Cruise Connections Charter Management 1, LP v. Attorney General of Canada

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2010 Decided April 6, 2010

No. 09-7060

CRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP AND
CRUISE CONNECTIONS CHARTER MANAGEMENT GP, INC.,
APPELLANTS

v.

ATTORNEY GENERAL OF CANADA, REPRESENTING THE ROYAL
CANADIAN MOUNTED POLICE, ET AL.,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 1:08-cv-02054-JR)

Jack M. Strauch argued the cause and filed the briefs for
appellants. Deborah J. Israel entered an appearance.

John M. Townsend argued the cause for appellees. With
him on the brief was Scott H. Christensen.

Before: TATEL, Circuit Judge, and SILBERMAN and
WILLIAMS, Senior Circuit Judges.
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Opinion for the Court filed by Circuit Judge TATEL

TATEL, Circuit Judge: Under the Foreign Sovereign
Immunities Act, foreign governments engaging in commercial
activities outside the United States enjoy immunity from suit
in U.S. courts unless those activities have a “direct effect” in
the United States. In this case the Canadian government
terminated a contract with a U.S. company to provide cruise
ship services in Canada. Because this left the U.S. company
unable to consummate fully negotiated, multi-million-dollar
subcontracts with U.S.-based cruise lines to provide the
necessary ships, we conclude that Canada’s termination of the
contract had a “direct effect” in the United States.

I
In 2008, Cruise Connections, a U.S. corporation based in
Winston-Salem, N.C., signed a contract with the Royal
Canadian Mounted Police (RCMP) under which Cruise
Connections would provide three cruise ships to dock in
Vancouver during the 2010 Olympic Winter Games. RCMP
planned to use the ships to house security staff needed for the
Games. The contract required Cruise Connections to
subcontract with two U.S.-based cruise lines, Holland
America and Royal Caribbean, to provide the necessary ships.
For this service, RCMP agreed to pay Cruise Connections a
little more than $54 million (Canadian) in three direct
payments.

With the RCMP contract in hand, Cruise Connections
entered “the final stages of negotiating” subcontracts, called
Charter Party Agreements, with Holland America and Royal
Caribbean to provide the three ships at a cost of
approximately $39 million (U.S.). Tracey Kelly Aff. ¶ 7.
Because the ships would remain in Vancouver for several
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weeks, the two companies demanded assurances that they
would incur no liability for Canadian corporate income and
payroll taxes. Although RCMP originally gave these
assurances, promising to cover all taxes due, it reversed
course just as Holland America and Royal Caribbean were set
to sign the Charter Party Agreements and disavowed
responsibility for any payroll and income taxes. Unprotected
from tax liability, the two companies balked, leaving Cruise
Connections unable to deliver signed Charter Party
Agreements by the required date. RCMP then terminated its
contract with Cruise Connections.

Cruise Connections sued RCMP, Her Majesty the Queen
in Right of Canada, and the Attorney General of Canada in
the United States District Court for the District of Columbia,
alleging both breach of contract and unfair trade practices.
Although acknowledging that RCMP, as an “agency or
instrumentality” of the federal government of Canada, 28
U.S.C. § 1603(b), generally enjoys immunity from suit in
U.S. courts under the Foreign Sovereign Immunities Act
(FSIA), 28 U.S.C. §§ 1602–11, Cruise Connections argued
that the FSIA’s commercial activities exception applies. As
relevant here, that exception abrogates sovereign immunity

in any case . . . in which the action is based . . .
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.

Id. § 1605(a)(2). RCMP conceded that contracting for
chartered ships qualifies as a commercial activity and that its
alleged breach satisfies the “act” requirement. It argued,
however, that the alleged breach had no “direct effect in the
United States” and moved to dismiss for lack of jurisdiction.
 4
See 28 U.S.C. § 1330(a) (providing district courts with subject
matter jurisdiction over cases against foreign governments
only when an FSIA exception applies).

Cruise Connections responded with two arguments.
First, it contended that the contract required RCMP to pay it
via wire transfer to a U.S. bank and that RCMP’s failure to
make those payments qualified as a direct effect in the United
States. Second, it argued that RCMP's cancellation also
caused a direct effect in the United States because it resulted
in the loss of U.S. business to Cruise Connections and the
cruise lines. This loss included not only the millions of
dollars to charter the three ships, but also an additional $4.5
million (U.S.) that Cruise Connections estimated it lost
because the Charter Party Agreements contained standard
provisions for on-board revenue—passenger purchases for
alcoholic beverages, gift items, etc.—under which Cruise
Connections would guarantee a set amount of revenue and
then receive anything collected in excess of that base amount.
In addition, Cruise Connections had arranged with a U.S.
travel agency to charter one of the cruise ships as it sailed
between San Diego, its home base, and Vancouver. Under
that agreement, the travel agency would have paid Cruise
Connections a flat rate of $1.25 million (U.S.).

The district court rejected both arguments. With respect
to the place of payment, the court read the contract to require
“payments to an account of Cruise Connections’ choosing”
rather than specifically to an account in the United States.
Cruise Connections Charter Mgmt. 1, LP v. Attorney Gen. of
Can., 634 F. Supp. 2d 86, 89 (D.D.C. 2009). Although Cruise
Connections contended that it would have designated a
recently opened account at a North Carolina bank as the place
of payment had the contract progressed to the point of sending
invoices with payment instructions (as the contract required),
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the district court concluded that “opening a bank account with
the intention of demanding payment there is not an exercise of
[Cruise Connections’] right” to direct payment. Id. at 89–90.
Because Cruise Connections had yet to communicate its intent
to request payment in North Carolina, the court concluded
that the parties had never agreed that RCMP would pay in the
United States, so its nonpayment could not constitute a direct
effect. Id. As to the loss of business, the district court found
that “Cruise Connections’ inability to perform its contractual
obligations to the third parties” constituted an intervening
element between RCMP’s breach and the broken third-party
agreements. Id. at 90. Accordingly, the district court
concluded that RCMP enjoyed sovereign immunity and
dismissed the complaint for lack of jurisdiction.

Cruise Connections appeals, reiterating the arguments it
made in the district court. We review the district court’s
jurisdictional determinations de novo. See Peterson v. Royal
Kingdom of Saudi Arabia, 416 F.3d 83, 86 (D.C. Cir. 2005).
Because RCMP challenges “only the legal sufficiency of
[Cruise Connections’] jurisdictional allegations,” we take
Cruise Connections’ version of the facts as true. Phoenix
Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C.
Cir. 2000).

II
We begin with Cruise Connections’ claim that any one of
the losses caused by the termination of its contract with
RCMP—the lost cruise ship business, the lost profit from on-
board revenues, the lost travel agency fee—qualifies as a
direct effect in the United States. In its brief, RCMP responds
only to the latter two claims, arguing that each is “too
attenuated or remote to amount to a ‘direct effect.’”
Appellees’ Br. 29.
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RCMP’s point regarding on-board revenue payments
may have merit. Because Cruise Connections’ opportunity to
receive any payments under the on-board revenue provisions
of the Charter Party Agreements depended entirely on
whether security personnel housed on the ships chose to buy
drinks or gifts, Cruise Connections might have received
nothing even if RCMP had consummated the contract. Under
this view, Cruise Connections’ failure to earn any on-board
revenue payments might be regarded as subject to an
“intervening event” independent of RCMP’s cancellation of
the contract. See Princz v. Federal Republic of Germany, 26
F.3d 1166, 1172 (D.C. Cir. 1994) (“A ‘direct effect’ . . . ‘is
one which has no intervening element, but, rather, flows in a
straight line without deviation or interruption.’” (quoting
Upton v. Empire of Iran, 459 F. Supp. 264, 266 (D.D.C.
1978))). In the end, however, we need not decide whether
non-payment of on-board revenues qualifies as a direct effect
because no intervening event stood between RCMP’s
termination of the contract and the lost revenues from the
travel agency contract and the Charter Party Agreements.

The travel agency agreement was a done deal: Cruise
Connections would have received a flat fee no matter how
many passengers the travel agency booked. Likewise, “all
that remained for the [Charter Party Agreements] to be
formally consummated was for the cruise lines to sign the
agreements once RCMP confirmed its contractual
responsibility for Canadian taxes.” Appellants’ Br. 40. In
both instances, then, RCMP’s termination of the Cruise
Connections contract led inexorably to the loss of revenues
under the third-party agreements. This is sufficient. As the
Supreme Court explained in Republic of Argentina v.
Weltover, an effect qualifies as direct “if it follows as an
immediate consequence of the defendant’s . . . activity.” 504
U.S. 607, 618 (1992) (internal quotation marks omitted). In
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Weltover, the Court concluded that Argentina’s unilateral
extension of bonds held by foreign creditors caused a direct
effect in the United States because as a consequence of
Argentina’s breach, “[m]oney that was supposed to have been
delivered to a New York bank for deposit was not
forthcoming.” Id. at 619. So too here. Because RCMP
terminated the contract, revenues that would otherwise have
been generated in the United States were “not forthcoming.”

Resisting this conclusion, RCMP argues that it never
agreed to any “single aspect of the underlying transaction that
. . . [would] take place in the United States.” Appellees’ Br.
23. The FSIA, however, requires only that effect be “direct,”
not that the foreign sovereign agree that the effect would
occur. Cf. Weltover, 504 U.S. at 618, (rejecting the idea that
the commercial activity exception “contains any unexpressed
requirement of . . . ‘foreseeability.’”). In any event, the
contract itself required the ships to come from Holland
America and Royal Caribbean cruise lines, Michael Day
Decl., Ex. 6, and record evidence makes clear that both are
U.S.-based companies—Holland America in Seattle and
Royal Caribbean in Miami, Tracey Kelly Aff. ¶ 16.

RCMP next argues that harm to a U.S. citizen, in and of
itself, cannot satisfy the direct effect requirement. True
enough, but the cases RCMP relies on involve situations in
which the plaintiff’s U.S. citizenship was the only connection
to the United States. For example, in United World Trade,
Inc. v. Mangyshlakneft Oil Products Ass’n, 33 F.3d 1232,
1237–39 (10th Cir. 1994), all activities covered by the
contract would have occurred outside the United States: oil
drilling in Kazakhstan, shipment to and refining in Italy, and
payment in France and England. The plaintiff’s incorporation
in Colorado provided the only link to the United States. Id. at
1238. Likewise, in Zedan v. Kingdom of Saudi Arabia, 849
 8
F.2d 1511, 1515 (D.C. Cir. 1988), we found no direct effect
where the contract between the plaintiff, a U.S. citizen, and
Saudi Arabia called for all work to be done in Saudi Arabia
and the breach occurred while the plaintiff was in Saudi
Arabia. Again, plaintiff’s U.S. citizenship furnished the only
connection between the commercial activity and the United
States. By contrast, Cruise Connections relies on far more
than its U.S. citizenship. All its efforts to negotiate the
Charter Party Agreements occurred in the United States,
Tracey Kelly Aff. ¶ 16; at least one of the ships would have
moved through U.S. waters to Vancouver; the termination of
the contract thwarted over $40 million (U.S.) worth of cruise-
related business in the United States; and the travel agency
agreement was negotiated in and called for performance in the
United States, id. ¶ 18.

At oral argument, RCMP’s counsel claimed that the
termination of the Charter Party Agreements cannot qualify as
a direct effect because it did not harm Cruise Connections.
But even setting aside our long-established rule that we rarely
consider contentions made for the first time at oral argument,
see Rempfer v. Sharfstein, 583 F.3d 860, 867 n.6 (D.C. Cir.
2009), RCMP’s point misses the mark. Nothing in the FSIA
requires that the “direct effect in the United States” harm the
plaintiff. See 28 U.S.C. § 1605(a)(2). The commercial
activities exception requires only that the foreign
government’s “act outside the territory of the United States
. . . cause[] a direct effect in the United States.” Id. Perhaps
Cruise Connections has suffered less harm than it claims, but
that issue relates to the merits of its case, not the jurisdictional
question we face here.

Given the foregoing, we have no need to consider Cruise
Connections’ alternative claim, i.e., that the contract required
RCMP to pay via wire transfer to a U.S. bank and that
 9
RCMP’s failure to do so qualifies as a direct effect in the
United States. Although the parties debate several decisions
addressing whether a foreign sovereign had to have agreed to
the use of a U.S. bank account, in each of those cases that
bank account represented the only possible link to the United
States. See Weltover, 504 U.S. at 619; Agrocomplect AD v.
Republic of Iraq, 304 F. App’x 872 (D.C. Cir. 2008); IDAS
Res. v. Empresa Nacional de Diamantes de Angola, 2007 U.S.
App. LEXIS 25500, at *4–5 (D.C. Cir. Oct. 29, 2007);
Peterson, 416 F.3d at 91; Goodman Holdings v. Rafidain
Bank, 26 F.3d 1143, 1146–47 (D.C. Cir. 1994). Moreover,
none of those cases dealt with a situation like the one we face
here: where the alleged breach resulted in the direct loss of
millions of dollars worth of business in the United States. It
thus makes no difference where RCMP would have paid
Cruise Connections.

III
For the foregoing reasons, we reverse and remand to the
district court for further proceedings consistent with this
opinion.
So ordered.