Soudavar v. Islamic Republic of Iran

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 99-20018
Summary Calendar

ABOLALA SOUDAVAR; SAADI SOUDAVAR
Plaintiffs - Appellants

VERSUS

ISLAMIC REPUBLIC OF IRAN; MINISTRY OF INDUSTRY; MINES OF
IRAN; SAZMANE GOSTARESH VA NOWSAZ-E IRAN
Defendants - Appellees

Appeal from the United States District Court
For the Southern District of Texas
September 7, 1999

Before DAVIS, DUHÉ, and BENAVIDES, Circuit Judges

DUHÉ, Circuit Judge:

BACKGROUND

Abolala Soudavar and Saadi Soudavar (“Plaintiffs”) were

substantial shareholders in the Khawar Industrial Group (“KIG”),

one of the largest industrial enterprises in Iran and a licensee of

Mercedes-Benz. In 1979, Iran expropriated the Plaintiffs’ property

and nationalized KIG. Although the law instituting the

nationalization made certain provisions for the compensation of

KIG’s shareholders, the Plaintiffs were never paid.

After the expropriation, the Plaintiffs moved to the United
States and Saadi Soudavar has become a United States citizen. In

1991, Iran organized a gathering in New York aimed at persuading

Iranian businessmen to return home. At that meeting the Plaintiffs

asked Iranian officials about the status of their property, and

were told to return home if they wanted it back. In 1992, Iran

adopted a resolution to compensate parties whose property had been

expropriated. Under the resolution, eligible shareholders could

elect to receive up to two thirds of the shares previously owned,

minus a number of fees. The Plaintiffs elected not to accept this

offer. The Plaintiffs allege that Iran later blacklisted them from

this offer.

In 1998, the Plaintiffs sued Iran, the Ministry of Industry

and Mines, and Sazmane Gostaresh Va Nosaz-e-Iran (Department of

Expansion and New Development of Iran) (collectively “Iran”). Iran

moved to dismiss under Fed. R. Civ. P. 12(b)(1) for lack of

subject matter jurisdiction and, alternatively, under Fed. R. Civ.

P. 12(b)(6) for failure to state a claim upon which relief can be

granted. The district court granted Iran’s Rule 12(b)(6) motion

and dismissed the case without prejudice but did not address Iran’s

Rule 12(b)(1) motion. The Plaintiffs appeal.

DISCUSSION

Citing the Foreign Sovereign Immunities Act (“FSIA”) and the

Treaty of Amity, the Plaintiffs argue that the district erred by

dismissing their suit. For the following reasons, we vacate the

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district court’s dismissal for failure to state a claim and dismiss

the suit for lack of subject matter jurisdiction.

I. Foreign Sovereign Immunities Act

Generally, foreign sovereigns are “immune from jurisdiction of

the courts of the United States.” 28 U.S.C.A. § 1604 (West 1994).

“Under the FSIA, a court in the United States can exercise subject

matter jurisdiction over a foreign sovereign only if an exception

to sovereign immunity applies.” Stena Rederi AB v. Comision de

Contratos, 923 F.2d 380, 386 (5th Cir. 1991); 28 U.S.C.A. § 1605

(West 1994 & Supp. 1999) (listing exceptions to immunity). In this

case, the Plaintiffs rely on the commercial activities exception to

sovereign immunity. See § 1605(a)(2).1

In determining whether the commercial activity exception

applies, we ask three questions: (1) “whether the particular

conduct giving rise to the claim in question constitutes or is in

connection with commercial activity;” (2) whether the relevant

activity is sovereign or commercial; and (3) whether the commercial

activity has the requisite jurisdictional nexus with the United

States. De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385,

1391 (5th Cir. 1985). In the instant case, the district court

answered the second question, concluding that the acts complained

of were sovereign rather than commercial. In Siderman de Blake v.

1
The Defendant argues that the takings in violation of
international law exception is also inapplicable. See 28 U.S.C.A.
§ 1605(a)(3). The Plaintiffs do not rely on this exception and,
thus, we need not address it.

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Republic of Argentina, 965 F.2d 699, 708-09 (9th Cir. 1992), the

Ninth Circuit reached a different conclusion in a case with similar

facts. In that case, Argentina expropriated the plaintiffs’ hotel

and retained the profits from its continued operation. The Ninth

Circuit characterized Argentina’s continuing management of the

hotel as commercial, reasoning that Argentina’s activities were “of

a kind in which a private party might engage.” Id. In this case,

the acts complained of, whether sovereign or commercial, lack the

requisite jurisdictional nexus with the United States. Therefore,

we need not decide whether the acts were sovereign or commercial.

The FSIA lists three types of acts which have the requisite

jurisdictional nexus with the United States:

[1] a commercial activity carried on in the United States
by the foreign state; . . . [2] an act performed in the
United States in connection with a commercial activity of
the foreign state elsewhere; . . . [3] an act outside the
territory of the United States in connection with a
commercial activity of the foreign state elsewhere and
that act causes a direct effect in the United States.

28 U.S.C.A. § 1605(a)(2).

First, the Plaintiffs argue that by meeting with Abolala

Soudavar in New York in 1991, Iran carried on commercial activity

in the United States. We disagree. “Under the FSIA, commercial

activity carried on in the United States must have ‘substantial

contact with the United States.’” Stena, 923 F.2d at 389 n.11

(quoting 28 U.S.C.A. § 1603(e) (West 1994)). In Stena, we

concluded that a single visit to Texas by a representative of a

nationalized Mexican petroleum company did not constitute

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substantial contact with the United States. See id. Similarly,

the Iranian representative’s visit to New York did not constitute

substantial contact with the United States.

Second, the Plaintiffs maintain that jurisdiction is proper

because the New York meeting constituted an “act performed in the

United States in connection with a commercial activity of [Iran]

elsewhere.” 28 U.S.C.A. § 1605(a)(2). This argument fails because

the Plaintiffs’ causes of action are not based on representations

made at the meeting. See Stena, 923 F.2d at 388 (stating that

“[u]nder the plain language of the FSIA, the plaintiff’s action

must be based upon the act performed in the United States.”). The

meeting was designed to persuade Iranian businessmen to return to

Iran. When the parties discussed compensation for the KIG shares,

the Iranian representative told Abolala Soudavar to return to Iran

if he wanted his company back. This statement is not the basis of

the Plaintiffs’ suit. It is clear from the complaint that the

Plaintiffs’ suit is based on Iran’s refusal to follow its own law

calling for remuneration for expropriating the Plaintiffs’

property.

Third, the Plaintiffs’ contend that we have jurisdiction over

this matter because Iran’s refusal to pay for the expropriated

shares caused direct effects in the United States--lost income and

lost tax revenue. We disagree. “[A]n effect is direct if it

follows as an immediate consequence of the defendant’s activity.”

Republic of Argentina v. Weltover, 112 S.Ct. 2160, 2168 (1992). At

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the time of the expropriation, the Plaintiffs lived in Iran and

their property was in Iran. Hence, the financial loss, occurred in

Iran. The fact that the Plaintiffs have since become United States

residents does not alter this analysis.2

II. The Treaty of Amity

The Plaintiffs also argue that we have jurisdiction over this

cased based on the Treat of Amity. Treaty of Amity, Economic

Relations and Consular Rights between the United States and Iran,

8 U.S.T. 899. We disagree. The limited waiver of immunity in the

Treaty of Amity “extends only to enterprises of Iran, not Iran

itself.” Berkovitz v. Islamic Republic of Iran, 735 F.2d 329, 333

(9th Cir. 1984); see Formost-McKesson v. Islamic Republic of Iran,

905 F.2d 438, 452 (D.C. Cir. 1990).

CONCLUSION

We vacate the district court’s dismissal and dismiss the case

for lack of subject matter jurisdiction.

VACATED; DISMISSED.

2
The Plaintiffs argue that, as shareholders in KIG, Iranian
law required that they be notified at their United States addresses
by registered mail about share-related decisions. Relying on dicta
from a Ninth Circuit case, they argue that the mailing
requirement provides the direct effect in the United States. See
Siderman de
Blake, 965 F.2d at 711. We find the Ninth Circuit’s dicta
unpersuasive.

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