Voest-Alpine Trading USA Corp. v. Bank of China

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 97-20322

_____________________

VOEST-ALPINE TRADING USA CORPORATION,

Plaintiff-Appellee,

versus

BANK OF CHINA; BANK OF CHINA NEW YORK BRANCH,

Defendants,

BANK OF CHINA,

Defendant-Appellant.

_________________________________________________________________

Appeals from the United States District Court
for the Southern District of Texas
_________________________________________________________________
June 12, 1998

Before POLITZ, Chief Judge, REAVLEY, and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The issue in this appeal is whether, having engaged in a

commercial transaction with an American corporation, a foreign

state’s failure to remit funds to the corporation’s designated

bank account in the United States is sufficient to support

jurisdiction over the foreign state under the commercial activity

exception to the Foreign Sovereign Immunities Act (“FSIA”), 28

U.S.C. § 1605(a)(2). The district court held that it is. We

agree. Because a financial loss was incurred in the United
States by an American plaintiff as an immediate consequence of

the foreign state’s commercial activity abroad, the loss

constituted a direct effect within the scope of the third clause

of the commercial activity exception. We, therefore, affirm.

I

A

In June 1995, Voest-Alpine Trading USA Corporation (“Voest-

Alpine”), a New York corporation with its principal place of

business in Houston, Texas, agreed to sell 1,000 metric tons of

styrene monomer to the Jiangyin Foreign Trade Corporation

(“JFTC”) for USD $1,000 per metric ton. The shipment was to be

delivered to the Port of Zhangjiagang, China, by July 1995. As

security for performance of JFTC’s payment obligation, the Bank

of China issued an irrevocable letter of credit.

The Bank of China is an instrumentality of the People’s

Republic of China. On July 6, 1995, the Bank of China’s Jiangyin

Sub-Branch issued the letter of credit in the amount of USD $1.2

million. The letter of credit referred to JFTC as the applicant

and Voest-Alpine as the beneficiary. The letter provided that

upon proper presentment of all documents and drafts to the

Jiangyin Sub-Branch, the Bank of China would pay Voest-Alpine the

appropriate amount. It did not designate a particular place of

payment, though it did state that it was to be governed by the

2
Uniform Customs and Practice for Documentary Credits of the

International Chamber of Commerce, Publication No. 500 (“UCP

500"). Its expiry date was August 10, 1995, and the United

States was the place of expiry.

The Jiangyin Sub-Branch sent the letter of credit via telex

to the Bank of China’s New York Branch, requesting that the New

York Branch “advise” Voest-Alpine of the letter’s issuance. It

did so, and on July 22, 1995, Voest-Alpine delivered 997.731

metric tons of styrene monomer to the Port of Zhangjiagang,

China. Shortly after its arrival, the shipment was unloaded into

a customs warehouse, whereupon it was seized by Chinese customs.1

Voest-Alpine then provided its bank, the Texas Commerce Bank

(“TCB”) in Houston, Texas, with the necessary documents for

presentment to the Bank of China. On August 3, 1995, TCB

forwarded the documents by courier to the Jiangyin Sub-Branch,

which received them on August 9.

The documents were accompanied by a cover letter requesting

that the Bank of China notify TCB immediately of any

discrepancies or confirm that the documents had been accepted for

payment. The cover letter also stated that payment was to be

sent by wire to Voest-Alpine’s TCB bank account in Houston. On

1
Apparently, JFTC had an obligation to pay a tariff of sorts
to the People’s Republic of China, even though JFTC is owned, at
least beneficially, by the People’s Republic of China.

3
August 11, the Bank of China telexed TCB, alleging that the

documents contained several discrepancies and stating that it was

contacting JFTC as to whether the discrepancies should be waived.

The Bank of China did not, however, reject the documents at that

time. TCB and Voest-Alpine vigorously maintained that the

documents were conforming. Finally, on October 4, 1995, after

several correspondences between TCB, Voest-Alpine, the Bank of

China, and JFTC, the Bank of China telexed TCB that JFTC insisted

on refusal of payment and that the documents would be returned.

B

On October 20, 1995, Voest-Alpine filed the instant action

against the Bank of China in the United States District Court for

the Southern District of Texas in Houston, seeking damages for

breach of the letter of credit.2 The Bank of China responded

with a motion for judgment on the pleadings pursuant to Fed. R.

Civ. P. 12(c), asserting lack of jurisdiction and improper venue.

It argued to the district court that, as a “foreign state” under

the FSIA, 28 U.S.C. § 1603, it is immune from suit in any federal

or state court in the United States unless one of the enumerated

2
Previously, on October 16, 1995, Voest-Alpine commenced an
action against JFTC in the Superior People’s Court of Jiangsu
Province. Following a hearing, the Chinese court entered
judgment in Voest-Alpine’s favor for the full amount of the
contract price. Voest-Alpine avows that it is not seeking double
recovery in the instant action.

4
exceptions to the FSIA applies. Because none of the exceptions

apply, the Bank of China contended, the action should be

dismissed. Voest-Alpine countered that the “commercial activity”

exception applied because its action was based upon commercial

activity conducted by the Bank of China (or its agents) in the

United States and upon commercial activity by the Bank of China

outside the United States that caused a direct effect in the

United States.

On June 30, 1997, the district court denied the Bank of

China’s motion, concluding that Voest-Alpine had alleged facts

sufficient to demonstrate the applicability of the commercial

activity exception. Based on the pleadings, the court determined

that the lawsuit was based upon an act outside the United States,

in connection with the Bank of China’s commercial activity

outside the United States, that caused a direct effect in the

United States. Thus, the court held, the lawsuit fell within the

scope of the third clause of the commercial activity exception

and, as a result, judgment on the pleadings dismissing the case

would be inappropriate. The Bank of China appeals.3

3
The Bank of China also appeals the district court’s refusal
to dismiss the case for lack of venue. Because the district
court’s decision in this respect is not a final appealable order
under 28 U.S.C. § 1291, see Louisiana Ice Cream Distrib., Inc. v.
Carvel Corp. & Franchise Stores Realty Corp., 821 F.2d 1031, 1033
(5th Cir. 1987), we decline to consider it here.

5
 II

The district court’s conclusion as to whether the Bank of

China enjoys sovereign immunity under the FSIA is a question of

law for which the standard of review is de novo. See Stena

Rederi AB v. Comision de Contratos, 923 F.2d 380, 386 (5th Cir.

1991). As a procedural matter, the case comes to us on appeal of

the district court’s refusal to dismiss the action on a motion

for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c).

Judgment on the pleadings is appropriate only if material facts

are not in dispute and questions of law are all that remain. See

Hebert Abstract Co. v. Touchstone Properties, Ltd., 914 F.2d 74,

76 (5th Cir. 1990). Here, the parties have not yet conducted

discovery and, therefore, we must assume the truth of factual

allegations in the complaint. See Saudi Arabia v. Nelson, 507

U.S. 349, 351 (1993); compare Baker v. Putnal, 75 F.3d 190, 197-

98 (5th Cir. 1996) (if the district court bases its ruling on

facts developed outside the pleadings, we review the ruling as an

order granting summary judgment).4 With these standards in mind,

we turn to the merits.

4
Voest-Alpine attached to its complaint the letter of credit
and other documents allegedly embodying its agreement with the
Bank of China, the terms of the agreement between the parties
being a legal issue underlying the action. Because these
documents thereby became part of Voest-Alpine’s pleadings, the
district court’s consideration of the documents did not make this
a summary judgment case.

6
 III

A

“The FSIA sets forth ‘the sole and exclusive standards to be

used’ to resolve all sovereign immunity issues raised in federal

and state courts.” Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d

528, 532 (5th Cir.) (quoting H.R. Rep. No. 1487, 94th Cong., 2d

Sess. 12 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6610),

cert. denied, 506 U.S. 956 (1992). Under the FSIA, foreign

states and their agencies or instrumentalities are generally

immune from suit in the courts of the United States. Stena

Rederi, 923 F.2d at 386 (citing 28 U.S.C. § 1604). There are,

however, exceptions to the rule. Our case today turns on the

“commercial activity” exception. This exception abrogates

sovereign immunity in any case based upon a foreign state’s

commercial activity that has a jurisdictional nexus with the

United States. See 28 U.S.C. § 1605(a)(2).

The commercial activity exception is broken down into three

clauses, each identifying an act that is sufficiently connected

to the United States to satisfy the jurisdictional nexus

requirement. Specifically, the exception provides jurisdiction

over a foreign state in any case:

in which the action is based [1] upon a commercial
activity carried on in the United States by the foreign
state; or [2] upon an act performed in the United
States in connection with a commercial activity of the

7
 foreign state elsewhere; or [3] 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). All three clauses require that the cause

of action be “based upon” a certain act or activity of the

foreign state, that is, the act or activity must form the basis

of at least some element of the cause of action. See Nelson, 507

U.S. at 357. All three clauses further require some “commercial”

aspect to the foreign state’s actions. Because the FSIA provides

that the commercial character of an act is to be determined by

reference to its “nature” rather than its “purpose,” see 28

U.S.C. § 1603(d), the question is not whether the foreign state

is acting with a profit motive instead of seeking to fulfill

uniquely sovereign objectives, but “whether the particular

actions that the foreign state performs (whatever the motive

behind them) are the type of actions by which a private party

engages in ‘trade and traffic or commerce.’” Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992) (quoting

Black’s Law Dictionary 270 (6th ed. 1990)).

Here, the parties do not dispute that the Bank of China is a

foreign state engaged in commercial activity. Indeed, because

all of the Bank of China’s acts and activities relevant to this

case are indisputably “commercial” in nature, the second clause

8
is inapplicable.5 This appeal thus focuses on whether Voest-

Alpine’s cause of action is based on (1) any of the Bank of

China’s actions in the United States or (2) any of the Bank of

China’s actions outside the United States that caused a direct

effect in the United States. The elements of Voest-Alpine’s

cause of action are: (a) issuance of the letter of credit, (b)

timely presentation of necessary documents, and (c) failure to

pay on the letter of credit.6 There is no real question that the

Bank of China issued the letter of credit and was presented7 the

necessary documents in China, and we shall assume without

deciding that neither of these acts directly affected the United

States. The question, then, is whether the Bank of China’s

5
The second clause permits jurisdiction if the cause of
action is based on any “act” in the United States, provided it
occurs “in connection with” commercial activity outside the
United States. Because the first clause permits jurisdiction
based on “commercial” acts in the United States, the second
clause is generally understood to apply to noncommercial acts in
the United States that relate to commercial acts abroad. Cf.
Nelson, 507 U.S. at 358 (noting differences between first and
second clauses).
6
The Bank of China argues that the third element of Voest-
Alpine’s cause of action is not the failure to pay, but failure
to reject the documents within seven banking days. The Bank of
China may indeed be correct, but the result is the same either
way. See infra note 12 and accompanying text.
7
Voest-Alpine argues that presentment occurred when it
furnished conforming documents to TCB in Texas. But as the Bank
of China correctly notes, TCB was Voest-Alpine’s agent and thus
acting as the “presenting bank.” Presentment occurred when TCB
presented the documents to the Jiangyin Sub-Branch in China.

9
failure to pay occurred in the United States (first clause) or

caused a direct effect in the United States (third clause).

B

The district court found jurisdiction under the third clause

of the commercial activity exception.8 That is, the district

court determined that this action was based upon an act outside

the United States, in connection with the Bank of China’s

commercial activity outside the United States, that caused a

direct effect in the United States. In arriving at this

conclusion, the district court relied on Voest-Alpine’s

allegations that the Bank of China’s refusal to pay under the

letter of credit was an act performed in connection with its

commercial issuance of a letter of credit, which directly

resulted in Voest-Alpine’s nonreceipt of funds into its bank

account in Texas. The Bank of China contends that the district

court erred in finding a direct effect in the United States

because the United States was neither the “place of payment” nor

8
The district court also concluded that Voest-Alpine had
pled facts sufficient to establish jurisdiction under the first
clause based on its allegations that the letter of credit had
been issued “through” the Bank of China’s New York Branch. In
particular, Voest-Alpine alleges that the New York Branch served
not only as an advising bank, but also “opened an internal file
on the letter of credit” and made “numerous phone calls to
[Voest-Alpine] regarding payment on the letter of credit.”
Because we find jurisdiction proper under the third clause, we do
not reach the question whether these allegations support
jurisdiction under the first clause.

10
the place of any other “legally significant act” as required, the

Bank argues, by the Supreme Court in Weltover.

(1)

Whether any given commercial activity abroad has a direct

effect in the United States is a question that generally admits

of no easy, clear-cut answer. Indeed, at one time, we described

the determination as “‘an enterprise fraught with artifice.’”

Callejo v. Bancomer, S.A., 764 F.2d 1101, 1111 (5th Cir. 1985)

(quoting Texas Trading & Milling Corp. v. Federal Republic of

Nigeria, 647 F.2d 300, 312 (2d Cir. 1981), cert. denied, 454 U.S.

1148 (1982)). Since that time, however, the Supreme Court has

added significant (though not extensive) guidance on this

question. In Weltover, supra, the Court addressed what

constitutes a “direct effect” and announced a fairly simple test:

“an effect is ‘direct’ if it follows ‘as an immediate consequence

of the defendant’s . . . activity.’” 504 U.S. at 607 (citation

omitted). At the same time, the Court expressly rejected other

requirements, adopted by several of the courts of appeals, that

the effect be either “foreseeable” or “substantial.” Id. In

short, an effect in the United States is sufficient to support

jurisdiction under the commercial activity exception so long as

it is “direct”--with no other modifying adjectives.

11
 Consistent with Weltover, this court had earlier held that a

financial loss incurred in the United States by an American

plaintiff may constitute a direct effect that supports

jurisdiction under the third clause of the commercial activity

exception. See Callejo, 764 F.2d at 1111-12; accord Grass v.

Credito Mexicano, S.A., 797 F.2d 220, 221 (5th Cir. 1986), cert.

denied, 480 U.S. 934 (1987); Gould v. Pechiney Ugine Kuhlmann,

853 F.2d 445, 453 (6th Cir. 1988); Texas Trading, 647 F.2d at

312; Harris Corp. v. National Iranian Radio & Television, 691

F.2d 1344, 1351 (11th Cir. 1982) (demand for payment on letter of

credit issued by American bank causes direct effect in the United

States because it results in depletion of funds in the American

bank); see also Walter Fuller Aircraft Sales, Inc. v. Republic of

the Philippines, 965 F.2d 1375, 1387 (5th Cir. 1992) (finding a

direct effect because a breach of contractual obligation to

provide legal defense resulted in an expenditure of considerable

funds by an American corporation defending itself in an action

brought in Arkansas); compare Stena Rederi, 923 F.2d at 390

(third clause did not apply because the plaintiff was a Swedish

corporation, and “any financial loss it ha[d] suffered affect[ed]

Sweden, not the United States”). Callejo controls the outcome of

this case.

(2)

12
 The Bank of China, however, does not agree. First, it

strenuously argues that a finding of direct effects in the United

States requires the foreign state to have engaged in some

“legally significant act” in the United States. Second, it

contends that Callejo is distinguishable because the direct

effects in that case were based on a continuous series of

commercial transactions in the United States. Thus, the Bank

maintains, Callejo involved a far greater quantity of foreign

activity in the United States than is present here and involved

factual circumstances in which the place of payment was the

United States, not the foreign state. We address each aspect of

this argument, beginning with the so-called legally significant

acts requirement.

(a)

The Bank of China contends that its failure to pay on the

letter of credit did not have a direct effect in the United

States because it did not engage in any legally significant act

in the United States. A “legally significant act,” as defined by

courts adopting this requirement, is an act “giving rise” to the

cause of action. See, e.g., Adler v. Federal Republic of

Nigeria, 107 F.3d 720, 727 (9th Cir. 1997). In support of its

position, the Bank of China cites decisions from a number of

circuits that have indeed embraced this requirement in cases

13
brought under the third clause. See, e.g., Adler, supra; United

World Trade, Inc. v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d 1232

(10th Cir. 1994), cert. denied, 513 U.S. 1112 (1995); Antares

Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33 (2d

Cir. 1993), cert. denied, 510 U.S. 1071 (1994); General Elec.

Capital Corp. v. Grossman, 991 F.2d 1376 (8th Cir. 1993). The

Fifth Circuit, however, has not adopted this requirement and, we

think, for good reasons.

First and foremost, nothing in the text of the third clause

supports such a requirement. It simply requires (1) an act

outside the United States (2) in connection with commercial

activity outside the United States (3) that causes a direct

effect in the United States. See 28 U.S.C. § 1605(a)(2). Under

the third clause, then, the only act that must be legally

significant--that is, give rise to or form the basis of the cause

of action--is the act outside the United States. In Weltover,

the Supreme Court expressly admonished the circuit courts not to

add “any unexpressed requirement[s]” to the third clause and

specifically rejected the argument that direct effects must be

substantial or foreseeable. See 504 U.S. at 618. The legally

significant act requirement is unexpressed in the third clause

and, thus, has been renounced by Weltover.

14
 Courts still refusing to discard the legally significant

acts requirement have done so because Weltover ultimately found a

direct effect in the fact that the foreign state in that case

had, under its contract, breached its obligation to pay (i.e., to

perform) in the United States. See, e.g., Antares, 999 F.2d at

36 (“Although the Court did not expressly adopt our ‘legally

significant acts’ test, it used a similar analysis.”).9 But

Weltover’s reliance on a legally significant act in the United

States does not justify, much less compel, the conclusion that it

is or should be some kind of threshold requirement under the

third clause. See Goodman Holdings v. Rafidain Bank, 26 F.3d

1143, 1147 (D.C. Cir. 1994) (Wald, J., concurring). A legally

significant act in the United States will certainly cause a

direct effect in the United States, but that does not mean that a

direct effect in the United States can be caused only by a

legally significant act in the United States. As the Court

stated in Weltover, “an effect is ‘direct’ if it follows ‘as an

9
It is worth noting that a recent Second Circuit case
appears to have jettisoned the legally significant act
requirement. See Commercial Bank of Kuwait v. Rafidain Bank, 15
F.3d 238 (2d Cir. 1994). In Commercial Bank, the court found
jurisdiction under the third clause based on the fact that the
foreign state was contractually bound to remit funds to New York
banks, even though the foreign state’s failure to do so was not
the basis of the cause of action (and thus not a legally
significant act), but merely an immediate consequence (or direct
effect) of the foreign state’s commercial activity outside the
United States. See id. at 241.

15
immediate consequence of the defendant’s . . . activity,’” and it

need not be “foreseeable” nor “substantial.” 504 U.S. at 618

(citation omitted).10

Second, requiring the effect to have a causal nexus with

some legally significant act in the United States merges the

third clause into the second clause of the commercial activity

exception. The second clause requires that the cause of action

be based upon (1) an act in the United States (2) in connection

with commercial activity outside the United States. See 28

U.S.C. § 1605(a)(2). Thus, under the second clause, the act in

the United States must give rise to the cause of action or, in

other words, be a “legally significant act” as the term is used

by courts adopting such a requirement. But if the third clause

is read to require a legally significant act in the United

States, it becomes indistinguishable from the second clause

10
In Weltover, the argument was made that the foreign
state’s failure to pay bonds in New York City threatened the
city’s status as a “preeminent commercial center” and was thus a
direct effect in the United States. Rejecting the argument, the
Court suggested that an effect may be “too remote or attenuated”
to support jurisdiction under the third clause. Weltover, 504
U.S. at 618. Understood in context, this conclusion does not
imply that the effect must be based on a legally significant act
in the United States. Rather, it means that the third clause
does not permit jurisdiction over foreign states whose acts cause
only speculative, generalized, immeasurable, and ultimately
unverifiable effects in the United States. See id. (“Of course
the generally applicable principle de minimis non curat lex
ensures that jurisdiction may not be predicated on purely trivial
effects in the United States.”)

16
except, perhaps, that the third clause would also require proof

of an act outside the United States upon which the action is also

based and which caused a direct effect in the United States. Of

course, this interpretation of the third clause leaves it with no

perceivable purpose, as plaintiffs would always opt to seek

jurisdiction under the “lesser included” second clause. We are

confident Congress did not intend such a meaningless construction

of the commercial activity exception and, therefore, decline to

adopt the legally significant act requirement under the third

clause.

(b)

We also reject the Bank of China’s contention that Callejo

is distinguishable on its facts. In Callejo, the plaintiffs,

citizens of the United States, purchased certificates of deposit

from the defendant, a nationalized bank of Mexico. To make

deposits with the defendant, the plaintiffs would instruct their

bank in Texas to wire funds through another Texas bank to their

account with the defendant. Interest on the certificates of

deposit was typically paid to the plaintiffs by virtue of the

same process of interbank transfers. Such transfers occurred

over the course of 2-3 years, when the Mexican government froze

interest payments at an amount below the market rate. The

plaintiffs sued for breach of contract. Rejecting the

17
defendant’s claim of sovereign immunity under the FSIA, this

court found jurisdiction under the third clause of the commercial

activity exception. See 764 F.2d at 1110-12.

Contrary to the Bank of China’s contentions, our holding in

Callejo did not turn on whether the place of payment was in the

United States. Indeed, the Callejo court refused to attach any

significance whatsoever to where the certificate of deposits were

payable as a technical legal matter. See id. at 1112 (“we do not

perceive any material difference whether the legal place of

payment was Mexico or the United States”). The third clause of

the commercial activity exception, the court reasoned, was

designed to avoid the kind of problems such questions created:

[A]rcane doctrines regarding the place of payment are
largely irrelevant. . . . “Congress did not intend to
incorporate into modern law every ancient sophistry
concerning ‘where’ an act or omission occurs. Conduct
crucial to modern commerce--telephone calls, telexes,
electronic transfers of intangible debits and credits--
can take place in several jurisdictions. Outmoded
rules placing such activity ‘in’ one jurisdiction or
another are not helpful here.”

Id. (quoting Texas Trading, 647 F.2d at 311 n.30). Instead of

focusing on where payment occurred in the wire transfers of

money, the court turned its analysis to the effects of the

defendant’s activity and whether those effects were felt in the

United States. See id. at 1111-12.

18
 Nor does the viability of our holding in Callejo depend on

the continuous nature of the foreign state’s activity in the

United States in that case. Callejo held that because the

plaintiffs, and the bank account into which interest payments

were to be made, were located in the United States,11 “the

effects of [the defendant’s] breach were inevitably felt by them

there.” Id. The court’s finding in this respect did not turn on

the substantiality of those effects. The court did go on to

point out (consistent with then-current doctrine) that the

defendant’s activity in the United States was also continuous and

thereby made effects in the United States “foreseeable.” See 764

F.2d at 1112. However, as we recognized in Walter Fuller

Aircraft, the Supreme Court’s rejection of the substantiality and

foreseeability requirements in Weltover simply lowered the

standard for finding jurisdiction under the third clause. See

965 F.2d at 1387. Thus, Callejo’s consideration of these factors

was, in the light of Weltover, unnecessary once the court found

direct effects in the United States. Again: a nontrivial effect

in the United States need only be an immediate consequence of the

11
Callejo did not hold that any financial loss suffered by
an American plaintiff, regardless of where that loss was
incurred, is alone sufficient to constitute a direct effect under
the third clause, cf. Texas Trading, 647 F.2d at 312 & n.35
(discussing cases), and we make no attempt to answer that
question here.

19
foreign state’s activity to support jurisdiction under the third

clause.

C

Applying Callejo to the instant case, we are persuaded that

the pleadings demonstrate facts sufficient to support the

district court’s jurisdiction over the Bank of China under the

third clause of the commercial activity exception. Voest-Alpine

is an American corporation that suffered a nontrivial financial

loss in the United States in the form of funds not remitted to

its account at a Texas bank. Voest-Alpine expressly instructed

the Bank of China to wire payment on the letter of credit

directly into Voest-Alpine’s bank account in Houston, if the

necessary documents were conforming. As the Bank of China

conceded at oral argument, when the necessary documents are

conforming, it is the Bank’s customary practice to send payments

on a letter of credit to wherever the presenting party specifies.

In other words, had the Bank of China not found it necessary to

refuse payment, it would have wired the money directly to Voest-

Alpine’s Texas bank account. Clearly, then, the Bank of China’s

failure to pay on the letter of credit caused a direct effect in

the United States, that is, Voest-Alpine’s nonreceipt of funds in

20
its Texas bank account followed as an “immediate consequence” of

the Bank of China’s actions.12

The Bank of China failed to prove otherwise. Although

Voest-Alpine bore the initial burden of alleging facts which

demonstrated that the commercial activity exception applied

(i.e., it bore a burden of production), the Bank of China bore

the ultimate burden of persuasion on the question of immunity.

See Arriba, 962 F.2d at 533.13 It failed to meet this burden.

As the district court concluded:

[T]he pleadings indicate that the relevant funds are to
be transferred directly from the [Bank of China] to the
United States. Bank of China provides no evidence of
any account outside the United States into which
[Voest-Alpine] was to receive money under the letter of
credit. [The Bank of China’s] refusal to forward funds
under the letter of credit clearly has a direct effect
in the United States -- [Voest-Alpine] does not recover
payment under the letter of credit for goods it shipped
from the United States to China.

12
The same conclusion obtains even if the relevant conduct
is the Bank of China’s failure to reject the documents within
seven banking days inasmuch as an immediate consequence of this
failure was Voest-Alpine’s entitlement to receive payment under
the letter of credit, a payment which the Bank of China failed to
make.
13
In cases where the parties dispute key facts, “discovery
should be ordered circumspectly and only to verify allegations of
specific facts crucial to an immunity determination.” Id. at
534. Since the material facts were not in dispute here (the
letter of credit and other documents representing the scope of
the agreement between the parties were attached to the
complaint), the district court did not order discovery.

21
The pleadings support jurisdiction under the third clause of the

commercial activity exception and, therefore, the district

court’s refusal to dismiss Voest-Alpine’s action for lack of

jurisdiction was not error.14

IV

In sum, we hold that a financial loss incurred in the United

States by an American plaintiff, if it is an immediate

consequence of the defendant’s activity, constitutes a direct

effect sufficient to support jurisdiction under the third clause

of the commercial activity exception to the FSIA. Here, Voest-

Alpine, an American corporation, incurred a nontrivial financial

loss in the United States as a direct result of the Bank of

China’s failure to pay on a letter of credit it issued. This

loss is sufficient to support jurisdiction under the third

clause. Accordingly, the judgment of the district court is

A F F I R M E D.

REAVLEY, Circuit Judge, concurring:

14
Because we find jurisdiction proper under the third
clause, we do not reach Voest-Alpine’s argument (with which the
district court agreed) that jurisdiction also existed under the
first clause of the commercial activity exception based on its
allegations that Texas was the place of payment.

22
 I must accept this decision as consistent with the precedent

of this circuit. The panel in Callejo plainly said that “the

question of whether there was a direct effect in the United

States can be resolved without reference to the place of payment.

Since the Callejos were located in the United States, the effects

of Bancomer’s breach were inevitably felt by those there.”15

The Supreme Court’s opinion in Weltover does not overrule

our precedent. The plaintiffs were not American companies and

the Court repeated the statement that “an effect is ‘direct’ if

it follows ‘as an immediate consequence of the defendant’s ...

activity.’”16

My own reading of the statute would be that a consequential

loss, the result and not an element of the claim itself, is less

than “direct.” If the mere financial loss resulting from the

breach or tort satisfies the statute, an American plaintiff need

prove only commercial activity. Perhaps that was the intent of

Congress, but I agree with the other circuits. As the Tenth

Circuit said in United World Trade, Inc. v. Mangyshlakneft Oil

Production Association:

Nor is the fact that UWT is an American
corporation that suffered a financial loss
sufficient to place the direct effect of the

15
764 F.2d at 1111-12.
16
504 U.S. at 618.

23
 defendant’s actions “in the United States.”
Appellant would have us interpret §
1605(a)(2) in a manner that would give the
district courts jurisdiction over virtually
any suit arising out of an overseas
transaction in which an American citizen
claims to have suffered a loss from the acts
of a foreign state. We think that the
language of § 1605(a)(2) limiting
jurisdiction to cases where there is a
“direct effect” in the United States makes it
unlikely that this was Congress’ intent.17

Other circuits are in accord with the Tenth. In Antares

Aircraft v. Federal Republic of Nigeria, the Second Circuit found

that although a contractual provision designating the United

States as the place of performance may be sufficient to create

jurisdiction, Nigeria’s wrongful detention in Nigeria of an

American corporate plaintiff’s plane and demand for the plaintiff

to make payments to various accounts, including a bank account in

California, is insufficient for the “direct effect” exception.18

The Antares court was looking for a legally significant act in

the United States in order to grant jurisdiction. Similarly, in

Goodman Holdings v. Rafidan Bank, the D.C. Circuit Court

determined that the foreign bank’s failure to honor a letter of

credit was not a “direct effect” because no United States

17
33 F.3d 1232, 1239.
18
999 F.2d 33 (2d Cir. 1993).

24
location was designated as the place of performance.19 That

court based its conclusion, in part, on the fact that payment in

the United States was not a contractual requirement, but merely

at the request of the beneficiary to the letter of credit.

Further, Judge Wald’s concurrence only pointed out that the

involvement of the New York bank might as well have been by

customary practice, whether or not the contract specified payment

there.

19
26 F.3d 1143, 1147 (D.C. Cir. 1994).

25