Sovereign Immunity. Tonoga, Ltd., doing business as Taconic Plastics, Ltd., is a manu-facturer incorporated in Ireland with its principal place of business in New York. In 1997, Taconic entered into a contract with a German construction company to

Question

supply special material for a tent project designed to shelter religious pilgrims visiting holy sites in Saudi Arabia. Most of the material was made in, and shipped from, New York. The company did not pay Taconic and eventually filed for bankruptcy. Another German firm, Werner Voss Architects and Engineers, acting as an agent for the government of Saudi Arabia, guaranteed the payments due Taconic to induce it to complete the project. When Taconic received all but the final payment, the firm filed a suit in a federal district court against the government of Saudi Arabia, claiming a breach of the guaranty and seeking to collect, in part, about $3 million. The defendant filed a motion to dismiss based, in part, on the doctrine of sovereign immunity. Under what circumstances does this doctrine apply? What are its exceptions? Should this suit be dismissed under the "commercial activity" exception? Explain.

Answer 1

Sovereign immunity
The court denied the motion to dismiss. The doctrine of sovereign immunity immunizes foreign nations from the jurisdiction of U.S. courts. The Foreign Sovereign Immunity Act (FSIA) of 1976 codified this doctrine. A nation is not immune if it has waived its immunity or if the action against it is based on a "commercial activity carried on in the United States." The court recognized that whether the commercial activity exception applies depends on two factors. "First, the lawsuit must be based upon commercial activity of the foreign state defendants. Second, that activity must be carried on in the United States." A particular act qualifies as commercial activity "when the state acts . . . as a private player in the marketplace." Here, the defendant undertook a guarantee that allowed it to "step into the shoes" of a "private player," the German construction firm, to insure that the tent project was completed. To be "based upon" a commercial activity, a suit "must have something more than a mere connection with, or relation to, the commercial activity." Because Taconic's claim was premised on the defendant's breach of its guarantee, the suit had more than a "mere connection" to the commercial activity. Finally, a commercial activity is carried on in the United States when it has "substantial contact" with this country. When a commercial activity centers on the formation of a contract, the United States will be found to have substantial contact if "substantial aspects of the contract were to be performed here." Under this principle, "it is apparent that the alleged guarantees had substantial contact with this country," because most of the material was manufactured in the United States.