UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 99-20018
Summary Calendar
ABOLALA SOUDAVAR; SAADI SOUDAVAR
Plaintiffs - Appellants
VERSUS
ISLAMIC REPUBLIC OF IRAN; MINISTRY OF INDUSTRY; MINES OF
IRAN; SAZMANE GOSTARESH VA NOWSAZ-E IRAN
Defendants - Appellees
Appeal from the United States District Court
For the Southern District of Texas
September 7, 1999
Before DAVIS, DUHÉ, and BENAVIDES, Circuit Judges
DUHÉ, Circuit Judge:
BACKGROUND
Abolala Soudavar and Saadi Soudavar (“Plaintiffs”) were
substantial shareholders in the Khawar Industrial Group (“KIG”),
one of the largest industrial enterprises in Iran and a licensee of
Mercedes-Benz. In 1979, Iran expropriated the Plaintiffs’ property
and nationalized KIG. Although the law instituting the
nationalization made certain provisions for the compensation of
KIG’s shareholders, the Plaintiffs were never paid.
After the expropriation, the Plaintiffs moved to the United
States and Saadi Soudavar has become a United States citizen. In
1991, Iran organized a gathering in New York aimed at persuading
Iranian businessmen to return home. At that meeting the Plaintiffs
asked Iranian officials about the status of their property, and
were told to return home if they wanted it back. In 1992, Iran
adopted a resolution to compensate parties whose property had been
expropriated. Under the resolution, eligible shareholders could
elect to receive up to two thirds of the shares previously owned,
minus a number of fees. The Plaintiffs elected not to accept this
offer. The Plaintiffs allege that Iran later blacklisted them from
this offer.
In 1998, the Plaintiffs sued Iran, the Ministry of Industry
and Mines, and Sazmane Gostaresh Va Nosaz-e-Iran (Department of
Expansion and New Development of Iran) (collectively “Iran”). Iran
moved to dismiss under Fed. R. Civ. P. 12(b)(1) for lack of
subject matter jurisdiction and, alternatively, under Fed. R. Civ.
P. 12(b)(6) for failure to state a claim upon which relief can be
granted. The district court granted Iran’s Rule 12(b)(6) motion
and dismissed the case without prejudice but did not address Iran’s
Rule 12(b)(1) motion. The Plaintiffs appeal.
DISCUSSION
Citing the Foreign Sovereign Immunities Act (“FSIA”) and the
Treaty of Amity, the Plaintiffs argue that the district erred by
dismissing their suit. For the following reasons, we vacate the
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district court’s dismissal for failure to state a claim and dismiss
the suit for lack of subject matter jurisdiction.
I. Foreign Sovereign Immunities Act
Generally, foreign sovereigns are “immune from jurisdiction of
the courts of the United States.” 28 U.S.C.A. § 1604 (West 1994).
“Under the FSIA, a court in the United States can exercise subject
matter jurisdiction over a foreign sovereign only if an exception
to sovereign immunity applies.” Stena Rederi AB v. Comision de
Contratos, 923 F.2d 380, 386 (5th Cir. 1991); 28 U.S.C.A. § 1605
(West 1994 & Supp. 1999) (listing exceptions to immunity). In this
case, the Plaintiffs rely on the commercial activities exception to
sovereign immunity. See § 1605(a)(2).1
In determining whether the commercial activity exception
applies, we ask three questions: (1) “whether the particular
conduct giving rise to the claim in question constitutes or is in
connection with commercial activity;” (2) whether the relevant
activity is sovereign or commercial; and (3) whether the commercial
activity has the requisite jurisdictional nexus with the United
States. De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385,
1391 (5th Cir. 1985). In the instant case, the district court
answered the second question, concluding that the acts complained
of were sovereign rather than commercial. In Siderman de Blake v.
1
The Defendant argues that the takings in violation of
international law exception is also inapplicable. See 28 U.S.C.A.
§ 1605(a)(3). The Plaintiffs do not rely on this exception and,
thus, we need not address it.
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Republic of Argentina, 965 F.2d 699, 708-09 (9th Cir. 1992), the
Ninth Circuit reached a different conclusion in a case with similar
facts. In that case, Argentina expropriated the plaintiffs’ hotel
and retained the profits from its continued operation. The Ninth
Circuit characterized Argentina’s continuing management of the
hotel as commercial, reasoning that Argentina’s activities were “of
a kind in which a private party might engage.” Id. In this case,
the acts complained of, whether sovereign or commercial, lack the
requisite jurisdictional nexus with the United States. Therefore,
we need not decide whether the acts were sovereign or commercial.
The FSIA lists three types of acts which have the requisite
jurisdictional nexus with the United States:
[1] a commercial activity carried on in the United States
by the foreign state; . . . [2] an act performed in the
United States in connection with a commercial activity of
the foreign state elsewhere; . . . [3] 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.A. § 1605(a)(2).
First, the Plaintiffs argue that by meeting with Abolala
Soudavar in New York in 1991, Iran carried on commercial activity
in the United States. We disagree. “Under the FSIA, commercial
activity carried on in the United States must have ‘substantial
contact with the United States.’” Stena, 923 F.2d at 389 n.11
(quoting 28 U.S.C.A. § 1603(e) (West 1994)). In Stena, we
concluded that a single visit to Texas by a representative of a
nationalized Mexican petroleum company did not constitute
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substantial contact with the United States. See id. Similarly,
the Iranian representative’s visit to New York did not constitute
substantial contact with the United States.
Second, the Plaintiffs maintain that jurisdiction is proper
because the New York meeting constituted an “act performed in the
United States in connection with a commercial activity of [Iran]
elsewhere.” 28 U.S.C.A. § 1605(a)(2). This argument fails because
the Plaintiffs’ causes of action are not based on representations
made at the meeting. See Stena, 923 F.2d at 388 (stating that
“[u]nder the plain language of the FSIA, the plaintiff’s action
must be based upon the act performed in the United States.”). The
meeting was designed to persuade Iranian businessmen to return to
Iran. When the parties discussed compensation for the KIG shares,
the Iranian representative told Abolala Soudavar to return to Iran
if he wanted his company back. This statement is not the basis of
the Plaintiffs’ suit. It is clear from the complaint that the
Plaintiffs’ suit is based on Iran’s refusal to follow its own law
calling for remuneration for expropriating the Plaintiffs’
property.
Third, the Plaintiffs’ contend that we have jurisdiction over
this matter because Iran’s refusal to pay for the expropriated
shares caused direct effects in the United States--lost income and
lost tax revenue. We disagree. “[A]n effect is direct if it
follows as an immediate consequence of the defendant’s activity.”
Republic of Argentina v. Weltover, 112 S.Ct. 2160, 2168 (1992). At
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the time of the expropriation, the Plaintiffs lived in Iran and
their property was in Iran. Hence, the financial loss, occurred in
Iran. The fact that the Plaintiffs have since become United States
residents does not alter this analysis.2
II. The Treaty of Amity
The Plaintiffs also argue that we have jurisdiction over this
cased based on the Treat of Amity. Treaty of Amity, Economic
Relations and Consular Rights between the United States and Iran,
8 U.S.T. 899. We disagree. The limited waiver of immunity in the
Treaty of Amity “extends only to enterprises of Iran, not Iran
itself.” Berkovitz v. Islamic Republic of Iran, 735 F.2d 329, 333
(9th Cir. 1984); see Formost-McKesson v. Islamic Republic of Iran,
905 F.2d 438, 452 (D.C. Cir. 1990).
CONCLUSION
We vacate the district court’s dismissal and dismiss the case
for lack of subject matter jurisdiction.
VACATED; DISMISSED.
2
The Plaintiffs argue that, as shareholders in KIG, Iranian
law required that they be notified at their United States addresses
by registered mail about share-related decisions. Relying on dicta
from a Ninth Circuit case, they argue that the mailing
requirement provides the direct effect in the United States. See
Siderman de
Blake, 965 F.2d at 711. We find the Ninth Circuit’s dicta
unpersuasive.
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