Transamer Leasing v. La Repub Venezuela

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 1999 Decided January 21, 2000

No. 98-7206

Transamerica Leasing, Inc., et al.,

Appellees

v.

La Republica de Venezuela and

Fondo de Inversiones de Venezuela,

Appellants

Appeal from the United States District Court

for the District of Columbia

(No. 97cv01354)

Alexander E. Bennett argued the cause for appellants.

With him on the briefs were Mark H. Stumpf, Steven G.

Reade, Jean E. Kalicki, and Beth R. Kallet.

John E. Bradley argued the cause for appellees. With him

on the brief were Benjamin P. Deutsch, and Lisa M. Cobb.

Cherie B. Artz entered an appearance.

Before: Ginsburg, Henderson, and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: Twelve companies that leased

equipment to the now defunct CompaNia Anonima Venezolana

de NavegaciOn (CAVN), a shipping company owned by the

Republic de Venezuela, brought suit against Venezuela and

the Fondo de Inversiones de Venezuela (FIV), an instrumen-

tality of the Venezuelan government created to assist in

restructuring and privatizing state enterprises. The first

three counts of the complaint allege that Venezuela and the

FIV are derivatively liable for CAVN's breaches of contract.

The final count alleges that Venezuela and the FIV are

directly liable for having caused CAVN to breach its con-

tracts with the plaintiffs.

In this interlocutory appeal, Venezuela and the FIV argue

that they are immune from suit upon all counts under the

Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C.

s 1602 et seq., and that they are immune from suit upon the

fourth count under the "act of state" doctrine as well. We

hold that because they did not exercise the requisite control

over CAVN, Venezuela and the FIV are indeed immune from

suit upon the first three counts. We remand the case for the

district court to consider in the first instance whether the

defendants are immune from suit upon the fourth count.

I. Background

Although the parties vigorously dispute many details of the

relationship between CAVN and the defendants, the basic

facts underlying this case are uncontested. CAVN was an

international shipping company created in 1917 by Venezuela

and operated as a state-owned instrumentality until it filed

for bankruptcy in 1994. At all relevant times, the FIV,

known under Venezuelan law as an "autonomous institute,"

owned 99.86% of CAVN's stock and Venezuela, through vari-

ous ministries, owned the remainder. The plaintiffs are

twelve corporations that leased to CAVN shipping equipment,

such as containers and chassis, between 1982 and 1993.

In the early 1990s CAVN began experiencing severe finan-

cial trouble, in part because of the inefficient way in which it

handled leased equipment. In September 1991 the FIV,

concerned about CAVN's mounting losses, commissioned the

consulting firm Booz, Allen & Hamilton, Inc. to assess

CAVN's financial health and operating procedures. Booz

Allen recommended that CAVN restructure its operations,

upgrade its fleet, overhaul its handling of leased equipment,

and in general strengthen its management.

In 1992 CAVN requested financial assistance from the FIV,

which referred the request to the Sectoral Cabinet for Eco-

nomic and Social Policy Issues, an organization that by law

must approve all such requests before the FIV may act. The

Cabinet approved CAVN's request conditioned upon CAVN's

agreement to restructure. When CAVN agreed to that con-

dition, the FIV commissioned Booz Allen to prepare a re-

structuring plan. The FIV made funds available to CAVN

through a trust agreement under which the FIV is both

settlor and trustee and CAVN is the beneficiary. Under the

agreement, CAVN had to place some of its assets in trust

with the FIV as collateral.

Notwithstanding these efforts, CAVN began to fall behind

in its lease payments and in 1993 the plaintiffs issued notices

of default and termination. In November 1993 CAVN and

the lessors agreed to restructure CAVN's payments; until

January 1994 the FIV provided additional capital infusions to

allow CAVN to meet the restructured payment schedules. In

April 1994 the lessors again agreed to restructure CAVN's

payments. By July, however, CAVN was unable to continue

operations: it filed for bankruptcy in October 1994.

In June 1997 the plaintiffs brought this suit against the

Republic of Venezuela and the FIV (henceforth referred to

collectively as "Venezuela" or "the Government"). In the

first three counts of the complaint they allege that Venezuela

used CAVN as its "alter ego," or as its "agent," or that it

cloaked CAVN with apparent authority to bind the Govern-

ment, and that Venezuela is therefore liable upon the lease

agreements and restructured payment schedules. In the

final count the lessors allege that Venezuela, by refusing to

continue providing funds to CAVN, caused CAVN to breach

its contracts with the plaintiffs. Venezuela moved to dismiss

the complaint in January 1998, claiming that under the FSIA

it is immune from suit upon all counts and that suit upon the

fourth count is precluded under the act of state doctrine as

well.

The district court denied Venezuela's motion to dismiss.

Based upon the pleadings and the extensive evidence submit-

ted supporting and opposing the motion, the district court

found that Venezuela, which had appointed the Board, exert-

ed extensive control over CAVN's everyday operations,

played a major role in CAVN's financial restructuring, and

appeared to have authorized CAVN to act on its behalf.

From these findings the district court concluded both that

CAVN had in fact acted as the Government's agent, and that

it had apparent authority to act for the Government, in its

dealings with the plaintiffs, and therefore that Venezuela is

amenable to a suit based upon the activities of CAVN. The

court did not discuss the final count of the complaint, in which

the plaintiffs seek to hold Venezuela liable for causing CAVN

to breach its contracts, and with respect to which the Govern-

ment raises the act of state objection.

II. Analysis

Venezuela filed this interlocutory appeal in order to press

its claim of immunity from suit. Under the FSIA a "foreign

state [is] immune from the jurisdiction of the courts of the

United States and of the States," subject to certain enumerat-

ed exceptions. 28 U.S.C. s 1604. For this purpose, "foreign

state" includes any "agency or instrumentality" thereof. 28

U.S.C. s 1603(a). Both Venezuela and the FIV are immune

from suit upon the plaintiffs' claims, therefore, unless those

claims fall within one of the listed exceptions. The plaintiffs

contend that their claims are within the "commercial activity"

exception, which provides that:

(a) A foreign state shall not be immune from the juris-

diction of courts of the United States or of the States in

any case--

* * *

(2) in which the action is based upon a commercial

activity carried on in the United States by the foreign

state; or upon an act performed in the United States in

connection with a commercial activity of the foreign state

elsewhere; or 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;

28 U.S.C. s 1605(a)(2).

Venezuela implicitly concedes that the first three counts of

the complaint are based upon "commercial activities" within

the meaning of 28 U.S.C. s 1605(a)(2), but maintains that it is

not amenable to a suit based upon the commercial activities of

CAVN because CAVN was not its agent. As to the final

count, Venezuela argues first that the activities alleged there

are not "commercial activities," and second that they are acts

of state for which the Government is immune from trial in

any event.

The district court's denial of a foreign state's motion to

dismiss upon the ground of sovereign immunity is subject to

interlocutory appeal under the collateral order doctrine. See

Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905

F.2d 438, 443 (D.C. Cir. 1990) (citing Cohen v. Beneficial

Industrial Loan Corp., 337 U.S. 541, 545-47 (1949)). We

review the district court's findings of fact for clear error, see

Jungquist v. Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d

1020, 1028 (D.C. Cir. 1997), and in this case we find none.

We review de novo the district court's determination that

Venezuela is not entitled to immunity, see id., to which task

the balance of this opinion is devoted.

A. Subject matter jurisdiction, Counts I-III

A government instrumentality "established as [a] juridical

entit[y] distinct and independent from [its] sovereign should

normally be treated as such"; thus, it is presumed to have

legal status separate from that of the sovereign. First

National City Bank v. Banco Para El Comercio Exterior de

Cuba, 462 U.S. 611, 627 (1983) (Bancec). That presumption

can be overcome in two situations: First, "where a corporate

entity is so extensively controlled by its owner that a relation-

ship of principal and agent is created," id. at 629 (citing

NLRB v. Deena Artware, Inc., 361 U.S. 398, 402-404 (1960));

and second, where recognition of the instrumentality as an

entity apart from the state "would work fraud or injustice."

Id. (citing Taylor v. Standard Gas & Electric Co., 306 U.S.

307, 322 (1939)). Although the Supreme Court in Bancec

recognized these as exceptions to the rule that a foreign

sovereign is not liable for the acts of an instrumentality of the

state, we have since held that they serve also as exceptions to

the rule that a foreign sovereign is not amenable to suit based

upon the acts of such an instrumentality. See, e.g.,

Foremost-McKesson, 905 F.2d at 446-47. Accordingly, the

present plaintiffs argue both reasons--agency and injustice--

for holding that Venezuela is amenable to suit based upon the

activities of CAVN.

1. The agency exception: Principles

Our previous decisions applying the agency exception to the

rule of sovereign immunity have generally focused upon how

much control the sovereign exercised over the instrumentali-

ty, without explicating why and the circumstances in which

control is relevant to the question of the sovereign's amena-

bility to suit. See, e.g., McKesson Corp. v. Islamic Republic

of Iran, 52 F.3d 346, 352 (1995). Control by the sovereign is

relevant in two distinct contexts, as discussed below.

a. Control

First, control is relevant when it significantly exceeds the

normal supervisory control exercised by any corporate parent

over its subsidiary and, indeed, amounts to complete domina-

tion of the subsidiary. A sovereign is amenable to suit based

upon the actions of an instrumentality it dominates because

the sovereign and the instrumentality are in those circum-

stances not meaningfully distinct entities; they act as one.

Indeed, in the case cited by the Supreme Court to illustrate

the agency exception, various corporations were allegedly

operated as a "single enterprise." See NLRB v. Deena

Artware, Inc., 361 U.S. 398 (1960).

In that case, the NLRB had ordered an employer to offer

reinstatement and backpay to former employees. See id. at

399. Although the employer initially complied with the order,

it soon ceased operations without having paid back wages.

See id. The employer was, however, only one of several

wholly-owned subsidiaries of the same parent corporation.

See id. at 399-400. The Board petitioned the court of appeals

to hold not only the subsidiary employer but also its parent

and the sister subsidiaries in civil contempt. The Board

proceeded in part upon the theory that the various corpora-

tions were operated as a "single enterprise" with each per-

forming "a particular function, as a department or division of

the one enterprise in the manufacture, sale and distribution of

the common product." Id. at 401. The court of appeals

dismissed the petition but the Supreme Court reinstated it

and granted the Board discovery on the "single enterprise"

issue. Id. at 404.

In the course of reaching that decision, the Supreme Court

offered numerous examples of situations where one company

so dominated another that the courts held the controlling

company liable for the obligations of the controlled company.

Thus, if one corporation is "operated as a division of another,"

then the latter may be held responsible for the acts of the

former. Id. at 403 & n.2 citing, for example, Foard Co. v.

Maryland, 219 F. 827, 829 (4th Cir. 1914) (involving subsid-

iary that did not handle any funds and paid all profits to

parent "as a charge for managing the business"), and Dillard

& Coffin Co. v. Richmond Cotton Oil Co., 140 Tenn. 290, 293-

94 (1918) (involving parent that could at any time dismiss

subsidiary's Board of Directors and appoint new directors of

its choosing, that received "daily reports of each transaction"

consummated by subsidiary, and that paid financial obli-

gations of subsidiary). Or the "affairs of the group may be so

intermingled that no distinct corporate lines are maintained."

Id. at 403 & n.4, citing, for example, The Willem Van Driel,

Sr. v. Pennsylvania R.R. Co., 252 F. 35, 37 (4th Cir. 1918)

(involving railroad that dictated subsidiary elevator compa-

ny's clients, appointed own officers to run elevator company,

controlled elevator company's accounts, and used elevator

company's profits for its own purposes). In addition, a

parent corporation may be held liable for the acts of a

subsidiary that is a "shell, inadequately financed." Id. at 403

& n.3, citing, for example, Luckenbach S.S. Co., Inc. v. W.R.

Grace & Co. Inc., 267 F. 676, 681 (4th Cir. 1920) (involving

subsidiary that was undercapitalized, issued 94% of its stock

to owner of parent, leased equipment from parent at "far

below ... rental value," and was "personally managed" by

owner of parent).

Second, control is relevant when the sovereign exercises its

control in such a way as to make the instrumentality its

agent; in that case control renders the sovereign amenable to

suit under ordinary agency principles. See Gilson v. Repub-

lic of Ireland, 682 F.2d 1022, 1026 n.16, 1029 (D.C. Cir. 1982)

("An agent's actions may provide the basis for jurisdiction

over the principal"). The relationship of principal and agent

depends, however, upon the principal having "the right to

control the conduct of the agent with respect to matters

entrusted to [the agent]." Restatement (Second) of Agency

s 14 (1958).

A sovereign does not create an agency relationship merely

by owning a majority of a corporation's stock or by appoint-

ing its Board of Directors. See Foremost-McKesson, 905

F.2d at 448; Restatement (Second) of Agency s 14M. If

majority stock ownership and appointment of the directors

were sufficient, then the presumption of separateness an-

nounced in Bancec would be an illusion. At the same time, a

sovereign need not exercise complete dominion over an in-

strumentality--to the point of stripping it of any meaningful

separate identity--in order to establish a relationship of

principal and agent. If such domination were required, then

agency principles would be superfluous because, as discussed

above, the sovereign would be subject to suit on the ground

that instrumentality and sovereign were in fact a single

entity.

Courts have long struggled, often with confusing results, to

explain how much control is required before parent and

subsidiary may be deemed principal and agent. Cf. Berkey v.

Third Avenue Railway Co., 244 N.Y. 84, 155 N.E. 58, 61

(1926) ("The whole problem of the relation between parent

and subsidiary corporations is one that is still enveloped in

the mists of metaphor"); Restatement (Second) of Agency

s 14M reporter's notes ("When liability is fastened upon the

parent it is said that the subsidiary is a 'mere agent' [which

has resulted in] a weakening and muddying of the term

'agent' and a failure by courts to state the real reasons for

their decisions"). The question defies resolution by "mechan-

ical formula[e]," for the inquiry is inherently fact-specific.

See Bancec, 462 U.S. at 633. At a minimum, however, we can

confidently state that the relationship of principal and agent

does not obtain unless the parent has manifested its desire

for the subsidiary to act upon the parent's behalf, the subsid-

iary has consented so to act, the parent has the right to

exercise control over the subsidiary with respect to matters

entrusted to the subsidiary, and the parent exercises its

control in a manner more direct than by voting a majority of

the stock in the subsidiary or making appointments to the

subsidiary's Board of Directors. See Restatement (Second)

of Agency s 1 ("Agency is the fiduciary relation which results

from the manifestation of consent by one person to another

that the other shall act on his behalf and subject to his

control, and consent by the other so to act").

That a state and a state-owned corporation may in some

circumstances be, respectively, principal and agent does not

necessarily mean, however, that in those circumstances the

sovereign is amenable to a suit based upon the acts of the

agent. For example, "jurisdiction [over the sovereign] cannot

be maintained if the agent's actions are not related to the

substance of plaintiff's cause of action." Gilson, 682 F.2d at

1029-30. Nor, under principles of agency, is a sovereign

amenable to suit upon a contract that its agent made on its

own account though, unbeknownst to the contracting plaintiff,

the sovereign had authorized the agent to make the contract

on the sovereign's behalf. See Restatement (Second) of

Agency s 199.

b. Apparent authority

A plaintiff might contend that a corporation, even if not an

agent of the sovereign, had apparent authority to act on the

sovereign's behalf. In that case the plaintiff would have to

show that it reasonably relied upon a manifestation by the

sovereign to that effect. See Restatement (Second) of Agency

s 27 ("[A]pparent authority to do an act is created as to a

third person by [a manifestation] of the principal which,

reasonably interpreted, causes the third person to believe

that the principal consents to have the act done on his behalf

by the person purporting to act for him"); see also Restate-

ment (Second) of Agency s 27 cmt. d (explaining that a

manager "has apparent authority to do those things which

managers in that business ... customarily do"); Restate-

ment (Second) of Agency s 159 & cmt. b; Restatement

(Second) of Agency s 8 & cmt. a. For example, if a sover-

eign falsely represented to a third party that an instrumental-

ity of the state was authorized to act as the sovereign's agent

and the third party reasonably relied upon that representa-

tion when contracting with the instrumentality, then under

agency principles the third party could sue the sovereign

upon the contract under a theory of apparent authority even

though the sovereign and the instrumentality were not, in

fact, related as principal and agent. See, e.g., Restatement

(Second) of Agency s 8 cmt. a, illus. 3. We doubt, however,

that a case of merely apparent authority falls within the

agency exception--an exception limited by its terms to situa-

tions in which the instrumentality "is so extensively controlled

by [the sovereign] that a relationship of principal and agent is

created." Bancec, 462 U.S. at 629. (Still, in an appropriate

case a court might attribute the acts of the instrumentality to

the sovereign under the exception for fraud or injustice).

2. The agency exception: Application

With these background principles in mind, we turn to the

facts of the case at bar. Recall that the district court denied

Venezuela immunity under the FSIA based upon its conclu-

sions that CAVN was an agent of the State and that CAVN

had apparent authority to act for the State. Upon appeal, the

plaintiffs also seem to argue that Venezuela so dominated

CAVN as to deprive it of separate juridical identity.

a. Control

In our view, the plaintiffs, whether understood to contend

that Venezuela so dominated CAVN that the corporation

lacked a distinct identity, or merely that CAVN acted as the

Government's agent, have failed to demonstrate that Vene-

zuela controlled CAVN to a degree sufficient to render the

State amenable to suit based upon the actions of the corpora-

tion.

The district court focused upon five facts that led it to

attribute the actions of CAVN to the Government: Venezuela

(1) owned a majority of CAVN's stock; (2) appointed the

Board of Directors and the Chairman of the Board and

President; (3) was involved in CAVN's "day-to-day" opera-

tions by overseeing the restructuring of CAVN's intermodal

operations and approving the sale of three of CAVN's vessels;

and (4) aided CAVN financially by allowing the FIV to enter

into a trust agreement with CAVN; while (5) the President of

CAVN, with apparent authority to bind Venezuela, assured

one of the plaintiffs that the Government would support

CAVN. Before this court, the plaintiffs press these consider-

ations as support for both their domination and their agency

theories of the case.

In our view however, the facts as found, considered as a

whole, establish neither that Venezuela dominated CAVN nor

that CAVN was Venezuela's actual or apparent agent. The

first two facts--that the Government owned CAVN's stock

and could appoint CAVN's Board of Directors and the Chair-

man and President--are relevant but as a matter of law do

not by themselves establish the required control, see

Foremost-McKesson, 905 F.2d at 448, and the remaining

factors do not make up the shortfall.

As for the third fact, the Government's purported role in

CAVN's "day-to-day operations," the district court found that

"CAVN's Board of Directors appointed Captain Antonio

Romero Sierraalta, a maritime professional and officer in the

Venezuelan Navy, with full power and authority, to head a

new Intermodal Division," and that the Board directed him to

implement Booz Allen's recommendations for restructuring.

After describing the extensive changes Capt. Sierraalta made

in that managerial capacity and noting that " 'the [B]oard of

[Directors] was aware of [the] details ...' of these efforts,"

the district court concluded that the Government, "through

the appointment of Capt. Sierraalta, effectively comman-

deered the principal intermodal operations of CAVN." These

findings, however, describe nothing more than the sole share-

holder exercising its influence, through the Board of Di-

rectors, to put its own chosen manager in charge of a

corporation that was suffering severe operational problems--

and leaving to him the task of running "day-to-day" opera-

tions. If that were enough to make the shareholder answera-

ble for the acts of the corporation, then the holding of

Foremost-McKesson that majority stock ownership and con-

trol over the Board of Directors are insufficient to transform

parent to principal and instrumentality to agent would be

limited to cases in which the shareholder is utterly quiescent;

let it exert itself at all to protect its interests and it loses its

legal identity separate from that of the corporation. That is

not the law. See, e.g., Restatement (Second) of Agency

s 14M.

The court also found that the Government was involved in

CAVN's "day-to-day" operations because "the Economic De-

partment for the Sector, an agent of ... Venezuela, autho-

rized the sale of [three] of CAVN's vessels." This finding

adds no support for the proposition that Venezuela exercised

the requisite control over CAVN. First, the sale of a portion

of its fleet as part of a massive restructuring hardly qualifies

as CAVN's "day-to-day" business. Second, it is not uncom-

mon for a government--as regulator, not as shareholder--to

require approval for certain transactions in the transportation

sector. See, e.g., 49 U.S.C. s 11323(a)(2)(requiring that the

Surface Transportation Board approve a "purchase, lease, or

contract to operate property of another rail carrier"); 46 App.

U.S.C. s 1704(a) (giving Federal Maritime Commission juris-

diction over certain agreements among "ocean common carri-

ers"). Because the record evidence cited by the district court

in support of its finding is somewhat cryptic, it is unclear why

the Department for the Sector approved the sale of the ships

and even whether its approval was required. There is at

least some evidence in the record that Venezuela generally

regulates the sales of vessels. Without more, we cannot say

that requiring a shipping company to obtain governmental

approval for the sale of vessels represents the exercise of

Venezuela's authority as shareholder rather than its exercise

of governmental power in the ordinary course of regulation.

Finally, the district court considered the Government's

"financial involvement" with CAVN. The court found that

CAVN's counsel, in a letter to the United States Federal

Maritime Commission, had "acknowledged that the operating

assets of CAVN were owned and controlled by ... Venezue-

la." In context, however, that statement is utterly innocuous.

The letter was sent in response to a request from the FMC

for information, which included the following question:

Are your operating assets directly or indirectly owned or

controlled by a government under whose registry any of

your vessels operate? ... For purposes of this ques-

tion, ownership or control is deemed to exist if a majority

interest in the carrier, or its operating assets, is owned

or controlled in any manner by a government ... or

entity controlled by such government.

Counsel answered the question by stating, "Yes, the Republic

of Venezuela," which he had to do simply because "a majority

interest in the carrier ... [was] owned by [the] government"

of that country. As we have seen, however, mere ownership

does not imply control of the sort that could render the

Government amenable to suit based upon the acts of the

corporation.

Also under the heading of financial involvement, the district

court found that Venezuela had "decided to inject funds into

CAVN as part of the restructuring plan" and that the FIV

had entered into the trust agreement with CAVN so that

CAVN could "satisfy its debts and attain liquidity." Far

from demonstrating that Venezuela and the FIV exercised

the type of control over CAVN that would justify attributing

the corporation's actions to them, the facts as found reflect

only a normal relationship between a sovereign and an instru-

mentality of the state. Indeed in Bancec the Court noted

that a "typical government instrumentality" has primary re-

sponsibility for its own finances "[e]xcept for appropriations

to provide capital or to cover losses." Bancec, 462 U.S. at

624. In other words, the infusion of state capital to cover

CAVN's losses was a normal aspect of the relation between a

government and a government-owned corporation, not an

instance of "day-to-day" involvement in the affairs of the

corporation, and hence does not tend to justify stripping

Venezuela of its sovereign immunity.

The other findings marshaled by the district court as

evidence of the Government's involvement in CAVN's finan-

cial affairs similarly demonstrate only that Venezuela provid-

ed funds to CAVN in order to reorganize the ailing company

and to bail it out of debt. Taken together, the district court's

findings do not show that Venezuela controlled CAVN in a

manner sufficient to forfeit its immunity under the FSIA.

The plaintiffs direct our attention to still other evidence in

the record that was not the subject of the district court's

findings--and all of which the defendants contest--that they

claim justifies attributing CAVN's actions to Venezuela. We

will neither rehearse nor resolve these disputes here. View-

ing the disputed facts favorably to the plaintiffs, however, we

remain unconvinced that Venezuela exercised such control

over CAVN as to make the Government amenable to suit

based upon CAVN's actions under the principal and agent

exception announced in Bancec.

Our decision in McKesson, contrary to the plaintiffs' argu-

ment, does not indicate a different result. McKesson in-

volved a suit brought by American holders of a minority

interest in an Iranian dairy against the Government of Iran

and several instrumentalities thereof. The shareholders al-

leged that Iran had acted through its instrumentalities unlaw-

fully to divest them of their equity in the dairy. See McKes-

son, 52 F.3d at 348. We affirmed both the district court's

conclusion that the instrumentalities had acted as agents of

Iran in divesting the plaintiffs of their equity and its holding

that the acts of the instrumentalities were attributable to

Iran, which was not, therefore, immune from the suit under

the FSIA. See id. at 352.

Although the district court had made extensive findings

detailing Iran's pervasive control over the instrumentalities,

we focused upon four facts. First, the instrumentalities

owned a majority of the dairy's stock and controlled six of the

seven seats on its Board of Directors. See id. at 351.

Second, the Government of Iran had issued anti-American

policy statements to the instrumentalities, which they reason-

ably believed the Government wanted them to carry out in

their dealings with the dairy's American shareholders. For

example, the Managing Director of one of the instrumentali-

ties, who eventually chaired the dairy's Board of Directors,

stated that the dairy "was no longer a 'joint stock company'

whose primary fiduciary duty was to its stockholders" and

declared it the dairy's "main objective ... to protect the

interests of the country." Id. at 351. Third, Iran directly

controlled "[r]outine business decisions, such as declaring and

paying dividends to shareholders and honoring the dairy's

contractual commitments"; indeed, the dairy's Board of Di-

rectors had "deferred [their] decision to withhold dividends

from [one of the American shareholders]" until they had

received approval from "Iran's Cabinet Ministers (and offi-

cials answerable to them)." Id. at 351-52. Finally, we

emphasized that the dairy had not "simply carr[ied] out a

state commercial policy as a normal part of the corporation's

mission, without any state involvement" but instead had acted

to effectuate a governmental policy "designed to injure some

of the corporation's own shareholders ... through a corpo-

rate policy guided by government representatives." Id. at

352.

Beyond the features inherent in a state-owned corporation,

namely the government's ownership of stock and control of

the Board of Directors, this case bears no resemblance to

McKesson. Venezuela did not evince an intent to have

CAVN act as its agent in dealing with the plaintiffs. No one

at CAVN sought the Government's approval for routine busi-

ness decisions. In short, McKesson is to this case what the

Chicago Manual of Style was to e.e. cummings: not control-

ling.

b. Apparent authority

The district court next considered whether Venezuela had

indicated to the plaintiffs that CAVN could act as its agent,

that is, whether Venezuela had apparently given CAVN au-

thority to act for it. Upon appeal the plaintiffs also pursue

this theory in support of the district court's holding.

In reaching the conclusion that CAVN had apparent au-

thority to bind the Government, the court found that Vice

Admiral Efraim Diaz TarazOn of the Venezuelan Navy, who

also served for a time as President and Chairman of the

Board of CAVN, had assured one of the plaintiffs--while

wearing his naval uniform, no less--that "Venezuela would

support CAVN." This finding, which is the only support for

the district court's conclusion that Venezuela had cloaked

CAVN with apparent authority, is insufficient to render the

State liable for the acts of the corporation. Appointing

TarazOn as President of CAVN certainly cloaked him with

authority to bind CAVN, see Restatement (Second) of Agen-

cy s 27 cmt. d, above, but something more would be required

before a creditor of CAVN could reasonably infer that Tara-

zOn was thereby authorized to bind the Government. Tara-

zOn's decision to dress as an Admiral when he met with one of

the lessors is just that--TarazOn's sartorial decision--not an

indication coming from the Government that it had authorized

him to commit government funds outside the normal channels

running through the Cabinet and the FIV. In the absence of

any evidence of such an authorization from the Government,

we reject the plaintiffs' argument that CAVN had apparent

authority to bind Venezuela.

3. The exception for fraud or injustice

We turn now to the exception for fraud or injustice recog-

nized in Bancec. 462 U.S. at 629. Although the district court

did not address it, the plaintiffs argue in passing that this

exception, too, applies to this case. Their theory, in a nut-

shell, is that the "[d]efendants' failure to adequately provide

CAVN with the financial resources and the basic tools neces-

sary to run a commercial shipping line and to perform its

contracts with and commitments to" the plaintiffs "provides

an independent basis to attribute CAVN's commercial activi-

ties to the [d]efendants for FSIA purposes." The plaintiffs

cite two cases for support, but neither is of any help to them.

In Anderson v. Abbott, 321 U.S. 349 (1944), the Supreme

Court dealt with a suit against some of the shareholders of a

bank holding company, 321 U.S. at 354, the only substantial

asset of which was stock in its subsidiary banks. Id. at 358.

By statute, stock in the banks carried "double liability,"

meaning that both the banks and their shareholders were

liable to the depositors. Id. at 358-59. The Court held the

shareholders of the holding company liable for the depositors'

claims against the subsidiary banks because allowing the

holding company to insulate them "would allow stockholders

of banks to retain all of the benefits of ownership without the

double liability which Congress had prescribed." Id. at 358.

Here, in contrast to Abbott, the sovereign shareholder of

CAVN did not use the corporation to defeat any statutory

policy of either Venezuela or the United States. Nor was

CAVN, unlike the holding company in Abbott, thinly capital-

ized from its inception--a fact relevant to the fraud or

injustice exception later given separate recognition in Bancec.

These two critical differences render Abbott inapplicable to

the case at bar.

In Hystro Products, Inc. v. MNP Corporation, 18 F.3d

1384 (7th Cir. 1994), the plaintiff brought suit under state law

against the parent of a corporation that had not paid it for

certain goods before ceasing operations. See id. at 1386-87.

The jury, finding that the subsidiary was the "alter-ego" of

the parent, awarded damages to the plaintiff. Id. The court

of appeals affirmed on the grounds that a reasonable jury

could have concluded both that the parent and its subsidiary

had not maintained their "separate identities," see id. at 1390,

and that the parent "allowed [its subsidiary] to continue to

place orders knowing that it would 'stiff' [the plaintiff] on the

final bill." Id. at 1392.

Hystro Products is inapplicable to the present case for two

reasons. First, while the parent in Hystro Products dominat-

ed its subsidiary, the plaintiffs here, as we have seen, have

not shown that Venezuela dominated CAVN. Second, in

Hystro Products there was evidence that the parent had

planned for months to shut down its subsidiary and had

neither told the plaintiff of those plans nor otherwise indicat-

ed that the subsidiary was having financial difficulty. The

jury therefore reasonably could have concluded that the

parent had used its subsidiary unjustly to obtain goods for

which it had no intention of paying. Here, Venezuela did not

manipulate CAVN in order to obtain a financial benefit from

the plaintiffs before CAVN went bankrupt; it simply failed in

the end to bail CAVN out. The Government's extensive but

ultimately unsuccessful efforts to save CAVN from bankrupt-

cy are a far cry from the fraud involved in Hystro Products.

We therefore hold that Venezuela is not amenable to suit

upon the first three counts of the plaintiffs' complaint under

the fraud or injustice exception. Those counts are dismissed.

B. Subject matter jurisdiction, Count IV

In the final count of the complaint the plaintiffs allege that

Venezuela caused CAVN to breach its contracts with them by

"failing to restore CAVN's accumulated deficits and by refus-

ing to allow CAVN to fully perform its obligations under the

Equipment Lease Agreements and the restructuring and

repayment plans." Venezuela contends both that the FSIA

and the act of state doctrine protect it from suit upon this

count. The district court did not address either assertion.

In light of our dismissal of the first three counts of the

complaint, and of the district court's failure to discuss the

final count, we leave to the district court in the first instance

the question whether Venezuela and the FIV are, by reason

of the FSIA, immune from suit upon the final count. We do

not reach Venezuela's act of state defense because it is not

properly subject to interlocutory appeal. See Walter Fuller

Aircraft Sales, Inc. v. Republic of the Philippines, 965 F.2d

1375, 1387 (5th Cir. 1992). The act of state doctrine is a

substantive rule of law that precludes the district court from

inquiring into the legality of a sovereign's public acts; it is

not strictly an immunity from suit. See id.

Although Venezula has asked this court to exercise

pendent jurisdiction over the act of state issue, we decline to

do so. We exercise such jurisdiction "sparingly" and not so

as to "reach[ ] an issue that might be mooted or altered by

subsequent district court proceedings." Gilda Marx, Inc. v.

Wildwood Exercise, Inc., 85 F.3d 675, 678, 679 (D.C. Cir.

1996). Because the district court is yet to determine whether

Venezuela is immune from suit upon count four pursuant to

the FSIA, we will not rush in to resolve the act of state issue

at this juncture.

III. Conclusion

For the forgoing reasons, the first three counts of the

complaint are dismissed. We remand this matter to the

district court to consider whether the defendants are immune

under the FSIA from suit upon the fourth count of the

complaint, and if not, then to take up Venezuela's act of state

defense.

It is so ordered.