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Agrocomplect, AD v. Republic of Iraq

November 30, 2007


The opinion of the court was delivered by: Reggie B. Walton United States District Judge


Agrocomplect AD, the plaintiff in this civil suit, seeks $47,000,000 in compensatory damages from the Republic of Iraq for the alleged breach of a construction contract entered into by the plaintiff and the defendant in the early 1980s (the "Contract").*fn1 First Amended Complaint at 11 (the "Amended Complaint" or "Am. Compl."). The plaintiff further requests that the Court enter an order directing the parties to arbitrate its breach of contract claim in the first instance pursuant to the terms of the Contract. Id. Currently before the Court is the Defendant's Motion to Dismiss the First Amended Complaint (the "Def. Mot.") and the Plaintiff's Motion for Leave to Conduct Limited Discovery on Motion to Dismiss First Amended Complaint (the "Pl. Discovery Mot."). After carefully reviewing the Amended Complaint, the parties' motions, and all memoranda relevant thereto,*fn2 the Court concludes that it must grant the defendant's motion to dismiss and deny the plaintiff's discovery motion as moot for the reasons that follow.

I. Background

The following facts are either alleged or incorporated by reference in the plaintiff's Amended Complaint. The plaintiff "is a corporation organized under the laws of the Republic of Bulgaria." Am. Compl. ¶ 2. At some point in 1984,*fn3 the plaintiff entered into the Contract with the defendant, whereby the plaintiff agreed "to perform work, inter alia, on the Hilla-Diwaniya 4 Land Reclamation Project for the State Organization for Land Reclamation [the 'Project'], operating under the authority of Iraq's Ministry of Agriculture and Irrigation of the Republic of Iraq." Id. ¶¶ 4-5. The construction work awarded to the plaintiff by the Contract covered "102,000 donum,"*fn4 which were "divided initially into [eight] zones." Id. ¶ 10. A ninth zone was later added. Id.

As reflected in a document attached to the Contract entitled "Memorandum No. 2," Contract at 248-51 (the "Mem. No. 2"),*fn5 payment to the plaintiff was to be made in the form of "monthly certificates" redeemable in part in Iraqi dinars (45%) and in part in United States dollars (55%), Mem. No. 2 ¶¶ 11(B), 14-15. Memorandum No. 2 specified that the defendant would make a down payment equal to eight percent of the contract price in three installments, id. ¶ 11(A), which would then be deducted "from the Iraqi [d]inar portion of the monthly certificates," id. ¶ 11(B). It further provided that the dollar portion of the contract price could be transferred abroad by the plaintiff for various uses, "including payment for the personnel engaged in the Project's execution, in accordance with the minutes of the Extraordinary Session [of the] Iraqi-Bulgarian Joint Committee for Economic, Scientific[,] and Technical Cooperation, signed on January 13, 1983[,] in Baghdad, Republic of [Iraq]." Id. ¶ 15.

The minutes referenced in Memorandum No. 2 appear to reflect a financing arrangement between the Bulgarian Foreign Trade Bank (the "Bulbank"), the national bank for the People's Republic of Bulgaria ("Bulgaria"), and the Central Bank of Iraq (the "CBI") reached at a session held by the Bulgarian-Iraqi Joint Committee for Economic, Scientific, and Technical Cooperation (the "Joint Committee") whereby the Bulbank would finance the dollar portion of the contract price pursuant to certain "deferred payment arrangements agreed upon" by the defendant and Bulgaria. Def. Mem., Ex. D (Agreed Minutes of the Fifteenth Regular Session of the Bulgarian-Iraqi Joint Committee for Economic, Scientific[,] and Technical Cooperation) (the "Fifteenth Session Minutes") at 2; see also Mem. No. 2 ¶¶ 15-16 (referencing this arrangement), Ministry Letter at 1 (same).*fn6 "The utili[z]ed credit principle amount [would] be repaid in [four] equal yearly installments," with five percent interest on the principle to be paid within three months "following its charging." Mem. No. 2 ¶ 16(B).

The plaintiff commenced work on the Project on March 12, 1985. Am. Compl. ¶ 11. "[T]o perform under the terms of the Contract, [the p]laintiff . . . enter[ed] into agreements with suppliers and others in the United States." Id. ¶ 8. The plaintiff completed work on the Project zone-by-zone, handing over each zone to the Iraqi government upon completion. Id. ¶ 11. "By August 2, 1990, eight zones were completed and handed over." Id. ¶ 12.

The defendant invaded Kuwait on August 2, 1990, id. ¶ 13, leading to an international embargo that lasted from August 6, 1990, through 2003, id. ¶ 14. At some point in January of 1991, "[the p]laintiff's machinery, production base, and camp facilities were destroyed by the American military as a consequence of the [defendant's] invasion and occupation of Kuwait." Id. ¶ 15. As alleged in the Amended Complaint, the plaintiff suffered contract losses totaling approximately $17,000,000, the loss of tangible property totaling approximately $38,000,000, third-party expenses totaling approximately $188,000, and loss of business reputation totaling approximately $483,000. Id. ¶ 17.

Based on the defendant's failure to "pay to [the p]laintiff the sums due and owing under the Contract," id. ¶ 18, or enter into arbitration pursuant to the terms of the Contract, id. ¶ 19, the plaintiff "timely exhausted its claims under the Contract to the United Nations Compensation Commission (the 'UNCC[]')," id. ¶ 21. On March 19, 1999, the UNCC awarded the plaintiff $150,790 "for the cost of air evacuation of 368 company employees and 56 family members." Id. ¶ 22. Thereafter, the plaintiff pursued the balance of its claim before the Iraqi Debt Reconciliation Office (the "IDRO"), which was established by the interim Iraqi government "for the expressed purpose of resolving certain debts on certain pre-established terms, including discounts and structured payment schedules." Id. ¶ 23. The IDRO "rejected certain of [the p]laintiff's [c]laims as outside of its jurisdiction," id. ¶ 25, but agreed to pay $7,505,203.20 "on certain of [the p]laintiff's claims, plus accrued interest at the IDRO rate," id. ¶ 26. The IDRO then reduced its award "to 10.25% of the total amount of the claim plus interest," resulting in a net payment of $1,761,875.12. Id.

The plaintiff filed its initial complaint with this Court on January 23, 2007. After the defendant filed a motion to dismiss the plaintiff's complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and the plaintiff filed a motion for limited jurisdictional discovery, the plaintiff filed its Amended Complaint on July 16, 2007, thereby rendering both motions moot. The defendant filed its motion to dismiss the Amended Complaint on August 6, 2007, once again citing Rules 12(b)(1) and 12(b)(6). The plaintiff filed its new motion for leave to take jurisdictional discovery on September 13, 2007.

The defendant seeks to dismiss the Amended Complaint on two grounds. First, it argues that the Court lacks subject-matter jurisdiction over this dispute under the doctrine of sovereign immunity as codified in the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, 1391, 1441, 1602-11 (2001) (the "FSIA" or the "Act"). Def. Mem. at 1-3, 7-22; Def. Reply at 1-16. Second, the defendant argues that the plaintiff has failed to state a claim for which relief can be provided because (1) the plaintiff's complaint must be referred to arbitration in the first instance, Def. Mem. at 23-24; Def. Reply at 16, (2) the plaintiff's suit is barred by the applicable statute of limitations, Def. Mem. at 24-26; Def. Reply at 16, 18-23, and (3) the plaintiff has released its claims against the defendant by participating in the IDRO process, Def. Mem. at 24, 26-29; Def. Reply at 16, 23-25. In raising this last argument, the defendant relies heavily on documents generated as part of the IDRO review process. Def. Mem. at 26-29; Def. Reply at 23-25.

The plaintiff argues in its opposition to the defendant's motion to dismiss that this suit falls within two of the statutory exceptions to a foreign nation's sovereign immunity provided by the FSIA: the exception for actions based upon a foreign nation's commercial activity outside the United States that has a "direct effect" within the United States set forth in 28 U.S.C. § 1605(a)(2), Pl. Opp'n at 4-5, 10-20, and the exception in § 1605(a)(6) for actions brought to enforce an arbitration agreement capable of enforcement in the United States, id. at 5, 20-24.*fn7 The plaintiff further argues that the defendant's timeliness argument cannot be resolved on a motion to dismiss under Rule 12(b)(6), id. at 25-31, and that the plaintiff's release of any claims in the IDRO process was a limited one that does not cover the claims at issue in this suit, id. at 32-41. The plaintiff also seeks discovery with respect to its "direct effect" argument on the issue of sovereign immunity and with respect to the defendant's affirmative defenses. Pl. Discovery Mem. at 4-6.

The parties agree that the defendant's affirmative defenses of timeliness and release should be addressed in arbitration in the first instance, but they arrive at different results based on this conclusion. The plaintiff asserts that the Court should enter an order directing the parties to arbitrate their dispute pursuant to the terms of the Contract. Pl. Opp'n at 24-25. The defendant, on the other hand, argues that the Contract's arbitration clause requires dismissal of the plaintiff's suit because the plaintiff has not made a demand on the defendant for arbitration. Pl. Reply at 16. Under either approach, the defendant's arguments regarding timeliness and release cannot be considered by the Court at this time because the parties have not yet attempted to resolve those defenses through the arbitration process. See Def. Mem. at 23 ("Even if the Court had subject matter jurisdiction under the FSIA, . . . it could not reach the [defendant's] alternate grounds for dismissal under Rule 12(b)(6), but rather would be required to refer the matter to arbitration . . . ."); Pl. Opp'n at 25 ("issues other than the '[]basic question of whether the parties have agreed to arbitrate the dispute [. . .] including allegations of waiver, delay, or like defenses, are for the arbitrators to decide'" (quoting Walnut Street Sec., Inc. v. Lisk, 497 F. Supp. 2d 714, 719 (M.D.N.C. 2007))).

II. Standard of Review

As the Court previously noted, the defendant seeks to dismiss the Amended Complaint under both Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. "Rule 12(b)(1) presents a threshold challenge to the [C]court's jurisdiction, whereas 12(b)(6) presents a ruling on the merits with res judicata effect." Al-Owhali v. Ashcroft, 279 F. Supp. 2d 13, 20 (D.D.C. 2003). Because the Court is obligated to determine whether it has subject-matter jurisdiction in the first instance, see Abu Ali v. Gonzalez, 387 F. Supp. 2d 16, 17 (D.D.C. 2005) (recognizing the "affirmative obligation" of a district court "to ensure that it is acting within the scope of its jurisdictional authority" (internal quotation omitted)), and because the Court concludes for the reasons that follow that it lacks subject-matter jurisdiction in this case, the Court will limit its discussion of the governing standard of review to that applicable to Rule 12(b)(1).

Broadly speaking, there are two types of Rule 12(b)(1) motions. "A facial challenge attacks 'the factual allegations of the complaint' that are contained on 'the face of the complaint,' while a factual challenge is addressed to the underlying facts contained in the complaint." AlOwhali, 279 F. Supp. 2d at 13 (quoting Loughlin v. United States, 230 F. Supp. 2d 26, 35-36 (D.D.C. 2002) (citations omitted)). Where a defendant makes a facial challenge, "the [C]court must accept as true the allegations in the complaint and consider the factual allegations of the complaint in the light most favorable to the non-moving party," Erby v. United States, 424 F. Supp. 2d 180, 182 (D.D.C. 2006) (citations omitted), just as it would on a motion to dismiss under Rule 12(b)(6), see Price v. Socialist People's Libyan Arab Jamahiriya, 294 F.3d 82, 93 (D.C. Cir. 2002) (noting that the standard for facial challenge to subject-matter jurisdiction "is similar to that of Rule 12(b)(6)"). Where a factual challenge is made, the Court "may consider materials outside the pleadings" to determine whether it has subject-matter jurisdiction over the challenged case or claims, Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C. Cir. 2005) (citation omitted), and "the plaintiff bears the burden of establishing the factual predicates of jurisdiction by a preponderance of the evidence," Erby, 424 F. Supp. 2d at 182 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)) (other citations omitted).*fn8

III. Legal Analysis

Given the parties' agreement that the defendant's affirmative defenses of timeliness and release must be arbitrated before they can be raised in this Court, the only issues remaining before the Court are (1) whether the Court has subject-matter jurisdiction over the plaintiff's suit and (2) whether, based on the allegations in the plaintiff's Amended Complaint, the Court must order the parties to attend arbitration or dismiss this suit based on the plaintiff's failure to demand arbitration. The Court's first obligation is to determine whether it has subject-matter jurisdiction in this case. The question of subject-matter jurisdiction, in turn, depends upon whether the defendant is entitled to invoke sovereign immunity under the FSIA.

"The FSIA provides the sole basis for obtaining jurisdiction over a foreign state in federal court." Permanent Mission of India to the United Nations v. City of New York, ___ U.S. ___, ___, 127 S.Ct. 2352, 2355 (2007) (internal quotation omitted). "Under the Act, a foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state." Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Until the passage of the FSIA in 1976, however, "American courts had generally regarded foreign sovereigns as absolutely immune from suit (with exceptions where the political branches made case-specific recommendations to suspend immunity)." El-Hadad v. United Arab Emirates, 496 F.3d 658, 662 (D.C. Cir. 2007). "So while the Act announces that foreign ...

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