UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CRUISE CONNECTIONS CHARTER :
MANAGEMENT 1, LP, et al., :
:
Plaintiffs, :
:
v. : Civil Action No. 08-2054 (JR)
:
ATTORNEY GENERAL OF CANADA, et :
al., :
:
Defendants. :
MEMORANDUM
The plaintiffs, the North Carolina limited partnership
Cruise Connections Charter Management and its general partner,
sued the Attorney General of Canada, the Royal Canadian Mounted
Police (RCMP), and Her Majesty the Queen for breach of contract
and violations of the North Carolina Unfair and Deceptive Trade
Practices Act. The defendants moved to dismiss for lack of
subject matter jurisdiction under the Foreign Sovereign
Immunities Act, or, in the alternative, pursuant to the doctrine
of forum non conveniens. After hearing argument on June 9, 2009,
I granted the defendants’ motion for reasons given in open court.
This memorandum explains that ruling in greater detail.1
Background
Although I must settle any contested jurisdictional
facts on a motion to dismiss for lack of subject matter
1
The plaintiffs have filed a notice of appeal, Dkt. 17, but
that filing does not prohibit me from providing additional
reasoning for my decision.
jurisdiction, see Phoenix Consulting, Inc. v. Republic of Angola,
216 F.3d 36, 40 (D.C. Cir. 2000), the following alleged facts are
taken as true because they do not bear directly on the
jurisdictional issue.
The RCMP is in charge of coordinating security for the
2010 Winter Olympic Games, which will be held in Vancouver,
Canada. With space ashore limited, the RCMP decided to house
extra security personnel for the Games in ships berthed in
Vancouver Harbor. After soliciting bids, the RCMP selected
Cruise Connections to provide the necessary ships.
In July 2008, after the RCMP and Cruise Connections
reached agreement (the contract price was approximately $54
million Canadian), Cruise Connections, which had no ships of its
own, began negotiating charter party agreements (CPAs) with two
American cruise lines, Royal Caribbean International and Holland
America Line. The cruise lines sought assurance that the RCMP
was contractually obligated to pay any corporate or personal
taxes the ships might incur in Canada. When asked, two RCMP
representatives, Kelly Meikle and Michael Day, confirmed by email
that the RCMP was so obligated.
Satisfied, the cruise lines executed their CPAs with
Cruise Connections. Cruise Connections then turned to the task
of securing financing from the Royal Bank of Canada (RBC).
Before Cruise Connections could finalize the financing
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arrangements, however, the RCMP replaced Meikle and Day with a
new representative, Normande Morin. Morin reversed the RCMP’s
stated position and asserted that the cruise lines’ taxes were
not reimbursable. She also demanded that Cruise Connections put
up a 90% letter of credit -- an obligation that had been cut from
the final version of the contract. When Cruise Connections
refused to proceed under Morin’s terms, the RBC refused to
provide financing. Shortly thereafter, on November 17, 2008, the
RCMP terminated the contract, citing Cruise Connections’ breach
of its obligation to timely secure financing.
Analysis
The Foreign Sovereign Immunities Act (FSIA) “provides
the sole basis for obtaining subject matter jurisdiction over a
foreign state in the courts of this country.” Argentine Republic
v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989). In
relevant part, the Act confers jurisdiction over actions based:
[1] upon a commercial activity carried on in
the United States by the 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 of 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 plaintiffs rely explicitly and exclusively on the
third clause as the basis for jurisdiction. See Compl. ¶ 5. The
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defendants concede that their alleged breach of contract occurred
in Canada, and that it came in connection with commercial
activity in Canada, but they maintain that their alleged breach
did not cause a “direct effect” in the United States. The
defendants bear the burden of proving this claim by a
preponderance of the evidence. Agudas Chasidei Chabad of U.S. v.
Russian Federation, 528 F.3d 934, 940 (D.C. Cir. 2008).
Mere financial loss by an American individual or
company does not constitute a “direct effect” in the United
States. Zedan v. Kingdom of Saudi Arabia, 849 F.2d 1511, 1512
(D.C. Cir. 1988). But, as the Supreme Court established in
Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992), a
foreign sovereign’s failure to deliver money that was supposed to
be delivered to an American bank account does meet the “direct
effect” requirement. In Weltover, the Argentine government
issued bonds denominated in U.S. dollars that permitted the
bondholder to specify one of four cities -- London, Frankfurt,
Zurich, or New York -- as the place where payment was to be made.
When the government realized that it did not have enough dollars
to retire the bonds, it unilaterally extended the time for
payment and offered the bondholders substitute instruments. The
plaintiffs, two Panamanian corporations and a Swiss bank, refused
to accept the substitute instruments and insisted on full
payment, specifying New York as the place where payment should be
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made. The government refused to pay. The Court concluded that
the government’s failure to retire the bonds had a “direct
effect” in the United States because “[m]oney that was supposed
to have been delivered to a New York bank for deposit was not
forthcoming.” Id. at 619.
Weltover and its progeny in the Court of Appeals
establish four scenarios in which a foreign sovereign’s breach of
contract has a “direct effect” in the United States: (1) the
contract expressly designates an American location as the place
of payment; (2) the contract allows the payee to designate a
place of payment, and he designates an American location before
the breach occurs, see Weltover, 504 U.S. at 619; (3) the
contract is silent on payment location, but the payee asks to be
paid at an American location, and the payer agrees to do so
before the breach occurs, see I.T. Consultants, Inc. v. The
Islamic Republic of Pakistan, 351 F.3d 1184 (D.C. Cir. 2003); and
(4) the contract is silent on payment location, and the parties
do not subsequently agree on a payment location, but there is a
“longstanding consistent customary practice” between the parties
of payment at an American location, see Goodman Holdings v.
Rafidain Bank, 26 F.3d 1143 (D.C. Cir. 1994) (Wald, J.,
concurring). In short, before the breach occurs, the parties
must have agreed -- either expressly or impliedly -- that payment
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would occur in the United States. See Peterson v. Royal Kingdom
of Saudi Arabia, 416 F.3d 83, 90 (D.C. Cir. 2005).
Turning to the contract in the present case, the first
page of the Articles of Agreement describes the “Payment Terms”:
As agreed and upon the satisfactory
completion of Terms under Annex A, the
following payments shall be made by Direct
Payment on or before the dates indicated:
80% of the Contract value on or before
30 April, 2009 $43,332,537.00 plus GST
15% of Contract value on or before
31 October, 2009 $8,124,850.00 plus GST
5% of Contract value on or before 30 March
2010 $2,708,295.00 plus GST
Dkt. 1, Ex. 1, at 2 (emphasis added).2 On the same page, “1418-B
S. Stratford Road, Winston-Salem, NC USA 27103” is designated as
the “Contract Delivery Address.” Id. The plaintiffs argue that
these terms expressly obligated the defendants to provide “direct
payment” in the United States.
The situation is complicated by Cruise Connections’
decision to assign the RBC a portion of its first payment to
secure its letter of credit. Under the agreement, the RCMP would
send the first payment to the RBC, which would take the amount it
was owed and deposit the remainder in an RBC account in Cruise
Connections’ name. See Affidavit of Michael Sloane, ¶ 13.
2
The payment amounts were later amended when the RCMP
requested additional berths, but the remaining terms were
unchanged. See Dkt. 1, Ex. 3, at 2.
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Cruise Connections’ agreement with the RBC had no impact on the
second or third scheduled payments. Id.
The initial question then is whether the RCMP’s
contractual obligation to provide “direct payment” of the second
and third payments to Cruise Connections meant that the RCMP was
supposed to send the payments to Cruise Connections’ listed
address in Winston-Salem, North Carolina. I do not believe it
did. I interpret “direct payment” to mean that the RCMP had to
make payments to an account of Cruise Connections’ choosing, not
that the RCMP had to send the money to Cruise Connections’
corporate office. That interpretation is confirmed, in some
part, by Cruise Connections’ decision to open an account at a
Winston-Salem bank on August 7, 2008 for the purpose of receiving
payments from the RCMP. As Cruise Connections explains, “[h]ad
the RCMP not breached the contract, Cruise Connections would have
invoiced the RCMP (as required by paragraph 7 of the Articles of
Agreement) for the second and third payments, and the invoices
would have directed the RCMP to make the second and third
payments by wire transfer to Tristone Community Bank in Winston-
Salem.” Dkt. 12, at 9 (citing Sloane Affidavit, ¶ 13). That
intention belies the claim that the contract itself required
payment at Cruise Connections’ office.
The next question is whether the facts match any of the
other scenarios hypothesized in the controlling Circuit cases.
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There is no longstanding practice between the parties. Nor is
there any subsequent agreement on a payment location -- while
Cruise Connections may have opened a bank account after the
contract was signed (and before the breach), they never
communicated that fact to the defendants, and the defendants
certainly never agreed to send money to that account. Cruise
Connections might argue that the contractual term “direct
payment” gave it the right to designate an account for payment,
but opening a bank account with the intention of demanding
payment there is not an exercise of that right. Put simply,
before the alleged breach occurred, there was no agreement
between the parties, either explicit or implicit, to send the
second and third payments to an American location.
Cruise Connections notes that it would have made an
additional $6 million from third parties if the RCMP had not
breached: approximately $5 million from the cruise lines in “on-
board revenue” generated during the Games, and approximately $1
million from a travel agency that agreed to charter one of the
cruise ships during its transit from San Diego to Vancouver.
These are not “direct” effects. “An effect is ‘direct’ if it
follows ‘as an immediate consequence of the defendant’s . . .
activity.’” Weltover, 504 U.S. at 618 (quoting Weltover, Inc. v.
Republic of Argentina, 941 F.2d 145, 152 (2d Cir. 1991)); see
also Princz v. Federal Republic of Germany, 26 F.3d 1166, 1172
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(D.C. Cir. 1994) (“A direct effect . . . has no intervening
element, but, rather, flows in a straight line without deviation
or interruption.”). Cruise Connections’ agreements with the
cruise lines and with the travel agency were not part of its
contract with the defendants. Therefore, there was an
“intervening element” -- Cruise Connections’ inability to perform
its contractual obligations to the third parties -- between the
defendants’ actions and Cruise Connections’ financial loss.
At the hearing on this motion, Cruise Connections cited
two cases to support its contention that its lost third-party
payments were a direct effect of the RCMP’s alleged actions: Lyon
v. Agusta S.P.A., 252 F.3d 1078 (9th Cir. 2001), and Harris Corp.
v. Nat’l Iranian Radio & Television, 691 F.2d 1344 (11th Cir.
1982). The plaintiffs seize on the court’s holding in Lyon that
a defendant’s actions can have a direct effect in the United
States without being foreseeable to the defendant. Lyon, 252
F.3d at 1083. If there can be unforeseen direct effects,
plaintiffs theorize, then the unforeseen loss of third party
payments here could constitute a direct effect. That argument
misses the point: Cruise Connections’ problem is that there was
an intervening element between the defendants’ actions and its
losses, not that those losses were unforeseeable to the
defendant. Harris too is of little help to the plaintiffs --
while the court found a direct effect there, it did so well
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before the Supreme Court refined the “direct effect” standard in
Weltover.
JAMES ROBERTSON
United States District Judge
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