Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 16, 2015 Decided May 1, 2015

No. 13-7169

HELMERICH & PAYNE INTERNATIONAL DRILLING CO. AND
HELMERICH & PAYNE DE VENEZUELA, C.A.,
APPELLEES

v.

BOLIVARIAN REPUBLIC OF VENEZUELA,
APPELLEE

PETROLEOS DE VENEZUELA, S.A. AND PDVSA PETROLEO,
S.A.,
APPELLANTS

Consolidated with 13-7170, 14-7008

Appeals from the United States District Court
for the District of Columbia
(No. 1:11-cv-01735)

Mary H. Wimberly argued the cause for
appellant/cross-appellee Bolivarian Republic of Venezuela.
Joseph D. Pizzurro argued the cause for
appellants/cross-appellees Petroleos De Venezuela, S.A. and
PDVSA Petroleo, S.A. With them on the briefs were Robert
 2
B. Garcia, George E. Spencer, William L. Monts III, and Bruce
D. Oakley

David W. Ogden argued the cause for
appellee/cross-appellant Helmerich & Payne De Venezuela,
C.A. With him on the briefs were David W. Bowker,
Catherine M. Carroll, Elisebeth C. Cook, and Francesco
Valentini.

Before: GARLAND, Chief Judge, TATEL, Circuit Judge,
and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

Opinion concurring in part and dissenting in part filed by
Senior Circuit Judge SENTELLE.

TATEL, Circuit Judge: The Foreign Sovereign Immunities
Act (FSIA) grants foreign states immunity from suit in
American courts unless one of several enumerated exceptions
applies. In this case, after Venezuela forcibly seized oil rigs
belonging to the Venezuelan subsidiary of an American
corporation, both the parent and the subsidiary filed suit in the
United States asserting jurisdiction under the FSIA’s
expropriation and commercial activity exceptions. Venezuela
moved to dismiss on the ground that neither exception applies.
The district court granted the motion as to the subsidiary’s
expropriation claim, but denied it in all other respects. For the
reasons set forth in this opinion, we affirm in part and reverse
in part. We agree with the district court that the parent
corporation had sufficient rights in its subsidiary’s property to
support its expropriation claim. But because the subsidiary’s
expropriation claim is neither “wholly insubstantial” nor
“frivolous”—this Circuit’s standard for surviving a motion to
dismiss in an FSIA case—the district court should have
 3
allowed that claim to proceed. And given that the subsidiary’s
commercial activity had no “direct effect” in the United States,
which the FSIA requires to defeat foreign sovereign immunity,
the district court should have granted the motion to dismiss
with respect to that claim.

I
For more than half a century, Oklahoma-based Helmerich
& Payne International Drilling Co. (H&P-IDC) successfully
operated an oil-drilling business in Venezuela through a series
of subsidiaries. Incorporated under Venezuelan law, the most
recent subsidiary, Helmerich & Payne de Venezuela (H&P-V),
provided drilling services for the Venezuelan government.
Having nationalized its oil industry in the mid-70s, Venezuela
now controls exploration, production, and exportation of oil
through two state-owned corporations: Petróleos de
Venezuela, S.A. (PDVSA) and PDVSA Petróleo, known
collectively as PDVSA. From its creation in 1975 through
2010, PDVSA depended on H&P-V’s highly valuable and rare
drilling rigs because they were capable of reaching depths of
more than four miles. Those rigs were originally purchased by
H&P-IDC and then transferred to its subsidiary H&P-V. At
issue here are ten contracts executed in 2007 between H&P-V
and PDVSA, each involving one of these rigs—nine in
Venezuela’s eastern region and one in the west. The contracts
initially covered periods ranging from five months to one year,
though all were subsequently extended.

Soon after signing the contracts, PDVSA fell substantially
behind in its payments. By August 2008, unpaid invoices
totaled $63 million. PDVSA never denied its contractual debt;
quite to the contrary, it repeatedly reassured H&P-V that
payment would be forthcoming. But no payments were made,
and after overdue receivables topped $100 million, H&P-V
announced in January 2009 that it would not renew the
 4
contracts absent “an improvement in receivable collections.”
Compl. ¶ 50 (internal quotation marks omitted). By November
of that year, H&P-V had fulfilled all of its contractual
obligations, disassembled its drilling rigs, and stacked the
equipment in its yards pending payment by PDVSA.

PDVSA made no further payments. Instead, on June 12,
2010, PDVSA employees, assisted by armed soldiers of the
Venezuelan National Guard, blockaded H&P-V’s premises in
western Venezuela, and then did the same to the company’s
eastern properties on June 13 and 14. PDVSA acknowledged
that it erected the blockade to “prevent H&P-V from removing
its rigs and other assets from its premises, and to force H&P-V
to negotiate new contract terms immediately.” Id. ¶ 63.

In the wake of the blockade, PDVSA issued a series of
press releases that are central to H&P-V’s expropriation claim.
The first, issued on June 23, stated that “[t]he Bolivarian
Government, through [PDVSA had] nationalized 11 drilling
rigs belonging to the company Helmerich & Payne[], a U.S.
transnational firm.” Id. ¶ 65. A second press release, dated June
25, declared that PDVSA’s “workers are guarding the drills”
and that:
The nationalization of the oil production
drilling rigs from the American contractor
H&P not only will result in an increase of oil
and gas production in the country, but also in
the release of more than 600 workers and the
increase of new sources of direct and indirect
employment in the hydrocarbon sector.

Id. ¶ 66. The June 25 release also “emphatically reject[ed]
statements made by spokesmen of the American
empire—traced [sic] in our country by means of the
oligarchy.” Id. ¶ 108 (alterations in original). Another press
 5
release, this one undated, stated that the nationalization would
“guarantee that the drills will be operated by PDVSA as a
company of all Venezuelans, . . . ensur[ing] the rights of
former employees of H&P, who a year ago were exploited and
then dismissed by this American company, but now they will
become part of PDVSA.” Id. ¶ 109.

On June 29, more than two weeks after the blockade
began, the Venezuelan National Assembly issued an official
“Bill of Agreement” declaring H&P-V’s property to be “of
public benefit and good” and recommending that
then-President Hugo Chavez promulgate a Decree of
Expropriation. Id. ¶ 4. President Chavez issued the decree,
which emphasized that “the availability of drilling equipment
[such as H&P-V’s] is very low both in the country and at world
level, and the lack thereof would affect [Venezuela’s national
oil drilling] Plan.” Id. ¶¶ 4, 19 (alterations in original). The
decree directed PDVSA to take “forcible” possession of
H&P-V’s drilling rigs and other property. Id. ¶ 4. In response,
PDVSA, having already taken possession of the property,
issued a press release on July 2, which stated that H&P-V’s
rigs “are specialized drills we need for more complex sites”
and “will be very useful.” Id. ¶ 20.

That same day, Jesus Graterol, president of the
Venezuelan National Assembly’s Committee on Energy and
Mines, criticized opponents of the nationalization for acting
“in accordance with the instructions of the [U.S.] Department
of State” and trying to “subsidize the big business transnational
corporations, so that they can promote what they know best to
do, which is war . . . through the large military industry[] of the
Empire and its allies.” Id. ¶ 105 (first alteration in original).
Rafael Ramirez, Venezuela’s Minister of Energy and
Petroleum and PDVSA’s President, led a political rally at
H&P-V’s eastern site and declared:
 6
The company Helmerich & Payne has
operated in our country for many years.
Today, the Revolutionary Government took
control over that company. You have been
here guarding assets that now belong to the
Venezuelan State. I acknowledge and
appreciate your constant watch in order to
protect the people’s interests. Revolutionary
salutation: Socialist Nation or Death. We
shall be victorious!

Id. ¶ 5 (ellipses omitted). Ramirez also referred to H&P-V as
an “American company” with “foreign gentlemen investors”
and Venezuelan workers who would now “become part of
[PDVSA’s] payroll.” Id. As Ramirez predicted, PDVSA now
uses H&P-V’s rigs and other assets in its state-owned drilling
business.

Supposedly to compensate H&P-V for the expropriated
property, PDVSA filed two eminent domain actions in
Venezuelan courts. H&P-V has yet to receive service of
process in the first proceeding, and the second has been stayed
indefinitely. Believing that these proceedings are unlikely to
result in adequate relief, H&P-V and its American parent,
H&P-IDC, filed a two-count complaint under the FSIA in the
United States District Court for the District of Columbia. The
first count, brought against PDVSA and Venezuela, alleges a
taking of property in violation of international law and asserts
jurisdiction under the FSIA’s expropriation exception. The
second count, brought only against PDVSA, alleges breach of
the ten drilling contracts and asserts jurisdiction under the
statute’s commercial activity exception.

Venezuela and PDVSA moved to dismiss on the grounds
that neither FSIA exception applies and that the act-of-state
 7
doctrine, under which American courts “will not question the
validity of public acts (acts jure imperii) performed by other
sovereigns within their own borders,” Republic of Austria v.
Altmann, 541 U.S. 677, 700 (2004), bars the suit altogether.
Before the district court could decide this motion, the parties
filed a joint stipulation in which they agreed to brief four
threshold issues:

1. Whether, for purposes of determining if a “taking in
violation of international law” has occurred under the
FSIA’s expropriation exception, H&P-V is a national
of Venezuela under international law;

2. Whether H&P-IDC has standing to assert a taking in
violation of international law on the basis of
Venezuela’s expropriation of H&P-V’s property;

3. Whether plaintiffs’ expropriation claims are barred by
the act-of-state doctrine, including whether this defense
may be adjudicated prior to resolution of Venezuela’s
challenges to the court’s subject matter jurisdiction;
and

4. Whether, for purposes of determining the applicability
of the FSIA’s commercial activity exception, plaintiffs
have sufficiently alleged a “direct effect” in the United
States within the meaning of that provision.

The district court resolved the first question in
Venezuela’s favor but sided with Helmerich & Payne on the
other three. Venezuela and PDVSA now appeal, reiterating
arguments they made in the district court. H&P-V
cross-appeals on the first question. We review de novo a
district court’s resolution of a motion to dismiss for lack of
jurisdiction under the FSIA. See de Csepel v. Republic of
 8
Hungary, 714 F.3d 591, 597 (D.C. Cir. 2013). Critically,
moreover, “we must accept as true all material allegations of
the complaint, drawing all reasonable inferences from those
allegations in plaintiffs’ favor.” Id. (internal quotation marks
omitted).

II
The FSIA “establishes a comprehensive framework for
determining whether a court in this country, state or federal,
may exercise jurisdiction over a foreign state.” Republic of
Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). The Act
provides that “a foreign state shall be immune from the
jurisdiction of the courts of the United States and of the
States,” 28 U.S.C. § 1604 (emphasis added), unless one of
several exceptions applies, id. §§ 1605–07. H&P-V and
H&P-IDC invoke the expropriation exception for their takings
claim. H&P-V invokes the commercial activity exception for
its breach of contract claim. We address each in turn.

Expropriation Exception
This exception, contained in FSIA section 1605(a)(3),
denies foreign sovereign immunity “in any case . . . in which
rights in property taken in violation of international law are in
issue.” 28 U.S.C. § 1605(a)(3). According to Venezuela, the
exception is inapplicable here for two reasons. First, as a
Venezuelan national, H&P-V may not claim a taking in
violation of international law. Second, under generally
applicable corporate law principles, H&P-IDC has no “rights
in property” belonging to its subsidiary and thus lacks
standing.

In deciding a motion to dismiss for lack of jurisdiction, we
are mindful of the distinction between jurisdiction—a court’s
constitutional or statutory power to decide a case—and
ultimate success on the merits. As the Supreme Court has
 9
explained, “[j]urisdiction . . . is not defeated . . . by the
possibility that the averments [in a complaint] might fail to
state a cause of action on which petitioners could actually
recover.” Bell v. Hood, 327 U.S. 678, 682 (1946). What
plaintiffs must allege to survive a jurisdictional challenge,
then, “is obviously far less demanding than what would be
required for the plaintiff’s case to survive a summary judgment
motion” or a trial on the merits. Agudas Chasidei Chabad of
U.S. v. Russian Federation, 528 F.3d 934, 940 (D.C. Cir.
2008). In an FSIA case, we will grant a motion to dismiss on
the grounds that the plaintiff has failed to plead a “taking in
violation of international law” or has no “rights in property . . .
in issue” only if the claims are “wholly insubstantial or
frivolous.” Id. at 943. A claim fails to meet this exceptionally
low bar if prior judicial decisions “inescapably render the
claim[] frivolous” and “completely devoid of merit.” Hagans
v. Lavine, 415 U.S. 528, 538, 543 (1974). “[P]revious decisions
that merely render claims of doubtful or questionable merit do
not render them insubstantial” for jurisdictional purposes. Id.
at 538. Applying this standard to the present case, and viewing
the complaint “in the light most favorable to the plaintiff,”
Sachs v. Bose, 201 F.2d 210, 210 (D.C. Cir. 1952), we first
consider whether H&P-V has asserted a non-frivolous
international expropriation claim and then ask whether
H&P-IDC has “put its rights in property in issue in a
non-frivolous way,” Chabad, 528 F.3d at 941.

As to the first inquiry, the parties begin on common
ground. All agree that for purposes of international law, “a
corporation has the nationality of the state under the laws of
which the corporation is organized,” Restatement (Third) of
Foreign Relations Law § 213 (1987), and that generally, a
foreign sovereign’s expropriation of its own national’s
property does not violate international law, United States v.
Belmont, 301 U.S. 324, 332 (1937). The Supreme Court has
 10
summarized the latter principle, known as the “domestic
takings rule,” this way: “What another country has done in the
way of taking over property of its nationals, and especially of
its corporations, is not a matter for judicial consideration here.
Such nationals must look to their own government for any
redress to which they may be entitled.” Id.

According to Venezuela, the domestic takings rule ends
this case because H&P-V, as a Venezuelan national, may not
seek redress in an American court for wrongs suffered in its
home country. This argument has a good deal of appeal.
Having freely chosen to incorporate under Venezuelan law,
H&P-V operated in that country for many years and reaped the
benefits of its choice, including several extremely lucrative
contracts with the Venezuelan government. Given this, and
especially given that H&P-V expressly agreed that these
contracts would be governed by Venezuelan law in
Venezuelan courts, one might conclude that H&P-V should
live with the consequences of its bargain.

According to H&P-V, however, this case is not so simple.
It argues that Venezuela has unreasonably discriminated
against it on the basis of its sole shareholder’s nationality, thus
implicating an exception to the domestic takings rule. In
support, H&P-V cites Banco Nacional de Cuba v. Sabbatino,
307 F.2d 845, 861 (2d Cir. 1962), in which the Second Circuit
determined that the Cuban government’s expropriation of a
Cuban corporation’s property qualified as a taking in violation
of international law. More than 90% of the Cuban
corporation’s shares were owned by Americans, and the
official expropriation decree “clearly indicated that the
property was seized because [the corporation] was owned and
controlled by Americans.” Id. This, the Second Circuit held,
justified disregarding the domestic takings rule: “When a
foreign state treats a corporation in a particular way because of
 11
the nationality of its shareholders, it would be inconsistent for
[the court] in passing on the validity of that treatment to look
only to the nationality of the corporate fiction.” Id. (internal
quotation marks omitted). Although the Supreme Court
vacated this decision on other grounds, the Second Circuit later
reiterated “with emphasis” its decision to disregard the
domestic takings rule in the face of Cuba’s anti-American
discrimination. Banco Nacional de Cuba v. Farr, 383 F.2d
166, 185 (2d Cir. 1967).

H&P-V also relies on the most recent Restatement of
Foreign Relations Law, which recognizes discriminatory
takings as a violation of international law. Specifically, section
712 suggests that “a program of taking that singles out aliens
generally, or aliens of a particular nationality, or particular
aliens, would violate international law.” Restatement (Third)
of Foreign Relations Law § 712 cmt. f. (1987).
“Discrimination,” the Restatement continues, “implies
unreasonable distinction,” and so “[t]akings that invidiously
single out property of persons of a particular nationality would
be [discriminatory],” whereas “classifications, even if based on
nationality, that are rationally related to the state’s security or
economic policies might not be [discriminatory]” and thus not
in violation of international law. Id. (emphasis added). The
reporter’s notes to section 712 cite Sabbatino as an example of
a discriminatory taking, explaining that Cuba’s express
“purpose was to retaliate against United States nationals for
acts of their Government, and was directed against United
States nationals exclusively.” Id. § 712 reporter’s note 5.

H&P-V insists that its complaint, which emphasizes the
Venezuelan government’s well-known anti-American
sentiment, as well as PDVSA’s statements decrying the
“American empire,” successfully pleads a discriminatory
takings claim. For its part, Venezuela urges us not to “be the
 12
first to revive the overturned Second Circuit precedent”
because “there is no internationally recognized
exception—based on ‘discrimination’ or otherwise—to the
domestic takings rule.” Defs.’ Cross Br. 28, 30. Dated and
uncited as it may be, however, Sabbatino remains good law.
See Farr, 383 F.2d at 166 (affirming Sabbatino’s
discriminatory takings rationale “with emphasis”). Although
“we are not bound by the decisions of other circuits,” Dissent
at 3 (emphasis added), we may “of course . . . find the reasons
given for such [decisions] persuasive,” Northwest Forest
Resource Council v. Dombeck, 107 F.3d 897, 900 (D.C. Cir.
1997) (quoting James Moore et al., Moore’s Federal Practice
¶ 0.402 (2d ed. 1996))—especially where, as here, our circuit
has yet to consider the issue. Moreover, neither Venezuela nor
the dissent cites any decision from any circuit that so
completely forecloses H&P-V’s discriminatory takings theory
as to “inescapably render the claim[] frivolous” and
“completely devoid of merit.” Hagans, 415 U.S. at 538
(emphases added). Given this, and given the Restatement’s
recognition of discriminatory takings claims, we believe that
H&P-V has satisfied this Circuit’s forgiving standard for
surviving a motion to dismiss in an FSIA case.

Alternatively, Venezuela claims that even if international
law recognizes discriminatory takings, “plaintiffs have failed
to plead facts to support it” because “the motivation for the
expropriation was Venezuela’s need for H&P-V’s uniquely
powerful rigs.” Defs.’ Br. 31. As it points out, the official
decrees cited only the scarcity of these powerful rigs as the
reason for the expropriation. The Bill of Agreement, for
example, declared H&P-V’s drilling rigs necessary for
Venezuela’s “public benefit and good,” Compl. ¶ 4, and
President Chavez’s decree stated that “the lack thereof would
affect [Venezuela’s national oil drilling] Plan,” id. ¶ 19
(alteration in original). Based on these statements, it may well
 13
be, as the Restatement puts it, that the taking was “rationally
related to [Venezuela’s] security or economic policies.”
Restatement (Third) of Foreign Relations Law § 712 cmt. f
(1987).

Other statements, however, went well beyond Venezuela’s
economic and security needs and could be viewed as
demonstrating “unreasonable distinction” based on nationality.
Id. PDVSA’s press release referred to the “American empire,”
Compl. ¶ 108, and a National Assembly member warned that
opponents of the expropriation were supporting America’s
mission of “war[] . . . through the large military industry[] of
the Empire and its allies,” id. ¶ 105. At this stage of the
litigation, where we view the complaint “in the light most
favorable to the plaintiff,” Sachs, 201 F.2d at 210, these
statements are sufficient to plead a “non-frivolous”
discriminatory takings claim, Chabad, 528 F.3d at 941.

We turn next to Venezuela’s argument that H&P-IDC may
not invoke the FSIA’s expropriation exception because it has
no rights in H&P-V’s property. By its terms, the expropriation
exception applies only to plaintiffs having “rights in property”
taken in violation of international law. Moreover, and quite
apart from the FSIA, plaintiffs must demonstrate Article III
standing by asserting their “own legal rights and interests”
rather than resting “claim[s] to relief on the legal rights or
interests of third parties.” Warth v. Seldin, 422 U.S. 490, 499
(1975). The “shareholder standing rule” is an example of this
latter principle. Because corporations are legally distinct from
their shareholders, the rule “prohibits shareholders from
initiating actions to enforce the rights of the corporation unless
the corporation’s management has refused to pursue the same
action for reasons other than good-faith business judgment.”
Franchise Tax Board of California v. Alcan Aluminium
Limited, 493 U.S. 331, 336 (1990). Combining both of these
 14
principles, Venezuela argues that as a mere shareholder,
H&P-IDC has no rights in the property of its subsidiary and
thus lacks standing.

In support of this argument, Venezuela relies almost
entirely on Dole Food Co. v. Patrickson, 538 U.S. 468 (2003),
an FSIA case in which the Supreme Court held that “[a]
corporate parent which owns the shares of a subsidiary does
not, for that reason alone, own or have legal title to the assets of
the subsidiary.” Id. at 475. This, according to Venezuela,
means that “in enacting the FSIA, Congress specifically
intended that basic corporate law concepts inform the
interpretation of the statute,” Defs.’ Opening Br. 23, and thus
“rights in property” must mean corporate ownership.

Contrary to Venezuela’s assertion, however, Dole Food
does not represent a wholesale incorporation of corporate law
into the FSIA. The issue in that case was whether a corporate
subsidiary qualified as an instrumentality of a foreign state
under the FSIA where the foreign state did not own a majority
of the subsidiary’s shares but did own a majority of the
corporate parent’s shares. Dole Food Co., 538 U.S. at 471.
Answering that question in the negative, the Court focused on
FSIA section 1603(b)(2), which defines “instrumentality” as
“an organ of a foreign state or political subdivision thereof, or a
majority of whose shares or other ownership interest is owned
by a foreign state or political subdivision thereof[.]” Id. at 473.
Given this definition, the Court refused to “ignore corporate
formalities” not because the FSIA generally incorporates
corporate law principles, but because section 1603(b)(2)
expressly “speaks of ownership.” Id. at 474.

By contrast, FSIA section 1605(a)(3), the expropriation
exception, speaks only of “rights in property” generally, not
ownership in shares. The Supreme Court’s analysis of another
 15
FSIA exception is instructive. In Permanent Mission of India
to the United Nations v. City of New York, the Court examined
the FSIA’s abrogation of sovereign immunity in cases
involving “rights in immovable property situated in the United
States.” 551 U.S. 193, 197 (2007) (quoting 28 U.S.C. §
1605(a)(4)). An instrumentality of the Indian government
argued that the FSIA “limits the reach of the exception to
actions contesting ownership or possession.” Id. Seeing no
such limitation in the statute’s text, the Court concluded that
“the exception focuses more broadly on ‘rights in’ property.”
Id. at 198.

So too here. The expropriation exception requires only
that “rights in property . . . are in issue,” § 1605(a)(3), and we
have recognized that corporate ownership aside, shareholders
may have rights in corporate property. In Ramirez de Arellano
v. Weinberger, for example, we considered whether an
American citizen, the sole shareholder of three Honduran
corporations, had a “cognizable property interest” in land
owned by the Honduran corporations and seized by the United
States government. 745 F.2d 1500, 1517 (D.C. Cir. 1984), cert.
granted, judgment vacated on other grounds, 471 U.S. 1113
(1985). Whether Ramirez had property rights in the land, we
held, “does not turn on whether certain rights which may
belong only to the Honduran corporation may be asserted
‘derivatively’ by the sole United States shareholders.” Id. at
1516. Instead, property rights depend upon whether the
shareholders have “rights of their own, which exist by virtue of
their exclusive beneficial ownership, control, and possession
of the properties and businesses allegedly seized.” Id. We thus
concluded that notwithstanding corporate ownership, Ramirez
had property rights in the Honduran property that he
“personally controlled and managed . . . for over 20 years.” Id.
at 1520. “The corporate ownership of land and property,” we
held, “does not deprive the sole beneficial owners—United
 16
States citizens—of a property interest.” Id. at 1518; see also
Bangor Punta Operations, Inc. v. Bangor & A. R. Co., 417
U.S. 703, 713 (1974) (rejecting the argument that, in assessing
standing, courts “may not look behind the corporate entity to
the true substance of the claims and the actual beneficiaries”).

Our dissenting colleague questions the precedential value
of Ramirez because it was vacated by the Supreme Court on
other grounds. Dissent at 4–5. But we have held that “[w]hen
the Supreme Court vacates a judgment of this court without
addressing the merits of a particular holding in the panel
opinion, that holding ‘continue[s] to have precedential weight,
and in the absence of contrary authority, we do not disturb’ it.”
United States v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir.
2006) (quoting Action Alliance of Senior Citizens of Greater
Philadelphia v. Sullivan, 930 F.2d 77, 83 (D.C. Cir. 1991)).
Because the Supreme Court did not address Ramirez’s holding
that the shareholders had property rights in their corporation’s
assets, but instead vacated and remanded in light of the U.S.
military’s subsequent withdrawal of all personnel and facilities
from the plaintiffs’ land, De Arellano v. Weinberger, 788 F.2d
762, 764 (D.C. Cir. 1986) (en banc) (per curiam); see
Weinberger v. Ramirez de Arellano, 471 U.S. 1113 (1985), that
holding continues to have “precedential weight,” Adewani, 467
F.3d at 1342.

The dissent argues that even if Ramirez continues to have
force, it “is not genuinely on point” because it concerned
property rights arising from the constitution’s due process
clause. Dissent at 5. But as discussed above, the FSIA’s
expropriation exception “focuses . . . broadly on ‘rights in’
property,” Permanent Mission, 551 U.S. at 198 (emphasis
added), and its text imposes no limitation on the source of
those rights.
 17
Ramirez is especially persuasive in this case because
H&P-IDC, like the American citizen in Ramirez, was the
foreign subsidiary’s sole shareholder. Moreover, H&P-IDC
provided the rigs central to this dispute, Compl. ¶¶ 9, 129–32,
and as a result of the expropriation, has suffered a total loss of
control over its subsidiary, which has ceased operating as an
ongoing enterprise because all of its assets were taken, Compl.
¶¶ 75, 81–82. Under these circumstances, H&P-IDC has “put
its rights in property in issue in a non-frivolous way.” Chabad,
528 F.3d at 941. No more is required to survive a motion to
dismiss under the FSIA. See id. (“non-frivolous contentions”
of rights in property suffice to survive a motion to dismiss).

One final point. In the district court, Venezuela urged
dismissal of Helmerich & Payne’s expropriation claims
pursuant to the act-of-state doctrine, which “precludes the
courts of this country from inquiring into the validity of the
public acts a recognized foreign sovereign power committed
within its own territory.” Banco Nacional de Cuba v.
Sabbatino, 376 U.S. 398, 401 (1964). The district court never
reached the issue, opting instead to determine “whether
subject-matter jurisdiction exists under the FSIA before
deciding whether to dismiss the case under the act of state
doctrine.” Helmerich & Payne International Drilling Co. v.
Bolivarian Republic of Venezuela, 971 F. Supp. 2d 49, 63
(D.D.C. 2013). Acknowledging that the district court’s
decision is not subject to interlocutory appeal, see, e.g.,
Transamerica Leasing, Inc. v. La Republica de Venezuela, 200
F.3d 843, 855 (D.C. Cir. 2000), Venezuela urges us to exercise
pendant jurisdiction over this claim. But we “exercise such
jurisdiction sparingly” and are especially reluctant to do so
where “an issue . . . might be mooted or altered by subsequent
district court proceedings.” Id. Here, Helmerich & Payne’s
expropriation claims could well fail at the summary judgment
stage or following trial on the merits, thus mooting the
 18
act-of-state issue. Given this, we think it best not to exercise
pendant jurisdiction over Venezuela’s act-of-state claim.

Commercial Activity Exception
This brings us, finally, to H&P-V’s argument that the
FSIA’s commercial activity exception extends to its breach of
contract claim against PDVSA. This exception, contained in
section 1605(a)(2), nullifies foreign sovereign immunity in any
case
in which the action is based upon a
commercial activity carried on in the United
States by the foreign state; or upon an act
performed in the United States in connection
with a commercial activity of the foreign
state elsewhere; or 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)(emphases added). Because this case
involves a contract executed and performed outside the United
States, our analysis focuses on the exception’s third clause—
specifically, whether Venezuela’s breach of the drilling
contracts “cause[d] a direct effect in the United States.” Id. A
direct effect “is one which has no intervening element, but,
rather, flows in a straight line without deviation or
interruption.” Princz v. Federal Republic of Germany, 26 F.3d
1166, 1172 (D.C. Cir. 1994). H&P-V alleges three such
effects.

First, relying on our decision in Cruise Connections
Charter Management v. Canada, 600 F.3d 661 (D.C. Cir.
2010), H&P-V argues that its contracts with third-party
vendors in the United States, made pursuant to the drilling
 19
contracts, constitute a direct effect. In Cruise Connections, we
found a “direct effect” where the Royal Canadian Mounted
Police (RCMP) cancelled a contract with a U.S. corporation to
provide cruise ships during the 2010 Winter Olympics. Id. at
662. H&P-V argues that just as in Cruise Connections, where
the RCMP contract “required . . . subcontract[s] with two
U.S.-based cruise lines,” id., its agreements with PDVSA
required contracts with U.S.-based companies for various
drilling rig parts. PDVSA responds that even if H&P-V
subcontracted with U.S. vendors, nothing in the drilling
contracts obligated them to do so.

We need not resolve this dispute, however, because even
assuming that the drilling contracts required subcontracts with
American companies, those contracts had no direct effect in the
United States. Our holding in Cruise Connections rested not on
the mere formation of third-party contracts in the United
States, but rather on “losses caused by the termination of [the]
contract with [Royal Canadian Mounted Police].” Cruise
Connections, 600 F.3d at 664 (emphases added); see also id. at
666 (noting that the “alleged breach resulted in the direct loss
of millions of dollars worth of business in the United States.”).
Here, H&P-V concedes that none of the third-party contracts
was breached. Compl. ¶¶ 126–128, 135. As a result, no losses,
and therefore no “direct effect,” occurred in the United States.

We are unpersuaded by H&P-V’s argument that its
inability to renew the third-party contracts constitutes a direct
effect caused by PDVSA’s breach. Pls.’ Br. 62. As noted
above, H&P-V had already performed all of its obligations
under the existing third-party contracts. Its claim of third-party
loss is therefore based on expected loss from future contracts
that H&P-V says it would have entered into had PDVSA
renewed its own contracts with H&P-V instead of breaching
them. But H&P-V makes no allegation that PDVSA had an
 20
obligation to renew its contracts. See Compl. ¶ 33 (“All ten
contracts . . . expired at the conclusion of an agreed-upon
period unless the parties agreed to an extension or an extension
occurred by the contract’s original terms.”). Accordingly, any
losses to third parties based on expected future contracts were
not a direct effect of PDVSA’s breach, but rather of PDVSA’s
contractually permitted decision not to renew its agreement
with H&P-V.

Contrary to H&P-V’s argument, Kirkham v. Société Air
France, 429 F.3d 288 (D.C. Cir. 2005), does not require a
different result. Kirkham involved the commercial activity
exception’s first clause. See id. at 290. H&P-V invokes the
exception’s third clause, under which the “direct effect” in the
United States must arise from the foreign state’s allegedly
unlawful act—here, the breach of contract. See Republic of
Argentina v. Weltover, 504 U.S. 607, 609 (1992) (examining
“whether the Republic of Argentina’s default on certain bonds”
had a direct effect in the United States).

Relying on the Supreme Court’s decision in Republic of
Argentina v. Weltover, 504 U.S. 607 (1992), H&P-V claims a
second effect in the United States: that PDVSA made
payments to Helmerich & Payne’s Oklahoma bank account. In
Weltover, Argentina had issued bonds providing for payment
through a currency transfer on the London, Frankfurt, Zurich,
or New York markets at the discretion of the creditor. Id. at
609–10. Two Panamanian bondholders demanded payment in
New York, and when Argentina failed to pay, brought suit in
the United States, claiming jurisdiction under the commercial
activity exception. Id. at 610. The Court had “little difficulty”
finding a direct effect because, as a result of Argentina’s failure
to meet its payment obligations, a contractually required
payment into an American bank was not made. Id. at 618–19.
Relying on Weltover, H&P-V emphasizes that both the eastern
 21
and western contracts permitted PDVSA to pay a portion of
invoiced amounts in U.S. dollars into an American
bank—indeed, PDVSA ultimately paid $65 million this way.
Compl. ¶ 44. As in Weltover, then, PDVSA’s breach meant
that money “that was supposed to have been delivered to [an
American] bank for deposit was not forthcoming.” 504 U.S. at
619. But as PDVSA points out, the contracts gave H&P-V no
power to demand payment in the United States. Rather, under
both the eastern and western contracts, PDVSA could choose
to deposit payments in bolivars in Venezuelan banks
whenever, in its “exclusive discretion” and “judgment,” it
“deem[ed] it discretionally convenient.” Compl. ¶¶ 78, 85, 82.

This case presents facts akin to those we examined in
Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1144
(D.C. Cir. 1994), in which an Iraqi bank failed to pay on letters
of credit, and the payee claimed that the bank’s prior payments
from its accounts in the United States constituted a direct
effect. We rejected this contention because pursuant to the
letters of credit, Iraq “might well have paid . . . from funds in
United States banks but it might just as well have done so from
accounts located outside of the United States.” Id. at 1146–47.
Such unlimited discretion, we concluded, meant that unlike in
Weltover, no money was “‘supposed’ to have been paid” in the
United States. Id. at 1146 (quoting Weltover, 504 U.S. at 608).
In other words, where, as here, the alleged effect depends
solely on a foreign government’s discretion, we cannot say that
it “flows in a straight line without deviation or interruption.”
Princz, 26 F.3d at 1172.

Finally, relying on McKesson Corp. v. Islamic Republic of
Iran, 52 F.3d 346 (D.C. Cir. 1995), H&P-V contends that
PDVSA’s breach halted a flow of commerce between
Venezuela and the United States, thus causing a direct effect.
McKesson, an American corporation, alleged that the Iranian
 22
government had illegally divested it of its investment in a dairy
located in Iran. Foremost-McKesson, Inc. v. Islamic Republic
of Iran, 905 F.2d 438, 441 (D.C. Cir. 1990). In doing so, we
concluded, Iran halted a “constant flow of capital, management
personnel, engineering data, machinery, equipment, materials
and packaging, between the United States and Iran to support
the operation of [the dairy],” thereby causing a direct effect. Id.
at 451. H&P-V insists that the same is true here. We think not.
Iran’s actions in “freezing-out American corporations in their
ownership of [the dairy]” had the direct and immediate effect
of halting a flow of resources and capital between the United
States and Iran. Id. By contrast, any interruptions in commerce
between the United States and PDVSA flowed immediately
not from PDVSA’s breach of contract, but rather from
Helmerich & Payne’s decision to cease business in Venezuela.
And, given that the contracts were for set periods of time
ranging from five months to one year, there was no guarantee
of future business between Helmerich & Payne and PDVSA
beyond those contracts.

III
We affirm the district court’s denial of Venezuela’s
motion to dismiss H&P-IDC’s expropriation claim. In all other
respects, we reverse and remand for further proceedings
consistent with this opinion.
So ordered.
 SENTELLE, Senior Circuit Judge, dissenting in part and
concurring in part: I will not reiterate the facts in this
controversy, as the careful opinion of the majority sets them
forth in necessary detail and with inerrant accuracy. Further, I
fully concur in the majority’s discussion and conclusion
concerning the issues related to the commercial activity
exception set forth in 28 U.S.C. § 1605(a)(2). However, despite
my general agreement with the majority’s exposition of the facts
underlying the claim for expropriation, I dissent from the
conclusion that those facts bring this case within the
expropriation exception set forth in 28 U.S.C. § 1605(a)(3).

As the majority recognizes, the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. § 1604, et. seq.,
“‘establishes a comprehensive framework for determining
whether a court in this country, state or federal, may exercise
jurisdiction over a foreign state.’” Maj. Op. at 8 (quoting
Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610
(1992)). As the majority further recognizes, “[t]he Act provides
that ‘a foreign state shall be immune from the jurisdiction of the
courts of the United States and of the States.’” Maj. Op. at 8
(emphasis in original) (quoting 28 U.S.C. § 1604). Therefore,
unless the expropriation claim falls within one of the exceptions
set forth in 28 U.S.C. §§ 1605–07, the district court, and
derivatively this court, has no jurisdiction over the claim. The
majority concludes that claim falls within the exception created
by § 1605(a)(3). I disagree.

That exception permits the courts of the United States to
exercise jurisdiction “in any case . . . in which rights in property
taken in violation of international law are in issue.”
§ 1605(a)(3) (emphasis added). The majority states, Venezuela
argues that “as a Venezuelan national, H&P-V may not claim a
taking in violation of international law.” Maj. Op. at 8
(emphasis in original). Further, “under generally applicable
corporate law principles, H&P-IDC has no ‘rights in property’
 2

belonging to its subsidiary and thus lacks standing,” to bring this
action. Maj. Op. at 8. I again look to the majority’s statement
of the facts which acknowledges: “All [parties] agree that for
purposes of international law, ‘a corporation has the nationality
of the state under the laws of which the corporation is
organized.’” Maj. Op. at 9 (quoting Restatement (Third) of
Foreign Relations Law § 213 (1987)).

The majority further recognizes “that generally, a foreign
sovereign’s expropriation of its own national’s property does not
violate international law.” Maj. Op. at 9 (citing United States v.
Belmont, 301 U.S. 324, 332 (1937)). This principle is known as
the domestic takings rule, which provides that “[w]hat another
country has done in the way of taking over property of its
nationals, and especially of its corporations, is not a matter for
judicial consideration here. Such nationals must look to their
own government for any redress to which they may be entitled.”
Belmont, 301 U.S. at 332.

Like the majority, I recognize that Venezuela’s position in
this litigation is that

the domestic takings rule ends this case because H&P-V, as
a Venezuelan national, may not seek redress in an
American court for wrongs suffered in its home country.
This argument has a good deal of appeal. Having freely
chosen to incorporate under Venezuelan law, H&P-V
operated in that country for many years and reaped the
benefits of its choice, including several extremely lucrative
contracts with the Venezuelan government. Given this, and
especially given that H&P-V expressly agreed that these
contracts would be governed by Venezuelan law in
Venezuelan courts, one might conclude that H&P-V should
live with the consequences of its bargain.
 3

Maj. Op. at 10. Unlike the majority, I believe that Venezuela’s
position is well taken. When appellees chose to incorporate
under Venezuelan law, they bargained for treatment under
Venezuelan law. To extend our examination of Venezuelan law
to adjudicate its fairness appears to me to violate Venezuela’s
sovereignty, the value protected by the FSIA.

The majority supports its extended examination with the
decision in Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845,
861 (2d Cir. 1962). While that case may stand for the
proposition that the courts of the United States can examine the
fairness of a foreign sovereign’s expropriation, I cannot join the
majority’s conclusion that “Sabbatino remains good law.” Maj.
Op. at 12. Perhaps Sabbatino is good law in the Second Circuit,
but we are not bound by the decisions of other circuits, and I do
not conclude that Sabbatino has ever been or remains good law
in the District of Columbia Circuit. I would, therefore, conclude
that Venezuela’s reliance on the domestic takings rule is well
taken and should compel the dismissal of Helmerich & Payne’s
expropriation claim for want of jurisdiction.

I would further note that I differ with the majority’s
apparent belief that Venezuela’s reliance upon Dole Food Co.
v. Patrickson, 538 U.S. 468 (2003), is misplaced. See Maj. Op.
at 14. The majority asserts that “[c]ontrary to Venezuela’s
assertion, . . . Dole Food does not represent a wholesale
incorporation of corporate law into the FSIA.” Id. While this
may be literally accurate, it is at least equally accurate that
neither Dole Food nor any other case constitutes a wholesale
rejection of corporate law. As both the majority’s opinion and
mine have recognized, shareholders ordinarily have no standing
to assert claims on behalf of a corporation for its property.

Neither do I find compelling the majority’s reliance on two
cases from this circuit: Agudas Chasidei Chabad of U.S. v.
 4

Russian Federation, 528 F.3d 934, 940 (D.C. Cir. 2008), and
Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1517 (D.C.
Cir. 1984), cert. granted, judgment vacated on other grounds,
471 U.S. 1113 (1985). Chabad is authority, at most, for the
proposition that “[i]n an FSIA case, we will grant a motion to
dismiss on the grounds that the plaintiff has failed to plead a
‘taking in violation of international law’ or has no ‘rights in
property . . . in issue’ only if the claims are ‘wholly insubstantial
or frivolous.’” Maj. Op. at 9 (quoting Chabad, 528 F.3d at 942)
(emphasis in original). As the plaintiff here has, by reason of
the domestic takings rule, failed to plead a “taking in violation
of international law,” Chabad supports rather than undermines
Venezuela’s motion for dismissal. 528 F.3d at 943 (emphasis
added). Ramirez warrants no separate discussion.

I would note first that the judgment in Ramirez was vacated
by the Supreme Court. Weinberger v. Ramirez de Arellano, 471
U.S. 1113 (1985). As the majority states,

we have held that, “[w]hen the Supreme Court vacates a
judgment of this court without addressing the merits of a
particular holding in the panel opinion, that holding
‘continue[s] to have precedential weight, and in the absence
of contrary authority, we do not disturb’ it.” United States
v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir. 2006) (quoting
Action Alliance of Senior Citizens of Greater Philadelphia
v. Sullivan, 930 F.2d 77, 83 (D.C. Cir. 1991)).

Maj. Op. at 16. For what it’s worth, I question whether the
language quoted from Adewani and Action Alliance in fact states
a holding of this court to the effect that we are bound by the
reasoning of vacated opinions. Rather, each instance
paraphrases language of Justice Powell quoted in a parenthetical
following the quoted language from Action Alliance. Action
Alliance parenthetically quoted Justice Powell as stating:
 5

Although a decision vacating a judgment necessarily
prevents the opinion of the lower court from being the law
of the case, . . . the expressions of the court below on the
merits, if not reversed, will continue to have precedential
weight and, until contrary authority is decided, are likely to
be viewed as persuasive authority if not the governing law
....

County of Los Angeles v. Davis, 440 U.S. 625, 646 n.10 (Powell,
J., dissenting) (quoted in Action Alliance, 930 F.2d at 83–84).
In other words, the prior reasoning of the court in vacated
opinions may be persuasive, even powerfully persuasive, but I
question whether it is binding precedent.

Be that as it may, Ramirez is not genuinely on point.
Ramirez dealt with the question of whether the shareholders of
a corporation ousted by acts of the United States government
had a property interest warranting due process protection under
the Constitution. The Ramirez Court had no occasion to
consider whether the statutory waiver of a foreign government’s
sovereign immunity encompasses the sort of second degree
property interest protected against invasion by our government
under the due process concepts of our Constitution.