Aldy v. Valmet Paper MacHinery

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 95-30295

LYNDA ALDY, on behalf of Charles Durwood Aldy,

Individually and as legal representative;

JANET M. WALKER,

Plaintiffs-Appellees,

versus

VALMET PAPER MACHINERY, GLOBE INC., THORNTON

INDUST. INC., FENNER FLUID POWER, FENNER

P.L.C., and J.H. FENNER & CO., LTD.,

Defendants,

versus

VALMET OY,

Defendant-Appellant.

*******************************

MARY ANN BUGGS MALONE, MARCUS T. MALONE, KEITH

T. MALONE and MIA SHALETTE MALONE,

Plaintiffs-Appellees,

versus

VALMET PAPER MACHINERY and THORNTON

INDUSTRIES, INC.,

Defendants,

versus

VALMET OY,

Defendant-Appellant.

Appeal from the United States District Court

for the Western District of Louisiana

January 22, 1996

Before REAVLEY, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

This case presents the applicability of the commercial

activities exception to the Foreign Sovereign Immunities Act, 28

U.S.C. §§ 1602 et seq., in a products liability suit asserting

failure to warn, design, and manufacturing defects in a machine

designed and manufactured in Finland and installed in Louisiana.

We conclude that the exemption is applicable and affirm the

district court’s refusal to dismiss for lack of jurisdiction.

I.

On March 18, 1991, Charles Aldy and Charley Malone were

crushed to death while they were working in a paper machine at the

Stone Container Corporation's paper mill in Hodge, Louisiana.

Aldy's wife and daughter brought a wrongful death action naming,

among others, the alleged manufacturer of the paper machine, Valmet

Paper Machinery, as a defendant under Louisiana's product liability

statute. See La.R.S. §§ 9:2800.52-57. In a separate action,

Malone's survivors sued VPI, also alleging that VPI's faulty design

and construction of the paper machine caused Malone's death. VPI

removed both actions to the United States District Court for the

Western District of Louisiana. After the Aldys and the Malones

discovered that VPI had no connection to the paper machine, they

amended their complaints to name Valmet Oy as a defendant. Valmet

had designed, manufactured, and supervised the on-site construction

of the paper machine.

Valmet moved to dismiss the Aldys' complaint for lack of

subject matter jurisdiction, claiming immunity under the Foreign

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Sovereign Immunities Act. Magistrate Judge Simon issued his report

and recommendation concluding that the Aldys' suit fell within the

commercial activities exception to the FSIA.1 The Magistrate Judge

pointed to the third clause of § 1605(a)(2), which provides that a

foreign sovereign is not immune from suit in any case in which the

action 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." The magistrate judge found that Valmet was in the

business of producing paper-making machines in Finland and that the

Aldys' suit was based upon Valmet's allegedly negligent acts of

designing and manufacturing the paper machine in Finland.

Moreover, the magistrate judge found that the Aldys' complaint

alleged that Valmet's faulty design and manufacture "caused a

direct effect in the United States, that is the death of the

plaintiffs' decedent."

In addition, the magistrate judge rejected Valmet's argument

that the Aldys must identify specific defects in the design or

manufacture of the paper machine that caused the accident in order

to establish jurisdiction under the FSIA. While the magistrate

judge noted that the failure to identify such defects would subject

the Aldys to dismissal on a motion for summary judgment on the

merits, he concluded that the complaint's allegations were

sufficient to assert subject matter jurisdiction over the claims

1

28 U.S.C. § 1605(a)(2).

3

against Valmet. The district court adopted the magistrate judge's

report.

Valmet moved for summary judgment in both the Aldys' and the

Malones' suits. It reurged its argument that it was immune under

the FSIA, this time because there was allegedly no evidence in the

record to indicate that Valmet was negligent in designing or

manufacturing the paper machine. The district court denied

Valmet's motion, noting that the court had already addressed and

rejected Valmet's FSIA arguments. The district court later

consolidated the Aldy and Malone suits.

After discovery had been completed, Valmet once again moved

for summary judgment. Valmet argued that the Aldys and Malones had

failed to produce any evidence that the paper machine was

unreasonably dangerous as a result of Valmet's design or

manufacture of the machine. Once again, it reurged its argument

that is was immune from suit under the FSIA because the Aldys and

the Malones had failed to demonstrate a specific defect in the

design or manufacture of the paper machine. Finally, Valmet argued

that Louisiana's statute of peremption barred their claims.

The district court disagreed and denied Valmet's motion. The

district court found that the Aldys and Malones had produced

sufficient evidence that the paper machine was unreasonably

dangerous to withstand Valmet's motion for summary judgment.

Regarding Valmet's FSIA argument, the district court noted that

Valmet had not demonstrated any reason for the court to revisit its

earlier rulings holding that the commercial activities exception

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applied to the Aldys' and Malones' claims against Valmet. Finally,

the court held that Louisiana's statute of peremption only applied

to contracts to build and not to contracts for the sale of

immovable property. Noting that Valmet had only shown that it

built the paper machine and then sold it to Stone Container's

predecessor, the district court held that the Aldys' and Malones'

suits were not barred by Louisiana's statute of peremption. This

timely appeal followed.

II.

The denial of summary judgment is not a final order appealable

under 28 U.S.C. § 1291, under the collateral order doctrine

established in Cohen v. Beneficial Industrial Loan Corp., 337 U.S.

541 (1949), but we have jurisdiction over interlocutory orders

denying claims of immunity under the FSIA. Stena Rederi AB v.

Comision de Contratos del Comite, 923 F.2d 380, 385 (5th Cir.

1991).

Valmet also appeals the district court's ruling that

Louisiana's statute of peremption does not bar the Aldys' and

Malones' suits. Unlike the district court's denial of sovereign

immunity, the denial of summary judgment on the grounds of a

statute of limitations is neither a final order, Weinstock Hermanos

& CIA Ltda v. American Aniline & Extract Co., 406 F.2d 1327, 1328

(3rd Cir. 1969), nor does it fit within that small category of

claims subject to immediate appeal under the Cohen doctrine.

United States v. Levine, 658 F.2d 113, 129 (3d Cir. 1981). We may

not consider the merits of Valmet's statute of peremption argument.

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III.

No one disputes that Valmet qualifies as a foreign sovereign.

See 28 U.S.C. § 1603(b)(2). As such, it is immune from suit in the

United States unless one of the enumerated exceptions to the FSIA

applies.

The third clause of the commercial activities exception

provides that a foreign sovereign is not immune from suit in any

case in which the action 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." 28 U.S.C. § 1605(a)(2). The

plain language of the provision limits our analysis to determining

whether the Aldys' and Malones' lawsuits are 1) based upon an act

outside the U.S., 2) that was taken in connection with a commercial

activity of Valmet outside the U.S.; and, 3) that caused a direct

effect in the U.S. Republic of Argentina v. Weltover, Inc., 504

U.S. 607, 611 (1992).

The first two elements ensure that "there must be a connection

between the plaintiff's cause of action and the commercial acts of

the foreign sovereign." Stena Rederi, 923 F.2d at 386 (emphasis

added). The Aldys' and Malones' suits are based upon the

commercial acts of Valmet outside the U.S. Valmet does not dispute

that it is in the business of designing and manufacturing paper

machines in Finland, nor does it dispute that it designed and

manufactured the paper machine in which Aldy and Malone were

killed. Moreover, the gravamen of the plaintiffs' suits are that

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the paper machine "was unreasonably dangerous in its construction,

make-up composition and design." In short, the plaintiffs' suits

appear to be classic design and manufacturing defect suits, which

the third clause of the commercial activities exception is broad

enough to cover. See, e.g., Ohntrup v. Firearms Center Inc., 516

F.Supp. 1281, 1286-87 (E.D. Pa. 1981), aff’d, 760 F.2d 259 (3d Cir.

1985).

Valmet's next contention that the plaintiffs have failed to

prove that there is a direct causal nexus between Valmet's

commercial activity and the plaintiffs' injuries fares no better.

"[A]n effect is 'direct' if it follows 'as an immediate consequence

of the defendant's . . . activity.’" Weltover, 504 U.S. at 618.

Although there may be instances in which the causal chain of events

on which a plaintiff's suit is based is too attenuated to support

subject matter jurisdiction under the FSIA, this suit is not that

case. The plaintiffs maintain that Aldy's and Malone's deaths

resulted from either the negligent design or manufacture of the

paper machine or both. Stated another way, the Aldys and Malones

contend that Aldy's and Malone's deaths were an immediate

consequence of Valmet's negligent design and manufacturing of the

paper machine. These allegations are sufficient to confer subject

matter jurisdiction. See Ohntrup, 516 F.Supp. at 1287 (holding

that subject matter jurisdiction exists where defective product

that was designed and manufactured abroad caused injury to U.S.

purchaser).

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Finally, Valmet argues that the commercial activities

exception does not encompass failure to warn claims. Relying upon

In re Air Crash Disaster Near Warsaw, Poland, 716 F.Supp. 84

(E.D.N.Y. 1989), rev'd on other grounds, 907 F.2d 1328 (2d Cir.

1990), Valmet argues that the failure to act is not an "act"

sufficient to confer subject matter jurisdiction under the FSIA.

We disagree. In re Air Crash Disaster held that "a failure to warn

does not constitute an 'act performed in the United States in

connection with a commercial activity of the foreign state

elsewhere' as required by the second commercial activity exemption

in the statute." 907 F.2d at 1333 (emphasis added). That case did

not hold that a failure to warn of a defect in a product designed

and manufactured outside the U.S. cannot be an act outside the U.S.

sufficient to confer subject matter jurisdiction under the third

clause of § 1605(a)(2). To the contrary, an omission is an act.

The critical question is whether the plaintiff's suit is based upon

an omission--the failure to warn--that occurred outside the U.S.

but caused a direct effect in the U.S.2 We have already answered

that question in the affirmative in this case.

IV.

We AFFIRM the order of the district court denying Valmet's

motion for summary judgment for lack of subject matter jurisdiction

2

The third clause of § 1605(a)(2) was unavailable to the

plaintiffs in In re Air Crash Disaster. The act upon which the

plaintiffs had based their suit did not cause a direct effect in

the U.S. since the deaths of plaintiffs' family members had

occurred outside the U.S. Stated another way, the plaintiffs in

that case were forced to argue that the failure to warn was an act

inside the U.S.

8

under the FSIA and we DISMISS Valmet's appeal from the district

court's order denying its state law statute of peremption defense.

9