Embassy of the Arab Republic of Egypt v. Lasheen

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

EMBASSY OF THE ARAB REPUBLIC OF 

EGYPT; THE ARAB REPUBLIC OF

EGYPT; THE CULTURAL AND

EDUCATIONAL BUREAU,

Defendants-cross-defendants- No. 08-15486

Appellants, D.C. No.

v.  2:01-CV-00227-

LKK-EFB

MOHAMED E. LASHEEN,

Plaintiff-Appellee, OPINION

THE LOOMIS COMPANY,

Defendant-cross-claimant-

Appellee.



Appeal from the United States District Court

for the Eastern District of California

Lawrence K. Karlton, District Judge, Presiding

Argued and Submitted

December 8, 2009—San Francisco, California

Filed May 10, 2010

Before: Mary M. Schroeder and Consuelo M. Callahan,

Circuit Judges, and Carlos F. Lucero,* Circuit Judge.

Opinion by Judge Lucero

*The Honorable Carlos F. Lucero, Circuit Judge for the Tenth Circuit,

sitting by designation.

6845

EMBASSY OF EGYPT v. LASHEEN 6847

COUNSEL

Randy M. Andrus, Andrus Attorneys, Folsom, California, for

Mohamed E. Lasheen.

Laura D. Castner, Zuber & Tallieu LLP, Los Angeles, Cali-

fornia, for the Embassy of the Arab Republic of Egypt, Arab

6848 EMBASSY OF EGYPT v. LASHEEN

Republic of Egypt, and The Embassy of Egypt Cultural and

Education Bureau.

John S. Pierce, Barger & Wolen LLP, San Francisco, Califor-

nia, for The Loomis Company.

OPINION

LUCERO, Circuit Judge:

We consider the appeal of the Arab Republic of Egypt, the

Embassy of the Arab Republic of Egypt, and the Embassy of

Egypt Cultural and Educational Bureau (collectively, the

“Egyptian Defendants”). The Egyptian Defendants seek

reversal of a district court judgment denying their claim of

immunity under the Foreign Sovereign Immunities Act

(“FSIA”), 28 U.S.C. §§ 1602-1611, from claims brought by

the Loomis Company and the estate of Mohamed E. Lasheen.1

The district court determined that it possessed subject matter

jurisdiction over the Egyptian Defendants under both the

commercial activities exception and the waiver exception to

the FSIA. We affirm in part, reverse in part, and remand to

the district court to determine in the first instance whether the

Egyptian Defendants are immune from Lasheen’s claims.

I

Lasheen was an Egyptian national who came to the United

States as a visiting scholar in March 2000 and enrolled in the

Embassy of Egypt Health Care Benefits Plan (the “Plan”).

Loomis, a Pennsylvania-based corporation authorized to do

business in California, contracted with the Cultural and Edu-

cational Bureau to provide administrative services for the Plan

pursuant to a Benefit Services Management Agreement (the

1

We use “Lasheen” to refer to both Mohamed Lasheen and his estate.

EMBASSY OF EGYPT v. LASHEEN 6849

“Agreement”). The Agreement provides that “the Cultural and

Educational Bureau, Embassy of Egypt” would indemnify

Loomis and “hold it harmless against loss, damage, and

expense, including attorneys’ fees, occasioned by claims,

demands or lawsuits brought against [Loomis] to recover ben-

efits under the [Plan].”

While enrolled in the Plan, Lasheen was diagnosed with

liver cancer. He requested coverage for a liver transplant, but

Loomis denied his request on the ground that his health prob-

lems resulted from a preexisting condition not covered by the

Plan. Lasheen died in December 2000 as a result of his ill-

ness.

In February 2001, Lasheen’s estate sued Loomis and the

Egyptian Defendants in the United States District Court for

the Eastern District of California, alleging violations of the

Employee Retirement Income Security Act (“ERISA”), 29

U.S.C. § 1001 et seq. The district court entered default judg-

ment against the Egyptian Defendants in April 2001; how-

ever, the default was set aside in July 2003 because the sixty-

day answer time period provided by the FSIA, see 28 U.S.C.

§ 1608(d), had not run at the time the default was entered.

In November 2005, Loomis filed a cross-claim against the

Egyptian Defendants for breach of contract and sought indem-

nity against Lasheen’s claims. After the Egyptian Defendants

failed to respond to Loomis’ cross-claim, the district court

struck their answer to Lasheen’s claims and again entered

default judgment in favor of both Loomis and Lasheen.

Loomis also filed a motion for summary judgment against

Lasheen, which the district court denied. Loomis appealed the

denial of the motion. However, Lasheen and Loomis later

reached a settlement agreement conditioned on the district

court’s determination that the FSIA does not shield the Egyp-

tian Defendants from liability. Lasheen and Loomis filed a

joint special motion seeking such a declaration. To enable

6850 EMBASSY OF EGYPT v. LASHEEN

consideration of the joint motion, the district court set aside

its default judgment for the limited purpose of allowing the

Egyptian Defendants to oppose the motion. In February 2008,

the district court concluded that the FSIA did not deprive fed-

eral courts of jurisdiction over the claims against the Egyptian

Defendants because the commercial activities and waiver

exceptions applied. The Egyptian Defendants appealed.

II

We first review the district court’s determination that the

FSIA does not immunize the Egyptian Defendants against

Loomis’ claims due to the commercial activities exception.

We agree with the district court that Loomis’ claims arise out

of the Egyptian Defendants’ commercial activities within the

United States, and thus the Egyptian Defendants are not

immune.

[1] Pursuant to the FSIA, “a foreign state shall be immune

from the jurisdiction of the courts of the United States and of

the States except as provided in” the FSIA. 28 U.S.C. § 1604.

“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 juris-

diction over a claim against a foreign state.” Saudi Arabia v.

Nelson, 507 U.S. 349, 355 (1993). Once a party “offers evi-

dence that an FSIA exception to immunity applies, the party

claiming immunity bears the burden of proving by a prepon-

derance of the evidence that the exception does not apply.”

Joseph v. Office of the Consulate Gen. of Nig., 830 F.2d 1018,

1021 (9th Cir. 1987). We review FSIA immunity determina-

tions de novo. Corzo v. Banco Cent. de Reserva del Peru, 243

F.3d 519, 522 (9th Cir. 2001).

[2] The FSIA does not provide foreign sovereign immunity

“in any case . . . in which the action is based upon a commer-

cial activity carried on in the United States by the foreign

state.” § 1605(a)(2). It is undisputed that each of the three

EMBASSY OF EGYPT v. LASHEEN 6851

Egyptian Defendants qualifies as a “foreign state” under the

FSIA.2 Thus, application of the commercial activities excep-

tion turns on whether the claims before us are “based upon a

commercial activity carried on in the United States.”

“Commercial activity” is defined in the FSIA as “either a

regular course of commercial conduct or a particular commer-

cial transaction or act.” § 1603(d). “Commercial activity car-

ried on in the United States by a foreign state” refers to

commercial activity carried on by the foreign state that has

substantial contact with the United States. § 1603(e). “The

commercial character of an activity shall be determined by

reference to the nature of the course of conduct or particular

transaction or act, rather than by reference to its purpose.”

§ 1603(d).

[3] In Nelson, the Supreme Court held that commercial

activity under the FSIA refers to “only those powers that can

also be exercised by private citizens, as distinct from those

powers peculiar to sovereigns.” 507 U.S. at 360 (quotations

omitted). “[A] foreign state engages in commercial activity

. . . where it acts in the manner of a private player within the

market.” Id. (quotation omitted); see also Restatement (Third)

of Foreign Relations Law § 451 (1987) (“Under international

law, a state or state instrumentality is immune from the juris-

diction of the courts of another state, except with respect to

claims arising out of activities of the kind that may be carried

on by private persons.”). Thus the relevant question “is

whether the particular actions that the foreign state performs

. . . are the type of actions by which a private party engages

in trade and traffic or commerce.” Argentina v. Weltover, Inc.,

504 U.S. 607, 614 (1992) (quotation omitted). We do not con-

sider whether the specific act was one that only a sovereign

2

A foreign state includes “political subdivision of a foreign state or an

agency or instrumentality of a foreign state.” § 1603(a). An “agency or

instrumentality of a foreign state” includes “an organ of a foreign state or

political subdivision thereof.” § 1603(b).

6852 EMBASSY OF EGYPT v. LASHEEN

would actually perform. Sun v. Taiwan, 201 F.3d 1105, 1109

(9th Cir. 2000). Instead, we consider whether the “category of

conduct” is commercial in nature. Id.

Application of the commercial activities exception is predi-

cated on the existence of a sufficient nexus between the plain-

tiff’s asserted cause of action and the foreign state’s

commercial activity. “The commercial activity relied upon . . .

to establish jurisdiction must be the activity upon which the

lawsuit is based. The focus must be solely upon those specific

acts that form the basis of the suit.” Am. W. Airlines, Inc. v.

GPA Group, Ltd., 877 F.2d 793, 796-97 (9th Cir. 1989) (quo-

tation, emphasis, and citation omitted). In other words, the

phrase “based upon” in § 1605(a)(2) “is read most naturally

to mean those elements of a claim that, if proven, would enti-

tle a plaintiff to relief under [its] theory of the case.” Nelson,

507 U.S. at 357.

[4] Loomis alleges that the Egyptian Defendants failed to

indemnify it for the costs of litigating against Lasheen as

required by the Agreement. By contracting with a company to

manage a health benefits plan and agreeing to indemnify that

company, the Egyptian Defendants did not act with the pow-

ers peculiar to a sovereign, but instead acted as private players

in the market. Contrary to the Egyptian Defendants’ asser-

tions, it is irrelevant whether entering into the Agreement was

“incidental” to sponsoring an educational program, even

assuming that sponsoring an educational program is a sover-

eign activity. See § 1603(d). Thus, entering into the Agree-

ment and allegedly breaching that Agreement constitute

commercial activity.

Loomis’ claim is based upon this commercial activity. To

the extent that the Egyptian Defendants argue that Loomis’

claims are based on Egyptian sponsorship of an educational

program, they are simply incorrect; whether or not the Egyp-

tian Defendants were engaged in running an educational pro-

gram does not relate to Loomis’ recovery in any way. In

EMBASSY OF EGYPT v. LASHEEN 6853

contrast, the Egyptian Defendants’ alleged breach of the

Agreement determines whether Loomis is entitled to relief

under its theory of the case. See Nelson, 507 U.S. at 357.

The Egyptian Defendants also argue that even if the com-

mercial activities exception applies to claims against the

Embassy of Egypt and the Cultural and Educational Bureau,

it does not apply to claims against Egypt because there is no

admissible evidence that Egypt was involved with the Agree-

ment or the Plan. This assertion is inaccurate. A Loomis

employee declared: (1) “All fees, premiums and claim funds

came directly from Egypt”; (2) “The Plan was funded entirely

by the Egyptian Government”; and (3) “No documents related

to the provisions and/or administration of the Plan were ever

approved or signed without the permission of the Government

of Egypt.” Even assuming that the involvement of its

Embassy and the Cultural and Educational Bureau was insuf-

ficient to demonstrate Egypt’s involvement with the Plan, the

employee’s declaration supports a determination that Egypt

was involved in both the provision and administration of the

Plan.

[5] Finally, the Egyptian Defendants assert in their reply

brief that Lasheen and Loomis can “point to no specific con-

duct of [Egypt] within the United States forming an element

of their claims.”3 However, the above-quoted statements

regarding Egypt’s payment history and signing authorizations

rebut this claim. Further, the fact that Loomis and the Cultural

and Educational Bureau were physically located in the United

States at all relevant times leads us to conclude that Egypt’s

commercial activities had “substantial contact with the United

3

Normally the Egyptian Defendants would have waived this argument

because they did not raise it in their opening brief. Bazuaye v. INS, 79 F.3d

118, 120 (9th Cir. 1996). However, because the argument challenges our

subject matter jurisdiction, and challenges to subject matter jurisdiction

cannot be waived, we will address it. See Am. Fire & Cas. Co. v. Finn,

341 U.S. 6, 18 n.17 (1951).

6854 EMBASSY OF EGYPT v. LASHEEN

States.” § 1603(a). Loomis’ claims against all three Egyptian

Defendants arose out of the Defendants’ direct involvement in

commercial activity within the United States. We therefore

agree with the district court’s determination that the Egyptian

Defendants are not immune from Loomis’ claims under the

FSIA. Because the commercial activities exception applies to

Loomis’ claims against the Egyptian defendants, we need not

address whether the waiver exception also applies to these

claims.

III

The Egyptian Defendants also argue that the district court

erred in failing to address separately whether they were enti-

tled to sovereign immunity against Lasheen’s claims. We

agree that the district court should have conducted this dis-

tinct analysis and remand to the district court to make that

determination in the first instance.

Instead of analyzing whether the FSIA immunized the

Egyptian Defendants against Lasheen’s claims, the district

court reasoned that “the moving parties ha[d] only argued that

the . . . exception[s] appl[y] to the Agreement between

Loomis and the Egyptian defendants.” (emphasis omitted).

Based on this reasoning, the court did not consider whether

the Egyptian Defendants are entitled to sovereign immunity as

to Lasheen’s claims.

[6] We conclude the district court erred in holding that the

question of immunity against Lasheen was not before it.

Loomis and Lasheen’s joint motion requested an order stating

that the Egyptian Defendants “are not immune to this Court’s

jurisdiction because statutory exceptions to the Foreign Sov-

ereign Immunities Act (‘FSIA’) are applicable here.” Simi-

larly, Loomis and Lasheen’s memorandum refers to the

Egyptian Defendants’ potential immunity from suit generally.

Because both Loomis and Lasheen filed the joint motion, the

district court should have considered whether the Egyptian

EMBASSY OF EGYPT v. LASHEEN 6855

Defendants are entitled to sovereign immunity against each

plaintiff.

Moreover, the existence of an exception under the FSIA for

Loomis’ claims does not control whether the FSIA blocks

Lasheen’s claims. The commercial activities exception

applies when “the action is based upon a commercial activity

carried on in the United States by the foreign state,” and the

waiver exception applies when “the foreign state has waived

its immunity either explicitly or by implication.”

§ 1605(a)(1)-(2). A court must analyze each claim and deter-

mine if it is “based upon” commercial activity or whether the

foreign state has waived its sovereign immunity as to that

claim.

The fact that an exception to the FSIA permits Loomis’

claims does not indicate that the exception applies to Lash-

een’s claims. Lasheen sued the Egyptian Defendants for vio-

lations of ERISA. In contrast, Loomis asserts a claim against

the Egyptian Defendants for breach of contract. These claims

have different factual and legal bases; it is entirely possible

that Loomis’ claims arise out of the Egyptian Defendants

commercial activities, but Lasheen’s do not. Similarly, even

assuming the Egyptian Defendants have waived their sover-

eign immunity with respect to all claims brought by Loomis,

they may not have waived their immunity against Lasheen’s

claims.

[7] The parties disagree as to whether the record permits us

to determine the applicability of the commercial activities and

waiver exceptions to Lasheen’s claims. We decline to resolve

this disagreement because the district court should have the

opportunity to determine questions of sovereign immunity in

the first instance. We therefore reverse the district court’s

determination that the question of whether the FSIA immu-

nized the Egyptian Defendants from Lasheen’s claims was not

before it and remand to the district court to determine whether

6856 EMBASSY OF EGYPT v. LASHEEN

either the commercial activities or waiver exception permits

Lasheen’s claims to proceed.

IV

[8] Finally, Loomis and Lasheen move for an award of

attorneys’ fees and costs. Although the Agreement states that

the Egyptian Defendants must “indemnify [Loomis] and hold

it harmless against loss, damages, and expense, including

attorneys’ fees,” the Agreement expressly limits this indemni-

fication to loss “occasioned by claims, demands or lawsuits

brought against [Loomis] to recover benefits under the

[Plan].” Under Pennsylvania law,4 an indemnitee may recover

attorneys’ fees and costs incurred in the underlying defensive

action, but not those incurred during the indemnification

action. Boiler Eng’g & Supply Co. v. Gen. Controls, Inc., 277

A.2d 812, 814 (Pa. 1971); see also Fleck v. KDI Sylvan Pools,

Inc., 981 F.2d 107, 117 (3d Cir. 1992). Although the Agree-

ment may give Loomis the right to recover attorneys’ fees and

costs incurred in defending against Lasheen’s action, the con-

tract gives it no right to recover attorneys’ fees incurred in the

matter before us. Loomis and Lasheen have not pointed to any

statutory provision, either within the FSIA or elsewhere, that

allows recovery of costs or attorneys’ fees in this case.5 We

accordingly deny their request.

V

For the stated reasons, we AFFIRM the district court’s

determination that the FSIA does not deprive the federal

courts of subject matter jurisdiction over Loomis’ claims

4

The Agreement provides that it “shall be enforced under the laws of the

Commonwealth of Pennsylvania.”

5

If such a statutory provision does exist, Loomis and Lasheen have

waived their right to recover pursuant to that provision because

“[a]rguments made in passing and inadequately briefed are waived.” Mal-

donado v. Morales, 556 F.3d 1037, 1048 n.4 (9th Cir. 2009).

EMBASSY OF EGYPT v. LASHEEN 6857

against the Egyptian Defendants. We REVERSE the district

court’s determination that the issue of whether the FSIA

immunizes the Egyptian Defendants against Lasheen’s claims

was not before it and REMAND for it to make that determi-

nation in the first instance. The appellees’ request for costs

and attorneys’ fees on appeal is DENIED. Each party shall

bear its own costs on appeal.

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED.