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Where U.S. parties were injured by ammunition manufactured in Argentina, Sixth Circuit reviews application of FSIA "commercial activity" exception.

In September 2011, Troy Rote was invited to Gary and Judith Buyer's house, in Sunbury, Ohio. One of Buyer's guests, Edward Grimm, brought a rifle as well as some ammunition. Grimm invited Buyer's guests to fire the rifle. He also invited and encouraged Rote to fire the rifle. As Rote loaded the rifle the round exploded and injured his right hand. The round that exploded came from a box of ammunition bearing marks identifying it as being manufactured by Fabrica Militar Fray Luis Beltran a/k/a Direccion General Fabricaciones Militares ("DGFM"), a Republic of Argentina manufacturer. The ammunition was purchased online.

Rote and his wife (collectively, "Plaintiffs") filed this suit against several defendants, including DGFM. Plaintiffs alleged that DGFM designed, manufactured, and sold and/or otherwise introduced into the stream of commerce the ammunition; that DGFM's wrongful acts consisted of defectively designing and manufacturing the rounds to have a protruding primer; and that DGFM failed to provide adequate warnings about the dangerous condition posed by this protruding primer.

DGFM moved to dismiss the complaint for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). DGFM argued that, as an instrumentality of the Republic of Argentina, it is immune from suit under the Foreign Sovereign Immunities Act ("FSIA" or "Act"), 28 U.S.C. [section] 1602. Plaintiffs argued that DGFM is not immune, because in this case the "commercial activity" exception to the Act applies. The district court denied DGFM motion holding that the design and manufacture of the ammunition qualified as "commercial activity," and that DGFM's actions caused a "direct effect" in the United States. The district court then concluded that the commercial-activity exception to the FSIA applied and DGFM was not immune from suit. DGFM appealed.

United States Court of Appeals for the Sixth Circuit affirms the district court decision.

The key issue is whether the design and manufacture of a product constitutes a "commercial activity" under the FSIA.

The Court reviews this case de novo.

"The FSIA provides the 'sole basis' for the exercise of jurisdiction over a foreign state, including its instrumentalities. Republic of Argentina v. Weltover, 504 U.S. 607, 611, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992) (citation omitted); see also 28 U.S.C. [section][section] 1603(a)-(b), 1604. Under the Act, a foreign state is 'immune from the jurisdiction of the courts of the United States and of the States' unless one of the statutory exceptions applies. 28 U.S.C. [section] 1604. At issue in this case is the commercial-activity exception, codified at 28 U.S.C. [section] 1605(a)(2)."

"When we ascertain the applicability of the commercial-activity exception, two 'distinct' limitations apply. O'Bryan, 556 F.3d at 379. 'First, the activity must be of the type in which private individuals engage....' Id. '[I]f the activities in question are not private, but sovereign in nature, then the commercial activity exception will not apply.' Id.; see also Weltover, 504 U.S. at 614, 112 S.Ct. 2160 ('[W]hen a foreign government acts, not as a regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are 'commercial' within the meaning of the FSIA....'). Second, courts must 'ascertain the claim's gravamen to determine whether the FSIA plaintiff is simply using creative nomenclature as a semantic ploy to shroud the true essence of its theory and obtain jurisdiction over a claim that Congress did not intend to be brought against a foreign sovereign.' O'Bryan, 556 F.3d at 380 (citation and quotation marks omitted). In other words, courts must 'avoid the artful pleading of plaintiffs and look to the core of the activities alleged to be commercial in nature.' Id."

"Under O'Bryan's first limitation, we conclude that the design and manufacture of a product is the type of activity "in which private individuals engage." O'Bryan, 556 F.3d at 379. Our sibling circuits have reached the same conclusion. See Aldy on Behalf of Aldy v. Valmet Paper Mach., 74 F.3d 72, 76 (5th Cir.1996). [...] [I]n Aldy, the Finland-based defendant manufacturer moved for summary judgment, arguing in part that it was immune under the FSIA. 74 F.3d at 74. The trial court denied the motion, and the Fifth Circuit affirmed the denial. Id. at 74-76. In that case, the plaintiff alleged that the manufacturer was in the 'business of designing and manufacturing paper machines in Finland.' Id. at 75. As part of their wrongful-death lawsuit, the plaintiffs claimed that the defendant's negligent design of those machines caused the death of two individuals. Id. at 73-74. The Fifth Circuit concluded that 'the plaintiffs' suits appear to be classic design and manufacturing defect suits, which the third clause of the commercial activities exception is broad enough to cover.' Id. at 75. [...] We agree with the sound reasoning of our sibling circuits and find no reason to depart from their conclusions here."

"Second, a review of the Complaint does not reveal a 'semantic ploy' by Plaintiffs to recast a governmental activity to be 'commercial' in nature. O'Bryan, 556 F.3d at 380. Indeed, the type of the activity at issue here is far from analogous to the type of activity that courts have described as 'sovereign' in nature. See, e.g., Weltover, 504 U.S. at 614, 112 S.Ct. 2160 ('[A] foreign government's issuance of regulations limiting foreign currency exchange is a sovereign activity, because such authoritative control of commerce cannot be exercised by a private party.'); [...]Park v. Shin, 313 F.3d 1138, 1145 (9th Cir. 2002) ('[A]n activity is commercial unless it is one that only a sovereign state could perform.'). Therefore, the Complaint easily passes muster under O'Bryan's second limitation."

The Court did not agree with DGFM's reading of the exception. Moreover, in regard to DGFM's citing, in support of its propositions, "Vermeulen, which expressed that '[t]he sale of merchandise is a quintessential commercial activity.' 985 F.2d at 1544," the Court notes:

"DGFM's reading of the statute and case law is strained. Granted, in Lyon and Vermeulen, the Ninth and Eleventh Circuits, respectively, referred to the defendants' sale of defective products when determining if the exception applied. Vermeulen, 985 F.2d at 1544; Lyon, 252 F.3d at 1082. In Vermeulen, for instance, the court noted that the defendant designed and built the automobiles for sale 'throughout the world,' and that these sales constituted 'quintessential commercial activity.' Vermeulen, 985 F.2d at 1544. While we agree that the sale of goods qualifies as 'quintessential commercial activity,' it does not follow that the sale of goods is a necessary predicate to a finding that an activity is 'commercial' in nature. In Aldy, the Fifth Circuit did not rely on the defendant's sale of the paper machines to conclude that the defendant engaged in commercial activity; the court merely relied on the design and manufacture of the paper machines to reach that conclusion. Aldy, 74 F.3d at 75. So, we do not--and cannot--read those cases to conclude that a defective product must be marketed, sold, or otherwise distributed for the commercial-activity exception to apply. To be sure, and as discussed further below, we have previously cautioned courts not to read 'unexpressed requirements' into the FSIA. See Keller v. Cent. Bank of Nigeria, 277 F.3d 811, 818 (6th Cir. 2002), abrogated on other grounds by Samantar v. Yousuf, 560 U.S. 305, 130 S.Ct. 2278, 176 L.Ed.2d 1047 (2010)."

DGFM argued that one of the unintended consequences of war is that ammunition, which may have been manufactured exclusively for military purposes, end up in the hands of the public.

"We are not persuaded by this argument. Both the Supreme Court and this court have followed Congress' mandate to look to the 'nature' of the act, and not the 'purpose' behind it. Weltover, 504 U.S. at 614, 112 S.Ct. 2160; O'Bryan, 556 F.3d at 378-79; accord 28 U.S.C. [section] 1603(d). Accordingly, whether the ammunition was used or intended for military purposes is of no consequence. See, e.g., Weltover, 504 U.S. at 614-15, 112 S.Ct. 2160 ('[A] contract to buy army boots or even bullets is a 'commercial' activity[] because private companies can similarly use sales contracts to buy goods'); McDonnell Douglas Corp. v. Islamic Republic of Iran, 758 F.2d 341,349 (8th Cir. 1985) ('[A] contract by a foreign government to buy equipment for its armed services constitutes a commercial activity to which sovereign immunity does not apply.'). What matters is that DGFM acted like a private market participant when it designed and manufactured the allegedly defective product; and DGFM does not assert that only governmental actors manufacture and design ammunition. If we give any weight to the fact that the ammunition was manufactured for military purposes, we would in effect flout Congress and the Supreme Court's express instruction that courts must look to the nature of the wrongful activity rather than its purpose."

The Court concluded that "DGFM's alleged negligent design and manufacture of the defective ammunition qualifies as a "commercial activity" for purposes of the FSIA," and affirmed district court's opinion.
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Title Annotation:Sovereign Immunity
Publication:International Law Update
Date:Jan 1, 2016
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