Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 16, 2015 Decided May 1, 2015

No. 13-7169

HELMERICH & PAYNE INTERNATIONAL DRILLING CO. AND

HELMERICH & PAYNE DE VENEZUELA, C.A.,

APPELLEES

v.

BOLIVARIAN REPUBLIC OF VENEZUELA,

APPELLEE

PETROLEOS DE VENEZUELA, S.A. AND PDVSA PETROLEO,

S.A.,

APPELLANTS

Consolidated with 13-7170, 14-7008

Appeals from the United States District Court

for the District of Columbia

(No. 1:11-cv-01735)

Mary H. Wimberly argued the cause for

appellant/cross-appellee Bolivarian Republic of Venezuela.

Joseph D. Pizzurro argued the cause for

appellants/cross-appellees Petroleos De Venezuela, S.A. and

PDVSA Petroleo, S.A. With them on the briefs were Robert

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B. Garcia, George E. Spencer, William L. Monts III, and Bruce

D. Oakley

David W. Ogden argued the cause for

appellee/cross-appellant Helmerich & Payne De Venezuela,

C.A. With him on the briefs were David W. Bowker,

Catherine M. Carroll, Elisebeth C. Cook, and Francesco

Valentini.

Before: GARLAND, Chief Judge, TATEL, Circuit Judge,

and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

Opinion concurring in part and dissenting in part filed by

Senior Circuit Judge SENTELLE.

TATEL, Circuit Judge: The Foreign Sovereign Immunities

Act (FSIA) grants foreign states immunity from suit in

American courts unless one of several enumerated exceptions

applies. In this case, after Venezuela forcibly seized oil rigs

belonging to the Venezuelan subsidiary of an American

corporation, both the parent and the subsidiary filed suit in the

United States asserting jurisdiction under the FSIA’s

expropriation and commercial activity exceptions. Venezuela

moved to dismiss on the ground that neither exception applies.

The district court granted the motion as to the subsidiary’s

expropriation claim, but denied it in all other respects. For the

reasons set forth in this opinion, we affirm in part and reverse

in part. We agree with the district court that the parent

corporation had sufficient rights in its subsidiary’s property to

support its expropriation claim. But because the subsidiary’s

expropriation claim is neither “wholly insubstantial” nor

“frivolous”—this Circuit’s standard for surviving a motion to

dismiss in an FSIA case—the district court should have

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allowed that claim to proceed. And given that the subsidiary’s

commercial activity had no “direct effect” in the United States,

which the FSIA requires to defeat foreign sovereign immunity,

the district court should have granted the motion to dismiss

with respect to that claim.

I

For more than half a century, Oklahoma-based Helmerich

& Payne International Drilling Co. (H&P-IDC) successfully

operated an oil-drilling business in Venezuela through a series

of subsidiaries. Incorporated under Venezuelan law, the most

recent subsidiary, Helmerich & Payne de Venezuela (H&P-V),

provided drilling services for the Venezuelan government.

Having nationalized its oil industry in the mid-70s, Venezuela

now controls exploration, production, and exportation of oil

through two state-owned corporations: Petróleos de

Venezuela, S.A. (PDVSA) and PDVSA Petróleo, known

collectively as PDVSA. From its creation in 1975 through

2010, PDVSA depended on H&P-V’s highly valuable and rare

drilling rigs because they were capable of reaching depths of

more than four miles. Those rigs were originally purchased by

H&P-IDC and then transferred to its subsidiary H&P-V. At

issue here are ten contracts executed in 2007 between H&P-V

and PDVSA, each involving one of these rigs—nine in

Venezuela’s eastern region and one in the west. The contracts

initially covered periods ranging from five months to one year,

though all were subsequently extended.

Soon after signing the contracts, PDVSA fell substantially

behind in its payments. By August 2008, unpaid invoices

totaled $63 million. PDVSA never denied its contractual debt;

quite to the contrary, it repeatedly reassured H&P-V that

payment would be forthcoming. But no payments were made,

and after overdue receivables topped $100 million, H&P-V

announced in January 2009 that it would not renew the

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contracts absent “an improvement in receivable collections.”

Compl. ¶ 50 (internal quotation marks omitted). By November

of that year, H&P-V had fulfilled all of its contractual

obligations, disassembled its drilling rigs, and stacked the

equipment in its yards pending payment by PDVSA.

PDVSA made no further payments. Instead, on June 12,

2010, PDVSA employees, assisted by armed soldiers of the

Venezuelan National Guard, blockaded H&P-V’s premises in

western Venezuela, and then did the same to the company’s

eastern properties on June 13 and 14. PDVSA acknowledged

that it erected the blockade to “prevent H&P-V from removing

its rigs and other assets from its premises, and to force H&P-V

to negotiate new contract terms immediately.” Id. ¶ 63.

In the wake of the blockade, PDVSA issued a series of

press releases that are central to H&P-V’s expropriation claim.

The first, issued on June 23, stated that “[t]he Bolivarian

Government, through [PDVSA had] nationalized 11 drilling

rigs belonging to the company Helmerich & Payne[], a U.S.

transnational firm.” Id. ¶ 65. A second press release, dated June

25, declared that PDVSA’s “workers are guarding the drills”

and that:

The nationalization of the oil production

drilling rigs from the American contractor

H&P not only will result in an increase of oil

and gas production in the country, but also in

the release of more than 600 workers and the

increase of new sources of direct and indirect

employment in the hydrocarbon sector.

Id. ¶ 66. The June 25 release also “emphatically reject[ed]

statements made by spokesmen of the American

empire—traced [sic] in our country by means of the

oligarchy.” Id. ¶ 108 (alterations in original). Another press

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release, this one undated, stated that the nationalization would

“guarantee that the drills will be operated by PDVSA as a

company of all Venezuelans, . . . ensur[ing] the rights of

former employees of H&P, who a year ago were exploited and

then dismissed by this American company, but now they will

become part of PDVSA.” Id. ¶ 109.

On June 29, more than two weeks after the blockade

began, the Venezuelan National Assembly issued an official

“Bill of Agreement” declaring H&P-V’s property to be “of

public benefit and good” and recommending that

then-President Hugo Chavez promulgate a Decree of

Expropriation. Id. ¶ 4. President Chavez issued the decree,

which emphasized that “the availability of drilling equipment

[such as H&P-V’s] is very low both in the country and at world

level, and the lack thereof would affect [Venezuela’s national

oil drilling] Plan.” Id. ¶¶ 4, 19 (alterations in original). The

decree directed PDVSA to take “forcible” possession of

H&P-V’s drilling rigs and other property. Id. ¶ 4. In response,

PDVSA, having already taken possession of the property,

issued a press release on July 2, which stated that H&P-V’s

rigs “are specialized drills we need for more complex sites”

and “will be very useful.” Id. ¶ 20.

That same day, Jesus Graterol, president of the

Venezuelan National Assembly’s Committee on Energy and

Mines, criticized opponents of the nationalization for acting

“in accordance with the instructions of the [U.S.] Department

of State” and trying to “subsidize the big business transnational

corporations, so that they can promote what they know best to

do, which is war . . . through the large military industry[] of the

Empire and its allies.” Id. ¶ 105 (first alteration in original).

Rafael Ramirez, Venezuela’s Minister of Energy and

Petroleum and PDVSA’s President, led a political rally at

H&P-V’s eastern site and declared:

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The company Helmerich & Payne has

operated in our country for many years.

Today, the Revolutionary Government took

control over that company. You have been

here guarding assets that now belong to the

Venezuelan State. I acknowledge and

appreciate your constant watch in order to

protect the people’s interests. Revolutionary

salutation: Socialist Nation or Death. We

shall be victorious!

Id. ¶ 5 (ellipses omitted). Ramirez also referred to H&P-V as

an “American company” with “foreign gentlemen investors”

and Venezuelan workers who would now “become part of

[PDVSA’s] payroll.” Id. As Ramirez predicted, PDVSA now

uses H&P-V’s rigs and other assets in its state-owned drilling

business.

Supposedly to compensate H&P-V for the expropriated

property, PDVSA filed two eminent domain actions in

Venezuelan courts. H&P-V has yet to receive service of

process in the first proceeding, and the second has been stayed

indefinitely. Believing that these proceedings are unlikely to

result in adequate relief, H&P-V and its American parent,

H&P-IDC, filed a two-count complaint under the FSIA in the

United States District Court for the District of Columbia. The

first count, brought against PDVSA and Venezuela, alleges a

taking of property in violation of international law and asserts

jurisdiction under the FSIA’s expropriation exception. The

second count, brought only against PDVSA, alleges breach of

the ten drilling contracts and asserts jurisdiction under the

statute’s commercial activity exception.

Venezuela and PDVSA moved to dismiss on the grounds

that neither FSIA exception applies and that the act-of-state

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doctrine, under which American courts “will not question the

validity of public acts (acts jure imperii) performed by other

sovereigns within their own borders,” Republic of Austria v.

Altmann, 541 U.S. 677, 700 (2004), bars the suit altogether.

Before the district court could decide this motion, the parties

filed a joint stipulation in which they agreed to brief four

threshold issues:

1. Whether, for purposes of determining if a “taking in

violation of international law” has occurred under the

FSIA’s expropriation exception, H&P-V is a national

of Venezuela under international law;

2. Whether H&P-IDC has standing to assert a taking in

violation of international law on the basis of

Venezuela’s expropriation of H&P-V’s property;

3. Whether plaintiffs’ expropriation claims are barred by

the act-of-state doctrine, including whether this defense

may be adjudicated prior to resolution of Venezuela’s

challenges to the court’s subject matter jurisdiction;

and

4. Whether, for purposes of determining the applicability

of the FSIA’s commercial activity exception, plaintiffs

have sufficiently alleged a “direct effect” in the United

States within the meaning of that provision.

The district court resolved the first question in

Venezuela’s favor but sided with Helmerich & Payne on the

other three. Venezuela and PDVSA now appeal, reiterating

arguments they made in the district court. H&P-V

cross-appeals on the first question. We review de novo a

district court’s resolution of a motion to dismiss for lack of

jurisdiction under the FSIA. See de Csepel v. Republic of

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Hungary, 714 F.3d 591, 597 (D.C. Cir. 2013). Critically,

moreover, “we must accept as true all material allegations of

the complaint, drawing all reasonable inferences from those

allegations in plaintiffs’ favor.” Id. (internal quotation marks

omitted).

II

The FSIA “establishes a comprehensive framework for

determining whether a court in this country, state or federal,

may exercise jurisdiction over a foreign state.” Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). The Act

provides that “a foreign state shall be immune from the

jurisdiction of the courts of the United States and of the

States,” 28 U.S.C. § 1604 (emphasis added), unless one of

several exceptions applies, id. §§ 1605–07. H&P-V and

H&P-IDC invoke the expropriation exception for their takings

claim. H&P-V invokes the commercial activity exception for

its breach of contract claim. We address each in turn.

Expropriation Exception

This exception, contained in FSIA section 1605(a)(3),

denies foreign sovereign immunity “in any case . . . in which

rights in property taken in violation of international law are in

issue.” 28 U.S.C. § 1605(a)(3). According to Venezuela, the

exception is inapplicable here for two reasons. First, as a

Venezuelan national, H&P-V may not claim a taking in

violation of international law. Second, under generally

applicable corporate law principles, H&P-IDC has no “rights

in property” belonging to its subsidiary and thus lacks

standing.

In deciding a motion to dismiss for lack of jurisdiction, we

are mindful of the distinction between jurisdiction—a court’s

constitutional or statutory power to decide a case—and

ultimate success on the merits. As the Supreme Court has

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explained, “[j]urisdiction . . . is not defeated . . . by the

possibility that the averments [in a complaint] might fail to

state a cause of action on which petitioners could actually

recover.” Bell v. Hood, 327 U.S. 678, 682 (1946). What

plaintiffs must allege to survive a jurisdictional challenge,

then, “is obviously far less demanding than what would be

required for the plaintiff’s case to survive a summary judgment

motion” or a trial on the merits. Agudas Chasidei Chabad of

U.S. v. Russian Federation, 528 F.3d 934, 940 (D.C. Cir.

2008). In an FSIA case, we will grant a motion to dismiss on

the grounds that the plaintiff has failed to plead a “taking in

violation of international law” or has no “rights in property . . .

in issue” only if the claims are “wholly insubstantial or

frivolous.” Id. at 943. A claim fails to meet this exceptionally

low bar if prior judicial decisions “inescapably render the

claim[] frivolous” and “completely devoid of merit.” Hagans

v. Lavine, 415 U.S. 528, 538, 543 (1974). “[P]revious decisions

that merely render claims of doubtful or questionable merit do

not render them insubstantial” for jurisdictional purposes. Id.

at 538. Applying this standard to the present case, and viewing

the complaint “in the light most favorable to the plaintiff,”

Sachs v. Bose, 201 F.2d 210, 210 (D.C. Cir. 1952), we first

consider whether H&P-V has asserted a non-frivolous

international expropriation claim and then ask whether

H&P-IDC has “put its rights in property in issue in a

non-frivolous way,” Chabad, 528 F.3d at 941.

As to the first inquiry, the parties begin on common

ground. All agree that for purposes of international law, “a

corporation has the nationality of the state under the laws of

which the corporation is organized,” Restatement (Third) of

Foreign Relations Law § 213 (1987), and that generally, a

foreign sovereign’s expropriation of its own national’s

property does not violate international law, United States v.

Belmont, 301 U.S. 324, 332 (1937). The Supreme Court has

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summarized the latter principle, known as the “domestic

takings rule,” this way: “What another country has done in the

way of taking over property of its nationals, and especially of

its corporations, is not a matter for judicial consideration here.

Such nationals must look to their own government for any

redress to which they may be entitled.” Id.

According to Venezuela, the domestic takings rule ends

this case because H&P-V, as a Venezuelan national, may not

seek redress in an American court for wrongs suffered in its

home country. This argument has a good deal of appeal.

Having freely chosen to incorporate under Venezuelan law,

H&P-V operated in that country for many years and reaped the

benefits of its choice, including several extremely lucrative

contracts with the Venezuelan government. Given this, and

especially given that H&P-V expressly agreed that these

contracts would be governed by Venezuelan law in

Venezuelan courts, one might conclude that H&P-V should

live with the consequences of its bargain.

According to H&P-V, however, this case is not so simple.

It argues that Venezuela has unreasonably discriminated

against it on the basis of its sole shareholder’s nationality, thus

implicating an exception to the domestic takings rule. In

support, H&P-V cites Banco Nacional de Cuba v. Sabbatino,

307 F.2d 845, 861 (2d Cir. 1962), in which the Second Circuit

determined that the Cuban government’s expropriation of a

Cuban corporation’s property qualified as a taking in violation

of international law. More than 90% of the Cuban

corporation’s shares were owned by Americans, and the

official expropriation decree “clearly indicated that the

property was seized because [the corporation] was owned and

controlled by Americans.” Id. This, the Second Circuit held,

justified disregarding the domestic takings rule: “When a

foreign state treats a corporation in a particular way because of

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the nationality of its shareholders, it would be inconsistent for

[the court] in passing on the validity of that treatment to look

only to the nationality of the corporate fiction.” Id. (internal

quotation marks omitted). Although the Supreme Court

vacated this decision on other grounds, the Second Circuit later

reiterated “with emphasis” its decision to disregard the

domestic takings rule in the face of Cuba’s anti-American

discrimination. Banco Nacional de Cuba v. Farr, 383 F.2d

166, 185 (2d Cir. 1967).

H&P-V also relies on the most recent Restatement of

Foreign Relations Law, which recognizes discriminatory

takings as a violation of international law. Specifically, section

712 suggests that “a program of taking that singles out aliens

generally, or aliens of a particular nationality, or particular

aliens, would violate international law.” Restatement (Third)

of Foreign Relations Law § 712 cmt. f. (1987).

“Discrimination,” the Restatement continues, “implies

unreasonable distinction,” and so “[t]akings that invidiously

single out property of persons of a particular nationality would

be [discriminatory],” whereas “classifications, even if based on

nationality, that are rationally related to the state’s security or

economic policies might not be [discriminatory]” and thus not

in violation of international law. Id. (emphasis added). The

reporter’s notes to section 712 cite Sabbatino as an example of

a discriminatory taking, explaining that Cuba’s express

“purpose was to retaliate against United States nationals for

acts of their Government, and was directed against United

States nationals exclusively.” Id. § 712 reporter’s note 5.

H&P-V insists that its complaint, which emphasizes the

Venezuelan government’s well-known anti-American

sentiment, as well as PDVSA’s statements decrying the

“American empire,” successfully pleads a discriminatory

takings claim. For its part, Venezuela urges us not to “be the

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first to revive the overturned Second Circuit precedent”

because “there is no internationally recognized

exception—based on ‘discrimination’ or otherwise—to the

domestic takings rule.” Defs.’ Cross Br. 28, 30. Dated and

uncited as it may be, however, Sabbatino remains good law.

See Farr, 383 F.2d at 166 (affirming Sabbatino’s

discriminatory takings rationale “with emphasis”). Although

“we are not bound by the decisions of other circuits,” Dissent

at 3 (emphasis added), we may “of course . . . find the reasons

given for such [decisions] persuasive,” Northwest Forest

Resource Council v. Dombeck, 107 F.3d 897, 900 (D.C. Cir.

1997) (quoting James Moore et al., Moore’s Federal Practice

¶ 0.402 (2d ed. 1996))—especially where, as here, our circuit

has yet to consider the issue. Moreover, neither Venezuela nor

the dissent cites any decision from any circuit that so

completely forecloses H&P-V’s discriminatory takings theory

as to “inescapably render the claim[] frivolous” and

“completely devoid of merit.” Hagans, 415 U.S. at 538

(emphases added). Given this, and given the Restatement’s

recognition of discriminatory takings claims, we believe that

H&P-V has satisfied this Circuit’s forgiving standard for

surviving a motion to dismiss in an FSIA case.

Alternatively, Venezuela claims that even if international

law recognizes discriminatory takings, “plaintiffs have failed

to plead facts to support it” because “the motivation for the

expropriation was Venezuela’s need for H&P-V’s uniquely

powerful rigs.” Defs.’ Br. 31. As it points out, the official

decrees cited only the scarcity of these powerful rigs as the

reason for the expropriation. The Bill of Agreement, for

example, declared H&P-V’s drilling rigs necessary for

Venezuela’s “public benefit and good,” Compl. ¶ 4, and

President Chavez’s decree stated that “the lack thereof would

affect [Venezuela’s national oil drilling] Plan,” id. ¶ 19

(alteration in original). Based on these statements, it may well

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be, as the Restatement puts it, that the taking was “rationally

related to [Venezuela’s] security or economic policies.”

Restatement (Third) of Foreign Relations Law § 712 cmt. f

(1987).

Other statements, however, went well beyond Venezuela’s

economic and security needs and could be viewed as

demonstrating “unreasonable distinction” based on nationality.

Id. PDVSA’s press release referred to the “American empire,”

Compl. ¶ 108, and a National Assembly member warned that

opponents of the expropriation were supporting America’s

mission of “war[] . . . through the large military industry[] of

the Empire and its allies,” id. ¶ 105. At this stage of the

litigation, where we view the complaint “in the light most

favorable to the plaintiff,” Sachs, 201 F.2d at 210, these

statements are sufficient to plead a “non-frivolous”

discriminatory takings claim, Chabad, 528 F.3d at 941.

We turn next to Venezuela’s argument that H&P-IDC may

not invoke the FSIA’s expropriation exception because it has

no rights in H&P-V’s property. By its terms, the expropriation

exception applies only to plaintiffs having “rights in property”

taken in violation of international law. Moreover, and quite

apart from the FSIA, plaintiffs must demonstrate Article III

standing by asserting their “own legal rights and interests”

rather than resting “claim[s] to relief on the legal rights or

interests of third parties.” Warth v. Seldin, 422 U.S. 490, 499

(1975). The “shareholder standing rule” is an example of this

latter principle. Because corporations are legally distinct from

their shareholders, the rule “prohibits shareholders from

initiating actions to enforce the rights of the corporation unless

the corporation’s management has refused to pursue the same

action for reasons other than good-faith business judgment.”

Franchise Tax Board of California v. Alcan Aluminium

Limited, 493 U.S. 331, 336 (1990). Combining both of these

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principles, Venezuela argues that as a mere shareholder,

H&P-IDC has no rights in the property of its subsidiary and

thus lacks standing.

In support of this argument, Venezuela relies almost

entirely on Dole Food Co. v. Patrickson, 538 U.S. 468 (2003),

an FSIA case in which the Supreme Court held that “[a]

corporate parent which owns the shares of a subsidiary does

not, for that reason alone, own or have legal title to the assets of

the subsidiary.” Id. at 475. This, according to Venezuela,

means that “in enacting the FSIA, Congress specifically

intended that basic corporate law concepts inform the

interpretation of the statute,” Defs.’ Opening Br. 23, and thus

“rights in property” must mean corporate ownership.

Contrary to Venezuela’s assertion, however, Dole Food

does not represent a wholesale incorporation of corporate law

into the FSIA. The issue in that case was whether a corporate

subsidiary qualified as an instrumentality of a foreign state

under the FSIA where the foreign state did not own a majority

of the subsidiary’s shares but did own a majority of the

corporate parent’s shares. Dole Food Co., 538 U.S. at 471.

Answering that question in the negative, the Court focused on

FSIA section 1603(b)(2), which defines “instrumentality” as

“an organ of a foreign state or political subdivision thereof, or a

majority of whose shares or other ownership interest is owned

by a foreign state or political subdivision thereof[.]” Id. at 473.

Given this definition, the Court refused to “ignore corporate

formalities” not because the FSIA generally incorporates

corporate law principles, but because section 1603(b)(2)

expressly “speaks of ownership.” Id. at 474.

By contrast, FSIA section 1605(a)(3), the expropriation

exception, speaks only of “rights in property” generally, not

ownership in shares. The Supreme Court’s analysis of another

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FSIA exception is instructive. In Permanent Mission of India

to the United Nations v. City of New York, the Court examined

the FSIA’s abrogation of sovereign immunity in cases

involving “rights in immovable property situated in the United

States.” 551 U.S. 193, 197 (2007) (quoting 28 U.S.C. §

1605(a)(4)). An instrumentality of the Indian government

argued that the FSIA “limits the reach of the exception to

actions contesting ownership or possession.” Id. Seeing no

such limitation in the statute’s text, the Court concluded that

“the exception focuses more broadly on ‘rights in’ property.”

Id. at 198.

So too here. The expropriation exception requires only

that “rights in property . . . are in issue,” § 1605(a)(3), and we

have recognized that corporate ownership aside, shareholders

may have rights in corporate property. In Ramirez de Arellano

v. Weinberger, for example, we considered whether an

American citizen, the sole shareholder of three Honduran

corporations, had a “cognizable property interest” in land

owned by the Honduran corporations and seized by the United

States government. 745 F.2d 1500, 1517 (D.C. Cir. 1984), cert.

granted, judgment vacated on other grounds, 471 U.S. 1113

(1985). Whether Ramirez had property rights in the land, we

held, “does not turn on whether certain rights which may

belong only to the Honduran corporation may be asserted

‘derivatively’ by the sole United States shareholders.” Id. at

1516. Instead, property rights depend upon whether the

shareholders have “rights of their own, which exist by virtue of

their exclusive beneficial ownership, control, and possession

of the properties and businesses allegedly seized.” Id. We thus

concluded that notwithstanding corporate ownership, Ramirez

had property rights in the Honduran property that he

“personally controlled and managed . . . for over 20 years.” Id.

at 1520. “The corporate ownership of land and property,” we

held, “does not deprive the sole beneficial owners—United

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States citizens—of a property interest.” Id. at 1518; see also

Bangor Punta Operations, Inc. v. Bangor & A. R. Co., 417

U.S. 703, 713 (1974) (rejecting the argument that, in assessing

standing, courts “may not look behind the corporate entity to

the true substance of the claims and the actual beneficiaries”).

Our dissenting colleague questions the precedential value

of Ramirez because it was vacated by the Supreme Court on

other grounds. Dissent at 4–5. But we have held that “[w]hen

the Supreme Court vacates a judgment of this court without

addressing the merits of a particular holding in the panel

opinion, that holding ‘continue[s] to have precedential weight,

and in the absence of contrary authority, we do not disturb’ it.”

United States v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir.

2006) (quoting Action Alliance of Senior Citizens of Greater

Philadelphia v. Sullivan, 930 F.2d 77, 83 (D.C. Cir. 1991)).

Because the Supreme Court did not address Ramirez’s holding

that the shareholders had property rights in their corporation’s

assets, but instead vacated and remanded in light of the U.S.

military’s subsequent withdrawal of all personnel and facilities

from the plaintiffs’ land, De Arellano v. Weinberger, 788 F.2d

762, 764 (D.C. Cir. 1986) (en banc) (per curiam); see

Weinberger v. Ramirez de Arellano, 471 U.S. 1113 (1985), that

holding continues to have “precedential weight,” Adewani, 467

F.3d at 1342.

The dissent argues that even if Ramirez continues to have

force, it “is not genuinely on point” because it concerned

property rights arising from the constitution’s due process

clause. Dissent at 5. But as discussed above, the FSIA’s

expropriation exception “focuses . . . broadly on ‘rights in’

property,” Permanent Mission, 551 U.S. at 198 (emphasis

added), and its text imposes no limitation on the source of

those rights.

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Ramirez is especially persuasive in this case because

H&P-IDC, like the American citizen in Ramirez, was the

foreign subsidiary’s sole shareholder. Moreover, H&P-IDC

provided the rigs central to this dispute, Compl. ¶¶ 9, 129–32,

and as a result of the expropriation, has suffered a total loss of

control over its subsidiary, which has ceased operating as an

ongoing enterprise because all of its assets were taken, Compl.

¶¶ 75, 81–82. Under these circumstances, H&P-IDC has “put

its rights in property in issue in a non-frivolous way.” Chabad,

528 F.3d at 941. No more is required to survive a motion to

dismiss under the FSIA. See id. (“non-frivolous contentions”

of rights in property suffice to survive a motion to dismiss).

One final point. In the district court, Venezuela urged

dismissal of Helmerich & Payne’s expropriation claims

pursuant to the act-of-state doctrine, which “precludes the

courts of this country from inquiring into the validity of the

public acts a recognized foreign sovereign power committed

within its own territory.” Banco Nacional de Cuba v.

Sabbatino, 376 U.S. 398, 401 (1964). The district court never

reached the issue, opting instead to determine “whether

subject-matter jurisdiction exists under the FSIA before

deciding whether to dismiss the case under the act of state

doctrine.” Helmerich & Payne International Drilling Co. v.

Bolivarian Republic of Venezuela, 971 F. Supp. 2d 49, 63

(D.D.C. 2013). Acknowledging that the district court’s

decision is not subject to interlocutory appeal, see, e.g.,

Transamerica Leasing, Inc. v. La Republica de Venezuela, 200

F.3d 843, 855 (D.C. Cir. 2000), Venezuela urges us to exercise

pendant jurisdiction over this claim. But we “exercise such

jurisdiction sparingly” and are especially reluctant to do so

where “an issue . . . might be mooted or altered by subsequent

district court proceedings.” Id. Here, Helmerich & Payne’s

expropriation claims could well fail at the summary judgment

stage or following trial on the merits, thus mooting the

18

act-of-state issue. Given this, we think it best not to exercise

pendant jurisdiction over Venezuela’s act-of-state claim.

Commercial Activity Exception

This brings us, finally, to H&P-V’s argument that the

FSIA’s commercial activity exception extends to its breach of

contract claim against PDVSA. This exception, contained in

section 1605(a)(2), nullifies foreign sovereign immunity in any

case

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. § 1605(a)(2)(emphases added). Because this case

involves a contract executed and performed outside the United

States, our analysis focuses on the exception’s third clause—

specifically, whether Venezuela’s breach of the drilling

contracts “cause[d] a direct effect in the United States.” Id. A

direct effect “is one which has no intervening element, but,

rather, flows in a straight line without deviation or

interruption.” Princz v. Federal Republic of Germany, 26 F.3d

1166, 1172 (D.C. Cir. 1994). H&P-V alleges three such

effects.

First, relying on our decision in Cruise Connections

Charter Management v. Canada, 600 F.3d 661 (D.C. Cir.

2010), H&P-V argues that its contracts with third-party

vendors in the United States, made pursuant to the drilling

19

contracts, constitute a direct effect. In Cruise Connections, we

found a “direct effect” where the Royal Canadian Mounted

Police (RCMP) cancelled a contract with a U.S. corporation to

provide cruise ships during the 2010 Winter Olympics. Id. at

662. H&P-V argues that just as in Cruise Connections, where

the RCMP contract “required . . . subcontract[s] with two

U.S.-based cruise lines,” id., its agreements with PDVSA

required contracts with U.S.-based companies for various

drilling rig parts. PDVSA responds that even if H&P-V

subcontracted with U.S. vendors, nothing in the drilling

contracts obligated them to do so.

We need not resolve this dispute, however, because even

assuming that the drilling contracts required subcontracts with

American companies, those contracts had no direct effect in the

United States. Our holding in Cruise Connections rested not on

the mere formation of third-party contracts in the United

States, but rather on “losses caused by the termination of [the]

contract with [Royal Canadian Mounted Police].” Cruise

Connections, 600 F.3d at 664 (emphases added); see also id. at

666 (noting that the “alleged breach resulted in the direct loss

of millions of dollars worth of business in the United States.”).

Here, H&P-V concedes that none of the third-party contracts

was breached. Compl. ¶¶ 126–128, 135. As a result, no losses,

and therefore no “direct effect,” occurred in the United States.

We are unpersuaded by H&P-V’s argument that its

inability to renew the third-party contracts constitutes a direct

effect caused by PDVSA’s breach. Pls.’ Br. 62. As noted

above, H&P-V had already performed all of its obligations

under the existing third-party contracts. Its claim of third-party

loss is therefore based on expected loss from future contracts

that H&P-V says it would have entered into had PDVSA

renewed its own contracts with H&P-V instead of breaching

them. But H&P-V makes no allegation that PDVSA had an

20

obligation to renew its contracts. See Compl. ¶ 33 (“All ten

contracts . . . expired at the conclusion of an agreed-upon

period unless the parties agreed to an extension or an extension

occurred by the contract’s original terms.”). Accordingly, any

losses to third parties based on expected future contracts were

not a direct effect of PDVSA’s breach, but rather of PDVSA’s

contractually permitted decision not to renew its agreement

with H&P-V.

Contrary to H&P-V’s argument, Kirkham v. Société Air

France, 429 F.3d 288 (D.C. Cir. 2005), does not require a

different result. Kirkham involved the commercial activity

exception’s first clause. See id. at 290. H&P-V invokes the

exception’s third clause, under which the “direct effect” in the

United States must arise from the foreign state’s allegedly

unlawful act—here, the breach of contract. See Republic of

Argentina v. Weltover, 504 U.S. 607, 609 (1992) (examining

“whether the Republic of Argentina’s default on certain bonds”

had a direct effect in the United States).

Relying on the Supreme Court’s decision in Republic of

Argentina v. Weltover, 504 U.S. 607 (1992), H&P-V claims a

second effect in the United States: that PDVSA made

payments to Helmerich & Payne’s Oklahoma bank account. In

Weltover, Argentina had issued bonds providing for payment

through a currency transfer on the London, Frankfurt, Zurich,

or New York markets at the discretion of the creditor. Id. at

609–10. Two Panamanian bondholders demanded payment in

New York, and when Argentina failed to pay, brought suit in

the United States, claiming jurisdiction under the commercial

activity exception. Id. at 610. The Court had “little difficulty”

finding a direct effect because, as a result of Argentina’s failure

to meet its payment obligations, a contractually required

payment into an American bank was not made. Id. at 618–19.

Relying on Weltover, H&P-V emphasizes that both the eastern

21

and western contracts permitted PDVSA to pay a portion of

invoiced amounts in U.S. dollars into an American

bank—indeed, PDVSA ultimately paid $65 million this way.

Compl. ¶ 44. As in Weltover, then, PDVSA’s breach meant

that money “that was supposed to have been delivered to [an

American] bank for deposit was not forthcoming.” 504 U.S. at

619. But as PDVSA points out, the contracts gave H&P-V no

power to demand payment in the United States. Rather, under

both the eastern and western contracts, PDVSA could choose

to deposit payments in bolivars in Venezuelan banks

whenever, in its “exclusive discretion” and “judgment,” it

“deem[ed] it discretionally convenient.” Compl. ¶¶ 78, 85, 82.

This case presents facts akin to those we examined in

Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1144

(D.C. Cir. 1994), in which an Iraqi bank failed to pay on letters

of credit, and the payee claimed that the bank’s prior payments

from its accounts in the United States constituted a direct

effect. We rejected this contention because pursuant to the

letters of credit, Iraq “might well have paid . . . from funds in

United States banks but it might just as well have done so from

accounts located outside of the United States.” Id. at 1146–47.

Such unlimited discretion, we concluded, meant that unlike in

Weltover, no money was “‘supposed’ to have been paid” in the

United States. Id. at 1146 (quoting Weltover, 504 U.S. at 608).

In other words, where, as here, the alleged effect depends

solely on a foreign government’s discretion, we cannot say that

it “flows in a straight line without deviation or interruption.”

Princz, 26 F.3d at 1172.

Finally, relying on McKesson Corp. v. Islamic Republic of

Iran, 52 F.3d 346 (D.C. Cir. 1995), H&P-V contends that

PDVSA’s breach halted a flow of commerce between

Venezuela and the United States, thus causing a direct effect.

McKesson, an American corporation, alleged that the Iranian

22

government had illegally divested it of its investment in a dairy

located in Iran. Foremost-McKesson, Inc. v. Islamic Republic

of Iran, 905 F.2d 438, 441 (D.C. Cir. 1990). In doing so, we

concluded, Iran halted a “constant flow of capital, management

personnel, engineering data, machinery, equipment, materials

and packaging, between the United States and Iran to support

the operation of [the dairy],” thereby causing a direct effect. Id.

at 451. H&P-V insists that the same is true here. We think not.

Iran’s actions in “freezing-out American corporations in their

ownership of [the dairy]” had the direct and immediate effect

of halting a flow of resources and capital between the United

States and Iran. Id. By contrast, any interruptions in commerce

between the United States and PDVSA flowed immediately

not from PDVSA’s breach of contract, but rather from

Helmerich & Payne’s decision to cease business in Venezuela.

And, given that the contracts were for set periods of time

ranging from five months to one year, there was no guarantee

of future business between Helmerich & Payne and PDVSA

beyond those contracts.

III

We affirm the district court’s denial of Venezuela’s

motion to dismiss H&P-IDC’s expropriation claim. In all other

respects, we reverse and remand for further proceedings

consistent with this opinion.

So ordered.

SENTELLE, Senior Circuit Judge, dissenting in part and

concurring in part: I will not reiterate the facts in this

controversy, as the careful opinion of the majority sets them

forth in necessary detail and with inerrant accuracy. Further, I

fully concur in the majority’s discussion and conclusion

concerning the issues related to the commercial activity

exception set forth in 28 U.S.C. § 1605(a)(2). However, despite

my general agreement with the majority’s exposition of the facts

underlying the claim for expropriation, I dissent from the

conclusion that those facts bring this case within the

expropriation exception set forth in 28 U.S.C. § 1605(a)(3).

As the majority recognizes, the Foreign Sovereign

Immunities Act (“FSIA”), 28 U.S.C. § 1604, et. seq.,

“‘establishes a comprehensive framework for determining

whether a court in this country, state or federal, may exercise

jurisdiction over a foreign state.’” Maj. Op. at 8 (quoting

Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610

(1992)). As the majority further recognizes, “[t]he Act provides

that ‘a foreign state shall be immune from the jurisdiction of the

courts of the United States and of the States.’” Maj. Op. at 8

(emphasis in original) (quoting 28 U.S.C. § 1604). Therefore,

unless the expropriation claim falls within one of the exceptions

set forth in 28 U.S.C. §§ 1605–07, the district court, and

derivatively this court, has no jurisdiction over the claim. The

majority concludes that claim falls within the exception created

by § 1605(a)(3). I disagree.

That exception permits the courts of the United States to

exercise jurisdiction “in any case . . . in which rights in property

taken in violation of international law are in issue.”

§ 1605(a)(3) (emphasis added). The majority states, Venezuela

argues that “as a Venezuelan national, H&P-V may not claim a

taking in violation of international law.” Maj. Op. at 8

(emphasis in original). Further, “under generally applicable

corporate law principles, H&P-IDC has no ‘rights in property’

2

belonging to its subsidiary and thus lacks standing,” to bring this

action. Maj. Op. at 8. I again look to the majority’s statement

of the facts which acknowledges: “All [parties] agree that for

purposes of international law, ‘a corporation has the nationality

of the state under the laws of which the corporation is

organized.’” Maj. Op. at 9 (quoting Restatement (Third) of

Foreign Relations Law § 213 (1987)).

The majority further recognizes “that generally, a foreign

sovereign’s expropriation of its own national’s property does not

violate international law.” Maj. Op. at 9 (citing United States v.

Belmont, 301 U.S. 324, 332 (1937)). This principle is known as

the domestic takings rule, which provides that “[w]hat another

country has done in the way of taking over property of its

nationals, and especially of its corporations, is not a matter for

judicial consideration here. Such nationals must look to their

own government for any redress to which they may be entitled.”

Belmont, 301 U.S. at 332.

Like the majority, I recognize that Venezuela’s position in

this litigation is that

the domestic takings rule ends this case because H&P-V, as

a Venezuelan national, may not seek redress in an

American court for wrongs suffered in its home country.

This argument has a good deal of appeal. Having freely

chosen to incorporate under Venezuelan law, H&P-V

operated in that country for many years and reaped the

benefits of its choice, including several extremely lucrative

contracts with the Venezuelan government. Given this, and

especially given that H&P-V expressly agreed that these

contracts would be governed by Venezuelan law in

Venezuelan courts, one might conclude that H&P-V should

live with the consequences of its bargain.

3

Maj. Op. at 10. Unlike the majority, I believe that Venezuela’s

position is well taken. When appellees chose to incorporate

under Venezuelan law, they bargained for treatment under

Venezuelan law. To extend our examination of Venezuelan law

to adjudicate its fairness appears to me to violate Venezuela’s

sovereignty, the value protected by the FSIA.

The majority supports its extended examination with the

decision in Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845,

861 (2d Cir. 1962). While that case may stand for the

proposition that the courts of the United States can examine the

fairness of a foreign sovereign’s expropriation, I cannot join the

majority’s conclusion that “Sabbatino remains good law.” Maj.

Op. at 12. Perhaps Sabbatino is good law in the Second Circuit,

but we are not bound by the decisions of other circuits, and I do

not conclude that Sabbatino has ever been or remains good law

in the District of Columbia Circuit. I would, therefore, conclude

that Venezuela’s reliance on the domestic takings rule is well

taken and should compel the dismissal of Helmerich & Payne’s

expropriation claim for want of jurisdiction.

I would further note that I differ with the majority’s

apparent belief that Venezuela’s reliance upon Dole Food Co.

v. Patrickson, 538 U.S. 468 (2003), is misplaced. See Maj. Op.

at 14. The majority asserts that “[c]ontrary to Venezuela’s

assertion, . . . Dole Food does not represent a wholesale

incorporation of corporate law into the FSIA.” Id. While this

may be literally accurate, it is at least equally accurate that

neither Dole Food nor any other case constitutes a wholesale

rejection of corporate law. As both the majority’s opinion and

mine have recognized, shareholders ordinarily have no standing

to assert claims on behalf of a corporation for its property.

Neither do I find compelling the majority’s reliance on two

cases from this circuit: Agudas Chasidei Chabad of U.S. v.

4

Russian Federation, 528 F.3d 934, 940 (D.C. Cir. 2008), and

Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1517 (D.C.

Cir. 1984), cert. granted, judgment vacated on other grounds,

471 U.S. 1113 (1985). Chabad is authority, at most, for the

proposition that “[i]n an FSIA case, we will grant a motion to

dismiss on the grounds that the plaintiff has failed to plead a

‘taking in violation of international law’ or has no ‘rights in

property . . . in issue’ only if the claims are ‘wholly insubstantial

or frivolous.’” Maj. Op. at 9 (quoting Chabad, 528 F.3d at 942)

(emphasis in original). As the plaintiff here has, by reason of

the domestic takings rule, failed to plead a “taking in violation

of international law,” Chabad supports rather than undermines

Venezuela’s motion for dismissal. 528 F.3d at 943 (emphasis

added). Ramirez warrants no separate discussion.

I would note first that the judgment in Ramirez was vacated

by the Supreme Court. Weinberger v. Ramirez de Arellano, 471

U.S. 1113 (1985). As the majority states,

we have held that, “[w]hen the Supreme Court vacates a

judgment of this court without addressing the merits of a

particular holding in the panel opinion, that holding

‘continue[s] to have precedential weight, and in the absence

of contrary authority, we do not disturb’ it.” United States

v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir. 2006) (quoting

Action Alliance of Senior Citizens of Greater Philadelphia

v. Sullivan, 930 F.2d 77, 83 (D.C. Cir. 1991)).

Maj. Op. at 16. For what it’s worth, I question whether the

language quoted from Adewani and Action Alliance in fact states

a holding of this court to the effect that we are bound by the

reasoning of vacated opinions. Rather, each instance

paraphrases language of Justice Powell quoted in a parenthetical

following the quoted language from Action Alliance. Action

Alliance parenthetically quoted Justice Powell as stating:

5

Although a decision vacating a judgment necessarily

prevents the opinion of the lower court from being the law

of the case, . . . the expressions of the court below on the

merits, if not reversed, will continue to have precedential

weight and, until contrary authority is decided, are likely to

be viewed as persuasive authority if not the governing law

....

County of Los Angeles v. Davis, 440 U.S. 625, 646 n.10 (Powell,

J., dissenting) (quoted in Action Alliance, 930 F.2d at 83–84).

In other words, the prior reasoning of the court in vacated

opinions may be persuasive, even powerfully persuasive, but I

question whether it is binding precedent.

Be that as it may, Ramirez is not genuinely on point.

Ramirez dealt with the question of whether the shareholders of

a corporation ousted by acts of the United States government

had a property interest warranting due process protection under

the Constitution. The Ramirez Court had no occasion to

consider whether the statutory waiver of a foreign government’s

sovereign immunity encompasses the sort of second degree

property interest protected against invasion by our government

under the due process concepts of our Constitution.