Cruise Connections Charter Management 1, LP v. Attorney General of Canada

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2010 Decided April 6, 2010

No. 09-7060

CRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP AND

CRUISE CONNECTIONS CHARTER MANAGEMENT GP, INC.,

APPELLANTS

v.

ATTORNEY GENERAL OF CANADA, REPRESENTING THE ROYAL

CANADIAN MOUNTED POLICE, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:08-cv-02054-JR)

Jack M. Strauch argued the cause and filed the briefs for

appellants. Deborah J. Israel entered an appearance.

John M. Townsend argued the cause for appellees. With

him on the brief was Scott H. Christensen.

Before: TATEL, Circuit Judge, and SILBERMAN and

WILLIAMS, Senior Circuit Judges.

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Opinion for the Court filed by Circuit Judge TATEL

TATEL, Circuit Judge: Under the Foreign Sovereign

Immunities Act, foreign governments engaging in commercial

activities outside the United States enjoy immunity from suit

in U.S. courts unless those activities have a “direct effect” in

the United States. In this case the Canadian government

terminated a contract with a U.S. company to provide cruise

ship services in Canada. Because this left the U.S. company

unable to consummate fully negotiated, multi-million-dollar

subcontracts with U.S.-based cruise lines to provide the

necessary ships, we conclude that Canada’s termination of the

contract had a “direct effect” in the United States.

I

In 2008, Cruise Connections, a U.S. corporation based in

Winston-Salem, N.C., signed a contract with the Royal

Canadian Mounted Police (RCMP) under which Cruise

Connections would provide three cruise ships to dock in

Vancouver during the 2010 Olympic Winter Games. RCMP

planned to use the ships to house security staff needed for the

Games. The contract required Cruise Connections to

subcontract with two U.S.-based cruise lines, Holland

America and Royal Caribbean, to provide the necessary ships.

For this service, RCMP agreed to pay Cruise Connections a

little more than $54 million (Canadian) in three direct

payments.

With the RCMP contract in hand, Cruise Connections

entered “the final stages of negotiating” subcontracts, called

Charter Party Agreements, with Holland America and Royal

Caribbean to provide the three ships at a cost of

approximately $39 million (U.S.). Tracey Kelly Aff. ¶ 7.

Because the ships would remain in Vancouver for several

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weeks, the two companies demanded assurances that they

would incur no liability for Canadian corporate income and

payroll taxes. Although RCMP originally gave these

assurances, promising to cover all taxes due, it reversed

course just as Holland America and Royal Caribbean were set

to sign the Charter Party Agreements and disavowed

responsibility for any payroll and income taxes. Unprotected

from tax liability, the two companies balked, leaving Cruise

Connections unable to deliver signed Charter Party

Agreements by the required date. RCMP then terminated its

contract with Cruise Connections.

Cruise Connections sued RCMP, Her Majesty the Queen

in Right of Canada, and the Attorney General of Canada in

the United States District Court for the District of Columbia,

alleging both breach of contract and unfair trade practices.

Although acknowledging that RCMP, as an “agency or

instrumentality” of the federal government of Canada, 28

U.S.C. § 1603(b), generally enjoys immunity from suit in

U.S. courts under the Foreign Sovereign Immunities Act

(FSIA), 28 U.S.C. §§ 1602–11, Cruise Connections argued

that the FSIA’s commercial activities exception applies. As

relevant here, that exception abrogates sovereign immunity

in any case . . . in which the action is based . . .

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.

Id. § 1605(a)(2). RCMP conceded that contracting for

chartered ships qualifies as a commercial activity and that its

alleged breach satisfies the “act” requirement. It argued,

however, that the alleged breach had no “direct effect in the

United States” and moved to dismiss for lack of jurisdiction.

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See 28 U.S.C. § 1330(a) (providing district courts with subject

matter jurisdiction over cases against foreign governments

only when an FSIA exception applies).

Cruise Connections responded with two arguments.

First, it contended that the contract required RCMP to pay it

via wire transfer to a U.S. bank and that RCMP’s failure to

make those payments qualified as a direct effect in the United

States. Second, it argued that RCMP's cancellation also

caused a direct effect in the United States because it resulted

in the loss of U.S. business to Cruise Connections and the

cruise lines. This loss included not only the millions of

dollars to charter the three ships, but also an additional $4.5

million (U.S.) that Cruise Connections estimated it lost

because the Charter Party Agreements contained standard

provisions for on-board revenue—passenger purchases for

alcoholic beverages, gift items, etc.—under which Cruise

Connections would guarantee a set amount of revenue and

then receive anything collected in excess of that base amount.

In addition, Cruise Connections had arranged with a U.S.

travel agency to charter one of the cruise ships as it sailed

between San Diego, its home base, and Vancouver. Under

that agreement, the travel agency would have paid Cruise

Connections a flat rate of $1.25 million (U.S.).

The district court rejected both arguments. With respect

to the place of payment, the court read the contract to require

“payments to an account of Cruise Connections’ choosing”

rather than specifically to an account in the United States.

Cruise Connections Charter Mgmt. 1, LP v. Attorney Gen. of

Can., 634 F. Supp. 2d 86, 89 (D.D.C. 2009). Although Cruise

Connections contended that it would have designated a

recently opened account at a North Carolina bank as the place

of payment had the contract progressed to the point of sending

invoices with payment instructions (as the contract required),

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the district court concluded that “opening a bank account with

the intention of demanding payment there is not an exercise of

[Cruise Connections’] right” to direct payment. Id. at 89–90.

Because Cruise Connections had yet to communicate its intent

to request payment in North Carolina, the court concluded

that the parties had never agreed that RCMP would pay in the

United States, so its nonpayment could not constitute a direct

effect. Id. As to the loss of business, the district court found

that “Cruise Connections’ inability to perform its contractual

obligations to the third parties” constituted an intervening

element between RCMP’s breach and the broken third-party

agreements. Id. at 90. Accordingly, the district court

concluded that RCMP enjoyed sovereign immunity and

dismissed the complaint for lack of jurisdiction.

Cruise Connections appeals, reiterating the arguments it

made in the district court. We review the district court’s

jurisdictional determinations de novo. See Peterson v. Royal

Kingdom of Saudi Arabia, 416 F.3d 83, 86 (D.C. Cir. 2005).

Because RCMP challenges “only the legal sufficiency of

[Cruise Connections’] jurisdictional allegations,” we take

Cruise Connections’ version of the facts as true. Phoenix

Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C.

Cir. 2000).

II

We begin with Cruise Connections’ claim that any one of

the losses caused by the termination of its contract with

RCMP—the lost cruise ship business, the lost profit from on-

board revenues, the lost travel agency fee—qualifies as a

direct effect in the United States. In its brief, RCMP responds

only to the latter two claims, arguing that each is “too

attenuated or remote to amount to a ‘direct effect.’”

Appellees’ Br. 29.

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RCMP’s point regarding on-board revenue payments

may have merit. Because Cruise Connections’ opportunity to

receive any payments under the on-board revenue provisions

of the Charter Party Agreements depended entirely on

whether security personnel housed on the ships chose to buy

drinks or gifts, Cruise Connections might have received

nothing even if RCMP had consummated the contract. Under

this view, Cruise Connections’ failure to earn any on-board

revenue payments might be regarded as subject to an

“intervening event” independent of RCMP’s cancellation of

the contract. See Princz v. Federal Republic of Germany, 26

F.3d 1166, 1172 (D.C. Cir. 1994) (“A ‘direct effect’ . . . ‘is

one which has no intervening element, but, rather, flows in a

straight line without deviation or interruption.’” (quoting

Upton v. Empire of Iran, 459 F. Supp. 264, 266 (D.D.C.

1978))). In the end, however, we need not decide whether

non-payment of on-board revenues qualifies as a direct effect

because no intervening event stood between RCMP’s

termination of the contract and the lost revenues from the

travel agency contract and the Charter Party Agreements.

The travel agency agreement was a done deal: Cruise

Connections would have received a flat fee no matter how

many passengers the travel agency booked. Likewise, “all

that remained for the [Charter Party Agreements] to be

formally consummated was for the cruise lines to sign the

agreements once RCMP confirmed its contractual

responsibility for Canadian taxes.” Appellants’ Br. 40. In

both instances, then, RCMP’s termination of the Cruise

Connections contract led inexorably to the loss of revenues

under the third-party agreements. This is sufficient. As the

Supreme Court explained in Republic of Argentina v.

Weltover, an effect qualifies as direct “if it follows as an

immediate consequence of the defendant’s . . . activity.” 504

U.S. 607, 618 (1992) (internal quotation marks omitted). In

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Weltover, the Court concluded that Argentina’s unilateral

extension of bonds held by foreign creditors caused a direct

effect in the United States because as a consequence of

Argentina’s breach, “[m]oney that was supposed to have been

delivered to a New York bank for deposit was not

forthcoming.” Id. at 619. So too here. Because RCMP

terminated the contract, revenues that would otherwise have

been generated in the United States were “not forthcoming.”

Resisting this conclusion, RCMP argues that it never

agreed to any “single aspect of the underlying transaction that

. . . [would] take place in the United States.” Appellees’ Br.

23. The FSIA, however, requires only that effect be “direct,”

not that the foreign sovereign agree that the effect would

occur. Cf. Weltover, 504 U.S. at 618, (rejecting the idea that

the commercial activity exception “contains any unexpressed

requirement of . . . ‘foreseeability.’”). In any event, the

contract itself required the ships to come from Holland

America and Royal Caribbean cruise lines, Michael Day

Decl., Ex. 6, and record evidence makes clear that both are

U.S.-based companies—Holland America in Seattle and

Royal Caribbean in Miami, Tracey Kelly Aff. ¶ 16.

RCMP next argues that harm to a U.S. citizen, in and of

itself, cannot satisfy the direct effect requirement. True

enough, but the cases RCMP relies on involve situations in

which the plaintiff’s U.S. citizenship was the only connection

to the United States. For example, in United World Trade,

Inc. v. Mangyshlakneft Oil Products Ass’n, 33 F.3d 1232,

1237–39 (10th Cir. 1994), all activities covered by the

contract would have occurred outside the United States: oil

drilling in Kazakhstan, shipment to and refining in Italy, and

payment in France and England. The plaintiff’s incorporation

in Colorado provided the only link to the United States. Id. at

1238. Likewise, in Zedan v. Kingdom of Saudi Arabia, 849

8

F.2d 1511, 1515 (D.C. Cir. 1988), we found no direct effect

where the contract between the plaintiff, a U.S. citizen, and

Saudi Arabia called for all work to be done in Saudi Arabia

and the breach occurred while the plaintiff was in Saudi

Arabia. Again, plaintiff’s U.S. citizenship furnished the only

connection between the commercial activity and the United

States. By contrast, Cruise Connections relies on far more

than its U.S. citizenship. All its efforts to negotiate the

Charter Party Agreements occurred in the United States,

Tracey Kelly Aff. ¶ 16; at least one of the ships would have

moved through U.S. waters to Vancouver; the termination of

the contract thwarted over $40 million (U.S.) worth of cruise-

related business in the United States; and the travel agency

agreement was negotiated in and called for performance in the

United States, id. ¶ 18.

At oral argument, RCMP’s counsel claimed that the

termination of the Charter Party Agreements cannot qualify as

a direct effect because it did not harm Cruise Connections.

But even setting aside our long-established rule that we rarely

consider contentions made for the first time at oral argument,

see Rempfer v. Sharfstein, 583 F.3d 860, 867 n.6 (D.C. Cir.

2009), RCMP’s point misses the mark. Nothing in the FSIA

requires that the “direct effect in the United States” harm the

plaintiff. See 28 U.S.C. § 1605(a)(2). The commercial

activities exception requires only that the foreign

government’s “act outside the territory of the United States

. . . cause[] a direct effect in the United States.” Id. Perhaps

Cruise Connections has suffered less harm than it claims, but

that issue relates to the merits of its case, not the jurisdictional

question we face here.

Given the foregoing, we have no need to consider Cruise

Connections’ alternative claim, i.e., that the contract required

RCMP to pay via wire transfer to a U.S. bank and that

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RCMP’s failure to do so qualifies as a direct effect in the

United States. Although the parties debate several decisions

addressing whether a foreign sovereign had to have agreed to

the use of a U.S. bank account, in each of those cases that

bank account represented the only possible link to the United

States. See Weltover, 504 U.S. at 619; Agrocomplect AD v.

Republic of Iraq, 304 F. App’x 872 (D.C. Cir. 2008); IDAS

Res. v. Empresa Nacional de Diamantes de Angola, 2007 U.S.

App. LEXIS 25500, at *4–5 (D.C. Cir. Oct. 29, 2007);

Peterson, 416 F.3d at 91; Goodman Holdings v. Rafidain

Bank, 26 F.3d 1143, 1146–47 (D.C. Cir. 1994). Moreover,

none of those cases dealt with a situation like the one we face

here: where the alleged breach resulted in the direct loss of

millions of dollars worth of business in the United States. It

thus makes no difference where RCMP would have paid

Cruise Connections.

III

For the foregoing reasons, we reverse and remand to the

district court for further proceedings consistent with this

opinion.

So ordered.