Walter Fuller Aircraft Sales, Inc. v. Republic of Philippines

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 91-1805
_____________________

WALTER FULLER AIRCRAFT SALES, INC.,

Plaintiff-Appellee,

v.

THE REPUBLIC OF THE PHILIPPINES and
THE PHILIPPINES PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT,

Defendants-Appellants.

_________________________________________________________________

Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
( July 8, 1992)

Before KING and WIENER, Circuit Judges, and LAKE, District
Judge.*

KING, Circuit Judge:

Shortly after the Marcos regime was ousted from the

Philippines, the new government of Corazon Aquino created the

Presidential Commission on Good Government (PCGG) to recover any

ill-gotten gains of Marcos and his confederates. Using its power

to sequester property, the PCGG obtained control of a Falcon 50

jet aircraft (the Falcon) that had been leased by a Phillipine

corporation with alleged ties to the former Marcos regime. The

*
District Judge of the Southern District of Texas,
sitting by designation.
owner of the plane was Faysound, Ltd., a Hong Kong corporation.

The PCGG ultimately sold the Falcon to an American corporation,

Walter Fuller Aircraft Sales, Inc. (Fuller), which brought it to

the United States. Faysound, distressed about the disposition of

its property, brought an action against Fuller in federal

district court in Arkansas to try title, and won.

This lawsuit arose out of the Arkansas proceedings. Fuller,

claiming that the PCGG had promised in the deed of sale to defend

any action brought by an adverse claimant to the Falcon, sued the

PCGG and the Republic of the Philippines (Republic) in the United

States District Court for the Northern District of Texas in an

effort to recover the cost of defending Faysound's lawsuit. The

PCGG and the Republic moved to dismiss on the ground that they

were entitled to sovereign immunity under the Foreign Sovereign

Immunities Act (FSIA),1 but the district court held that the suit

could go forward against both defendants. We agree that the

district court had subject matter jurisdiction over the suit

against the PCGG under the commercial activities exception to the

FSIA, but the record is insufficient to allow a determination of

whether the Republic can be held liable for the acts of the PCGG

under an agency theory. We also reject the defendants' argument

that the act of state doctrine bars the suit, and hold that the

district court had jurisdiction over a tort claim advanced by

Fuller. We do not, however, accept the defendants' invitation to

1
Pub. L. No. 94-583, 90 Stat. 2891, codified at 28 U.S.C.
§§ 1330; 1332(a)(2)-(4); 1391(f); 1441(d); 1602-1611.

2
review the district court's ruling on the issue of forum non

conveniens.

I.

On February 28, 1986, President Corazon Aquino signed

Executive Order No. 1, creating the PCGG. The PCGG was charged

with, inter alia, assisting in "[t]he recovery of all ill-gotten

wealth accumulated by former President Ferdinand E. Marcos, his

immediate family, relatives, subordinates and close associates,

whether located in the Philippines or abroad, including the

takeover or sequestration of all business enterprises and

entities owned or controlled by them. . . ." In order to carry

out this duty, the PCGG was given the power and authority "[t]o

provisionally take over in the public interest or to prevent its

disposal or dissipation, business enterprises and properties

taken over by the government of the Marcos Administration or by

entities or persons close to former President Marcos. . . ." Two

weeks later, by Executive Order No. 2, President Aquino froze and

prohibited the transfer of all assets in which Marcos or any of

his associates had any interest.

Using its power under Executive Orders Nos. 1 and 2, the

PCGG issued a writ of sequestration against Eduardo Cojuangco,

Jr., describing a Falcon 50 jet aircraft registered in the name

of United Coconut Chemicals, Inc. (UNICHEM) as lessee. Cojuangco

was a wealthy businessman with a substantial interest in UNICHEM,

and had ties to former President Marcos. As required by

3
Executive Order No. 14, the PCGG applied to the Sandiganbayan,

the special Phillipine court established to adjudicate claims to

property sequestered by the PCGG, for permission to sell the

Falcon. The Falcon began to deteriorate while the proceedings

were pending, so the PCGG stepped up its efforts to sell. In

late summer 1989, Fuller, a Texas corporation in the business of

aircraft brokerage and resale, began negotiations with the PCGG

for the purchase of the Falcon. Although the PCGG apparently

never received permission from the Sandiganbayan to sell the

plane, it eventually closed the deal with Fuller.2 Fuller and

the PCGG executed two agreements covering the sale, a Deed of

Sale and a Memorandum of Agreement. The Deed of Sale provides as

follows:

ARTICLE V. WARRANTIES AND REPRESENTATIONS

b. The SELLER. . . does hereby assume full responsibility,
to defend and hold harmless the BUYER from any and all
claims of all persons whosoever, including but not limited
to adverse claims, charges, liens, and/or possible
encumbrances that may be place [sic] on the title by reason
of any act, contract or agreement entered into, prior to the
date of this Deed of Sale, as the SELLER by virtue of this
sale, has released subject aircraft absolutely free from any
such claims, for if any there be should arise, such claims
are understood ipso facto directed against the proceeds of
the sale that is deposited in escrow, and not anymore on the
aircraft.

2
The events leading up to the PCGG's acquisition of
authority to sell the aircraft, none of which is relevant to this
appeal, are intriguing and are commended to intrepid students of
international law and civil procedure. See Faysound Ltd. v.
Walter Fuller Aircraft Sales, Inc., 748 F. Supp. 1365, 1367-70
(E.D. Ark. 1990), appeal dismissed, 940 F.2d 339 (8th Cir. 1991)
(per curiam), cert. denied, 112 S. Ct. 1175 (1992).

4
After taking possession, Fuller transported the Falcon to

Arkansas for repairs.

On October 9, 1989, Faysound, the Hong Kong corporation that

owned the Falcon and had leased it to UNICHEM, filed an action in

the United States District Court for the Eastern District of

Arkansas against Fuller and Falcon Jet Corporation to try title

to the aircraft (the Arkansas action). Fuller notified the PCGG

in writing of the Arkansas action and requested that it "defend

and hold [Fuller] harmless" from Faysound's claim of title to the

aircraft. The PCGG refused. On October 29, 1990, the district

court granted Faysound's motion for summary judgment, holding

that the PCGG's expropriation of the Falcon from an entity that

did not own it was not protected by the act of state doctrine.

Faysound Ltd. v. Walter Fuller Aircraft Sales, Inc., 748 F. Supp.

1365 (E.D. Ark. 1990), appeal dismissed, 940 F.2d 339 (8th Cir.

1991) (per curiam), cert. denied, 112 S. Ct. 1175 (1992). On

November 21, 1990, Fuller again requested that the PCGG bear the

costs of defending the Arkansas action. The PCGG again refused.

On December 10, 1990, Fuller filed this action against the PCGG

and the Republic for breach of the contractual indemnity clause,

for breach of warranty of title, and for a declaration of the

parties' rights under the Deed of Sale.

The PCGG and the Republic filed a joint motion to dismiss.

They agreed that they were both foreign states as defined in the

FSIA, but the Republic argued that it could not be held liable

for the actions of its instrumentality, the PCGG. Moreover, they

5
asserted, none of the exceptions to the FSIA's general rule of

sovereign immunity, including the "commercial activities"

exception, applied, so the district court lacked subject matter

jurisdiction. Finally, they argued that the suit was barred by

the act of state doctrine. In an order entered April 18, 1991,

the district court denied the motion. It held, first, that under

the analysis of First National City Bank v. Banco Para el

Comercio Exterior de Cuba, 462 U.S. 611 (1983) [Bancec], the

Republic could be sued for the acts of the PCGG because the PCGG

was the "alter ego" of the Republic. It then held that the FSIA

did not shield the defendants from liability because (1) the Deed

of Sale, although not containing an explicit choice of law

provision, contemplates that disputes would be adjudicated in the

United States, and therefore functions as an implicit waiver of

sovereign immunity under 28 U.S.C. § 1605(a)(1) (exception for

waiver of immunity); and (2) the contract between the PCGG and

Fuller was a commercial activity which produced a direct effect

in the United States sufficient to support jurisdiction under 28

U.S.C. § 1605(a)(2) (exception for commercial activities). With

respect to the commercial activities exception, the district

court held that the PCGG had engaged in commercial activity

because the aircraft contract was the type into which private

parties enter. It also held that the contract amounted to

commercial activity outside the United States with a "direct

effect" in the United States, because the PCGG's alleged actions

caused Fuller, an American corporation, to suffer a foreseeable

6
financial loss. The court next determined that it had personal

jurisdiction over the defendants. Finally, the court determined

that the act of state doctrine did not bar the suit because the

sale of the Falcon either was not the act of a sovereign or

involved repudiation of a commercial obligation.

In an amended complaint, Fuller added a claim for actual and

punitive damages against the PCGG under a tort theory and alleged

an exception to sovereign immunity under 28 U.S.C. § 1605(a)(5)

(noncommercial tort exception). The defendants then filed a

second motion to dismiss, adopting the arguments for dismissal

asserted in their original motion and adding the additional

defense of forum non conveniens.3 In an order entered July 9,

1991, the district court determined that it had jurisdiction over

Fuller's tort claim through the operation of 28 U.S.C. § 1367

(providing for "supplemental" jurisdiction over related claims

whenever district courts have original jurisdiction in a civil

action) and denied the forum non conveniens argument. With

respect to the latter, the court held that the Philippines would

not be an adequate forum, that trial of the case would be easier

in Texas, and that the public interests in the dispute weighed in

favor of an American forum.

3
The amended complaint was filed before the district
court's first order. The defendants had responded by filing
their second motion to dismiss on April 12, six days before the
first order was entered on the docket but two days after the
order had been signed by Judge Buchmeyer. After the first order
was issued, the defendants filed a notice of appeal. A panel of
this court dismissed the appeal as premature because the district
court had not yet ruled on the second motion to dismiss which
contained the tort immunity claim.

7
 The defendants filed a timely notice of appeal after the

district court's second decision.4 On October 31, 1991, Fuller

filed its appellate brief and a Motion to Dismiss Moot Appeal.

In the motion, Fuller pointed out that the PCGG had recently

filed a complaint in an adversary proceeding in the Bankruptcy

Court for the Northern District of Texas against Faysound and

Fuller. The bankruptcy complaint, which was attached to the

motion, sought a declaration either that Fuller was the rightful

owner of the Falcon, or, if Fuller was not the rightful owner,

that the PCGG had an interest in the aircraft superior to that of

Faysound.5 Fuller argued that this complaint functioned as a

waiver of sovereign immunity because the bankruptcy court suit

involved the transaction over the Falcon. Fuller further argued

that, because the PCGG was an agent of the Republic, the waiver

extended to the Republic. Thus, Fuller contended, the appeal was

moot and this court should refrain from exercising its pendent

appellate jurisdiction to decide any of the other issues. The

PCGG and the Republic opposed the motion. On February 5, 1992, a

panel of this court decided that Fuller's motion should be

carried with the case.

On January 10, 1992, Fuller filed a motion to supplement the

record with documents filed by the Republic in the bankruptcy

4
Immediate appeal, under the collateral order doctrine, is
permitted from an order denying sovereign immunity under the
FSIA. Stena Rederi AB v. Comision de Contratos, 923 F.2d 380,
385 (5th Cir. 1991).
5
Counsel informed us at oral argument that the bankruptcy
action has since been dismissed.

8
action. These documents included the Republic's motion to

dismiss a third-party complaint which had been filed by Fuller in

that action, and the attachments to that motion.6 One of the

attachments was the Republic's complaint against Cojuangco in the

Sandiganbayan. Paragraph 17 of the complaint stated that Fuller

was "the buyer of the [Falcon] from the plaintiff." Fuller

asserted in its motion to supplement that this complaint

constituted a judicial admission of the Republic's status as

seller of the airplane. On February 5, this court granted

Fuller's motion to supplement the record.

II.

We must first decide whether to grant Fuller's motion to

dismiss the appeal as moot. Normally, an appeal becomes moot

when, for whatever reason, there is no longer any case or

controversy. See ITT Rayonier, Inc. v. United States, 651 F.2d

343, 345 (5th Cir. Unit B 1981). Fuller's motion, however,

argues that mootness arises from a waiver of sovereign immunity

which occurred after the district court's decision. This is

really an argument which goes to the substance of the waiver

question. Although Fuller may be arguing that the appeal is

moot, it is simply pointing to another reason why we should find

a waiver of sovereign immunity. We need not address the merits

of the waiver argument, however, because there is ample support

6
The bankruptcy action had been filed only by the PCGG
against Fuller. Fuller impleaded the Republic.

9
for the district court's conclusion that the sale of the Falcon

fell within the commercial activities exception to the FSIA (at

least with respect to the PCGG). Thus, Fuller's motion is itself

moot.

III.

We next confront the district court's decision that the

Republic could be held liable under an agency theory for the acts

of the PCGG. The district court articulated two separate

rationales for imputing liability to the Republic. First, the

court observed that if the PCGG was not an agent of the Republic,

it did not satisfy the definition of a "foreign state" under §

1603, and thus would not be entitled to a presumption of

immunity. Later in its opinion, the court analyzed specific

record evidence to conclude that there was an agency

relationship. The court relied on (1) a letter from the PCGG to

Fuller indicating that the PCGG had authority to sell on behalf

of the government; (2) the fact that the proceeding to seize the

Falcon in the Sandiganbayan was initiated in the name of the

Republic; and (3) the fact that the Republic filed a certiorari

petition in the Philippines Supreme Court in proceedings

involving the propriety of the seizure and sale even though an

action of the PCGG was at issue in the case. The court then

turned to five factors suggested in Bancec for determining

whether an instrumentality of a foreign government functions as

10
the alter ego of the government.7 The court pointed to the facts

that the Phillipine government created and defined the mission of

the PCGG, funds from the national treasury were set aside for the

PCGG's expenditures, the PCGG is empowered to obtain the

assistance of all governmental entities in carrying out its

mission, and funds recovered by the PCGG would go to the

Republic. Although in the court's opinion "the government does

not control the PCGG's day-to-day activities," the level of

interrelationship evidenced by the above factors enabled the

court to conclude that the Republic and the PCGG were jointly

liable for the conduct of each other.

The district court's first rationale -- the PCGG is a

foreign state under the FSIA, so it is an agent for liability

purposes -- confuses two distinct issues. Section 1603 defines

the universe of entities entitled to statutory sovereign

immunity.8 This is completely different from the question

7
The district court distilled the following five factors
from Bancec: (1) the level of economic control by the government;
(2) whether the entity's profits go to the government; (3) the
degree to which government officials manage the entity or
otherwise have a hand in its daily affairs; (4) whether the
government is the real beneficiary of the entity's conduct; and
(5) whether adherence to separate identities would entitle the
foreign state to benefits in United States courts while avoiding
its obligations. The Bancec opinion does not, however, set forth
these factors as part of a "test" for determining agency status.
8
Section 1603 provides, in relevant part:

For purposes of this chapter--

(a) A "foreign state", except as used in section 1608
of this title, includes a political subdivision of a
foreign state or an agency or instrumentality of a
foreign state as defined in subsection (b).

11
whether a foreign state and its agency or instrumentality are

alter egos for purposes of substantive liability. Hester Int'l

Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 176 n.5 (5th

Cir. 1989). "[T]he level of state control required to establish

an 'alter ego' relationship is more extensive than that required

to establish FSIA 'agency.'" Id.; see also Foremost-McKesson,

Inc. v. Islamic Republic of Iran, 905 F.2d 438, 448 (D.C. Cir.

1990). Thus, the mere fact that the PCGG fit within § 1603's

definition of a foreign state does not bear on the issue here.

The district court's second rationale was derived from the

correct legal standard, but we are not convinced that the court

could determine alter ego status on the current state of the

record. Instrumentalities of foreign governments are presumed to

retain their separate juridical status, Bancec, 462 U.S. at 627,

so the burden of proving an agency relationship which would

enable Fuller to hold the Republic liable on a contract signed by

the PCGG fell upon Fuller. Hester, 879 F.2d at 176; De Letelier

v. Republic of Chile, 748 F.2d 790, 795 (2d Cir. 1984), cert.

denied, 471 U.S. 1125 (1985). Cf. Marastro Compania Naviera,

S.A. v. Canadian Maritime Carriers, Ltd., 959 F.2d 49 (5th Cir.

(b) An "agency or instrumentality of a foreign state"
means any entity--

(1) which is a separate legal person, corporate or
otherwise, and

(2) which is 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. . . .

12
1992). Bancec remains the seminal case on the circumstances

under which American courts may disregard the separate status of

instrumentalities created by foreign governments. In Bancec the

Court held that, in a suit brought by Cuba's state-owned bank

(Bancec) against Citibank to recover on a letter of credit,

Citibank could assert a setoff against assets that had been

expropriated by the Cuban government. Although the Court

recognized that legal respect for the separate nature of

government instrumentalities is essential to "the efforts of

sovereign nations to structure their governmental activities in a

manner deemed necessary to promote economic development and

efficient administration," and found support for a presumption of

separateness in the legislative history of the FSIA, 462 U.S. at

626, equitable principles drawn from corporate law required it to

disregard the "corporate form." Bancec was dissolved before

Citibank asserted its setoff, the Court pointed out, so any

benefit from disallowance of the setoff would accrue solely to

the Government of Cuba. Id. at 631-32. The Court made clear,

however, that it had not established any "mechanical formula" for

evaluating efforts to disregard the separate status of government

instrumentalities, but instead was relying on equitable

principles applicable in particular to cases in which foreign

governments seek to obtain the benefit of American courts. Id.

at 633.

The actual holding of Bancec, therefore, establishes only

that a court must be sensitive to the extent to which the foreign

13
government will be the real beneficiary of litigation. The

broader principles upon which Bancec was based -- particularly

the principle of disregarding the corporate form in instances

where respecting it would lead to injustice -- are undoubtedly

relevant whenever a plaintiff seeks to disregard a foreign

government instrumentality, but we perceive in the district

court's opinion and the briefs of the parties an effort to create

and apply the kind of mechanical formula the Supreme Court

rejected.

Our precedent since Bancec indicates that, in addition to

the equitable principles discussed by the Supreme Court, we look

to the ownership and management structure of the instrumentality,

paying particularly close attention to whether the government is

involved in day-to-day operations, as well as the extent to which

the agent holds itself out to be acting on behalf of the

government. Hester, 879 F.2d at 178, 181. In Hester, the

plaintiff, an American corporation, brought suit against the

Republic of Nigeria, a government-created corporation (NGPC), and

one of the states of Nigeria, after a farming joint venture it

had entered into with the NGPC and the state went sour. Hester

appealed only the district court's dismissal, for lack of subject

matter jurisdiction, of its breach of contract claim against

Nigeria. Thus, the issue before this court was whether the

district court had erred in refusing to disregard the separate

status of the NGPC and Nigeria. After reviewing the Bancec

principles, we cited with approval the decision in Kalamazoo

14
Spice Extraction Co. v. Provisional Military Government of

Socialist Ethiopia, 616 F. Supp. 660 (W.D. Mich. 1985), in which

the court focused on the fact that the government had assumed

day-to-day operation of the instrumentality it owned.9 Hester,

879 F.2d at 178. We determined that the issue was highly fact-

bound, and so went on to review in detail the facts upon which

the district court had based its conclusion.

Some of the relevant findings10 were that Nigeria owned 100

percent of NGPC's stock; NGPC's employees were not Nigerian civil

servants; no official of Nigeria was involved in negotiation of

the contract; NGPC generated its own income from commercial and

government loans; Nigeria exercised no voting rights in the joint

venture set up by the contract; and documents generated during

the contract dispute showed that Nigeria considered NGPC entirely

separate. In addition, documents reviewed by the district court

showed that the Nigerian Federal Ministry of Agriculture

exercised general supervisory control over the NGPC but was not

involved in day-to-day operations. Id. at 179. We rejected

9
In Kalamazoo,

a government-owned corporation was no longer distinguishable
as a separate entity when the majority of the
instrumentality's stock had been expropriated, the
government had required that all checks in excess of a
certain amount be signed by a government-appointed director,
a governmental agency was required to approve all invoices
for shipments exceeding a certain amount, and the government
generally exercised direct control over its operation.

Hester, 879 F.2d at 178.
10
None of the findings were clearly erroneous. Hester,
879 F.2d at 180.

15
Hester's contention that (1) documents which reflected the

involvement of the Federal Ministries of Agriculture and Finance

in obtaining a letter of credit for the project and (2) documents

stating that NGPC "represents" Nigeria in pursuing agricultural

policies revealed Nigeria's control. Id. at 180. In concluding

that there was no alter ego relationship, we pointed out that

Nigeria's ownership of 100 percent of NGPC stock and appointment

of NGPC's Board of Directors was not dispositive,11 and that the

evidence did not reveal day-to-day control by the government.

This conclusion was buttressed by analogizing to agency law:

"[n]one of the documents prepared by Nigeria ever communicated

that NGPC represented it beyond the extent that all corporate

entities represent their shareholders." Id. at 181.

The Republic argues that its absence from the negotiations

and from the contract to sell the Falcon immunizes it against

liability. Fuller responds primarily by referring to the

documents cited by the district court, and it has added

additional documents in the supplemental record allegedly showing

the Republic's involvement in the sale. We are not convinced,

however, that the record in this case was sufficiently developed

to enable the district court to make its findings. Neither the

executive orders creating the PCGG (on which the district court

relied) nor the documents filed by the Republic in the

11
Other courts have recognized that 100 percent ownership
of an instrumentality set up as a corporation is not dispositive.
Hercaire Int'l, Inc. v. Argentina, 821 F.2d 559, 565 (11th Cir.
1987); Foremost-McKesson, 905 F.2d at 448.

16
Sandiganbayan in connection with the seizure of the Falcon (the

documents in the supplemental record), tell enough, by

themselves, about the relationship between the Republic and the

PCGG to allow a conclusion of alter ego status. All of these

documents obviously have relevance to this issue, but they do not

have the dispositive effect ascribed to them by the district

court and Fuller. Significantly, the PCGG and the Republic have

not had an opportunity to offer evidence about their

relationship, as the district court made its determination solely

from the documents submitted with the motion to dismiss. In the

absence of an opportunity for the parties to flesh out the

structure of their relationship, we are hesitant to rely solely

on the original orders creating the PCGG and documents filed in

the Supreme Court of the Philippines. Unlike in Hester, this

record does not contain the quantity or quality of evidence that

would enable us to affirm or reverse the district court outright.

Therefore, we must remand for further factfinding about the

involvement of the Republic in the affairs of the PCGG. See

Foremost-McKesson, 905 F.2d at 448 (remanding for further

findings on principal-agency status); cf. Williamson v. Tucker,

645 F.2d 404, 413 (5th Cir.) (district court may hear written and

oral evidence in order to determine factual issues which

determine jurisdiction), cert. denied, 454 U.S. 897 (1981); Filus

v. Lot Polish Airlines, 907 F.2d 1328, 1332 (2d Cir. 1990)

(plaintiff may engage in discovery with respect to jurisdictional

issues under the FSIA).

17
 IV.

The need for further factual development on the issue of the

agency relationship between the PCGG and the Republic does not,

however, affect our ability to review the district court's

conclusions concerning the sovereign immunity of the PCGG. The

PCGG signed the contract with Fuller and is a foreign state as

defined in 28 U.S.C. § 1603. We therefore proceed to consider

the applicability of the FSIA to the action against the PCGG.

We review the district court's conclusions about sovereign

immunity de novo. Stena Rederi AB v. Comision de Contratos, 923

F.2d 380, 386 (5th Cir. 1991). Under the FSIA, foreign states

and their agencies and instrumentalities are immune from suit in

the courts of the United States except as otherwise provided in

the Act. 28 U.S.C. § 1604. A failure to satisfy the statute's

exceptions deprives the district court of subject matter

jurisdiction. Stena, 923 F.2d at 386; Forsythe v. Saudi Arabian

Airlines Corp., 885 F.2d 285, 288 (5th Cir. 1989) (per curiam).

The foreign state always has the burden of persuasion on

immunity. Once the state makes a prima facie showing of

immunity, the plaintiff seeking to litigate in the United States

has the burden of coming forward with facts showing that an

exception applies. Id. at 289 n.6.

Section 1605 contains the exceptions to sovereign immunity

relevant in this case. It provides, in part:

(a) A foreign state shall not be immune from the
jurisdiction of the courts of the United States or of the
States in any case --

18
 (1) 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;

(2) in which the action is based upon a commercial
activity carried on in the United States by a 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.

We find that the § 1605(a)(2) exception (the commercial

activities exception) applies in this case, and therefore do not

discuss Fuller's argument about waiver.

In order for an American court to exercise jurisdiction over

the PCGG under the commercial activities exception, Fuller's suit

must be based upon "commercial activity" which has at least one

of the three jurisdictional connections with the United States

set forth in § 1605(a)(2). Stena, 923 F.2d at 386; Callejo v.

Bancomer, S.A., 764 F.2d 1101, 1107 (5th Cir. 1985). As we

explained in Stena, "[n]ot only must there be a jurisdictional

nexus between the United States and the commercial acts of the

foreign sovereign, there must be a connection between the

plaintiff's cause of action and the commercial acts of the

foreign sovereign." 923 F.2d at 386; see also United States v.

Moats, 961 F.2d 1198, 1205-06 ("this lawsuit must be based on

commercial activities that are connected to the United States in

the manner described by the statute") (emphasis in original);

Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale

Algerienne de Navigation, 730 F.2d 195, 200 (5th Cir. 1984);

19
America West Airlines, Inc. v. GPA Group, Ltd, 877 F.2d 793, 796

(9th Cir. 1989).

A. Commercial Activity

The PCGG initially argues that the contract for the sale of

the Falcon involved sovereign acts, not commercial activity. The

statutory definition of "commercial activity" is "either a

regular course of commercial conduct or a particular commercial

transaction or act." 28 U.S.C. § 1603(d). Not surprisingly,

courts faced with the question whether a particular act or series

of acts constitutes commercial activity have ignored this

circular definition and have, consistent with the intent of

Congress, defined the concept on an evolving, case-by-case basis.

See H.R. Rep. No. 94-1487, 94th Cong., 2d Sess. at 16, reprinted

in 1976 U.S.C.C.A.N. 6615 (federal courts are given "a great deal

of latitude in determining what is a 'commercial activity' under

the FSIA"); Segni v. Commercial Office of Spain, 835 F.2d 160,

163 (7th Cir. 1987).

Congress provided some guidance in the second sentence of §

1603(d), which directs us to look at the "nature" of an activity

rather than its "purpose" in determining whether it is

commercial. In Callejo, we adopted the view, first articulated

in the landmark FSIA case of Texas Trading & Milling Corp. v.

Federal Republic of Nigeria, 647 F.2d 300, 309 (2d Cir. 1981),

cert. denied, 454 U.S. 1148 (1982), that an activity has a

commercial nature for purposes of FSIA immunity if it "is of a

type that a private person would customarily engage in for

20
profit." 764 F.2d at 1108 n.6 (citations omitted).12 The

Supreme Court recently approved of this approach. Republic of

Argentina v. Weltover, Inc., 60 U.S.L.W. 4510, 4511-12 (U.S. June

12, 1992). Consistent with this definition, courts typically

hold that contracts for the procurement of goods and services are

commercial rather than governmental in nature. See Texas

Trading, 647 F.2d at 310 (contract for purchase of cement is

commercial); Segni, 835 F.2d at 164-65 (employment contract under

which employee would market country's wines is commercial); Rush-

Presbyterian-St. Luke's Med. Center v. Hellenic Republic, 877

F.2d 574, 581 (7th Cir. 1989) (contract for purchase of medical

services is commercial), cert. denied, 493 U.S. 937 (1989);

Practical Concepts, Inc. v. Republic of Bolivia, 811 F.2d 1543,

1550 (D.C. Cir. 1987) (contract for developing rural areas is

commercial). In addition, the House Report repeatedly mentions

contracts for the purchase of goods in the course of describing

activities that courts should consider commercial.

Employing the Texas Trading test, there is little doubt that

the sale of the Falcon qualifies as commercial activity. The

PCGG, however, argues that when we look to the broader activity

behind the actual act of contracting, we will find that the

contract was merely the end result of a truly governmental

activity. Thus, it characterizes the relevant activity here as

12
Numerous other courts have utilized the Texas Trading
test. See Rush-Presbyterian-St. Luke's Med. Center v. Hellenic
Republic, 877 F.2d 574, 578 n.4 (7th Cir. 1989) (collecting
cases), cert. denied, 493 U.S. 937 (1989).

21
the recovery and sale of the ill-gotten gains of the Marcos

regime, not the mere making (and alleged breach) of a contract to

sell an airplane. It analogizes its acts to the kind of acts we

held to be sovereign in De Sanchez v. Banco Central de Nicaragua,

770 F.2d 1385, 1393 (5th Cir. 1985). In De Sanchez, the

plaintiff sued to collect on a check issued by Banco Central, the

Nicaraguan central bank. Banco Central had issued the check to

enable the plaintiff to redeem a certificate of deposit she had

purchased from another bank, Banco Nacional. This transaction

was necessary because only Banco Central had the dollars

necessary to redeem the CD. At about the time the check was

issued, the Sandinistas came to power and the new government

ordered that a series of checks, including the one made out to

the plaintiff, not be honored. 770 F.2d at 1387-88. We held

that Banco Central's action in issuing the check was sovereign,

not commercial. We explained:

By law, Banco Central had overall responsibility for the
control and management of Nicaragua's monetary reserves. . .
. It was permitted to sell foreign exchange only for certain
limited purposes. . . . Banco Central became involved with
Mrs. Sanchez only in its official role of regulating the
sale of foreign exchange. Its only authorized purpose in
issuing the check was to maintain stable exchange rates and
to allocate scarce foreign exchange reserves among competing
uses. Consequently, in the current context, characterizing
Banco Central's action as a sale of dollars is not merely
incomplete -- it is incorrect.

Id. at 1393 (citation omitted). We acknowledged that

ascertaining the nature of Banco Central's acts involved some

inquiry into the purpose of the acts, but pointed out that the

purpose "defined the conduct's nature. . . . [Banco Central] was

22
performing one of its intrinsically governmental functions as the

Nicaraguan Central Bank." Id. As the initial issuance of the

check was governmental, so was the later breach. Id. at 1394.

We contrasted the situation in Callejo, where a private bank

which later was nationalized, redeemed CDs in devalued foreign

currency rather than in dollars in order to comply with new

governmental exchange control regulations. The bank in Callejo

merely complied with, rather than promulgated, the governmental

policy, and thus its acts were deemed commercial. De Sanchez,

770 F.2d at 1394 n.11. Similarly, we pointed out, in Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371 (5th Cir. 1980), the

defendant was subject to suit because it breached its contract to

provide the plaintiffs with a tour package as a result of a

separate governmental decision to deny the plaintiffs entry to

the country. De Sanchez, 770 F.2d at 1394 n.11.

De Sanchez represents the unusual case where it is extremely

difficult to separate the "nature" and "purpose" inquiries. This

case, by contrast, involves a run-of-the-mill contract which is

in all respects indistinguishable from a contract entered into

between two private entities to sell an airplane. Whatever the

conceptual or theoretical difficulties inherent in distinguishing

between the "nature" and "purpose" of various commercial

activities, the statutory language commands that we do so.

Weltover, 60 U.S.L.W. at 4512. Only once, in De Sanchez, has

this court found it necessary to look to the purpose of a

transaction to assist it in determining whether the § 1605(a)(2)

23
exception applies. The De Sanchez decision, however, involved

commercial acts which represented the real-world manifestation of

the "public" or "governmental" act of rationing the supply of

foreign currency. Although issuing a check is the type of act

that private entities perform innumerable times for profit, see

Callejo, 764 F.2d at 1108 n.6, private entities cannot and do not

make policy decisions concerning the rationing of a country's

remaining foreign currency reserves in the course of issuing

checks. As the De Sanchez court explained, the mere issuance of

the check was a governmental decision. 770 F.2d at 1393.

Similarly, courts have found certain activities governmental

rather than commercial for purposes of the FSIA even when they

are identical to activities in which private parties engage.

See, e.g., MacArthur Area Citizens Ass'n v. Republic of Peru, 809

F.2d 918 (D.C. Cir.) (country's remodelling of chancery building

is not commercial because operation of diplomatic buildings is

sovereign activity), modified on other grounds, 823 F.2d 606

(D.C. Cir. 1987).

Looking to the PCGG's mandate to recover Marcos's ill-gotten

wealth as the defining aspect of this transaction would

impermissibly involve us in an analysis of the purpose behind the

transaction. The mere fact that we can draw a causal connection

between the sovereign act and the commercial activity is

irrelevant, for every contract into which a foreign sovereign

enters theoretically can be traced to a public purpose. Callejo,

774 F.2d at 1109; see also Rush-Presbyterian-St. Luke's, 877 F.2d

24
at 581. As directed by Callejo, we must look at the gravamen of

the complaint. Here, it is the PCGG's refusal to defend

according to a contractual obligation, not the sovereign act of

recovering Marcos's wealth, that forms the basis for the suit.

Our conclusion that the PCGG's act of contracting was

commercial rather than sovereign leads us to conclude further

that the actual act upon which this suit is based -- the breach

of the contract -- also was a commercial act. See Callejo, 764

F.2d at 1101 (selling of CDs and breach of obligation under it

were both commercial acts); Arango, 621 F.2d at 1371 (selling of

tour package and breach were both commercial acts). The nature

of the initial contract perhaps is not necessarily dispositive on

the question of breach; theoretically, the government itself

could have ordered the PCGG not to defend Fuller in the Arkansas

action as an act (or weapon) of foreign policy. See Carey v.

National Oil Corp., 453 F. Supp. 1097 (S.D.N.Y.1978) (country's

inducement of breach of privately-made contracts was sovereign

where done for foreign policy purposes), aff'd on other grounds,

592 F.2d 673 (2d Cir. 1979). But there is no suggestion here

that there were any public policy reasons behind the PCGG's

refusal to abide by the Deed of Sale. The act of breaching thus

is consistent with the original act of contracting: both were

commercial activities.

B. Jurisdictional connection with the United States

The PCGG also challenges the required jurisdictional

connection to the United States. Focusing solely on the third

25
clause of § 1605(a)(2), it asserts that the mere fortuity that

Fuller lost money in the United States as a result of the alleged

breach is not enough to satisfy this circuit's requirement that a

breach of contract have a "substantial effect" in the United

States as a "direct and foreseeable result" of conduct outside

the United States. Zernicek v. Brown & Root, Inc., 826 F.2d 415,

419 (5th Cir. 1987), cert. denied, 484 U.S. 1043 (1988). Even if

it had reason to expect that Fuller would initially take the

aircraft to the United States, the PCGG says, it was Fuller's

unilateral decision to do so and Faysound's unilateral decision

to bring suit to try title in the United States which caused the

loss in the United States. These events, the PCGG argues, were

not a foreseeable result of the contract; litigation in the

Sandiganbayan was a more foreseeable occurrence.

Employing the Zernicek test, we would have little difficulty

concluding that the PCGG's acts had a direct effect in the United

States. Fuller was forced to expend substantial sums of money

defending its title. The Deed of Sale does not restrict the

courts in which the PCGG is obligated to defend Fuller, and the

Sandiganbayan would be the least foreseeable forum for litigation

because (1) that court only hears claims concerning title to

seized property, and (2) it appears that only the PCGG has the

authority to file actions in that court. Moreover, it clearly

was foreseeable that Fuller, an American corporation, would

transport the Falcon to the United States and thus be forced to

defend a quiet title suit here. The PCGG demonstrated its

26
awareness of this by arranging for transport permits to the

United States and executing an FAA Bill of Sale.

Subsequent to oral argument, however, the Supreme Court

clarified the test to be used in determining whether a commercial

activity outside the United States has a direct effect in the

United States. The Court indicated its disapproval of the

Zernicek standard, rejecting the suggestion that § 1605(a)(2)

"contains any unexpressed requirement of 'substantiality' or

'foreseeability.'" Weltover, 60 U.S.L.W. at 4513. Instead, the

Court held, the proper test is that articulated by the Second

Circuit: "an effect is 'direct' if it follows 'as an immediate

consequence of the defendant's . . . activity[.]'" Id. (citing

Republic of Argentina v. Weltover, Inc., 941 F.2d 145, 152 (2d

Cir. 1991)) (ellipsis in original). Using this more lenient

standard, the Court in Weltover held that Argentina's unilateral

rescheduling of the maturity dates on government-issued bonds had

direct effects in the United States where the bondholders had

designated their New York accounts as the place of payment.

If anything, Weltover strengthens our conclusion in this

case. The PCGG agreed to "defend and hold harmless [Fuller] from

any and all claims whatsoever, including but not limited to

adverse claims. . . ." This language obviously includes

Faysound's quiet title action in Arkansas. As a direct

consequence of the PCGG's refusal to provide Fuller with a

defense in the Arkansas action, Fuller expended considerable sums

of money to defend itself. Thus, the PCGG's commercial act

27
caused a direct effect in the United States and the PCGG is not

immune from suit.

V.

The defendants also argue that the act of state doctrine

bars this lawsuit. This doctrine limits, for prudential rather

than jurisdictional reasons, the adjudication in American courts

of the validity of a foreign sovereign's public acts. See W.S.

Kirkpatrick & Co., Inc. v. Environmental Tectonics Corp., Int'l,

493 U.S. 400, 404 (1990); Callejo, 764 F.2d at 1113. As the

invocation of an act of state defense does not call into question

federal jurisdiction, the district court's ruling on the issue is

not a part of the immediately appealable order denying sovereign

immunity. In the exercise of our discretion and in the interest

of judicial economy, however, we may consider claims under our

pendent appellate jurisdiction that are closely related to the

order properly before us. Metlin v. Palastra, 729 F.2d 353, 355

(5th Cir. 1984); see also Stewart v. Baldwin County Bd. of Educ.,

908 F.2d 1499, 1509 (11th Cir. 1990); Charles A. Wright, et al.,

16 Federal Practice and Procedure § 3937, at 269 (1977 & Supp.

1992); cf. Myers v. Gilman Paper Co., 544 F.2d 837, 847 (5th Cir.

1977) (related issues may be decided on appeal from order

granting, denying, dissolving or modifying injunction). We

exercise this power with caution, Metlin, 729 F.2d at 355, but

here it is appropriate because the act of state issue is closely

related to the issue of sovereign immunity.

28
 The act of state doctrine serves to enhance the ability of

the Executive Branch to engage in the conduct of foreign

relations by preventing courts from judging foreign public acts.

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423 (1964).

When determining whether the act of state doctrine limits

adjudication in American courts, we look not only to the acts of

the named defendants, "but [to] any governmental acts whose

validity would be called into question by adjudication of the

suit." Callejo, 764 F.2d at 1113. The defendants assert that

the act of state doctrine applies because resolution of this suit

will call into question the Phillipine government's grant of

power to the PCGG to sequester and sell assets, the PCGG's

official acts of sequestering and selling the Falcon, the

Philippines Supreme Court's decision that the PCGG had no

authority to sell the aircraft and that the proceeds of the sale

should be placed in escrow until title is determined, and various

other official acts. Furthermore, the defendants argue that,

even if there is an exception to the act of state doctrine for

the repudiation of commercial obligations, it is inapplicable

here because the PCGG's commercial acts were traceable to

sovereign acts.

We share none of the defendants' concerns about the effect

of this lawsuit. The district court need not adjudicate the

validity of any of the public acts authorizing the PCGG to

sequester and sell assets in the course of determining whether

the PCGG wrongfully repudiated its contractual obligation. Apart

29
from the decision of the Philippines Supreme Court, all of the

public acts cited by the defendants directly involve the creation

and extent of the PCGG's authority to acquire and convey title.

This lawsuit, however, has nothing to do with title to the

aircraft, but is instead a damages action arising from a contract

breach. Unlike in Callejo, where the nationalized bank's breach

of its obligation to the plaintiffs was required by a

governmental edict concerning currency exchange rates, no act of

state forced the PCGG to refuse to defend Fuller. Finding a

breach in Callejo would have called into question the official

acts which directly caused the breach. Id. at 1115-16. There is

no comparable connection here between any public acts and the

PCGG's refusal to defend.

Moreover, finding a breach here would not call into question

the decision of the Philippines Supreme Court, for that court has

merely determined that the PCGG had no authority to sequester and

sell the Falcon without permission from the Sandiganbayan. In

short, all the public acts and decisions cited by the defendants

may be valid and yet the PCGG still may have breached the

contract. Although public acts lurk in the background, the act

of state doctrine "does not preclude judicial resolution of all

commercial consequences stemming from the occurrence of. . .

public acts." Arango, 621 F.2d at 1381.

VI.

30
 The defendants next argue that the district court had no

jurisdiction over Fuller's tort claim. Although the district

court ruled on jurisdiction over Fuller's tort claim in an order

separate from the order in which it held the commercial

activities exception applicable, the second order also functioned

as a denial of immunity. As such, it is immediately appealable

under the collateral order doctrine.

The parties agree that the noncommercial tort exception to

sovereign immunity, 28 U.S.C. § 1605(a)(5), is inapplicable.

However, Fuller asserts that it can recover for tortious acts

under the commercial activities exception of § 1605(a)(2). The

defendants contend that Fuller is bound to the basis for

jurisdiction over its tort claims which it originally pled

(§ 1605(a)(5)) and that, because there is no jurisdiction under

§ 1605(a)(2) generally, there is no jurisdiction over the tort

claim.

The defendants also argue that the district court erred in

finding supplemental jurisdiction under 28 U.S.C. § 1367(a).

That section, enacted ten days before Fuller filed its original

complaint, provides:

Except as provided in subsections (b) and (c) or as
expressly provided otherwise by Federal statute, in any
civil action of which the district courts have original
jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to
claims in the action within such original jurisdiction that
they form part of the same case or controversy under Article
III of the United States Constitution. . . .

Subsections (b) and (c) are not relevant here. However, the

defendants argue, a federal statute, namely 28 U.S.C. § 1330(a),

31
provides that the sole means of acquiring jurisdiction over a

foreign sovereign is through operation of the FSIA. Thus, §

1367(a) is inapplicable.

We conclude that jurisdiction was properly exercised over

Fuller's tort claim, at least with respect to the PCGG, under §

1605(a)(2). As discussed above, there is subject-matter

jurisdiction under § 1605(a)(2) to hear the claim against the

PCGG because the PCGG engaged in commercial activity with a

direct effect in the United States. Section 1605 does not

restrict the nature of the cause of action that may be asserted

against a foreign sovereign over whom there is subject matter

jurisdiction, but merely eliminates immunity "in any case. . . in

which the action is based upon" commercial activities. Thus,

because there is jurisdiction over the PCGG, the district court

may resolve a tort claim which is based on the PCGG's commercial

activity.13

We cannot affirm the order as to the Republic, however,

because, as discussed above, further proceedings are necessary to

determine whether the Republic can be held liable for the acts of

the PCGG. Thus, we will reverse this order insofar as it holds

13
We note that the district court erred in applying 28
U.S.C. § 1347(a). Title 28 U.S. Code § 1330(a) restricts suits
against foreign sovereigns to those cases in which the sovereign
is not entitled to immunity. Under § 1604, immunity exists
except as provided in §§ 1605-1607. Thus, the exception
contained in the first clause of § 1367(a) applies here.
Moreover, the intent of § 1367(a) was to codify the doctrines of
pendent and ancillary jurisdiction. H.R. Rep. No. 101-734, 101st
Cong., 2d Sess., at 27-28, reprinted in 1990 U.S.C.C.A.N. 6873-
74; see also Siegel, Practice Commentary on § 1367 (in pocket
part), at 219.

32
that the court has jurisdiction over Fuller's tort claim against

the Republic, and remand for further proceedings.

VII.

Finally, the defendants quarrel with the district court's

refusal to dismiss on grounds of forum non conveniens. This

order is not immediately appealable under the collateral order

doctrine, however, as the need for an appellate court to examine

factual and legal issues involved in the underlying dispute would

often enmesh it too deeply in the merits of the action. Van

Cauwenberghe v. Biard, 486 U.S. 517, 529 (1988).

We do not think it appropriate to exercise our discretion to

resolve this issue under our pendent appellate jurisdiction. The

factors to which we look in reviewing a district court's forum

non conveniens decision are not closely related to the

considerations involved in reviewing decisions concerning either

sovereign immunity or the act of state doctrine. A forum non

conveniens inquiry involves an assessment, under a narrow

standard of review, of the district court's conclusion about the

most convenient place for trial. See In re Aircrash Disaster

Near New Orleans, 821 F.2d 1147, 1162, 1166 (5th Cir. 1987) (en

banc), vacated on other grounds sub nom. Pan American World

Airways, Inc. v. Lopez, 490 U.S. 1032 (1989). As indicated in

the opinion of the district court, the decision involves the

weighing of a mix of private and public interests, keeping in

mind that the plaintiff's choice of forum is usually to be

33
respected. The private interests include ease of access to

sources of proof; the availability of compulsory process for

compelling attendance of unwilling witnesses; and the costs of

obtaining the attendance of willing witnesses. Id. (citing Gulf

Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947)). The public

interests include the extent to which congestion will slow trial

of the case; the interest in having controversies resolved in a

local forum; the familiarity of the court with the governing law;

and the unfairness of burdening citizens in an unrelated forum

with jury duty. Id. at 1162-63. Of central importance in this

case is the threshold question whether there exists an

alternative forum. See id. at 1164; Piper Aircraft Co. v. Reyno,

454 U.S. 235, 254 n.22 (1981).

As detailed above, the sovereign immunity issue in this case

raised questions of the agency relationship between foreign

governments and their instrumentalities, the characterization of

certain acts as commercial or sovereign, and the effects of those

acts in the United States. The act of state issue raised similar

questions concerning the characterization of certain acts as

public and sovereign or private and commercial. While the forum

non conveniens issue may appear related in that it essentially

involves a judgment as to whether this lawsuit should be heard in

a court of the United States, that comparison is too general a

basis for invoking a jurisdictional doctrine which is used only

sparingly and with great caution. Sovereign immunity and the act

of state doctrine represent expressions by the legislative and

34
judicial branches of limits on suits against foreign sovereigns

as sovereigns. Each has roots in the notion that our foreign

policy interests are best served when courts exercise caution in

extending their adjudicatory powers to foreign governments. See

Verlinden, B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486-89

(1983) (sovereign immunity); W.S. Kirkpatrick, 493 U.S. at 404

(act of state doctrine). Forum non conveniens, on the other

hand, deals with the more mundane matter of trial convenience and

involves a balancing of interests totally unrelated to the

conduct of foreign policy. We think it inappropriate to reach

out and decide the forum non conveniens issue in a case in which

our appellate jurisdiction is carefully defined by concerns about

enforcing the immunity of foreign sovereigns from litigation.

VIII.

For the foregoing reasons, the order of the district court

entered on April 18, 1991, is AFFIRMED as to the PCGG. This

order is REVERSED as to the immunity of the Republic of the

Philippines, and the case is REMANDED to the district court for

further proceedings consistent with this opinion. The order of

the district court entered on July 9, 1991, is AFFIRMED as to

Fuller's tort claim against the PCGG; REVERSED and REMANDED with

respect to the Republic; and the defendants' appeal with respect

to the forum non conveniens holding is DISMISSED without

prejudice.

35