Plaintiff's Financial Loss Considered Sufficient Nexus for Commercial Activity Exception of the Foreign Sovereign Immunities Act

Article excerpt

Universal Trading & Inv. Co. v. Bureau for Representing Ukrainian Interests in Int'l & Foreign Courts, 727 F.3d 10 (1st Cir. 2013).

The Foreign Sovereign Immunities Act (FSIA), which precludes the United States from obtaining jurisdiction over a foreign state, dictates that a foreign state participating in certain commercial activity in connection with the United States is an exception to their presumed immunity. (1) When determining whether or not the commercial activity exception applies to a foreign state's immunity, a court will consider the nature of the conduct the action is based upon without taking into consideration the purpose of the activity. (2) If the commercial activity exception is applicable, a nexus must be established between the foreign state's activity and the United States in order to assert jurisdiction. (3) In Universal Trading & Investment Co. v. Bureau for Representing Ukrainian Interests in International & Foreign Courts, (4) the United States Court of Appeals for the First Circuit considered whether a foreign state sued for breach of contract by a private asset recovery company can claim sovereign immunity under the commercial activity exception of the FSIA. (5) The court found a unilateral contract existed and because of the company's full performance of asset recovery services, a sufficient nexus was present and therefore the commercial activity exception did apply, allowing the United States jurisdiction over the foreign state. (6)

In 1998 the Ukrainian Prosecutor General's Office (UPGO) expressed interest in contracting with Universal Trading & Investment Co. (UTICo) to recover assets expatriated from Ukraine because of the misconduct of United Energy Systems of Ukraine (UESU), Pavlo Lazarenko (Lazarenko), Petro Kiritchenko (Kiritchenko), and United Energy International, Ltd. (UEI). (7) Through Lazarenko, UESU had been awarded a government contract to handle the importation, distribution, and delivery of natural gas in Ukraine, and the proceeds for resale of natural gas collected by UESU, totaling over USD2 billion, were converted through UESU's parent company accounts and then hidden in UESU's principals' secret accounts. (8) After UTICo's representatives discussed the terms of UTICo's services with the Ukrainian Deputy Prosecutor, Nikolai Obikhod, UTICo and UPGO reached their first agreement on May 15, 1998 (May Agreement), in which provided UTICo would receive a 12% commission on all assets returned to Ukraine. (9) On October 2, 1998, the new Prosecutor General, Mikhailo Potebenko, confirmed the terms of the May Agreement (October Agreement). (10) Additionally, UPGO granted UTICo and its staff powers of attorney to investigate and bring legal actions in order to reveal and secure the freezing of assets on UPGO's behalf outside of Ukraine, which UTICo used to accomplish its asset recovery work by freezing hundreds of millions of U.S. dollars for Ukraine by uncovering UESU principals engaging in fraud and providing vital evidence for the prosecution of Lazarenko, Kiritchenko, and others. (11) UPGO acknowledged UTICo's performance in a letter sent on September 15, 2003, to the President of Ukraine by the Prosecutor General that recognized UTICo had located and blocked assets in the banks of Guernsey, Antigua, and other countries. (12)

On November 26, 2010 UTICo filed a complaint in the United States District Court for the District of Massachusetts suing UPGO and the Bureau for Representing Ukrainian Interests in International and Foreign Courts (the Bureau) for breach of contract for rendering services to UPGO without any compensation. (13) UPGO and the Bureau accepted UTICo's allegations as true and only filed a motion to dismiss the complaint on the grounds that they were entitled to immunity under FSIA. (14) The district court denied the motion to dismiss in part, and held that jurisdiction could be asserted over UTICo's breach of contract claim related to the May Agreement and October Agreement under the commercial activity exception to FSIA even though the language was ambiguous and required extrinsic evidence to determine the parties' intent. …


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