreign state.
See Trimble, 484 F.3d at 707. The FMS structure thus shields a U.S. contractor, such as
BAE, from liability. Pursuant to the separate BAE-Korea agreement, Korea nonetheless
seeks to impose liability on BAE for allegedly failing to use best efforts to prevent a price
increase by the U.S. government in FMS government-to-government negotiations.
Permitting Korea to impose such liability would run counter to the FMS structure.
Second, enforcement of the BAE-Korea agreement would undermine the control
the United States retains in all FMS transactions over price. Under federal law, the
foreign state must pay whatever it costs the U.S. government to supply the requested
22
goods or services. See 22 U.S.C. § 2762(a) (authorizing President to engage in FMS
transactions if the foreign government agrees “to pay the full amount of such contract
which will assure the United States Government against any loss on the contract”); see
also SAMM § C9.3.1 (noting that, subject to certain exceptions identified in the AECA,
“[t]he FMS program must be managed at no cost to the [U.S. government]”).
Relatedly, in an FMS transaction, the U.S. government also retains control over
negotiations with the U.S. contractor, including with respect to price. See Defense
Federal Acquisition Regulations Supplement (DFARS), 48 C.F.R. §§ 1–99, 200–299,
225.7303(a) (The U.S. government “[p]rice[s] FMS contracts”). The United States even
decides whether and to what extent the foreign sovereign participates in negotiations with
the U.S. contractor. See id. § 225.7304(d) (noting that, as a general matter, “the degree of
[foreign government] participation in contract negotiations [with the U.S. contractor] is
left to the discretion of the [U.S. government]”). Applicable regulations outline all that is
required of the U.S. government in responding to objections of a foreign sovereign to
prices demanded by the U.S. contractor. See id. § 225.7304(h) (“If [a foreign
government] requests additional data concerning FMS contract prices,” the U.S.
government shall “provide sufficient data to demonstrate the reasonableness of the price,”
which may include “an explanation of any significant differences between the actual
contract price and the estimated contract price included in the initial” government-to-
government deal).
Because the U.S. government retains control over price in an FMS transaction, a
foreign state generally has no cause of action — against anyone — if the price demanded
23
by the U.S. government increases over time. If a foreign state does not wish to abide by
this limitation, it need not, and should not, enter into an FMS transaction. 11
Moreover, enforcement of the BAE-Korea agreement here would subvert the FMS
structure and congressional directives as to all FMS transactions. It would provide a
foreign state with a cause of action against a U.S. contractor if the price of the FMS
transaction exceeded initial expectations, because the foreign state could always claim the
U.S. contractor did not use its best efforts to keep prices down. Thus, although
enforcement of the BAE-Korea agreement as Korea seeks would not “control” the FMS
transaction price in a strict sense (i.e., it would not dictate what the U.S. government
ultimately charges Korea, nor would it dictate what BAE charges the U.S. government),
it would nevertheless allow a foreign state to recover from a U.S. contractor if the cost of
the FMS transaction exceeded initial estimates. Accordingly, it would import a benefit
available only in a direct purchase, DCS transaction, into an FMS transaction. In a DCS
transaction, the foreign state may negotiate a fixed price with the U.S. contractor, such
11
We are also unpersuaded by Korea’s argument that the BAE-Korea agreement is
akin to an offset arrangement and is thus enforceable. In an FMS transaction, the foreign
state and U.S. contractor may negotiate offsets, which are “the entire range of industrial
and commercial benefits provided [by contractors] to foreign governments as an
inducement or condition to purchase military supplies or services.” DFARS Procedures,
Guidance, and Information 225.7303-2 (May 2015),
https://www.acq.osd.mil/DPAP/dars/dfarspgi/current/index.html (last visited March 5,
2018). Korea claims that offsets are enforceable and that the BAE-Korea agreement is
“similar to an offset agreement” in that it is “an ancillary contract between the foreign
purchaser and the contractor related to an FMS transaction.” Appellant’s Opening Br. 52
n.10. Even if offsets are enforceable, we view them as distinct. Offsets, unlike the BAE-
Korea agreement, do not undermine the FMS structure. Instead, offsets are mere
inducements offered by U.S. contractors to the foreign state to convince the foreign state
to purchase military goods and services in the first place.
24
that it knows how much money it will owe. In an FMS transaction, by contrast, a foreign
government that objects to price increases may only consult with the U.S. government or
withdraw from the transaction.
C.
In its Amicus brief — which supported neither party on the issue of whether the
BAE-Korea agreement is enforceable — the United States suggests that “Korea is not
seeking to reorder the FMS statutory structure.” Br. for the United States as Amicus
Curiae at 6. Partly for that reason, it concludes that national security concerns “do not
prohibit enforcement of the [best efforts] provision at issue here.” Id. at 1–2, 6. 12
As an initial matter, the Government’s mere assertion that “Korea is not seeking to
reorder the FMS statutory structure” is overly simplistic. Under Trimble, we focus on
whether enforcement of the BAE-Korea agreement would undermine the FMS structure
established by Congress. The Government’s brief does not meaningfully engage with
this issue: it fails to even mention the statute authorizing FMS transactions (AECA), the
12
The United States did not participate in this case in the district court or in the
oral argument or original briefing in this court. However, after oral argument, we invited
the Government to provide a brief setting forth its views on two questions. First, we
asked the Government to address an issue in Korea’s appeal (Fourth Circuit No. 17-
1041): whether, in the Government’s view, permitting Korea to enforce its agreement
with BAE would “run counter to United States national security interests.” Second, we
solicited the Government’s view on the issue pursued by BAE in its cross-appeal (Fourth
Circuit No. 17-1070): whether a permanent anti-suit injunction “is warranted in light of
any United States national security interests.”
25
regulations governing such transactions (DFARS), the key manual with which FMS
transactions must comply (SAMM), or the standard terms used in FMS agreements. 13
The Government also suggests that enforcement would not undermine the FMS
structure, because Korea seeks compensation “only for BAE’s own alleged failure to use
best efforts,” and “is not here reneging on a commitment to settle disputes with the
United States using government-to-government negotiation.” Amicus Br. at 6.
Functionally, however, Korea does precisely this — it seeks to hold BAE liable for
higher prices demanded by the United States in the government-to-government
negotiation. The record makes this connection plain: one day after the U.S. government
announced a price increase, Korea demanded payment from BAE.
Finally, although we take seriously the Government’s views, we note that the
Government in its brief only concludes national security interests do not prohibit
enforcement of the “best effort” provision in the particular agreement and circumstances
presented here. The same might not be true, the Government suggests, the next time
around. See Amicus Br. at 1–2, 5 n.2. This provides no guidance to industry actors and
suggests that courts must consider the distinct national security implications of each and
13
Instead, the Government’s effort to distinguish Trimble rests entirely on factual
differences between Trimble and the case at hand. These factual differences are certainly
relevant. But even more important and more relevant here are concerns at the center of
the Trimble holding that the foreign government’s lawsuit runs counter to the statutory
and regulatory structure underpinning FMS transactions — something the Government
largely fails to address.
26
every contract that, like the BAE-Korea agreement here, relates to (but is technically
separate from) an FMS transaction. That approach is unworkable. 14
In sum, although we appreciate the Government’s assistance, we do not find its
reasoning with respect to the enforceability of the “best effort” clause to be persuasive.
V.
Finally, BAE claims the district court erred by failing to impose a permanent anti-
suit injunction barring the Korean government from bringing suit in Korea to enforce the
BAE-Korea agreement. After the district court granted summary judgment in favor of
BAE, it lifted a preliminary injunction it had previously imposed. The court concluded
that if South Korea “proceed[ed] with its claims against BAE in its own courts, BAE may
defend against the claims by asserting any claim or issue preclusion that this judgment
may afford it under Korean law.” We review denial of the permanent anti-suit injunction
for abuse of discretion. See Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia,
Inc., 43 F.3d 922, 939 (4th Cir. 1995).
Although a district court with jurisdiction over the parties may prohibit them from
proceeding with a lawsuit in a foreign country, the court should use that power
“sparingly.” Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 881 (9th Cir. 2012)
14
Moreover, the harm the Government suggests might arise from holding
unenforceable “best efforts” clauses like the one at issue here — i.e., “influencing allied
countries to look elsewhere for some military purchases,” Amicus Br. at 3 — is one
Korea never raised in this lengthy litigation involving numerous briefs and oral
arguments.
27
(internal quotation marks and citation omitted). Our sister circuits have outlined at least
two approaches for determining if a foreign anti-suit injunction is warranted: the
“liberal” test and the “conservative” test. Both weigh factors favoring an injunction
against the effect of an injunction on international comity. 15 The principal difference is
that the liberal approach accords less weight to international comity concerns. See
Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 431 (7th Cir. 1993). But
international comity remains a significant consideration, even in courts endorsing the
liberal approach. See E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 990–
91, 994 (9th Cir. 2006) (under the liberal standard, a court must perform a “detailed
analysis” to determine whether the impact on international comity would be “tolerable”).
In our view, no matter which approach provides the appropriate framework, the
district court did not abuse its discretion in denying BAE’s petition for a permanent anti-
suit injunction. BAE’s contention to the contrary rests on two rationales.
First, BAE claims the Korean litigation threatens the district court’s jurisdiction,
because “the U.S. court system is the proper venue for the dispute,” and, absent an
injunction, BAE “face[s] the possibility of an inconsistent judgment” in Korea, which
“could be enforced in [Korea] or potentially third countries.” Appellee/Cross-
Appellant’s Response/Opening Br. at 40. We agree that a district court may, in certain
circumstances, impose an anti-suit injunction to protect its own jurisdiction, even where
15
Under both approaches, the court also examines, as a threshold inquiry, whether
the parties and issues in the two disputes are the same. On appeal, neither BAE nor
Korea contend that the two disputes are not the same.
28
(as here) it has already rendered its judgment. In that context, the injunction serves to
protect the integrity of the district court order in case the foreign forum fails to give res
judicata effect to the district court judgment. See Paramedics Electromedicina
Comercial, Ltda v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 654 (2d Cir. 2004).
But parallel proceedings are common, and an anti-suit injunction is not appropriate
every time parallel proceedings may occur and litigation in the U.S. court concludes first.
See Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 928 n.54 (D.C.
Cir. 1984) (“[A] showing of harassment, bad faith, or other strong equitable
circumstances should ordinarily be required” for a district court to impose an anti-suit
injunction in order to protect an existing judgment). Otherwise, such injunctions would
be commonplace rather than extraordinary. Here, the Korean litigation is not particularly
vexatious or oppressive; indeed, the forum selection clause in the BAE-Korea agreement
contemplates (but does not require) litigation in Korea. In sum, we conclude that
jurisdictional grounds provide an unconvincing justification for an anti-suit injunction.
BAE also claims an injunction is necessary in order to protect U.S. national
security interests. Here, BAE has more solid footing. We have concluded that
enforcement of the BAE-Korea agreement runs counter to U.S. national security
concerns, and we agree that enforcement by a Korean court may threaten those same
concerns. But BAE goes even further, suggesting it would be inconsistent to allow the
enforceability of the BAE-Korea agreement to be litigated in Korea after holding, as we
do here, that enforcement runs counter to national security interests. See Appellee/Cross-
Appellant’s Response/Opening Br. at 32–33. That line of reasoning is too simplistic,
29
because it ignores international comity concerns that must always be considered in
determining whether to issue an anti-suit injunction.
International comity counsels us to give effect, if possible, to the judgments of
foreign courts in order to strengthen international cooperation. See Hilton v. Guyot, 159
U.S. 113, 163–64 (1895). Here, these comity concerns are near their peak. Even courts
following the liberal framework recognize that comity concerns are far greater where an
injunction would bar a foreign sovereign (rather than a private party) from litigating a
dispute in its own courts. See Allendale, 10 F.3d at 428 (suggesting an injunction barring
the French government “from litigating a suit on a French insurance policy in a French
court” would be “an extraordinary breach of international comity”); see also Microsoft,
696 F.3d at 887; Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 627 (5th Cir. 1996). Indeed,
an anti-suit injunction here would impinge on the sovereignty of the Korean courts (to
hear the case) and the Korean government (to litigate it). And it would do so on a
permanent basis, raising even graver comity concerns. Because anti-suit injunctions
against foreign sovereigns are so unusual, no circuit precedent (and little out-of-circuit
precedent) exists to guide courts in analysis of this issue.
Given all of these circumstances, we can hardly conclude the district court abused
its discretion by declining to impose an anti-suit injunction. 16
16
Our conclusion in this regard is bolstered by the response of the United States as
Amicus in this case. In its brief, the Government’s answer to our second question was
unequivocal — an anti-suit injunction is not warranted. Indeed, the Government urged us
not to impose an anti-suit injunction, partly due to international comity concerns.
30
VI.
For the foregoing reasons, the judgment of the district court is in all respects
AFFIRMED.
31