Packsys, S.A. De C v. v. Exportadora De Sal

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

PACKSYS, S.A. DE C.V., a Mexican No. 16-55380

corporation,

Plaintiff-Appellant, D.C. No.

2:15-cv-09704-

v. JFW-AS

EXPORTADORA DE SAL, S.A. DE C.V.,

a Mexican corporation, OPINION

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of California

John F. Walter, District Judge, Presiding

Argued and Submitted November 8, 2017

Pasadena, California

Filed August 15, 2018

2 PACKSYS V. EXPORTADORA DE SAL

Before: Kim McLane Wardlaw and Andrew D. Hurwitz, *

Circuit Judges, and Wiley Y. Daniel, ** District Judge.

Opinion by Judge Wardlaw

SUMMARY ***

Foreign Sovereign Immunities Act

Affirming the district court’s dismissal of an action for

lack of jurisdiction, the panel held that the Foreign Sovereign

Immunities Act’s commercial activity exception to

immunity from suit did not apply.

The plaintiff alleged that a Mexican-government owned

corporation breached a contract to sell the briny residue of

its salt production process. The corporation’s Director

General, who had entered into the contract, did not, in fact,

have actual authority to execute the contract. The panel held

that the FSIA’s commercial activity exception does not

extend to embrace activities of a foreign agent having only

apparent authority to engage in them. The panel held that

*

This case was submitted to a panel that included Judge Stephen

Reinhardt. Following Judge Reinhardt’s death, Judge Hurwitz was

drawn by lot to replace him. Ninth Circuit General Order 3.2.h. Judge

Hurwitz has read the briefs, reviewed the record, and listened to oral

argument.

**

The Honorable Wiley Y. Daniel, United States District Judge for

the U.S. District Court for Colorado, sitting by designation.

***

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

PACKSYS V. EXPORTADORA DE SAL 3

the FSIA’s waiver exception also did not apply because it,

too, is subject to the same actual-authority requirement.

Accordingly, the corporation properly invoked sovereign

immunity.

COUNSEL

Rory S. Miller (argued) and Andrew Baum, Glaser Weil

Fink Howard Avchen & Shapiro LLP, Los Angeles,

California, for Plaintiff-Appellant.

Steven J. Olson (argued), Catalina Vergara, J. Jorge deNeve,

and Esteban Rodriguez, O’Melveny & Myers LLP, Los

Angeles, California, for Defendant-Appellee.

OPINION

WARDLAW, Circuit Judge:

It has been the law of our circuit for over two decades

that the activities of an agent who lacks the actual authority

of a foreign state do not constitute the conduct of that foreign

state for purposes of the Foreign Sovereign Immunities Act’s

commercial activity exception to immunity from suit. See

28 U.S.C. § 1605(a)(2). Here the Director General of a

Mexican government-owned corporation, Exportadora de

Sal, S.A. de C.V. (“ESSA”), entered into a long-term, multi-

million dollar contract with another Mexican corporation,

Packsys, S.A. de C.V. (“Packsys”), to sell the briny residue

from its salt production process. As it turned out, the

Director General did not have actual authority to execute the

contract, and when suit was filed in the United States, ESSA

invoked sovereign immunity. Packsys, not having proof of

4 PACKSYS V. EXPORTADORA DE SAL

actual authority, asks us to create a new rule that would

extend the commercial activity exception to embrace

activities of a foreign agent having only apparent authority

to engage in them. The district court declined to do so, and

so do we. Nor do we accept that principles of ratification or

waiver improve Packsys’s position. We therefore affirm the

district court’s dismissal of this case for lack of jurisdiction.

I.

Exportadora de Sal, S.A. de C.V., is a Mexican salt

production corporation with its principal place of business at

the Ojo de Liebre Lagoon on the west coast of Baja

California Sur, Mexico. 1 ESSA, one of the world’s largest

producers of sea salt, is 51-percent owned by the government

of Mexico. The other 49-percent ownership stake is held by

Mitsubishi Corporation. The Mexican government appoints

a majority of ESSA’s board of directors, and the company’s

Director General—a position equivalent to CEO—is

appointed by the President of Mexico.

ESSA produces sea salt using an evaporation method.

Seawater is transferred from one pool to another, becoming

more and more concentrated until salt begins to crystalize

out of the water. At this point, the water is drained from the

pool and the salt crystals are harvested. But the water that is

drained from the collection pool—known as residual brine—

contains high concentrations of chemicals and is potentially

hazardous. What to do with this waste byproduct is thus a

perpetual question for salt producers using this method of

1

ESSA’s amenability to suit in the United States is also at issue in

Sea Breeze Salt, Inc. v. Mitsubishi Corp., No. 16-56350, decided today.

Sea Breeze Salt concerns the production and distribution of sea salt,

while this case concerns the toxic residue left behind by the production

process.

PACKSYS V. EXPORTADORA DE SAL 5

production. ESSA historically dumped its residual brine

back into the Ojo de Liebre Lagoon, but public pressure over

environmental damage led it to stop this practice. Since

1996, ESSA has stored its brine on land, at great and

mounting expense.

At a meeting of ESSA’s board on October 28, 2013, the

company’s then-Director General, Jorge Lopez Portillo

Basave (“Portillo”), presented the board with a proposal that

would turn this liability into an asset: several companies had

inquired about purchasing ESSA’s residual brine for further

processing into valuable industrial chemicals. At that

meeting, the board passed Resolution 51, which approved

Portillo’s proposed “comprehensive commercialization

scheme” for the brine. Resolution 51 states, in translation:

In keeping with Article 58(III) of the Federal

Law on Government-Owned Entities, and

due to the vital need to seek options for the

use of the 17 million metric tons per year of

residual brine originating from the process of

producing sea salt, the approach is hereby

approved for sales of residual brine in

keeping with the criteria, factors, and

alternatives presented for determination of

sales prices on residual brine contained in the

supporting report attached hereto as Annex 8.

Furthermore, and as part of any marketable

transactions of residual brine that may take

place, the Director General is hereby

authorized to provide, assign, or transfer the

related studies, investigations, records, or

reports, that are not exclusively earmarked

6 PACKSYS V. EXPORTADORA DE SAL

for use in the production process for natural

salt (NaCl).

The board did not set prices or approve any particular

contract for the sale of the brine.

In December 2013 or January 2014, Portillo executed a

contract for the sale of residual brine to Packsys, S.A. de

C.V., a Mexican corporation with its principal place of

business in Mexico. The contract fixes the price for the brine

at $4.00 USD or $6.50 USD per ton, depending on the

delivery site, and commits ESSA to sell at least ten million

tons of brine per year for at least forty years. It provides that

the brine will be delivered at one of two locations, both in

Mexico. And it contains the following “applicable law”

provision: “For the event of controversy, interpretation or

execution of the present agreement, the parties will subject

themselves to the applicable federal laws of the City of Los

Angeles California, thus renouncing to any other jurisdiction

that might apply by virtue of their future or present

domiciles.” (as translated).

Portillo claims that he presented the executed contract to

ESSA’s board at a February 25, 2014 board meeting, and

subsequently provided the board with additional updates on

the arrangement. But multiple ESSA board members

declared that the board never formally approved the contract,

and Portillo’s declaration does not contradict these

statements.

Portillo was fired by ESSA’s board in December 2014.

Beginning in 2015, ESSA refused to honor Packsys’s

purchase orders for residual brine. And in September 2016,

Mexican newspaper La Jornada reported that Portillo had

PACKSYS V. EXPORTADORA DE SAL 7

been arrested by Mexican authorities for executing the

residual brine contract without proper authority. 2

Packsys sued ESSA in California state court on

September 17, 2015, asserting breach of the long-term

contract for brine that Portillo had executed. ESSA removed

the action to the United States District Court for the Central

District of California and moved to dismiss it under Federal

Rule of Civil Procedure 12(b)(1), on the grounds that the suit

was barred by the FSIA, that Mexico was a better forum

under the doctrine of forum non conveniens, and that

international comity required that the case be decided in

Mexico.

The district court dismissed the action on foreign

sovereign immunity grounds without reaching the other

arguments. It held that because ESSA is a foreign state for

FSIA purposes and Packsys’s lawsuit does not fit into any of

the FSIA’s exceptions, ESSA is immune from suit in the

United States. Packsys timely appealed.

II.

In evaluating a district court’s dismissal for lack of

jurisdiction under the FSIA, “[w]e review the district court’s

legal rulings de novo and its factual findings for clear error.”

Terenkian v. Republic of Iraq, 694 F.3d 1122, 1132 (9th Cir.

2012).

2

ESSA’s motion for judicial notice of this fact, is granted. We take

notice of the fact of publication, but do not assume the truth of the

article’s contents. See Von Saher v. Norton Simon Museum of Art at

Pasadena, 592 F.3d 954, 960 (9th Cir. 2010).

8 PACKSYS V. EXPORTADORA DE SAL

III.

The Foreign Sovereign Immunities Act provides that “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 Act. 28 U.S.C. § 1604. Thus, the FSIA

“shields foreign states and their agencies from suit in United

States courts unless the suit falls within one of the Act’s

specifically enumerated exceptions.” OBB Personenverkehr

AG v. Sachs, 136 S. Ct. 390, 392 (2015).

It is undisputed that ESSA qualifies as a “foreign state”

for FSIA purposes because it is 51-percent owned by the

Mexican government. See 28 U.S.C. § 1603(a), (b)

(defining “foreign state” to include “any entity . . . which is

a separate legal person, corporate or otherwise, and . . . a

majority of whose shares or other ownership interest is

owned by a foreign state or other political subdivision

thereof,” with exceptions not relevant here). Indeed, we

have already held, in a previous case, that ESSA is a foreign

state under the FSIA. Schoenberg v. Exportadora de Sal,

S.A. de C.V., 930 F.2d 777, 779 n.1 (9th Cir. 1991). The

dispute in this case is therefore limited to whether any of the

FSIA’s exceptions make ESSA subject to the jurisdiction of

United States courts.

A. The Burden of Proof

Packsys argues that the district court improperly placed

the burden of proof as to the applicability of the FSIA’s

exceptions on Packsys, rather than on ESSA. Packsys is

incorrect.

A foreign defendant bears the initial burden to “make a

prima facie case that it is a foreign state.” Peterson v.

Islamic Republic of Iran, 627 F.3d 1117, 1124 (9th Cir.

PACKSYS V. EXPORTADORA DE SAL 9

2010). 3 “Once the court has determined that the defendant

is a foreign state, the burden of production shifts to the

plaintiff to offer evidence that an exception applies.” Id. at

1125 (internal quotation marks omitted). “If the plaintiff

satisfies her burden of production, jurisdiction exists unless

the defendant demonstrates by a preponderance of the

evidence that the claimed exception does not apply.” Id.

The district court correctly explained this burden-

shifting framework in its opinion. But Packsys argues that,

notwithstanding its recital of the correct standards, the

district court actually placed the burden of proof on Packsys.

Packsys bases this contention on the fact that “the district

court repeatedly refers to Packsys’s arguments and material

cited before rejecting those arguments,” as well as the

district court’s use of “phrases such as ‘Packsys attempts to

establish’ and ‘Packsys does not offer any evidence to the

contrary.’”

But as ESSA rightly points out, the passages cited

by Packsys are in portions of the district court’s opinion

in which it rejected Packsys’s counterarguments, after the

court had already concluded—presumably using the

preponderance standard it had just articulated—that the

3

Packsys argues that the defendant must also make a prima facie

showing that the claim arises out of a sovereign act, but this is not correct.

It is true that we have at times quoted language from older cases

appearing to impose such a requirement. See Terenkian, 694 F.3d at

1131 (quoting Siderman de Blake v. Republic of Arg., 965 F.2d 699, 708

n.9 (9th Cir. 1992)). But the passing dicta in Terenkian could not

overrule our explicit prior holding that “[r]equiring a foreign state to

prove a public act conflicts with the plain language of the statute,” and

that therefore “the FSIA does not require the defendants to prove a public

act to establish a prima facie case of immunity.” Phaneuf v. Republic of

Indon., 106 F.3d 302, 306 (9th Cir. 1997).

10 PACKSYS V. EXPORTADORA DE SAL

FSIA exceptions did not apply. When viewed in context, the

phrases highlighted by Packsys do not betray any improper

allocation of the relative burdens of proof, especially given

the district court’s explicit recital of the correct standards.

Cf. Reynoso v. Giurbino, 462 F.3d 1099, 1119 (9th Cir.

2006) (“Such a happenstance does not constitute a basis for

concluding that the court has applied the wrong standard.”).

B. The Commercial Activity Exception

The FSIA’s commercial activity exception provides that:

A foreign state shall not be immune . . . in any

case . . . in which the action is based

[1] upon a commercial activity carried on

in the United States by the foreign state;

or

[2] upon an act performed in the United

States in connection with a commercial

activity of the foreign state elsewhere; or

[3] upon an act outside the territory of the

United States in connection with a

commercial activity of the foreign state

elsewhere and that causes a direct effect

in the United States.

28 U.S.C. § 1605(a)(2). Packsys argues that the first and

third clauses defeat ESSA’s immunity here. However, the

exception—in all its various clauses—is inapplicable.

PACKSYS V. EXPORTADORA DE SAL 11

1. Actual Authority

We have long held that the conduct of a foreign state’s

agent only triggers the commercial activity exception when

the agent acts with the actual—as opposed to apparent—

authority of the sovereign state. Phaneuf v. Republic of

Indon., 106 F.3d 302, 307–08 (9th Cir. 1997). As we

explained in Phaneuf, “[a]ll three clauses of the [FSIA’s

commercial activity] exception require ‘a commercial

activity of the foreign state.’” Id. at 307 (quoting 28 U.S.C.

§ 1605(a)(2)). But “[w]hen an agent acts beyond the scope

of his authority, . . . that agent is not doing business which

the sovereign has empowered him to do,” and “the agent’s

unauthorized act [therefore] cannot be attributed to the

foreign state.” Id. at 308 (internal quotation marks omitted).

That is, acts undertaken without actual authority are not acts

“of the foreign state,” 28 U.S.C. § 1605(a)(2), regardless of

whether the agent appeared to have the authorization of the

sovereign. We left little doubt in our holding: “[A]n agent

must have acted with actual authority in order to invoke the

commercial activity exception against a foreign state.”

Phaneuf, 106 F.3d at 308.

The district court correctly concluded that Portillo lacked

actual authority to enter the contract with Packsys on behalf

of ESSA, and therefore held that Packsys could not invoke

the commercial activity exception. Mexican law provides

that only ESSA’s board may set prices for its products.

Because ESSA is a government-owned entity, it is subject to

Mexico’s Federal Law on State-Owned Entities (Ley

Federal de las Entidades Paraestatales, or “LFEP”). And

Article 58(III) of the LFEP provides that “[t]he governing

bodies of parastatal entities” shall have the authority “[t]o fix

and adjust the prices of the goods and services that the

parastatal entity produces or provides,” and that this

12 PACKSYS V. EXPORTADORA DE SAL

authority “may not be delegated.” Diario Oficial de la

Federación [DOF] 14-05-1986, últimas reformas DOF 18-

12-2015. 4

Moreover, ESSA’s internal policies require a board

resolution supported by a six-vote supermajority to enter a

contract that will have a duration greater than two years. The

same rule applies to contracts for the sale of goods worth

more than $2 million USD.

The contract with Packsys meets all three conditions for

requiring a board resolution: it fixes a price for residual

brine; it has a duration of at least forty years; and it provides

for the sale of goods of at least $40 million per year—ten

million tons multiplied by $4.00 per ton. Therefore, as the

district court held, the Packsys contract required board

approval under both Mexican federal law and ESSA’s

internal policies. And it is undisputed that the board never

voted on or explicitly approved the Packsys contract either

before or after its execution. Portillo therefore lacked actual

authority to enter the contract.

Nor did the ESSA board’s Article 51, which approved a

general “approach . . . for sales of residual brine” provide

Portillo with actual authority to execute the Packsys

contract. Packsys does not really argue in its briefing that

Article 51—or anything else, for that matter—empowered

Portillo to make the contract on ESSA’s behalf. Instead, it

contends only that ESSA failed to carry its burden of

disproving actual authority by a preponderance of the

evidence. But ESSA submitted to the district court

4

ESSA’s expert on Mexican law states that the purpose of these

oversight provisions is to combat corruption and cronyism in

government contracting.

PACKSYS V. EXPORTADORA DE SAL 13

declarations from three ESSA board members and one

substitute board member stating that the board never gave

Portillo authority to enter the Packsys contract, either

through Article 51 or otherwise. And, as the district court

found, even Portillo’s “artfully worded declaration . . . never

states that the Board approved the Contract with Packsys, or

that Resolution 51 fixed or set the actual price of residual

brine.” Furthermore, any disagreement between the parties’

Mexican-law experts is not over the effect of Resolution 51,

but over whether Mexican law requires board approval in the

first place—which is a question of law for the court, not a

fact that ESSA was required to prove. Fed. R. Civ. P. 44.1

(“The court’s determination [of foreign law] must be treated

as a ruling on a question of law.”). See generally de

Fontbrune v. Wofsy, 838 F.3d 992, 996–1000 (9th Cir.

2016). The district court correctly concluded that ESSA had

met its burden. 5

2. Distinguishing Phaneuf

Much of Packsys’s brief is devoted to an argument that

attempts to distinguish Phaneuf’s clear holding that acts

5

Packsys has submitted, pursuant to Fed. R. App. P. 28(j),

confidential materials in a Mexican arbitration between ESSA and an

unrelated third party. Packsys claims that the materials establish that

Portillo had actual authority to enter the Packsys contract. We disagree.

First, the materials are not an appropriate subject of a Rule 28(j) letter.

“Rule 28(j) permits a party to bring new authorities to the attention of

the court; it is not designed to bring new evidence through the back

door.” Manley v. Rowley, 847 F.3d 705, 710 n.2 (9th Cir. 2017) (quoting

Trans-Sterling, Inc. v. Bible, 804 F.2d 525, 528 (9th Cir. 1986)). And

even if we were to construe these materials as legal authority rather than

new evidence, and therefore a proper subject of a Rule 28(j) letter, the

contract at issue in the arbitration does not share the key characteristic

that renders the Packsys contract ultra vires under Mexican law: the

fixing of prices without board approval. See supra.

14 PACKSYS V. EXPORTADORA DE SAL

undertaken with apparent—but not actual—authority are

insufficient to trigger the FSIA’s commercial activity

exception. The core of Packsys’s argument is that Phaneuf’s

actual-authority requirement should apply only to what it

calls public and sovereign, as opposed to private and

commercial, acts. We are not persuaded.

Prior to the enactment of the FSIA, courts generally

“deferred to the decisions of the political branches . . . on

whether to take jurisdiction over actions against foreign

sovereigns.” Rubin v. Islamic Republic of Iran, 138 S. Ct.

816, 821 (2018) (quoting Verlinden B.V. v. Cent. Bank of

Nigeria, 461 U.S. 480, 486 (1983)). The traditional position

of the State Department was that foreign sovereigns were

absolutely immune. Id. “But, as foreign states became more

involved in commercial activity in the United States, the

State Department recognized that such participation ‘makes

necessary a practice which will enable persons doing

business with them to have their rights determined in the

courts.’” Id. at 821–22 (quoting J. Tate, Changed Policy

Concerning the Granting of Sovereign Immunity to Foreign

Governments, 26 Dept. State Bull. 984, 985 (1952)). Thus,

in 1952 the State Department adopted the so-called

restrictive theory of sovereign immunity, which “recognized

immunity for public acts, that is to say, acts of a

governmental nature typically performed by a foreign state,

but not for acts of a private nature even though undertaken

by a foreign state.” Cassirer v. Kingdom of Spain, 616 F.3d

1019, 1026 (9th Cir. 2010) (en banc). As Packsys notes, the

FSIA “codifies, as a matter of federal law, the restrictive

theory of sovereign immunity.” Verlinden, 461 U.S. at 488.

Packsys thus argues that “Congress specifically intended

to enshrine into law the notion that sovereign immunity ends

where private commercial conduct begins when it enacted

PACKSYS V. EXPORTADORA DE SAL 15

the FSIA.” True enough. But Congress did so by enacting

28 U.S.C. §§ 1605–1607, which “outline the only exceptions

to the Act.” Phaneuf, 106 F.3d at 306; see also, e.g., TRW

Inc. v. Andrews, 534 U.S. 19, 28 (2001) (“Where Congress

explicitly enumerates certain exceptions . . . additional

exceptions are not to be implied, in the absence of evidence

of a contrary legislative intent.”). That is, Packsys’s attempt

to read a public/private distinction into the commercial

activity exception must be rejected because the text of

§ 1605(a)(2) is itself Congress’s instantiation of the

public/private principle. 6 Now that Congress has acted, the

relevant version of the restrictive theory is the one enshrined

in the text. See Samantar v. Yousuf, 560 U.S. 305, 313

(2010) (“After the enactment of the FSIA, the Act—and not

the pre-existing common law—indisputably governs the

determination of whether a foreign state is entitled to

sovereign immunity.”).

And there is nothing in the text that supports Packsys’s

proposed distinction with respect to the requirement of

actual authority. We hinted at no such distinction when we

concluded in Phaneuf that “the plain meaning of the

language ‘commercial activity of the foreign state’ [in

28 U.S.C. § 1605(a)(2)] illustrates that Congress intended

for the exception to apply only in cases of actual authority.”

Phaneuf, 106 F.3d at 308. Our reasoning similarly does not

admit of the purported distinction: “If the foreign state has

not empowered its agent to act, the agent’s unauthorized act

cannot be attributed to the foreign state; there is no ‘activity

of the foreign state.’” Id. (quoting 28 U.S.C. § 1605(a)(2)).

6

Indeed, a House Report on the FSIA specifically describes “a

public act of the foreign state” as “an act not within the exceptions in

sections 1605–1607.” H.R. Rep. No. 94-1487, at 17 (1976) (emphasis

added).

16 PACKSYS V. EXPORTADORA DE SAL

That conclusion applies with equal force regardless of the

commercial or noncommercial character of the act in

question.

Moreover, one of the “principal purposes” of the FSIA

counsels against reading an unstated proviso into the

commercial activity exception. Republic of Austria v.

Altmann, 541 U.S. 677, 699 (2004). The FSIA was, at least

in part, a “respon[se] to the inconsistent application of

sovereign immunity” that resulted from reliance on

executive branch involvement. Samantar, 560 U.S. at 313.

By codifying the practice, Congress sought to replace with

clear, predictable rules the “ambiguous . . . ‘standards’”

under which sovereign immunity decisions were previously

made. Altmann, 541 U.S. at 699. Layering an additional,

atextual public/private principle on top of the one that

Congress actually enacted would “hardly further[]

Congress’ purpose of ‘clarifying the rules that judges should

apply in resolving sovereign immunity claims.’” Samantar,

560 U.S. at 322 (quoting Altmann, 541 U.S. at 699).

No circuit court has adopted the public/private

distinction Packsys advances. And, only one district court

decision, Themis Capital, LLC v. Democratic Republic of

Congo, 881 F. Supp. 2d 508 (S.D.N.Y. 2012), has opined

that “it does not appear to be the case that apparent authority

is inadequate where private acts of a sovereign are at issue.”

Id. at 525. But that court was bound by Second Circuit

authority holding that apparent authority is sufficient in

general to trigger the FSIA commercial activity exception.

See First Fid. Bank, N.A. v. Gov’t of Ant. & Barb.—

Permanent Mission, 877 F.2d 189, 194 (2d Cir. 1989). In

Phaneuf, we explicitly declined to follow the Second

PACKSYS V. EXPORTADORA DE SAL 17

Circuit’s First Fidelity decision. 106 F.3d at 308 n.4. 7 Just

as the district court in Themis Capital was bound by First

Fidelity, we are bound by Phaneuf.

Finally, Packsys points to the “absurd and unjust result”

that would obtain if its distinction were rejected: “a caveat

emptor situation for any individual doing business with a

state-owned enterprise.” But we rejected just such an

argument in Phaneuf, when we drew from principles of

United States sovereign immunity to inform our FSIA

holding. As we noted, “[w]hen dealing with a purported

agent of the United States, the third party bears the risk that

the agent is acting outside the scope of the agent’s authority,

even if the third party reasonably believes the agent has

authority.” Phaneuf, 106 F.3d at 308 (citation omitted).

Indeed, it is the nature of immunity that some otherwise

meritorious claims will not be allowed to proceed. 8 We

7

Most circuits to have considered the issue have adopted Phaneuf’s

actual authority rule. See Dale v. Colagiovanni, 443 F.3d 425, 429 (5th

Cir. 2006) (“We agree with the Fourth and Ninth Circuits that an agent’s

acts conducted with the apparent authority of the state is insufficient to

trigger the commercial exception to FSIA.”); Velasco v. Gov’t of Indon.,

370 F.3d 392, 400 (4th Cir. 2004) (“[W]e concur with the position of the

Ninth Circuit and hold that the commercial activity exception may be

invoked against a foreign state only when its officials have actual

authority.”); see also Allfreight Worldwide Cargo, Inc. v. Ethiopian

Airlines Enter., 307 F. App’x 721, 724–25 (4th Cir. 2009) (per curiam)

(applying actual authority rule to conduct that would be “private” under

Packsys’s propose rule). But see Devengoechea v. Bolivarian Republic

of Venez., 889 F.3d 1213, 1226–27 (11th Cir. 2018).

8

And perhaps Packsys’s reliance on Portillo’s apparent authority

was not so reasonable. It too is a Mexican corporation, and its complaint

alleges that ESSA is state-owned. Presumably it was on notice that the

contract required board approval under Mexican law because Portillo

could not fix or adjust prices on his own, or even by delegation.

18 PACKSYS V. EXPORTADORA DE SAL

decline to adopt Packsys’s proposed public/private

distinction with respect to the Phaneuf rule.

3. Ratification

Packsys argues that the commercial activity exception

should apply for a separate reason: even if executing the

contract was beyond Portillo’s actual authority, ESSA’s

subsequent acts ratified the agreement. The district court

rejected this theory on the basis that (a) only actual authority

can trigger the commercial activity exception under

Phaneuf, and (b) in any case, none of the actions cited by

Packsys could constitute ratification. 9

Assuming without deciding that ratification could form

the basis for application of the commercial activity

exception, Packsys’s argument fails. Under Mexican law

and ESSA’s policies, only an explicit board resolution could

approve the Packsys contract. No resolution ratifying the

contract was passed. Thus, any acts by individual officers or

board members that purportedly show ratification would

themselves have been ultra vires and therefore cannot satisfy

the commercial activity exception under Phaneuf. See

Velasco, 370 F.3d at 402 (rejecting a ratification argument

under the commercial activity exception because “Velasco

has failed to offer any evidence that any Indonesian official

9

The actions Packsys argues show ratification include board

members’ non-objection when Portillo presented updates on the

contract; a dinner party attended by ESSA and Packsys executives,

purportedly in celebration of the contract; and subsequent meetings and

shipment of residual brine samples.

PACKSYS V. EXPORTADORA DE SAL 19

with actual authority to issue the notes . . . manifested an

intention to ratify the notes”). 10

10

The commercial activity exception is also inapplicable for a

second, independent reason: the conduct underlying this lawsuit is

insufficiently connected to the United States to satisfy any of the three

clauses of the exception. The first clause cannot apply because the

“gravamen” of this suit is conduct that allegedly occurred in Mexico—

that is, the breach of a contract, between two Mexican entities, for the

sale of goods to be delivered in Mexico. See Sachs, 136 S. Ct. at 396

(“[A]n action is ‘based upon’ the ‘particular conduct’ that constitutes the

‘gravamen’ of the suit.”). The action is therefore not “based upon a

commercial activity carried on in the United States by the foreign state.”

28 U.S.C. § 1605(a)(2) (first clause).

For the same reason, this suit is not based upon “an act performed

in the United States in connection with a commercial activity of the

foreign state elsewhere.” 28 U.S.C. § 1605(a)(2) (second clause). The

gravamen is conduct in Mexico, not an act performed in the United

States.

Nor is this suit “based . . . upon an act outside the territory of the

United States in connection with a commercial activity of the foreign

state elsewhere . . . that causes a direct effect in the United States,”

28 U.S.C. § 1605(a)(2) (third clause), because the requisite “direct

effect” is lacking. See Republic of Arg. v. Weltover, Inc., 504 U.S. 607,

618 (1992). In Terenkian, which was also a breach-of-contract case, we

held that—at least where the plaintiff had not yet entered into resale

contracts with particular U.S. buyers at the time of breach—“non-sales

of . . . non-purchased oil to potential customers in the United States[] do

not constitute direct effects.” 694 F.3d at 1138. Terenkian is directly on

point here, where the claimed direct effects are Packsys’s “non-sales of

the non-purchased” residual brine to not-yet-identified potential

American buyers. Id.; see also id. at 1133 (distinguishing Cruise

Connections Charter Mgmt. 1, LP v. Att’y Gen. of Can., 600 F.3d 661

(D.C. Cir. 2010), because the third-party agreements in that case “either

had been finalized, or were final but for the signature” and thus the

20 PACKSYS V. EXPORTADORA DE SAL

C. The Waiver Exception

Packsys also argues that the FSIA’s waiver exception

defeats ESSA’s claim of sovereign immunity. That

exception provides that “[a] foreign state shall not be

immune . . . in any case . . . in which the foreign state has

waived its immunity either explicitly or by implication.”

28 U.S.C. § 1605(a)(1). “[I]t is clear that a sovereign party

has waived immunity where a contract specifically states

that the laws of a jurisdiction within the United States are to

govern the transaction.” Joseph v. Office of Consulate Gen.

of Nigeria, 830 F.2d 1018, 1022 (9th Cir. 1987) (emphasis

omitted). Packsys maintains that, because the contract

specifies “the applicable federal laws of the City of Los

Angeles California” as governing, ESSA has waived its

sovereign immunity.

But the waiver argument suffers from the same defect as

the commercial activity argument: Portillo lacked actual

authority to enter the contract, and the contractual choice of

law provision—and the resulting waiver—is therefore not

attributable to ESSA. 11 We have not yet had occasion to

extend Phaneuf’s actual-authority requirement from the

commercial activity exception to the waiver exception, but

Phaneuf’s reasoning applies in the waiver context with at

least equal force. Both exceptions are triggered only by an

act of “the foreign state.” Compare 28 U.S.C. § 1605(a)(2)

(requiring “commercial activity of the foreign state”), with

foreign nation’s breach “led inexorably to the loss of revenues under the

third-party agreements”).

11

It is also a nonsensical provision: the City of Los Angeles does

not enact federal laws; nor would federal law govern this simple breach

of contract action. It is difficult to know just what the drafters of the

contract meant by this clause.

PACKSYS V. EXPORTADORA DE SAL 21

28 U.S.C. § 1605(a)(1) (allowing suit where “the foreign

state has waived its immunity”). If acts by unauthorized

agents do not constitute “activity of the foreign state,” under

Section 1605(a)(2), they also cannot effect a waiver by “the

foreign state” under Section 1605(a)(1).

Indeed, a requirement of actual authority is all the more

justified in the waiver context, “given that a waiver of

sovereign immunity speaks directly to the foreign

sovereign’s willingness to accede to the jurisdiction of

another country’s courts.” SACE S.p.A. v. Republic of Para.,

243 F. Supp. 3d 21, 36 (D.D.C. 2017) (concluding that actual

authority is required to invoke the FSIA’s waiver exception);

see also Corporacion Mexicana de Servicios Maritimos,

S.A. de C.V. v. M/T Respect, 89 F.3d 650, 655 (9th Cir. 1996)

(noting that “[t]he waiver exception is narrowly construed,”

and “courts rarely find that a nation has waived its sovereign

immunity without strong evidence that this is what the

foreign state intended” (quoting Rodriguez v. Transnave

Inc., 8 F.3d 284, 287 (5th Cir. 1993))).

We hold that the FSIA’s waiver exception is subject to

the same actual-authority requirement as the commercial

activity exception. Packsys’s apparent-authority and

ratification arguments therefore fail, and ESSA is immune

from suit under the FSIA.

IV.

Packsys contends that the district court abused its

discretion by denying its request for jurisdictional discovery.

Because of the “delicate balance between permitting

discovery to substantiate exceptions to statutory foreign

sovereign immunity and protecting a sovereign’s or a

sovereign agency’s legitimate claim to immunity from

discovery,” jurisdictional discovery in FSIA cases “should

22 PACKSYS V. EXPORTADORA DE SAL

be ordered circumspectly and only to verify allegations of

specific facts crucial to an immunity determination.” Alpha

Therapeutic Corp. v. Nippon Hoso Kyokai, 199 F.3d 1078,

1088 (9th Cir. 1999) (quoting First City, Texas-Houston,

N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir. 1998)),

opinion withdrawn on other grounds, 237 F.3d 1007 (9th

Cir. 2001).

Packsys’s request for jurisdictional discovery did not

identify any “specific facts crucial to an immunity

determination” that it wished to verify. And the district court

did not rely on disputed facts in reaching its holding; instead,

it relied on the undisputed fact that no board resolution

authorizing the Packsys contract ever issued. That is, the

district court did not reject Packsys’s jurisdictional

allegations—it merely determined that they were not

relevant, since none of them could overcome the lack of an

express board resolution. Thus, the district court did not

abuse its discretion by denying jurisdictional discovery. Cf.

Boschetto v. Hansing, 539 F.3d 1011, 1020 (9th Cir. 2008)

(“The denial of Boschetto’s request for discovery, which

was based on little more than a hunch that it might yield

jurisdictionally relevant facts, was not an abuse of

discretion.”).

V.

Mexican law required ESSA’s board to authorize or

approve the Packsys contract, but the board did not do so.

Portillo therefore lacked actual authority to execute the

contract. And because the contract was not executed with

actual authority, it cannot serve as the basis for applying

either the FSIA’s commercial activity exception or its waiver

PACKSYS V. EXPORTADORA DE SAL 23

exception under Phaneuf. The district court correctly

concluded that the FSIA bars this suit.

AFFIRMED.