Mykola Ivanenko v. Viktor Yanukovich

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 22, 2021 Decided April 23, 2021

No. 20-7033

MYKOLA IVANENKO, ET AL.,

APPELLANTS

v.

VIKTOR YANUKOVICH, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:18-cv-00812)

Kenneth Foard McCallion argued the cause and filed the

briefs for appellants.

Robert M. Shaw argued the cause for appellee Government

of Ukraine. With him on the brief was Cynthia A. Gierhart.

Before: HENDERSON and ROGERS, Circuit Judges, and

RANDOLPH, Senior Circuit Judge.

Opinion of the Court filed by Circuit Judge ROGERS.

2

ROGERS, Circuit Judge: Appellants Luxexpress–II Ltd.,

Luxexpress 2016 Corporation, Alamo Group Inc., and Mykola

and Larysa Ivanenko challenge the district court’s dismissal of

their claims against Ukraine for lack of subject–matter

jurisdiction pursuant to the Foreign Sovereign Immunities Act

(“FSIA”), 28 U.S.C. § 1602 et seq. They contend that three

exceptions to the FSIA confer jurisdiction: expropriation of

property in violation of international law, commercial activity,

and waiver. See id. § 1605(a)(1)–(3). Because none abrogates

Ukraine’s sovereign immunity, we affirm.

I.

Taking as true the factual allegations in the second

amended complaint and the declarations, see Schubarth v. Fed.

Republic of Germany, 891 F.3d 392, 395 (D.C. Cir. 2018),

Mykola and Larysa Ivanenko, husband and wife, are Ukrainian

nationals, 2d Am. Compl. ¶¶ 20–21. In 1993, they formed

Luxexpress–II Ltd., an automobile import business based in

Kyiv, Ukraine, which focused primarily on American–made

vehicles. Id. ¶¶ 22, 73. Pursuant to various ordinances, written

approvals, and lease agreements, Luxexpress–II leased “one of

the most prestigious and valuable plots of land in Kyiv” on the

banks of the Dnieper River. Id. ¶ 23; see id. ¶¶ 73–75, 77–79.

Relying on these agreements, Alamo Group Inc., an American

export company based in Atlanta, Georgia, began doing

business with Luxexpress–II in 2002. Id. ¶¶ 19, 81, 90. It

loaned $300,000 to Luxexpress–II and entered into a $5 million

contract to supply vehicles and auto parts. Id. ¶ 84. In addition,

Alamo Group and Luxexpress–II executed a no–cost lease,

whereby they agreed to share office space with one another in

Atlanta and Kyiv. Id. ¶ 86. The venture was “hugely

successful,” helping Luxexpress–II to become one of Ukraine’s

leading companies. Id. ¶ 82.

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In December 2003, the Cabinet Ministers of Ukraine

approved the construction of a road and railway bridge across

the portion of the Dnieper River that bisects Kyiv. Id. ¶ 95. A

few months later, the Ministry of Transport and the “State

Administration of Railway Transport of Ukraine South–

Western Railway” notified Luxexpress–II that its property lay

in the project’s path and its leases could be terminated. Id. ¶ 98.

Luxexpress–II repeatedly provided the Ministry of Transport

with estimates of the property’s value so that it could be

acquired at a fair market rate, but negotiations with the

Ministry of Transport reached an impasse. See id. ¶¶ 100–05.

Luxexpress–II filed suit in the Kyiv District Court, which ruled

in its favor in 2006. Id. ¶ 107. But Ukraine appealed to the

Supreme Court of Ukraine, which vacated the judgment. See

id. ¶¶ 108–16.

Although the issue of compensation remained unresolved,

the Cabinet Ministers informed Luxexpress–II in October 2009

that it intended to move forward with the project. Id. ¶ 120.

Despite this warning, Luxexpress–II endeavored to expand its

operations on the condemned property, including arranging

meetings to explore opening a Harley–Davidson motorcycle

dealership and a Marriott hotel. Id. ¶¶ 130–33. Those plans

crumbled on July 25, 2012, when the Ivanenkos learned that

their buildings and equipment had been “totally demolished.”

Id. ¶ 134. Alamo Group never recovered the automobiles and

parts that it kept at the property. Mark Reznick, Decl. ¶ 24.

According to appellants, the property never became a railway

bridge; instead, it was converted into a sports facility owned by

relatives of the former Director General of the Ukraine South–

Western Railway. 2d Am. Compl. ¶ 11. With their business in

ruins and facing death threats for having accused Ukrainian

officials of graft, the Ivanenkos left Ukraine and sought

political asylum in the United States. Id. ¶¶ 147–49.

4

In May 2015, Luxexpress–II and the Ivanenkos filed suit

against thirty Ukrainian officials in the Southern District of

New York and shortly thereafter amended their complaint to

add Ukraine as a defendant. See Luxexpress 2016 Corp. v.

Gov’t of Ukraine, No. 15–CV–4880 (VSB), 2018 WL

1626143, at *2 (S.D.N.Y. Mar. 30, 2018). Following a pre–

motions conference, the district court granted appellants leave

to further amend their complaint. Id. The second amended

complaint, filed by Luxexpress–II, Luxexpress 2016

Corporation (the successor in interest to Luxexpress–II),

Alamo Group, and the Ivanenkos, alleged violations of the

Racketeer Influenced and Corrupt Organizations Act, 18

U.S.C. § 1962, as well as claims for wrongful expropriation,

fraud, abuse of process, and conversion. See id. at *1. Ukraine

moved to dismiss, and the district court, finding that venue was

improper, transferred the case to the District of Columbia. Id.

There, Ukraine renewed its motion to dismiss, arguing that

it was entitled to sovereign immunity pursuant to the FSIA.

The district court agreed, concluding that none of the three

FSIA exceptions invoked by appellants conferred jurisdiction.

Luxexpress 2016 Corp. v. Gov’t of Ukraine, No. 18–cv–812

(TSC), 2020 WL 1308357, at *10 (D.D.C. Mar. 19, 2020). It

rejected appellants’ reliance on the FSIA’s expropriation

exception, reasoning that Ukraine’s taking of its own citizens’

property did not violate international law and that Alamo

Group failed to plausibly allege that its property was operated

by an instrumentality of Ukraine engaged in commercial

activity in the United States. Id. at *3–6. The FSIA’s

commercial activity exception did not vitiate Ukraine’s

immunity, the district court explained, because the alleged

taking was an exercise of sovereign authority, not commercial

conduct. Id. at *6. And the district court found that Ukraine

had not waived its immunity and thus the FSIA’s waiver

5

exception was inapplicable. Id. at *8–9. After the district court

dismissed Ukraine from the suit with prejudice, see Order

(Mar. 19, 2020), appellants voluntarily dismissed the

individual defendants and noted this appeal.

II.

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

from the jurisdiction of the courts of the United States” unless

one of the statute’s enumerated exceptions applies. 28 U.S.C.

§ 1604. The FSIA thus “provides the sole basis for obtaining

jurisdiction over a foreign state in the courts of this country.”

Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S.

428, 443 (1989). This broad grant of immunity reflects “the

absolute independence of every sovereign authority and helps

to induce each nation state, as a matter of international comity,

to respect the independence and dignity of every other,

including our own.” Bolivarian Republic of Venezuela v.

Helmerich & Payne Int’l Drilling Co., 137 S. Ct. 1312, 1319

(2017) (internal quotation marks, alteration, and citation

omitted).

The court reviews de novo the district court’s jurisdictional

determinations. Schubarth, 891 F.3d at 398. Where, as here,

the dispute centers on the sufficiency of the plaintiffs’

jurisdictional allegations, “dismissal is warranted if no

plausible inferences can be drawn from the facts alleged that,

if proven, would provide grounds for relief.” Id. (quoting Price

v. Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 93

(D.C. Cir. 2002)). It is the defendant’s burden to establish

sovereign immunity, “including that ‘the plaintiff’s allegations

do not bring its case within a statutory exemption to

immunity.’” Id. (quoting Phoenix Consulting Inc. v. Republic

of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000)).

6

Appellants challenge the district court’s dismissal of

Ukraine, contending that the second amended complaint sets

forth sufficient facts to establish three FSIA exceptions: the

expropriation exception, the commercial activity exception,

and the waiver exception. 28 U.S.C. § 1605(a)(1)–(3). We

disagree.

A.

Appellants first maintain that the FSIA’s expropriation

exception permits their lawsuit against Ukraine. In their view,

Ukraine’s “total destruction” of their property was a taking in

violation of international law, particularly because Ukraine

acted with the “discriminatory intent” to punish the Ivanenkos

for promoting Western business interests. Pls.’ Br. 22.

Relevant here, the FSIA’s expropriation exception divests a

foreign state of its immunity in any action “in which rights in

property taken in violation of international law are in issue and

that property or any property exchanged for such property . . .

is owned or operated by an agency or instrumentality of the

foreign state and that agency or instrumentality is engaged in a

commercial activity in the United States.” 28 U.S.C.

§ 1605(a)(3). “For the exception to apply, therefore, the court

must find that: (1) rights in property are at issue; (2) those rights

were taken in violation of international law; and (3) a

jurisdictional nexus exists between the expropriation and the

United States.” Schubarth, 891 F.3d at 398–99 (quoting

Nemariam v. Fed. Democratic Republic of Ethiopia, 491 F.3d

470, 475 (D.C. Cir. 2007)).

The district court correctly determined that appellants’

lawsuit does not fall within the FSIA’s expropriation

exception. With respect to Luxexpress–II and the Ivanenkos,

their claims are barred by the “domestic takings rule,” which

provides that a foreign state’s seizure of its citizens’ property

7

within its territory does not violate international law. See Fed.

Republic of Germany v. Philipp, 141 S. Ct. 703, 709 (2021);

United States v. Belmont, 301 U.S. 324, 332 (1937). At the

time the district court ruled on Ukraine’s motion to dismiss, the

law of this circuit was that an intrastate taking was “ordinarily

not a concern of international law” and therefore, “as a general

matter, a plaintiff bringing an expropriation claim involving an

intrastate taking cannot establish jurisdiction under the FSIA’s

expropriation exception.” Simon v. Republic of Hungary, 812

F.3d 127, 144–45 (D.C. Cir. 2016), abrogated by Philipp, 141

S. Ct. 703. But that rule was not absolute. For instance, this

court had recognized that a foreign state’s seizure of its

citizen’s property in furtherance of a genocide violated

international law within the meaning of the FSIA’s

expropriation exception. See id. at 132. While this appeal was

pending, however, the Supreme Court repudiated this court’s

approach, holding in Federal Republic of Germany v. Philipp,

141 S. Ct. 703 (2021), that the domestic takings rule admits of

no exception, id. at 715. Therefore, Ukraine’s alleged taking

of property owned by Luxexpress–II and the Ivanenkos does

not implicate § 1605(a)(3).

Although the domestic takings rule does not apply to

Alamo Group, it failed to show that its property is “owned or

operated” by an instrumentality of Ukraine. 28 U.S.C.

§ 1605(a)(3). To start, the second amended complaint lacks

any allegations that an instrumentality of Ukraine took control

of appellants’ property after it was seized in 2012. In fact,

appellants claimed that while their property was ostensibly

taken to construct a railway bridge, it was actually used to build

a sports facility owned by relatives of the Former Director

General of the Ukraine South–Western Railway. 2d Am.

Compl. ¶ 11. Moreover, even assuming, arguendo, that the

Ukraine South–Western Railway occupies the land that

Luxexpress–II had leased, there are no allegations that it

8

“owned or operated” Alamo Group’s property. Rather,

appellants alleged that Ukraine “totally demolished” their

“business and buildings.” Id. ¶ 134. In the same vein, Mark

Reznik, Alamo Group’s principal owner, attested that Ukraine

“destroyed” the computers and other equipment that Alamo

Group kept in Luxexpress–II’s building and “stole” its

automobiles and auto parts. Reznik Decl. ¶¶ 23–24. As such,

the FSIA’s expropriation exception does not apply to Alamo

Group’s claims against Ukraine. See Nemariam, 491 F.3d at

481.

B.

Appellants’ second contention is that the FSIA’s

commercial activity exception defeats Ukraine’s immunity.

That exception contains three clauses each of which establishes

an independent basis for asserting jurisdiction over a foreign

state based on its commercial activities. 28 U.S.C.

§ 1605(a)(2). This case implicates the third clause, which

permits a suit to proceed against a foreign state if it is based

“upon an act outside the territory of the United States in

connection with a commercial activity of the foreign state

elsewhere and that act causes a direct effect in the United

States.” Id. Known as the “direct effect” clause, it applies if

three requirements are met: (1) “the lawsuit must be based upon

an act that took place outside the territory of the United States”;

(2) “the act must have been taken in connection with a

commercial activity”; and (3) “the act must have caused a

direct effect in the United States.” Rong v. Liaoning Province

Gov’t, 452 F.3d 883, 888–89 (D.C. Cir. 2006) (citing Republic

of Argentina v. Weltover, 504 U.S. 607, 611 (1992)).

Appellants’ reliance on the commercial activity exception

founders on the second element — that Ukraine’s alleged

conduct was “in connection with a commercial activity.” The

9

FSIA instructs that the “commercial character of an activity

shall be determined by reference to the nature of” the activity,

“rather than by reference to its purpose.” 28 U.S.C. § 1603(d).

To determine the nature of an activity, the court examines

whether the foreign state’s actions “are the type of actions by

which a private party engages in ‘trade and traffic or

commerce.’” Weltover, 504 U.S. at 614 (citation omitted). A

foreign state engages in commercial activity when it “exercises

‘only those powers that can also be exercised by private

citizens,’ as distinct from those ‘powers peculiar to

sovereigns.’” Saudi Arabia v. Nelson, 507 U.S. 349, 360

(1993) (quoting Weltover, 504 U.S. at 614).

This court addressed whether the expropriation of property

qualifies as commercial activity in Rong, 452 F.3d 883. In that

case, Rong, a Chinese national, sued a subdivision of China,

alleging that the province unlawfully seized his automobile

manufacturing company without compensation and sold the

assets to a wholly–owned state entity. See id. at 885–87. The

court affirmed the dismissal of Rong’s suit, rejecting his

contention that the province engaged in commercial activity

within the meaning of § 1605(a)(2). Id. at 891. Although

acknowledging that the province’s takeover and management

of Rong’s company “seem commercial,” the court observed

that “these acts flow from the Working Committee’s ‘state

assets’ declaration — an act that can be taken only by a

sovereign.” Id. at 889. Consequently, the taking “constituted

a quintessentially sovereign act, not a corporate takeover,” and

so the commercial activity exception did not apply. Id. at 890.

As in Rong, appellants’ lawsuit stems from an exercise of

eminent domain. They allege that Ukraine “took [their]

business and property as part of a concerted plan and scheme

to expropriate pro–Western businesses.” 2d Am. Compl. ¶ 6.

That scheme, appellants claim, was orchestrated “by Ukrainian

10

government officials,” including the Office of the President,

“to benefit those government officials and their family

members.” Id. ¶ 1. These allegations describe conduct that is

“quintessentially sovereign,” Rong, 452 F.3d at 890, and which

could not have been carried out by a private participant in the

marketplace, see Nelson, 507 U.S. at 362. It follows that

appellants cannot satisfy the FSIA’s commercial activity

exception.

Notwithstanding Rong, appellants insist that Ukraine’s

conduct qualifies as commercial activity because Ukraine’s

“real purpose” for expropriating their property was to use it “as

a golf course and sports facility, which was operated

commercially.” Pls.’ Br. 31. This contention is foreclosed by

the Supreme Court’s precedent and those of this court. As the

Supreme Court has explained, “whether a state acts ‘in the

manner of’ a private party is a question of behavior, not

motivation.” Nelson, 507 U.S. at 360; see Weltover, 504 U.S.

at 614. Consistent with that teaching, this court concluded in

Cicippio v. Islamic Republic of Iran, 30 F.3d 164 (D.C. Cir.

1994), that state–supported hostage taking is not commercial

activity, id. at 167–68. Similarly, in Mwani v. bin Laden, 417

F.3d 1 (D.C. Cir. 2005), the court refused to view

Afghanistan’s harboring of terrorist camps as the “provision of

land for money,” observing that, “in determining whether

particular conduct constitutes commercial activity,” the “key”

question “is not to ask whether its purpose is to obtain money,

but rather whether it is ‘the sort of action by which private

parties can engage in commerce,’” id. at 17 (quoting Nelson,

507 U.S. at 362). And in Rong, 452 F.3d at 890, the court held

that the province’s “subsequent acts” with Rong’s property

“did not transform the . . . expropriation into commercial

activity.” Were it otherwise, the court observed, “almost any

subsequent disposition of expropriated property could allow

the sovereign to be haled into federal court under FSIA,” an

11

outcome “inconsistent with [the court’s] precedent, the

decisions of other circuits, and the [FSIA’s] purpose.” Id. So

too here, Ukraine’s motives and its subsequent use of

appellants’ property do not alter the analysis.

C.

Finally, appellants contend that the FSIA does not bar their

lawsuit because Ukraine waived its sovereign immunity. The

FSIA allows courts to exercise jurisdiction over a foreign state

if it “waived its immunity either explicitly or by implication.”

28 U.S.C. § 1605(a)(1). A foreign state explicitly waives its

sovereign immunity in a treaty or contract only if it “clearly

and unambiguously” agrees to suit. World Wide Minerals, Ltd.

v. Republic of Kazakhstan, 296 F.3d 1154, 1162 (D.C. Cir.

2002); cf. Amerada Hess Shipping, 488 U.S. at 442–43. As for

implied waivers, this court has recognized that a foreign state

implicitly dispenses with its immunity in only three

circumstances: by (1) executing a contract containing a choice–

of–law clause designating the laws of the United States as

applicable; (2) filing a responsive pleading without asserting

sovereign immunity; or (3) agreeing to submit a dispute to

arbitration in the United States. World Wide Minerals, 296

F.3d at 1161 n.11; see Foremost–McKesson, Inc. v. Islamic

Republic of Iran, 905 F.2d 438, 444 (D.C. Cir. 1990). In either

instance, the touchstone of the waiver exception remains the

same: “that the foreign state have intended to waive its

sovereign immunity.” Creighton Ltd. v. Gov’t of Qatar, 181

F.3d 118, 122 (D.C. Cir. 1999) (emphasis added).

According to appellants, Ukraine waived its immunity by

entering into a bilateral investment treaty with the United

States in 1994. Alternatively, they submit that Ukraine waived

its immunity in 2016 when then–President Petro Poroshenko

issued a decree authorizing the Ministry of Justice to litigate

12

and settle claims brought by Ukrainian nationals in foreign

courts. These contentions fail. The treaty on which appellants

rely — the Treaty Between the United States of America and

Ukraine Concerning the Encouragement and Reciprocal

Protection of Investment, Ukr.–U.S., Mar. 4, 1994, T.I.A.S.

No. 96–1116 — merely obligates each signatory nation to

entertain certain suits in its own courts. Article III of the treaty,

which addresses the expropriation of property, states: “A

national or company of either Party that asserts that all or part

of its investment has been expropriated shall have a right to

prompt review by the appropriate judicial or administrative

authorities of the other Party.” Id., art. III, ¶ 2. Likewise,

Article VI provides that an individual or company may resolve

an investment dispute involving a signatory nation in “the

courts or administrative tribunals of the Party that is a party to

the dispute.” Id., art. VI, ¶ 2(a). Thus, the treaty’s terms do not

amount to a clear and unambiguous waiver of Ukraine’s

sovereign immunity in United States courts.

Appellants’ reliance on a 2016 presidential decree is also

unavailing. That decree defines a “foreign entity” for the

purposes of Ukrainian law to include “citizens of Ukraine” who

“present in a foreign jurisdiction body a claim against

Ukraine.” Decree of the President of Ukraine On Amending

the Procedure of Protection of Rights and Interests of Ukraine

during Settlement of Disputes, Proceedings in Foreign

Jurisdiction Bodies of Cases Involving a Foreign Entity and

Ukraine, No. 60/2016, ¶ 3 (Feb. 22, 2016). In so doing, the

decree empowers Ukraine’s Ministry of Justice to represent

Ukraine in these suits and, among other things, to “take

measures necessary to reach agreements with a foreign entity

. . . on mutually beneficial and mutually acceptable terms.” Id.

¶ 6(1). These general and ambiguous provisions are not

tantamount to an express waiver of sovereign immunity,

especially as the decree also authorizes the Ministry of Justice

13

to present “Ukraine’s immunity in a case initiated in a foreign

jurisdiction body on a claim against Ukraine.” Id. ¶ 7(3). Nor

does the decree impliedly waive Ukraine’s immunity as it does

not contain either a choice–of–law provision or an agreement

to arbitrate in the United States. In sum, because neither the

treaty nor the decree meet “the exacting showing required for

waivers of foreign sovereign immunity,” Odhiambo v.

Republic of Kenya, 764 F.3d 31, 35 (D.C. Cir. 2014),

appellants’ lawsuit cannot proceed under the FSIA’s waiver

exception.

Accordingly, the court affirms the district court’s

dismissal of Ukraine for lack of subject–matter jurisdiction.