Petition for Writ of Certiorari — MCI Telecommunications Corp. v. United Arab Emirates

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Supremes Court, 0.8,

PILED

No. (1)

__96 4 34 SEP 17 19%

ore OF THE Cite

In THE

Suprene Cont of the United States

OCTOBER TERM, 1996

MCI TELECOMMUNICATIONS CORPORATION,

Petitioner,

Vv.

UNITED ARAB EMIRATES, MINISTRY OF

DEFENSE OF THE UNITED ARAB EMIRATES,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

PETITION FOR A WRIT OF CERTIORARI

THOMAS F. O’NEtL IIT DONALD B. VERRILLI, JR.*

ADAM H. CHARNES SEAN H. DONAHUE

MCI TELECOMMUNICATIONS JENNER & BLOCK

CORPORATION 601 13th Street, N.W.

1133 19th Street, N.W. Washington, D.C. 20005

Washington, D.C. 20086 (202) 689-6000

(202) 872-1600 * Counsel of Record

WILSON - Epes PRINTING Co., Inc. - 789-0096 - WasnINGTON, D.C. 20001

QUESTION PRESENTED

Whether promises made by a representative of a foreign

state to a United States company pledging that the foreign

state would pay debts owed by its citizens if the com-

pany agreed not to pursue legal action against them con-

stitute “commercial activity” under the Foreign Sovereign

Immunities Act, thereby subjecting the foreign state to

suit in United States courts upon breach of the promises.

(i)

RULE 29.6 STATEMENT

MCI Telecommunications Corporation is a wholly

owned subsidiary of MCi Communications Corporation.

TABLE OF CONTENTS

Page

QUESTION PRESENTED o................c:ccceccsescescsesecessoee i

DOUPee COIS MC Pa RUN MU ila sscss ssa beware lascarennerensnce ii

TABLE OF AUTHORITIES ...n...........ccc.ccccsceccccsscsececesese iii

ERR Stand RL BRO NOMENA A Re 1

PIE Ceiba h alist cakaahateaids lbacniiiniconibtctibiliatestibiocnni 1

a ileriinsaheassseissnshicnssiinesvcnaninsenandisibiccakannsncnicecs 2

STATEMENT OF THE CASB ooo. ecceccccecceeeeeee 2

REASONS FOR GRANTING THE WRIT .......... 8

I. THE COURT OF APPEALS’ SWEEPING

HOLDING THAT “PROMISES THROUGH

DIPLOMATIC CHANNELS DO NOT CON-

STITUTE COMMERCIAL ACTIVITY” IS

PLAINLY WRONG AND CONFLICTS WITH

THE DECISIONS OF OTHER COURTS OF

ae sisi nseacipstianceainsthtnss Seer cortsansese.<o 10

Il. THE COURT BELOW APPLIED A NOVEL

“COMMERCIAL ACTIVITY” TEST THAT

HAS NO BASIS IN THE ACT AND THAT

CONFLICTS WITH WELTOVER, NELSON,

AND THE DECISIONS OF NUMEROUS

PRPRRMOMe: COU AAR OE inca cnescecsnccstinocersearses 13

A. Failure to Apply the “Private Person” Test.. 13

B. Improper Reliance on Purpose .................... 16

C. The “Nexus” Requirement... 17

D. Settlement of Third Party Debts... 18

a 8 ER a a 21

TABLE OF AUTHORITIES

CASES Page

Export Group v. Reef Indus., 54 F.8d 1466 (9th

GORI, IEE cacncenleiadesesaniesateccvniancnarihaantesiancimmiliction gee 9

Gemini Shipping, Inc. v. Foreign Trade Org. for

Chem. & Foodstuffs, 647 F.2d 317 (2d Cir.

REED vcirecaccscnidbninicinsaisteiiescientelbassia nto daiaieaaeonaiinasialedietatadies 10, 20

Holden v. Canadian Consulate, 1996 U.S. App.

LEXIS 20064 (9th Cir. Aug. 9, 1996) -......... 11, 12, 19

Insurance Corp. of Ireland, Ltd. v. Compagnie des

Bauzites de Guinee, 456 U.S. 694 (1982) ............ 11

Janini v. Kuwait Univ., 43 F.8d 1584 (D.C. Cir.

SIRI nscscisincasissonasticesucihiieasshiceadnncaiisidiidieiaiadininaaiaa tle 12,19

Joseph v. Office of the Consulate General, 830 F.2d

1018 (9th Cir. 1987), cert. denied, 485 U.S. 905

ETT ic ictisinsessiiinicacrtaipstintdlacnigtpaNisctinasiiaioeacanamiial 9, 11, 16, 17, 18

Practical Concepts, Inc. v. Republic of Bolivia, 811

AB Be Ves ej BRR pera 11

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

fe? Panett, passim

Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic

Republic, 877 F.2d 574 (7th Cir. 1989) _.... 10, 14, 17, 18

Saudi Arabia v. Nelson, 507 U.S. 349 (1993) -....... passim

Texas Trading & Milling Corp. v. Federal Republic

of Nigeria, 647 F.2d 300 (2d Cir. 1981), cert.

denied, 454 U.S. 1148 (1982) ............-....0222........ 8, 14, 21

Transamerican S.S. v. Somali Democratic Republic,

T67 Fed GSS CD. CRe. TRGB) consis passim

Verlinden B.V. v. Central Bank of Nigeria, 461

pt Re ROR Sat aN EE RE SE 10

STATUTES

fee FRG | . > b RA ERMa et Rac RiGee ncpaNee 2

The Foreign Sovereign Immunities Act,

28 U.S.C. § 1330 a aleianialiibuccmeibiesds 2

> RFI ior amet eMNeeenee e 5

Bt a, PLETE Sere Oe 5

Be IIIS visiseiniscssdseciasilbinniobidetiboigmiaoeininaabony 2

§ 1603 (d) .. papitata eg My i SHS 2,9, 16

Be PID ucschaesindhsivarisscanicondietdingenhduapiicsneandiaiaine 2

FID CP i csicenscmeqeepsinwenrinnel 6, 13, 14, 16

TABLE OF AUTHORITIES—Continued

MISCELLANEOUS Page

H.R. Rep. No. 94-1487 (1976), reprinted in 1976

ee EE eR RE BUR aes eaters es ere ee 18, 21

Joseph W. Dellapenna, Suing Foreign Govern-

ments and their Corporations (1988) .................. 11,18

Joan E. Donoghue, Taking the “Sovereign” Out of

the Foreign Sovereign Immunities Act: A Func-

tional Approach to the Commercial Activity Ex-

ception, 17 Yale J. Int’l L. 489 (1992) 0... 14

3 Richard A. Lord, Williston on Contracts (4th ed.

OE Sense sinsichectcon saigogiebnidilalesldicnd titaddieniia nie tein 20

Restatement (Second) of Contracts, § 86... 20

In THE

Sipwrene Cmut of the United States

OCTOBER TERM, 1996

No.

MCI TELECOMMUNICATIONS CORPORATION,

- Petitioner,

UNITED ARAB EMIRATES, MINISTRY OF

DEFENSE OF THE UNITED ARAB EMIRATES,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fifth Circuit

PETITION FOR A WRIT OF CERTIORARI

MCI Telecommunications Corporation (“MCI”) re-

spectfully petitions for a writ of certiorari to the United

States Court of Appeals for the Fifth Circuit.

OPINIONS BELOW

The opinion of the court of appeals, reported at 82

F.3d 658, is reproduced at page la of the appendix

to this petition (“Pet. App.”). The unreported order

of the United States District Court for the Western Dis-

trict of Texas denying respondents’ motion to set aside

the default judgments against them is reproduced at

Pet. App. 15a.

JURISDICTION

The judgment of the court of appeals was rendered on

May 13, 1996. The court denied MCI’s petition for

rehearing and suggestion for rehearing en banc on June 19,

1996.

The jurisdiction of this Court is invoked pursuant to

28 U.S.C. § 1254(1).

STATUTES

The Foreign Sovereign Immunities Act (FSIA or Act),

28 U.S.C. §§ 1330, 1602-1611, provides in relevant part:

A foreign state shall not be immune from the juris-

diction of courts of the United States or of the States

in any case—

(2) in which the action is based upon a com-

mercial activity carried on in the United States

by the foreign state; or upon an act performed

in the United States in connection with a com-

mercial 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). The FSIA defines “commercial

activity” as

either a regular course of commercial conduct or a

particular commercial transaction or act. The com-

mercial character of an activity shall be determined

by reference to the nature of the course of conduct

or particular transaction or act. rather than by ref-

erence to its purpose.

28 U.S.C. § 1603(d).

STATEMENT OF THE CASE

This case arises from express promises made by officials

of the United Arab Emirates and its Ministry of Defense

(collectively, “UAE”) to MCI that the UAE would

ee ee ae

reimburse MCI for over $1 million in unauthorized long-

distance telephone calls placed by members of the UAE’s

“Student Battalion” while on a training assignment at a

Texas military installatior. MCI acted in reliance upon

the UAE’s promises when it opted at the urging of UAE

Officials not to pursue criminal and other remedies against

the UAE nationals in question. However, once the UAE

military personnel responsible for the unauthorized calls

were safely beyond the reach of U.S. courts, the UAE

Officials refused to honor their promise. The court below

| held that the district court lacked jurisdiction to entertain

MCT’s action to enforce the UAE’s promises to pay be-

cause the promises were not “commercial” in character,

and therefore did not defeat the UAE’s immunity under

the FSIA.

On September 23, 1986, the UAE entered into an agree-

ment with the United States Department of Defense for

_the training of UAE military under the sponsorship of the

United States Army at Fort Bliss, Texas (“Military Train-

ing Agreement”). R. Vol. II, pp. 316-23. Pursuant to

Note 5 of the Military Training Agreement, the UAE

assumed responsibility for the debts incurred by members

of Student Battalion for their personal living expenses.

Note 5 of the Agreement stated that:

Students will be responsible for payment of charges

for transportation, meals, laundry service, and any

other services or personal living expenses they incur.

Purchaser [UAE] agrees to ensure prompt payment

for such expenses.

R. Vol. Il, p. 319.

In August 1987, MCI commenced an investigation of

unauthorized calling activity made over an unbilled MCI

“maintenance circuit.” MCI’s investigation revealed that

the unauthorized calls were being placed from certain

lines in Fort Bliss, Texas to the UAE and other overseas

destinations. Information obtained from Southwestern

Bell, the local telephone carrier, and from United States

Army officials at Fort Bliss revealed that these unbilled

calls were being placed by members of the UAE Student

Battalion. MCI confirmed from its own records that the

identified individuals had made additional, billed calls to

the same destinations as the unauthorized calls. R. Vol. I,

pp. 92-94. MCI ultimately determined that, beginning

around October 1986, the UAE personnel had made more

than 40,000 unauthorized long-distance calls worth more

than $1 million. Pet. App. 15a, 25a.

Although MCI was prepared to press criminal charges

against the members of the Student Battalion who had

made the unauthorized calls, it opted to pursue the matter

first with the UAE government. On January 6, 1988,

MCI representatives met with the UAE’s ambassador and

military attaché in Washington, D.C. Pet. App. 21a;

R. Vol. I, pp. 75-76. At that meeting, the ambassador

told the three MCI representatives that if the unauthorized

calls were attributable to members of the Student Bat-

talion, the UAE would assume responsibility and would

pay MCI for the calls. Pet. App. 21a; R. Vol. I, pp. 76-

77. The Ambassador requested that MCI take no further

legal action with respect to the matter, and that MCI

forward to him information relating to its investigation

and its conclusion that the illegal calls were being placed

by members of the Student Battalion. Pet. App. 21a;

R. Vol. I, pp. 76-77.

As requested, MCI promptly provided the UAE’s am-

bassador with a list of the members of the Student Battal-

ion who made the unauthorized calls and with computer

printouts of the call records. Pet. App. 22a; R. Vol. I,

p. 77. On January 18, 1988, the ambassador informed

MCI that he had transferred the information to the mili-

tary attaché for investigation. On February 17, 1988,

the attaché informed an MCI manager that the UAE

would “definitely” compensate MCI for its losses if mem-

bers of the Student Battalion were involved. R. Vol. I,

i a a cc

p. 78. The UAE requested a written breakdown of the

unauthorized calls by destination. Pet. App. 23a; R. Vol.

I, pp. 77-78.

Texas law enforcement officials urged MCI to decide

whether it would accept restitution as a substitute for

criminal prosecution of the members of the Student Bat-

talion who had made the unauthorized calls. Accordingly,

MCI requested another meeting with the UAE ambassa-

dor. In June 1988, MCI provided the ambassador with

a detailed breakdown of the unauthorized calls which

| MCI had prepared at substantial expense, and indicated

the need to resolve the matter expeditiously. Pet. App.

23a; R. Vol. I, pp. 78-79.

At a July 1988 meeting with MCI representatives, the

ambassador and military attaché contended that MCI had

failed to provide adequate documentation that Student

Battalion members had made the illegal calls and that

they had not promised MCI any compensation. After

again reviewing records provided by MCI, the ambassador

Stated that 10% of the individuals listed by MCI were

: not members of the UAE personnel, although he acknowl-

edged that 90% of the individuals were UAE personnel.

| Pet. App. 23a-24a; R. Vol. I, p. 80.

In August 1988, the UAE informed MCI that it would

not honor its agreement to pay for the calls, and refused

to meet again with MCI. By that time, all but one of the

UAE military personnel whom MCI believed responsible

for the unauthorized calls had returned to the UAE. Pet.

App. 24a; R. Vol. I, p. 81; R. Vol. II, pp. 344-49,

On May 11, 1989, MCT filed suit in the United States

District Court for the Western District of Texas against

the UAE, the UAE Ministry of Defense, and the individ-

ual members of the UAE’s Student Battalion who had

made the telephone calls.' The complaint sought damages

} Jurisdiction was based upon 28 U.S.C. §§ 1880(a) and 18382

(a) (2).

| en ee ee

for the unauthorized and unpaid long distance services, on

theories including fraud, conversion, quantum meruit,

promissory estoppel, and implied contract. Pet. App.

43a-48a. The promissory estoppel and implied contract

counts rested on the UAE ambassador’s assurance that

the UAE would pay MCI for the unauthorized telephone

calls made by the members of the Student Battalion, and

MCI’s reliance on these assurances. Pet. App. 46a-48a.

MCI also sought damages under Note 5 of the Military

Training Agreement, on the theory that the UAE had

breached the agreement by failing to ensure payment by

the UAE military trainees for telecommunications services

provided to them by MCI. Pet. App. 45a-46a.

MCI was not able to obtain service on the individual

defendants.” MCI obtained service on the UAE and the

Ministry of Defense, but neither filed an answer or other-

wise responded to the complaint. At a hearing on Octo-

ber 20, 1989, MCI presented evidence on its damages and

expenses as a consequence of the unauthorized telephone

calls and the UAE’s subsequent conduct. Pet. App. 27a;

R. Vol. II, p. 286.

The district court entered default judgments against

the UAE Ministry and the UAE on November 7, 1989

and January 5, 1990, respectively. Pet. App. 28a, 29a.

More than three years later, on May 21, 1993, the UAE

and the UAE Ministry moved to vacate the default judg-

ments on the ground that the district court had lacked

subject matter jurisdiction under the FSIA. The district

court ruled that the UAE and the UAE Ministry of De-

fense were not entitled to sovereign immunity because

their actions in promising to reimburse MCI for the un-

authorized calls fell within the “commercial activity” ex-

ception to the FSIA, 28 U.S.C. § 1605(a)(2). Pet. App.

15a. The court reasoned that these promises were com-

2 One individual defendant initially entered an appearance through

counsel, but the parties stipulated to dismissal as to him after he

returned to the UAE. R. Vol. I, p. 4; R. Vol. II, pp. 344-49.

jie

mercial acts “because private parties would normally make

such promises while participating in the market.” Pet.

App. 17a (citing Republic of Argentina v. Weltover, Inc.,

504 U.S. 607, 613-14 (1992)).

A divided panel of the Fifth Circuit reversed. The

majority held the “commercial activity” exception inap-

plicable because the UAE’s “alleged promises” had been

made “through diplomatic channels.” Pet. App. 7a.

Despite acknowledging that contracts to procure goods

and services are ordinarily a form of commercial activity

under the FSIA, the court reasoned that “(negotiations

over the payment of illegal telephone calls” were “not

commercial in nature,” emphasizing that MCI’s purpose

in approaching respondents was to recover losses caused

by third parties. Pet. App. 8a.*

Judge Garza dissented. He concluded that there was

“nothing sovereign about UAE’s behavior—the alleged

making and breaching of a contract with MCI.” Pet.

App. 14a. According to the dissent, the UAE's promises

to MCI amounted to “simply a contract for services which

UAE felt it was morally obligated to enter into.” Pet.

App. 14a. Judge Garza reasoned that the UAEF’s actions

were not authorized by any power peculiar to a sovereign

State, but instead that “any private person could have

engaged in these actions.” Pet. App. 14a.*

*The court of appeals unanimously held that Note 5 of the

Military Training Agreement could not provide a basis for juris-

diction under the FSIA’s commercial activity exception because

the agreement as a whole did not relate to the purchase of goods

and services and because it was between “two sovereign parties” —

the United States and the UAE—rather than between the UAE and

MCI. Pet. App. 8a-9a.

* Judge Garza also complained that the majority had improperly

failed to place the burden of proof for establishing sovereign im-

munity under the FSIA upon the defendants. Pet. App. lla.

The court of appeals denied MCI’s petition for rehear-

ing and suggestion for rehearing en banc on June 19,

1996. Pet. App. 18a.

REASONS FOR GRANTING THE WRIT

This case presents important issues concerning the ap-

plication of the FSIA’s commercial activity exception, the

“most significant” of the grounds enumerated in the FSIA

upon which United States courts may entertain an action

against a foreign state or its instrumentality. See Welt-

over, 594 U.S. at 611-12. “The determination of whether

particular behavior is ‘commercial’ is perhaps the most

important decision a court faces in an FSIA suit.” Texas

Trading & Milling Corp. v. Federal Republic of Nigeria,

647 F.2d 300, 308 (2d Cir. 1981), cert. denied, 454

U.S. 1148 (1982).

The Fifth Circuit’s interpretation of the “commercial

activity” exception conflicts with the text of the FSIA,

with this Court’s teachings in Weltover and Saudi Arabia

v. Nelson, 507 U.S. 349 (1993), and with the law of

other circuits. It creates broad and wholly novel restric-

tions on the commercial activity exception, and corre-

spondingly expands foreign states’ immunity in ways not

contemplated by Congress. In a few bold strokes, the

court created new propositions of “commercial activity

exception” jurisprudence that set the Fifth Circuit apart

from the law prevailing in other circuits. In particular,

it is now Fifth Circuit law that

* a foreign government’s promise to pay is not a

commercial act within the meaning of the FSIA if the

promise is “made through diplomatic channels”;

* a foreign government’s promise to pay its citizen-

employees’ debts to United States citizens is a sov-

ereign act, and cannot be enforced in United States

courts;

* a foreign government’s promise to undertake an

obligation owed by another is not a commercial ac-

tivity unless there is a preexisting contractual relation-

ship between the government and the promisee;

* negotiation, formation, and breach of a contract

between a foreign government and a private party

is not “commercial activity” unless the parties have

an overall commercial relationship or “nexus”;

* negotiations between a foreign government and a

private party that lack a profit motive—such as nego-

tiations seeking restitution for “illegal” use of serv-

ices—are not “commercial” within the meaning of

the Act.

At the same time, the Fifth Circuit failed to heed the

FSIA’s instruction, elaborated in Weltover, that “Tt}he

commercial character of an activity shall be determined

by reference to the nature of the course of conduct or

particular transaction or act, rather than by reference to

its purpose,” 28 U.S.C. § 1603(d). The Fifth Circuit

also flouted this Court’s teaching in Weltover that the

central inquiry in commercial activity exception cases

is whether the “particular actions that the foreign state

performs . . . are the type of actions by which a private

party engages in ‘trade and traffic or commerce.’” 504

U.S. at 614 (emphasis in original) (citation omitted).

The decision below introduces needless confusion into

the interpretation of a provision that already presents

ample difficulty for courts, see Nelson, 507 U.S. at 359:

Export Group v. Reef Indus., 54 F.3d 1466, 1473 (9th

Cir. 1995), and is likely to lead the Fifth Circuit to re-

sults that will diverge sharply from the restrictive view

of foreign sovereign immunity that prevails in other cir-

cuits. To begin with, the Fifth Circuit is now flatly at

odds with the Ninth and District of Columbia Circuits

on the issue whether activity undertaken through diplo-

matic channels can be “commercial” within the meaning

of the FSIA. See Joseph v. Office of the Consulate Gen.,

830 F.2d 1018 (9th Cir. 1987), cert. denied, 485 USS.

905 (1988); Transamerican S.S. v. Somali Democratic

Republic, 767 F.2d 998 (D.C. Cir. 1985). The Fifth

Circuit is also in conflict with the Second and Seventh

Circuits as to whether a foreign government’s agreement

to guarantee the legal obligations of a third party can

be “commercial” activity for FSIA purposes. See Rush-

Presbyterian-St. Luke’s Medical Center v. Hellenic Re-

public, 877 F.2d 574 (7th Cir. 1989); Gemini Shipping,

Inc. v. Foreign Trade Org. for Chem. & Foodstuffs, 647

F.2d 317 (2d Cir. 1981).

The particular issues presented by this case are likely

to recur with some frequency. Indeed, it is to be expected

that promises by diplomatic officials to guarantee the obli-

gations of foreign nationals and foreign corporations will

be the subject of continuing litigation in United States

courts. More broadly, the Fifth Circuit has set itself on

a course likely to lead to a significant expansion of the

scope of FSIA immunity in cases arising within its

borders. The rules of law announced in the decision below

will have application far beyond the particular facts pre-

sented here, and will likely bring the Fifth Circuit into

conflict with the law prevailing in other circuits on a host

of particular FSIA questions. In light of the strong public

interest in clear standards in foreign sovereign immunity

matters—an interest that gave rise to the FSIA’s enact-

ment, see, e.g., Verlinden B.V. v. Central Bank of Nigeria,

461 U.S. 480, 488 (1983)—review by this Court is

plainly warranted.

I. THE COURT OF APPEALS’ SWEEPING HOLDING

THAT “PROMISES THROUGH DIPLOMATIC

CHANNELS DO NOT CONSTITUTE COMMERCIAL

ACTIVITY” IS PLAINLY WRONG AND CONFLICTS

WITH THE DECISIONS OF OTHER COURTS OF

APPEALS.

The Fifth Circuit stated a flat rule that “alleged prom-

ises made through diplomatic channels do not constitute

commercial activity.” Pet. App. 7a.° That rule departs

5 The court’s observation that the promises here were merely

“alleged”—in the sense that they were never proven at trial—is

Sharply from the general FSIA principle that the “com-

mercial” or “noncommercial” status of the relevant foreign

government entity at issue is irrelevant to the immunity

question, which instead turns on whether the “cause of

action arose out of . . . a commercial act.” Joseph W.

Dellapenna, Suing Foreign Governments and Their Cor-

porations 148 (1988) (emphasis added). The mere fact

that a promisor is a “diplomatic” official or entity clearly

does not defeat immunity, as other Circuits have con-

cluded. E.g., Holden v. Canadian Consulate, 1996 U.S.

App. LEXIS 20064 (9th Cir. Aug. 9, '1996) (denying

consulate’s claim of immunity in employment discrimina-

tion case because employee’s job resembled private post);

Joseph v. Office of the Consulate Gen., 830 F.2d 1018

(9th Cir. 1987) (rejecting claim of immunity from suit

on consulate’s lease of private residence for use by con-

sular officials), cert. denied, 485 U.S. 905 ( 1988);

Transamerican S.S. v. Somali Democratic Republic, 767

F.2d 998, 1003 (D.C. Cir. 1985) (Somali embassy’s

affirmative efforts to assist Somali agency in dispute with

American shipping company defeated immunity under

commercial activities exception ).

It would be odd indeed to cloak the actions of am-

bassadors and other diplomatic representatives with im-

munity because they transact business through “diplomatic

channels,” while denying immunity to foreign entities that

transact business by means of legislation, executive decree,

or administrative order—avenues no less sovereign in

nature than the agreements of diplomats. Cf. Weltover,

true but immaterial. The court iself recognized that, by opting not

to respond to MCI’s suit and taking a default judgment instead,

the UAE had “los[t] its right to defend on the merits.” Pet.

App. 6a (citing Practical Concepts, Inc. v. Republic of Bolivia,

811 F.2d 1543, 1547 (D.C. Cir. 1987) (R. B. Ginsburg, J.)

and insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de

Guinee, 456 U.S. 694, 706 (1982)). In this light, the court was

obligated to take MCI’s allegations as true.

504 U.S. at 615 (denying immunity based on acts of

Argentinean “government”); Janini v. Kuwait Univ., 43

F.3d 1534 (D.C. Cir. 1995) (denying immunity for

abrogation of employment contract even though it was

accomplished by a governmental decree voiding all em-

ployment contracts with non-nationals). The focus is not

on which governmental official undertakes the allegedly

commercial act; as Weltover makes clear, the immunity

question turns on the “nature” of the act itself. 504 U.S.

at 615.

In Transamerican, 767 F.2d 998, the D.C. Circuit re-

jected an argument strikingly similar to that embraced

by the panel majority here. There, a Somali-government-

owned agency sought to impose special fees on an Amer-

ican shipper for delivering grain at a Somali port. The

shipper claimed these fees were unlawful, but decided to

pay them in order to free its vessel from detention by the

agency, and delivered a check made out to the agency

to the Somali embassy in the United States. The em-

bassy, however, refused to accept a check made out to the

agency, and instructed that the shipper transfer the funds

directly into Somalia’s commercial account. The court of

appeals in Transamerican rejected the claim that the Somali

embassy had played a merely “diplomatic” role, and held

that the Somali government was subject to suit based on

the embassy’s commercial activities ir helping to collect

the payment for the agency. The court explained that

“[t]he embassy took an active rather than a_ passive

role in the transaction by refusing to accept payment by

a check made out to the Agency and insisting instead on an

electronic transfer of funds directly into [Somalia’s] own

commercial bank account in Washington.” 767 F.2d at

1003. The embassy’s actions were not the impartial ac-

tions of a distinctively governmental “diplomatic” nature,

but were “normal commercial functions” of the sort that

private banks and collection agencies perform routinely;

thus they were not entitled to immunity. Jd. See also

Holden, 1996 U.S. App. LEXIS 20064 at *9.

The Fifth Circuit’s decision in the present case is

squarely at odds with the D.C. Circuit’s approach in Trans-

american. The UAE ambassador’s actions here were more

clearly “commercial” in character than the Somali em-

bassy’s actions in that case. The UAE’s ambassador

and its military attaché made promises directly to MCI,

a private party, for the purpose of inducing MCI to take

specific course of action—refraining from legal action

against UAE nationals. This was “active” participation

of the plainest sort. As the district court and the dissent-

ing circuit judge recognized, the UAE’s actions in promis-

ing to pay restitution closely resembled those of a private

employer that sought to extricate its overseas employees

from legal difficulties in their host country.

The use of “diplomatic channels” might sometimes be

relevant to the “commercial activity” question, but it

should not have the per se immunizing effect it now has

in the Fifth Circuit. The panel majority’s holding that an

ambassador’s explicit promise to pay money to a private

party is an act of “diplomacy” cloaked with sovereign

immunity confirms that its sweeping language immuniz-

ing “promises made through diplomatic channels” was

no slip of the tongue. Under the decision below, for-

eign government will be able to escape responsibility

for otherwise actionable promises by making them through

“diplomatic channels.” Equally unfortunate, United

States citizens will be loathe to rely on promises by foreign

diplomats. The decision below transformed a statute in-

tended to ensure that United States “citizens will have

access to the courts in order to resolve ordinary legal

disputes,” H.R. Rep. No. 94-1487, at 6 (1976), reprinted

in 1976 U.S.C.C.A.N. 6604, into a means for foreign

diplomats to shield their nationals from having to answer

in United States courts for ordinary legal wrongs. This

result is plainly inconsistent with the statute, this Court’s

decisions, and the decisions of other circuits.

II. THE COURT BELOW APPLIED A NOVEL “COM-

MERCIAL ACTIVITY” TEST THAT HAS NO BASIS

IN THE ACT AND THAT CONFLICTS WITH

WELTOVER, NELSON, AND THE DECISIONS OF

NUMEROUS COURTS OF APPEALS.

A. Failure to Apply the “Private Person” Test. A state

“engages in commercial activity” under § 1605(a)(2)

“where it exercises only those powers that can also be

exercised by private citizens, as distinct from those powers

peculiar to sovereigns.” Nelson, 507 U.S. at 360 (cita-

tion and internal quotation marks omitted); accord Welt-

over, 504 U.S. 607; Texas Trading & Milling Corp., 647

F.2d at 309 (“if the activity is one in which a private

person could engage, it is not entitled to immunity”).

Courts and commentators have referred to this standard

as the “private person” test. E.g., Rush-Presbyterian-St.

Luke’s Medical Center v. Hellenic Republic, 877 F.2d

574, 578 & n.4 (7th Cir. 1989); Joan E. Donoghue,

Taking the “Sovereign” Out of the Foreign Sovereign Im-

munities Act: A Functional Approach to the Commercial

Activity Exception, 17 Yale J. Intl L. 489, 505-12

(1992).

The panel majority below made a reference to the

private person test, Pet. App. 7a & n.5, but never applied

it. It did not even purport to consider whether the UAE’s

actions in promising to pay MCI for the unauthorized

telephone calls are “the type of actions by which a private

party engages in ‘trade and traffic or commerce.’” Welt-

over, 504 U.S. at 416 (emphasis in original, citation

omitted). If the court had conducted the proper inquiry,

it would necessarily have concluded, as Judge Garza con-

cluded in dissent, Pet. App. 12a-14a, that the UAE’s ac-

tions here plainly qualify as “commercial activity” under

the Act.

Indeed, this is a textbook case in which the complaint

describes conduct in which private parties regularly en-

gage.° The relevant causes of actions against the UAE—

MCT’s claims of promissory estoppel and implied contract

—turn upon the ambassador’s and attaché’s promises to

pay the telephone charges in question in exchange for

MCI’s agreement to forgo legal action, and on MCI’s re-

liance on those promises. As with the issuance of bonds

in Weltover, there is nothing distinctively governmental

about the UAE’s conduct here “(other than perhaps its

purpose) that would cause it always to be classified as

jure imperii.” Weltover, 504 U.S. at 615. The UAE's

promises here were “garden variety” offers to settle a dis-

pute. See ibid.

According to MCI’s complaint (Pet. App. 46a-47a),

the UAE offered to pay restitution to MCI in exchange

for MCI’s agreement to refrain from proceeding against

UAE citizen-soldiers. This was a promise of the sort

that a private employer might well make to a person

injured by one of its employees. Private parties commonly

insure or assume others’ debts, and they do so both before

and after the debts are incurred. A private employer in a

foreign country would be particularly likely to agree to

debts incurred by its employees, in order to preserve

good relations with the host nation or to avoid dis-

ruption of its operations.’ Many parents could be ex-

pected to offer payment for illegal or overdue telephone

calls placed by their children.

* The court below did not question that, if the UAE’s promise to

repay was a commercial act, MCI’s suit was “based upon” a com-

mercial activity within the meaning of § 1605 ( a) (2). In Nelson,

the Court explained that an action is “based upon” the elements

necessary to establish the claim. 504 U.S. at 615.

7 As the district court observed, “fijn the private arena, if a

company sent several employees to a foreign nation and those em-

ployees engaged in the subject activity, the corporation would likely

make similar promises as those made by Ambassador Makarrab and

Colonel Mubarak [the military attaché] to protect its image and

standing in the foreign nation.” Pet. App. 17a.

The panel majority reasoned that because the telephone

calls at issue had been “illegal,” the UAE’s promise to

pay for the calls could not be “commercial in nature.”

Pet. App. 8a. But this notion has no support in the

Act or in judicial precedent under it.* The settlement of

claimed legal wrongs—even of those that are potentially

criminal—is a staple of private commerce. Because

agreement to pay restitution for an employee’s, an asso-

ciate’s, or a family member’s unlawful acts is plainly the

sort of act in which private parties can and do engage,

the UAE’s conduct here should plainly have been classified

as “commercial” for purposes of § 1605(a)(2).

Although the court referred to the negotiations be-

tween the UAE and MCI as “clothed with a diplomatic

nature,” Pet. App. 8a, it never explained how the UAE’s

promises to MCI could embody any power “peculiar to

sovereigns,” Nelson, 507 U.S. at 360. In fact, as Judge

Garza noted, no essentially sovereign power was impli-

cated here. The fact that a government-to-government

arrangement concerning military training was “in the

background,” Transamerican, 767 F.2d at 1003, did not

alter the commercial nature of the UAE’s specific acts

any more than did the sovereign uses to which Argentina

put the money raised by the bonds at issue in Weltover.

B. Improper Reliance on Purpose. The panel major-

ity’s decision directly conflicts with the statutory com-

mand that the nature of the specific acts in question,

and not their overall purpose, is the determinative factor

under § 1605(a)(2). See Weltover, 504 U.S. at 617.

Indeed, the court of appeals’ error was particularly fla-

grant, for the court relied on private party MCI’s purpose

8In Transamerican, 767 F.2d 998, for example, the court did not

hesitate to find “commercial activity” even though the surcharges

the Somali embassy had helped collect were alleged to be unlawful;

nor did the court in Joseph, 830 F.2d 1018, consider it relevant that

the destruction of property alleged to be the basis of the breach of

contract was probably both tortious and criminal.

in concluding that the UAE’s acts were not “commercial.”

The court reasoned that “MCI approached the [UAE] not

to form a contract for goods or services, but to try and

recover its losses from the unauthorized use of its services

by third parties.” Pet. App. 8a. Under the plain lan-

guage of 28 U.S.C. § 1603(d), the parties’ purposes and

motives are simply “irrelevant to the question of [their]

activity’s commercial character.” Nelson, 507 USS. at

363.

As for the court of appeals’ statement that MCI was

seeking to “recover its losses” rather than “form a con-

tract for goods or services,” this Court specifically stated

in Weltover that “commercial activity” need not have a

“profit motive.” 504 U.S. at 614; accord Rush, 877 F.2d

at 578 n.4 (observing that a profit motive requirement

would “virtually eliminate” the commercial activity excep-

tion). “[T]he use of profit motive as a threshold require-

Ment for applying the commercial activity exception would

inconsistent with the FSIA’s focus on the nature of the

transaction at issue rather than its purpose.” Joseph, 830

F.2d at 1024.

C. The “Nexus” Requirement. The court of appeals

never denied that a contract existed between the UAE and

MCI (indeed, in the face of MCI’s allegations and the

UAE’s default, such a finding would have been difficult

to sustain).’ Instead, the court declared that it could find

“no nexus between MCI and Defendants-Appellants sufti-

cient to find a contract or agreement that would be ‘com-

mercial’ in nature so as to constitute commercial activity.”

Pet. App. 8a. The Fifth Circuit’s new “nexus” require-

ment is unprecedented and unwarranted: the question is

not the larger relationship between MCI and the UAE,

but whether the UAE’s “particular actions,” Weltover,

® Judge Garza concluded that, according to MCI’s allegations con-

cerning the ambassador’s promises, a contract had been formed and

breached. Pet. App. 14a.

504 U.S. at 614, were the kind of actions that private

parties perform in the market. Before the decision below,

it was “clearly settled” that “the conduct of the foreign

state giving rise to the claim must be part of a commer-

cial act, but the relationship on which the suit is based

need not be commercial, if by commercial one means a

relationship involving commerce.” Dellapenna, supra, at

148 (emphasis added).

Courts of appeals have recognized that contracts be-

tween foreign states and United States nationals for the

purchase of goods or services presumptively count as “com-

mercial activity” under the Act, with the possible excep-

tion of instances in which the subject matter of the

contract is inherently governmental. See Rush, 877 F.2d

at 578-79. But cf. Weltover, 504 U.S. at 614-15 (a

government’s execution of contract to purchase “army

boots or even bullets” is commercial activity, because

private companies use contracts to acquire goods). The

panel majority’s decision simply ignored this analytical

framework. The court’s new “nexus” requirement creates

a phantom class of contracts that, while neither based on

any articulable sovereign attribute nor dealing in a subject

that is inherently governmental, nonetheless fall outside

the “commercial activity” exception.”® In this respect as

well, the decision below is bound to sow confusion.

acterized as a contract for the telecommunications services that

had been utilized by the UAE soldiers. See Pet. App. 14a (Garza,

J., dissenting). In any event, the commercial! nature of the UAE's

actions does not depend on whether the ambassador’s promise to

MCI involved a sale of “goods” or “services.” Although courts

frequently refer to such contracts as the paradigm “commercial”

contract, e.g., Weltover, 504 U.S. at 614-15, such contracts plainly

do not exhaust the realm of commercial activities under the FSIA.

E.g., Joseph, 830 F.2d 1018 (lease); H.R. Rep. No. 94-1487, at

16-17 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6615-16 (pur-

chasing securities is a commercial activity).

D. Settlement of Third Party Debts. The court of ap-

peals concluded that the UAE’s “alleged promises” could

not be “commercial” in character because the debt owed

to MCI was for “services provided to third parties.” Pet.

App. 8a. But this distinction, once again unsupported

by any authority, is flatly inconsistent with the “commer-

cial activity” test as elaborated in Weltover, Nelson, and

numerous court of appeals decisions. Those decisions

make clear that the governing test is whether the activity

is one in which private parties could engage in the market.

E.g., Nelson, 507 U.S. at 360; Weltover, 504 U.S. at 613:

Holden, 1996 U.S. App. LEXIS 20064 at *4-*8; Janini,

43 F.3d at 1536. If the answer to that question is in

the affirmative, the activity is “commercial” regardless

of whether a third party is involved. If the panel ma-

jority’s emphasis on the “third party” aspect of this trans-

action was a demand for conformity with common-law

contract requirements, it was in direct conflict with Welt-

over, in which this Court observed that “[e]ngaging in a

commercial act does not require the receipt of fair value,

or even compliance with the common-law requirements

of consideration.” 504 U.S. at 615."

™ The court’s reference to the affected UAE military. personnel

as “third parties” ignores the close practical and legal relationship

between military personnel stationed overseas and their govern-

ment. Because of its major financial, logistical, and reputational

stake in its soldiers’ fate while stationed in the United States, the

UAE itself clearly secured a benefit for its promise to pay for the

student Battalion members’ telephone calls—avoiding the cost and

embarrassment of having more than 20 of its soldiers hailed into

court in a foreign land. That benefit would very likely have been

sufficient to qualify as legal consideration for the UAE’s promise.

The UAE’s clear obligation under Note 5 of the Military Training

Agreement to ensure payment by UAE military trainees’ personal

debts further illustrates that the UAE benefited by virtue of its

promise to reimburse MCI—by reimbursing MCI for the unauthor-

ized calls, the UAE would avoid responsibility to the Department

of Defense under Note 5.

Under the “private person” standard, the UAE’s promise

was plainly commercial in character even if one regards

the Student Battalion as “third parties.” Private parties

often undertake to pay or insure others’ debts. And while

common-law enforceability is not a requirement for a

commercial act under § 1605(a)(2), Weltover, 504 U.S.

at 611, it is notable that the UAE here received concrete

benefits in exchange for assuming this “third party” debt,

and that the promisee, MCI, detrimentally relied on the

UAE’s promise.

Contrary to the court of appeals’ view here, Pet.

App. 8a, the fact that the UAE did not have a pre-

existing contractual relationship with MCI did not defeat

MCT’s claim that the UAE’s promise to pay the Student

Battalion members’ debts was itself a commercial act.

Once again, the panel majority’s did not apply the appro-

priate test: whether the UAE’s actions were of the sort

in which private parties can engage. Promises to assume

responsibility for a preexisting debt are regularly made

and honored by private parties. E.g., 3 Richard A. Lord,

Williston on Contracts § 7.31 (4th ed. 1992); Restate-

ment (Second) of Contracts, § 86.

The court’s insistence upon a preexisting contractual

relationship as a precondition for finding “commercial

activity” has no support in decisions under the FSIA. It

is also flatly inconsistent with Gemini Shipping, Inc. v. For-

eign Trade Org. for Chem. & Foodstuffs, 647 F.2d 317

(2d Cir. 1981), in which the court held the commercial

activity exception applicable on the basis of Syrian gov-

ernment agencies’ guarantee that they would pay demur-

rages incurred by the private shipper plaintiff (which had

no contractual relationship with the agencies) if the

shipper was detained at port while executing a contract

with another private entity to deliver grain to Syria. See

id. at 318-19.

The FSIA leaves it to the courts to “work out progres-

sively, on a case-by-case basis . . . the distinction between

commercial and governmental” activities. Texas Trading,

647 F.2d at 308-09. Case-by-case adjudication will in-

evitably produce arguably anomalous results. In many

cases, disparities among results—necessary by-products of

applying the FSIA’s vague language in diverse circum-

stances—will not require intervention by this Court. Pe-

titioner submits, however, that the decision below merits

review because it departs from the entire framework gov-

erning “commercial activity” cases, fails to apply the

standards recently set forth by this Court in Weltover and

Nelson, and introduces a number of wide-ranging new

principles that have no basis in the FSIA and are likely

to distort the future growth of the law.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

THOMAS F, O’NeEt III DONALD B, VERRILLI, JR.*

ADAM H. CHARNES SEAN H. DONAHUE

MCI TELECOMMUNICATIONS JENNER & BLOCK

CORPORATION 601 18th Street, N.W.

1183 19th Street, N.W. Washington, D.C. 20005

Washington, D.C. 20086 (202) 639-6000

(202) 872-1600

September 17, 1996

* Counsel of Record

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

No. 95-50161

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff-A ppellee,

Vv.

SUBHI ALHADHOOD, Captain, et al.,

Defendants.

Appeal from the United States District Court

for the Western District of Texas

May 13, 1996

Before HIGGINBOTHAM, EMILIO M. GARZA and

BENAVIDES, Circuit udges.

BENAVIDES, Circuit Judge:

Defendants-Appellants appeal the district court’s order

denying their motion to vacate default judgment on the

basis of their sovereign immunity under the Foreign Sover-

eign Immunities Act (“FSIA”). The district court found

that Defendants-Appellants made promises to Plaintiff-

Appellee MCI Telecommunications Corporation (“MCT”)

that qualified as commercial activity under the commercial

activity exception of the FSIA, 28 U.S.C. § 1605(a) (2)

because private parties would normally make such prom-

ises while participating in the market. We reverse based

on our finding that the actions of Defendants-Appellants

did not constitute commercial activity under the FSIA.

I. BACKGROUND

On September 26, 1986, Defendant-Appellant United

Arab Emirates (“UAE”) entered into an agreement/

contract with the United States Department of Defense

for the training of UAE military personnel (“Student

Battalion”) under the sponsorship of the U.S. Army at

Fort Bliss, Texas. Note 5 of the agreement addressed

the expenses covered by the Student Battalion:

Students will be responsible for payment of charges

for transportation, meals, laundry service, and any

other services or personal living expenses they incur.

Purchaser agrees to ensure prompt payment for such

expenses.

In August 1987, MCI instituted an investigation of

unauthorized and unbillable calling activity reported by

MCTI’s Richardson, Texas office. Through its investiga-

tion, MCI established that, beginning approximately

October 1986, in excess of $1 million in telephone calls

using unauthorized codes and dial-up numbers were

placed by members of the Student Battalion to the UAE

and other overseas locations.

MCI contends that it first attemped to recover its dam-

ages through diplomatic channels by meeting with UAE

Ambassador Ahmed Salim Al Mokarrab and UAE Mili-

tary Attache Colonel Mubarak Rashid Al Ghafli at the

UAE Embassay in Washington, D.C. on January 6, 1988.

MCI asserts that at that meeting Ambassador Mokarrab

explicitly told representatives of MCI that if the unau-

thorized calls were attributable to the Student Battalion

the UAE would assume responsibility and pay MCI their

damages. MCI contends that the Ambassador requested

that MCI take no further legal action, but instead forward

information to him on MCI’s investigation.

MCI contends that it took no further legal action in

reliance on the Ambassador’s statements at the January 6,

1988 meeting.’ Throughout the early part of 1988, MCI

forwarded detailed information regarding the members of

the Student Battalion allegedly involved in the unauthor-

ized telephone activity. MCI claims that Ambassador

Mokarrab repeatedly delayed any further meetings until

July 6, 1988, when Colonel Mubarak stated that he would

not assist MCI because MCI failed to prove that any

individual Student Battalion member made any of the

unauthorized calls. MCI also contends that at that same

meeting Ambassador Mokarrab stated that he had never

promised MCI compensation. Then in August 1988, the

UAE officially informed MCI that it would not compen-

sate MCI for any of the telephone calls.

_ On May 11, 1989, MCI filed a complaint against the

UAE, the UAE Ministry of Defense (“Ministry”) and

the individual members of the Student Battalion identified

as having made the unauthorized calls. Service was ob-

tained upon the UAE and the Ministry only.” One of the

individual members of the Student Battalion filed an an-

swer, but neither the UAE or the Ministry filed an answer.

Because neither the UAE nor the Ministry answered or

responded within the required time, default judgments

were entered against the Ministry on November 8, 1989

and against the UAE on January 8, 1990.°

1 Five years later, Ambassador Mokarrab executed an affidavit

denying that he made any promises to pay MCI for the unauthor-

ized telephone calls.

2 All the individual defendants were later dismissed.

3 Prior to entering default judgments against the UAE and the

Ministry, the district court held a hearing at which MCI presented

evidence as to the amount of damages suffered and expenses in-

curred by MCI. MCI also filed a memorandum of law in support of

its motion for default judgment on the issue of immunity under

the FSIA at the court’s request.

On May 21, 1993, the UAE and the Ministry moved

to vacate the default judgments on the ground that they

were immune from suit under the FSIA. The district

court entered an order on February 10, 1995 denying the

motion, finding that the UAE and the Ministry were not

able to assert sovereign immunity for the unauthor-

ized calls because the promises made by Ambassador

Mokarrab and Colonel Mubarak to MCI to pay for the

calls qualified as “commercial activity” under that excep-

tion to the FSIA. Both the UAE and the Ministry now

appeal.

Il. JURISDICTION

This appeal arises from a denial of a motion to vacate

default judgments entered against Defendants-Appellants.

Separate default judgments were entered against the

Ministry on November 8, 1989 and against the UAE on

January 8, 1990. Defendants-Appellants filed their mo-

tion to vacate on May 21, 1993, more than three years

after the last default judgment was entered. In their

motion to vacate the default judgments, Defendants-

Appellants claimed immunity from suit under the FSIA,

and the district court denied the motion based on its find-

ing that their actions fell under the “commercial activity”

exception to the FSIA. Immediate appeal, under the col-

lateral order doctrine, is permitted from an order denying

sovereign immunity under the FSIA because it raises the

issue of the court’s subject matter jurisdiction. Stena

Rederi AB v. Comision de Contratos, 923 F.2d 380, 385

(Sth Cir.1991). However, the question raised from the

appeal in the instant case is whether entry of default

judgment prior to Defendants-Appellants claim of sover-

eign immunity under the FSIA waives their right to claim

immunity or challenge the default judgment entered by

the district court on the same ground.

This Court has held in the context of the FSIA that

[w]hen a defendant foreign state has appeared and

asserts legal defenses, albeit after a default judgment

has been entered, it is important that those defenses

be considered carefully and, if possible, that the dis-

pute be resolved on the basis of all relevant legal

argument.

Hester Intern’tl Corp. v. Federal Republic of Nigeria, 879

F.2d 170, 175 (5th Cir.1989) (quoting Practical Con-

cepts, Inc. v. Republic of Bolivia, 811 F.2d 1543, 1552

(D.C.Cir. 1987)). A claim of sovereign immunity under

the FSIA is waived only when the sovereign state fails to

assert immunity in a responsive pleading. See Rodriquez

v. Transnave Inc., 8 F.3d 284, 287 (Sth Cir.1993); Fore-

most-McKesson, Inc. v. Islamic Republic of Tran, 905

F.2d 438, 443 (D.C.Cir.1990). Thus, a waiver of sov-

ereign immunity cannot be implied from a foreign state’s

failure to appear. Such a waiver would be inconsistent

with section 1608(e) of the FSIA, which requires the court

to satisfy itself that jurisdiction exists prior to entering a

default judgment.* “[E]ven if the foreign state does not

enter an appearance to assert an immunity defense, a dis-

trict court still must determine that immunity is unavail-

able under the Act.” Verlinden B.V. v. Central Bank of

Nigeria, 461 U.S. 480, 493-94 n. 20, 103 S.Ct. 1962,

1971 n. 20, 76 L.Ed.2d 81 (1983).

Neither does the FSIA or its legislative history state

when sovereign immunity must be raised. The D.C. Cir-

cuit has concluded that a foreign state’s failure to appear,

even after default judgment has been entered, does not

constitute a waiver. Practical Concepts, 811 F.2d at 1547.

In Practical Concepts, the Court states that a defendant

sovereign state that believes the district court lacks juris-

4 Section 1608(e) provides in pertinent part:

No judgment by default shall be entered by a court of the

United States or of a State against a foreign state, a political

subdivision thereof, or an agency or instrumentality of a for-

eign state, unless the claimant establishes his claim or right to

relief by evidence satisfactory to the court.

28 U.S.C. § 1608(c).

diction may choose one of two paths; it may appear, raise

the jurisdiction objection, and ultimately pursue it on di-

rect appeal; or it may challenge the court’s jurisdiction in

a collateral proceeding by refraining from appearing,

thereby exposing itself to the risk of a default judgment,

and asserting the jurisdictional objection when enforce-

ment of the default judgment is attempted. Jd. See also

Insurance Corp. of Ireland, Ltd. v. Compagnie des Baux-

ites de Guinee, 456 U.S. 694, 706, 102 S.Ct. 2099, 2106,

72 L.Ed.2d 492 (1982) (“A defendant is always free to

ignore the judicial proceedings, risk a default judgment,

and then challenge that judgment on jurisdictional grounds

in a collateral proceeding.”). By deferring its jurisdic-

tional challenge, the foreign state only loses its right to

defend on the merits. 7d. In the instant case, Defendants-

Appellants did not file a responsive pleading prior to en-

try of default judgment; they elected to wait and see if a

default judgment would be entered against them. Defend-

ant-Appellants then asserted their claim of sovereign im-

munity in a collateral proceeding through a motion to

vacate the default judgments. Although their appearance

might otherwise be characterized as “untimely,” we can-

not infer a waiver of immunity from Defendants-Appel-

lants’ rouch delayed appearance in this case.

Il. COMMERCIAL ACTIVITY EXCEPTION

TO THE FSIA

“We review the district court’s conclusions about sov-

ereign immunity de novo.” Walter Fuller Aircraft Sales,

Inc. v. Republic of the Philippines, 965 F.2d 1375, 1383

(Sth Cir.1992) (citing Stena, 923 F.2d at 386). The

FSIA provides foreign states immunity from suit in fed-

eral and state courts unless a specified exception applies.

28 U.S.C. § 1604. One such exception, “commercial ac-

tivity,” is defined under the Act as “either a regular trans-

action or act.” 28 U.S.C. § 1603(d). “The commercial

character of an activity shall be determined by reference

to the nature of the course of conduct or particular trans-

action or act, rather than by reference to its purpose.” /d.

See also Republic of Argentina v. Weltover, Inc., 504

U.S. 607, 614, 112 S.Ct. 2160, 2166, 119 L.Ed.2d 394

(1992). We have stated “that an activity has a commer-

cial nature for purposes of FSIA immunity if it ‘is a type

that a private person would customarily engage in for

profit.” Walter Fuller, 965 F.2d at 1384 (Sth Cir.1992)

(quoting Callejo v. Bancomer, S.A., 764 F.2d 1101, 1108

n. 6 (5th Cir.1985)).°

A. Promises to Pay

Defendants-Appellants contend that their alleged prom-

ises to pay MCI for the unauthorized calls did not make

them private players within the market, as defined by the

U.S. Supreme Court in Weltover, because the non-com-

mercial activity of stealing telephone services did not

create a “market” to which their alleged promises could

relate. On the other hand, MCI asserts that Defendants-

Appellants’ promises to pay were made in the context of

their attempt to resolve a private dispute, which is ex-

actly the type of activity in which private parties engage.

See United States v. Moats, 961 F.2d 1198, 1205 (Sth

Cir.1992) (“[t]he negotiation of contracts, including en-

try into a settlements agreement, clearly is the type of act

performed by private persons”). Thus, MCI argues, the

Defendants-Appellants’ express promises to pay consti-

tuted “commercial activity” within the meaning of

§ 1605(a) (2).

We find that alleged promises made through diplomatic

channels do not constitute commercial activity. As we

stated in Walter Fuller, “courts typically hold that con-

tracts for the procurement of goods and services are com-

5 This approach has been approved by the U.S. Supreme Court

in Weltover, 504 U.S. at 614, 112 S.Ct. at 2166 (“the issue is

whether the particular actions that the foreign state performs

(whatever the motive behind them) are the type of actions by

which a private party engages in ‘trade and traffic or commerce’ ’’).

mercial rather than governmental in nature.” 965 F.2d

at 1384 (internal citations omitted). Negotiations over

the payment of illegal telephone calls, however, are not

commercial in nature. Private parties may engage in talks,

negotiations, and may even make promises to resolve dis-

putes, but not all such activity will be deemed “commer-

cial.” See Rush-Presbyterian-St. Luke’s Medical Center v.

Hellenic Republic, 877 F.2d 574, 578-79 (7th Cir.), cert.

denied, 493 U.S. 937, 110 S.Ct. 333, 107 L.Ed.2d 322

(1989). MCI approached Defendants-Appellants not to

form a contract for goods or services, but to try and re-

cover its losses from the unauthorized use of its services

by third parties. Thus, we find no nexus between MCI

and Defendants-Appellants sufficient to find a contract or

agreement that would be “commercial” in nature so to

constitute commercial activity. In addition, any attempt

to resolve the dispute related to services provided to third

parties, and not Defendants-Appellants in this instance,

and are clothed with a diplomatic nature, not a commer-

cial one.*

B. Contract for Personal Living Expenses

Addressed as an alternative argument for affirming the

district court’s judgment, MCI contends that Note 5 of the

military training agreement between the UAE and the

United States expressly makes the UAE a guarantor of the

payment of personal expenses incurred by the Student Bat-

talion. MCI argues that by agreeing to act as a guarantor

for debts incurred by the Student Battalion, which in-

cludes telephone calls, the UAE is, like a private party,

engaging in commercial activity. Relying on Weltover,

MCI asserts that the agreement constitutes commercial

*In this regard we note that MCI admits that instead of filing

criminal charges against the Student Battalion members who made

the unauthorized calls, it sought to recover its losses through

“diplomatic channels” at the UAE Embassy. The negotiations were

not related to any contract for services between the UAE and MCI,

as no such contract was ever in existence.

activity not for its “purpose,” but by its “nature”; al-

though the agreement has a governmental purpose, the

guarantee contained in Note 5 constitutes commercial ac-

tivity. See Weltover, 504 U.S. at 614, 112 S.Ct. at 2166.

MCI also argues that the guaranty in Note 5 is unam-

biguously written without any limitation for the benefit of

all creditors providing services of a personal nature to the

Student Battlion. Thus, under Texas law, MCI claims it-

self as a third-party beneficiary under the agreement." We

find no merit in MCI’s arguments.

The cases relied on by MCI are inapplicable in that

they involve contracts or agreements between a sovereign

state and the complaining party for either the sale of

goods or services.” The contract in this case involves a

military training agreement between two sovereign parties,

the United States and the UAE. No goods or services

were purchased or required to be purchased from MCI

under the terms of the contract. Therefore, we find noth-

ing in the nature of this agreement, even considering the

provisions of Note 5, that would constitute commercial

activity.

C. Unauthorized Telephone Calls

As a second alternative argument, MCI contends that

because the procuring of telephone services is a basic ac-

tivity undertaken by private persons on a daily basis, the

placing of long distance telephone calls by members of the

Student Battalion constitutes “commercial activity” within

the meaning of the FSIA. MCI argues that each use of

MCI’s authorization codes created federal tariff obliga-

tions on the caller to pay MCI for the long distance tele-

TSee United States v. Allstate Ins. Co., 910 F.2d 1281, 1284

(5th Cir.1990) (citing Hermann Hosp. v. Liberty Life Assurance

Co. of Boston, 696 S.W.2d 87 (Tex.App.—Ilous.1985, error refused

n.r.e.)).

8 See Hellenic Republic, supra; Gemini Shipping v. Foreign Trade

Org., 647 F.2d 817 (2d Cir.1981).

10a

phone services procured, and such activity is commercial,

even in the context of an implied rather than express con-

tract. MCI asserts that this argument is even stronger in

the instant case because the implied agreement to pay

MCI for its provision of tariffed telephone services is not

permeated by any overriding governmental function or

purpose.

We find no merit in MCI’s contentions. At first glance,

this argument appears as an attempt to apply the “tortious

activities” exception to the FSIA, since it involves the ac-

tions of the UAE’s “employees” (i.e., the Student Batta-

lion).® Clearly, the making of unauthorized long distance

telephone is not within the Student Battalion’s scope of

employment. See Moran v. Kingdom of Saudi Arabia, 27

F.3d 169, 173 (Sth Cir.1994). Even if we were to at-

tempt to apply the commercial activity exception, the na-

ture of the calls, which are stolen, could not be found to

be “commercial.”

IV. CONCLUSION

Finding Defendants-Appellants’ actions did not con-

stitute “commercial activity” so that Defendants-Appel-

lants are entitled to immunity from suit under the FSIA,

we VACATE the default judgment of the district court

and DISMISS the case for lack of subject matter juris-

diction.

®* The “tortious activities” exception provides in pertinent part:

(a) A foreign state shall not be immune form the jurisdiction

of courts of the United States or of the States in any case—

(5) ...in which money damages are sought against a foreign

state for personal injury or death, or damage to or loss of

property, occurring in the United States and caused by the

tortious act or omission of that foreign state or of any official

or employee of that foreign state while acting within the

scope of his office or employment... .

28 U.S.C. § 1605 (a) (5).

lla

EMILIO M. GARZA, Circuit Judge, dissenting:

The majority in Part LII.A. holds that UAE’s actions—

“its promises to pay”—did not constitute “commercial ac-

tivity” under the commercial activity exception of the

FSIA, 28 U.S.C. § 1605(a)(2). Because I believe that

UAE and MCI’s alleged contract negotiations constituted

“commercial activity” under the FSIA, I dissent.’

My disagreement with the majority opinion begins with

its failure to address the burden of proof. Under the

FSIA, “[o]nce the defendant alleges that it is a ‘foreign

state’, the plaintiff must produce some facts to show that

the commercial activity exception to immunity applies, but

the defendant retains the ultimate burden of proof on im-

munity.” Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d

528, 533 (Sth Cir.), cert. denied, 506 U.S. 956, 113

S.Ct. 413, 121 L.Ed.2d 337 (1992). In this case, UAE

has the burden of proving that it is immune from suit un-

der the FSIA. However, instead of analyzing whether

UAE has met this burden, the majority opinion focuses

solely on discrediting MCI’s arguments.

“The commercial character of an activity shall be de-

termined by reference to the nature of the course of con-

duct or particular transaction or act, rather than by refer-

ence to its purpose.” Republic of Argentina v. Weltover,

Inc., 504 U.S. 607, 614, S.Ct. 2160, 2166, 119 L.Ed.2d

394 (1992). The Court in Weltover emphasized that the

“commercial activity” exception to the FSIA embodies the

restrictive rather than the absolute view of foreign sover-

eign immunity. /d. at 613, 112 S.Ct. at 2165. Pursuant

to this restrictive theory, the Court held that “when a for-

eign government acts, not as regulator of a market, but in

the manner of a private player within it, the foreign sov-

ereign’s actions are ‘commercial’ within the meaning of

the FSIA.” 7d. at 614, 112 S.Ct. at 2166. The determi-

1] concur in Part II and Parts III.B. and C. of the majority

opinion.

12a

native factor is not whether the foreign government is act-

ing to fulfill uniquely sovereign objectives. “Rather, the

issue is whether the particular actions that the foreign

state performs (whatever the motive behind them) are the

type of actions by which a private party engages in ‘trade

and traffic or commerce.’” /d. (quoting Black’s Law Dic-

tionary 270 (6th ed. 1990) ).

Applying this rule, the Weltover Court held that Argen-

tina had “participated in the bond market in the manner

of a private actor,” and therefore engaged in a “commer-

cial activity,” when it issued bonds to restructure debt. /d.

at 615-19, 112 S.Ct. at 2167-68. Focusing on the nature

of the Argentine government’s behavior, not its purpose,

the Court rejected the argument that the context in which

the Argentine government created the bonds—to fulfill its

obligations under a foreign exchange program designed to

address a domestic credit crisis and to control the nation’s

critical shortage of foreign exchange—made these bonds

“sovereign” instead of “commercial” in nature. Jd. at 615,

112 S.Ct. at 2167. The Court stated that “it is irrelevant

why Argentina participated in the bond market in the

manner of a private actor; it matters only that it did so.”

Id.’

Because the focus is on the nature of the foreign sover-

eign’s behavior, most contracts entered into by a foreign

sovereign will fall within the commercial activity excep-

tion.* We have previously noted the commercial nature of

2 Applying Weltover, the Court in Saudi Arabia v. Nelson, 507

U.S. 349, 118 S.Ct. 1471, 123 L.Ed.2d 47 (1993) stressed that a

state engages in commercial! activity only when it exercises powers

that can also be exercised by private citizens, as distinct from

those powers that are peculiar to sovereigns. Jd. at 360, 113 S.Ct.

at 1479. Applying this logic, the Court held that Saudi Arabia’s

alleged wrongful arrest, imprisonment and torture of the plaintiff

constituted an abuse of the state’s police power, the exercise of

which is “peculiarly sovereign in nature.” /d.

8 The legislative history of the FSIA specifically states that “a

single contract, if of the same character as a contract which might

13a

the making or breaching of a contract. See Walter Fuller

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

1375, 1386 (Sth Cir.1992) holding that the breach of a

contract for the sale of aircraft is a commercial activity);

United States v. Moats, 961 F.2d 1198, 1205 (Sth Cir.

1992) (“The negotiation of contracts, including entry into

a settlement agreement, clearly is the type of act performed

by private persons”); Stena Rederi AB v. Comision de

Contratos del Comite, 923 F.2d 380, 389 n. 11 (Sth Cir.

1991) (“A single contract or course of dealing executed

within this nation’s boundaries typically will constitute

commercial activity carried on in the United States.” ).

Other circuits have also noted that a foreign govern-

ment’s formation or breach of a contract will typically

constitute commercial activity. In Rush-Presbyterian-St.

Luke’s Med. Ctr. v. Hellenic Rep., 877 F.2d 574 (7th

Cir.), cert. denied, 493 U.S. 937, 110 S.Ct. 333, 107

L.Ed.2d 322 (1989), the Seventh Circuit stated that al-

though “contracts for purchase or sale of goods or services

are presumptively ‘commercial activities,’ . . . certain con-

tracts, although generally of a type in which a private per-

son could enter, are by their nature governmental, since

only a sovereign entity deals in the particular kind of

goods or services.” 877 F.2d at 578. Examples of non-

commercial contracts that the court cited included a con-

tract to allow a private party a license to exploit the

State’s natural resources and employment contracts be-

tween a state and its civil servants or military personnel.

Id. at 578-79. In Janini v. Kuwait University, 43 F.3d

1534, 1537 (D.C.Cir.1995), the D.C. Circuit held that

the Kuwait University’s unilateral termination of employ-

ment contracts was a commercial activity, despite the fact

that it was accomplished by a formal decree of abrogation

as the result of the Iraqui invasion of Kuwait.

be made by a private person,” is an example of the type of behavior

that the “commercial activity” exception was designed to encompass

H.R.Rep. No. 1487, 94th Cong., 2d Sess. 16 (1976), U.S.C.C.A.N.

1976, at 6615.

14a

In this case, there is nothing sovereign about UAE’s be-

havior—the alleged making and breaching of a contract

with MCI. This is simply a contract for services which

UAE felt it was morally obligated to enter into. The fact

that the telephone calls were unauthorized, or that UAE

had a military training agreement with the United States

is irrelevant to the nature of UAE’s actions. UAE’s ac-

tions were not authorized by a power peculiar to a for-

eign state; the making and breaching of this contract was

not the result of UAE’s exercise of its police powers or

power over the state’s resources, or even its power over

the military. Instead, any private person could have en-

gaged in these actions.

For the foregoing reasons, I respectfully dissent from the

majority opinion, and I would hold that UAE’s alleged

making and breaching of a contract with MCI constituted

“commercial activity” under 28 U.S.C. § 1605(a) (2).

15a

APPENDIX B

[Filed Feb. 10, 1995]

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

No. EP-89-CA-164-H

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff,

MEDHAT JAssiIM ALSoorI,

Defendant.

ORDER REGARDING MOTION TO VACATE

DEFAULT JUDGMENT

This is a civil action for damages for commercial torts

allegedly committed by several members of the United

Arab Emirates’ armed forces (the “Individual Defend-

ants”). Plaintiff MCI Telecommunications Corporation

(“MCI”) alleged the Individual Defendants made 41,057

unauthorized international and domestic long distance

phone calls through MCI’s network from Fort Bliss in

El Paso, Texas. The Individual Defendants were at Fort

Bliss pursuant to a military training agreement between

the United Arab Emirates and the United States. MCI

also sued the United Arab Emirates (the “UAE”) and

the Ministry of Defense of the United Arab Emirates (the

“Ministry of Defense”) alleging they were answerable for

the unauthorized phone calls.

Only one defendant, Medhat Jassim Alsoori, is left in

the case. The Court dismissed the other Individual De-

fendants for lack of service of process pursuant to Rule

16a

4(j) of the Federal Rules of Civil Procedure. The UAE

and the Ministry of Defense are no longer parties because

they never filed answers. The Court entered a default

judgment against the Ministry of Defense on November

11, 1989 and against the UAE on January 5, 1990. The

UAE and the Ministry of Defense finally responded to the

default judgments three and a half years later on May 21,

1993 when they filed a motion to vacate the default judg-

ments entered against them pursuant to Rule 60(b) (4).

They base the motion on the claim that the UAE and the

Ministry of Defense are immune to suit under the Foreign

Sovereign Immunities Act (“FSIA”), 42 U.S.C. § 1602,

et seq. This motion is now before the Court for decision.

If a foreign state is entitled to immunity under the

FSIA, a court lacks both personal and subject matter jur-

isdiction over any suit brought against the foreign state

and default judgments against it are void. De Sanchez v.

Banco Central de Nicaragua, 770 F.2d 1385, 1389 (Sth

Cir. 1985). The FSIA gives foreign states immunity from

suit in the United States unless, among other exceptions,

the foreign state engaged in commercial activity. 28

U.S.C. § 1605(a)(2). A foreign state engages in com-

mercial activity if it acts, not as a regulator of a market,

but in the manner of a private player within the market.

Republic of Argentina v. Weltover, Inc., U.S. q

112 S.Ct. 2160, 2166 (1992).

In the instant case, the Court finds the UAE and the

Ministry of Defense are not entitled to foreign sovereign

immunity, and, therefore, the default judgments were

proper. Ambassador Mokarrab, the UAE’s ambassador

to the United States, and Colonel Mubarak, the UAE’s

military attaché in Washington, made certain promises to

MCI that qualify as commercial activity on the part of the

UAE and the Ministry of Defense. They promised to pay

for the unauthorized phone calls made by UAE military

personnel if MCI did not seek legal action against the per-

sonnel and did not publicize what happened. The prom-

17a

ises were commercial acts because private parties would

normally make such promises while participating in the

market. See Republic of Argentina v. Weltover, Inc.,

supra at 2166, In the private arena, if a company sent

several employees to a foreign nation and those employees

engaged in the subject activity, the corporation would

likely make similar promises as those made by Ambassador

Mokarrab and Colonel Mubarak to protect its image and

standing in the foreign nation. The UAE’s ambassador

and military attache did nothing other than what any pri-

vate employer would do if its reputation and business de-

pended on the promises. See United States v. Moats, 961

F.2d 1198, 1205 (Sth Cir. 1992).

It is therefore ORDERED that the motion of Defend-

ants United Arab Emirates and the Ministry of Defense

of the United Arab Emirates to vacate the default judg-

ments against them, be, and it is hereby, DENIED.

. SIGNED AND ENTERED this 10th day of February,

1995.

/s/ Harry Lee Hudspeth

Harry LEE HUDSPETH

United States District Judge

18a

APPENDIX C

[Filed Jun. 19, 1996]

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 95-50161

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff-A ppellee

Vv.

SUBHI ALHADHOOD, Captain; AL Bousui, Captain;

MuSsTASA IBRAHIM, Captain; AHMED ABBAS, Major;

MOHAMMED SAID HASSAN, Major; MOHAMMED SAEED,

Sergeant; ABDULLAH AL-SHAMSI, Sergeant, ALY SALEM

SreF, Sergeant; MOHAMMED SAEED, Private; ABDUL-

LATEAF, Private; KHLFAN, Private; KHALED, Private;

ABDULLAH ABDUL ALHAMMADI; SALEH ALMANSOUR;

JEHAD HASSAN; AYAD HASSAN; MOHAMMED BAKRAD;

KOTYBAH AZUAR; MEDHAT JASSIM ALSOORI; SAEED

SALEM AL BAAD; MOHAMMED ALISALEH ALAKAR;

SALEM ALKAABI; ANGELOS PAPPAS; MOHAMMED ALI;

HussAN SAYED HASHEM,

Defendants

and

THE MINISTRY OF DEFENSE OF THE UNITED ARAB

EMIRATES; STATE OF THE UNITED ARAB EMIRATES,

Defendants-A ppellants

Appeal from the United States District Court

for the Western District of Texas, El] Paso

19a

ON SUGGESTION FOR REHEARING EN BANC

(June 19, 1996)

Before HIGGINBOTHAM, EMILIO M. GARZA and

BENAVIDES, Circuit Judges. PER CURIAM:

(“) Treating the Suggestion for Rehearing En Banc as

a Petition for Panel Rehearing, the Petition for Panel Re-

hearing is DENIED. No member of the panel nor judge

in regular active service of the court having requested that

the court be polled on Rehearing En Banc (FRAP and

Local Rule 35), the Suggestion for Rehearing En Banc

is DENIED.

ENTERED FOR THE COURT:

/s/ [Illegible]

United States Circuit Judge

20a

APPENDIX D

[Filed Aug. 2, 1993]

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

No. EP-89-CA-164H

MCI TELECOMMUNICATIONS CORPORATION,

” Plaintiff,

CAPTAIN ALHADHOOD, et al.,

Defendants.

AFFIDAVIT

DISTRICT OF COLUMBIA ) SS.

JOHN M. SCORCE, being duly sworn, deposes and

says:

1. I am Director of International Regulatory Affairs for

Plaintiff MCI Telecommunications Corporation (“MCT”).

My office is located at 1801 Pennsylvania Avenue, N.W.,

Washington, D.C. 20006. The facts that I attest to herein

are made upon my personal knowledge and, if called to

testify as to these facts in a court of law, I could and

would be able to testify competently as to these facts.

2. I submit this Affidavit in support of MCI’s Opposi-

tion to the Motion of Defendant The United Arab Emi-

rates (“UAE”) To Vacate Default Judgments in the

above-captioned action.

3. After MCI discovered that the perpetrators of the

unauthorized telephone calls were members of the Student

Battalion, Air Defense Command, UAE (“Student Bat-

talion”) at Fort Bliss, Texas, I was asked by MCI Assist-

ant General Counsel John A. Fraser to attempt to deal

with this matter on a diplomatic level. The diplomatic ap-

2la

proach was favored for the following reasons. First, MCI

was concerned because the social and military rank of

some of the personnel involved could cause unwanted pub-

licity for the UAE, a nation friendly to the United States.

Second, MCI was concerned that the enforcement of

United States law might disrupt the training schedules for

the Student Battalion, thus involving the Departments of

Justice, State, and Defense and perhaps raising issues of

federal cooperation with Texas officials. Third, the United

States Secret Service, through a high-ranking director, re-

quested that MCI consider a diplomatic approach prior to

any direct law enforcement contact with UAE personnel.

4. On January 6, 1988, Mr. Fraser, Hassan Shatah,

MCI’s Manager for the Middle East and South Asia, and

I met with Mr. Ahmed Salim Al Mokarrab, who then was

Ambassador to the United States for the UAE and Mu-

barak Rashid Al Ghafli, who then was the Military At-

taché at the UAE Embassy, to discuss the matter of the

unauthorized calls by the members of the Student Batta-

lion. The meeting was held at the UAE Embassy at 600

New Hampshire Avenue, N.W., in Washington, D.C.

5. We informed Ambassador Moka‘rab of the losses

and expenses incurred by MCI as a result of the unauth-

orized telephone calls made by the members of the Student

Battalion and of how the calls were made.

6. Contrary to the statement in his Affidavit, Ambas-

sador Mokarrab explicitly told us that if the unauthorized

telephone calls were attributable to the members of the

Student Battalion, the UAE would assume responsibility

for the calls and would pay MCI for such services. At the

same time, Ambassador Mokarrab, contrary to the state-

ments made in his Affidavit, specifically requested that

MCI take no further legal action with respect to this mat-

ter and, instead, that it forward to him information relat-

ing to its investigation and its claim that the unauthorized

calls were placed by officers and enlisted men of the Stu-

dent Battalion. Ambassador Mokarrab did not say at this

22a

meeting, or, at any other time before August 1988, that

the UAE did not hold itself legally responsible to MCI

for the unauthorized telephone calls made by the members

of the Student Battalion.

7. Relying on Ambassador Mokarrab’s representation

at the meeting on January 6, 1988, MCI agreed to for-

bear bringing legal action against the members of the

Student Battalion.

8. On January 12, 1988, I sent Ambassador Mokarrab

a list of the 35 members of the Student Battalion who

made the unauthorized telephone calls and computer

printouts of the call records contained in two volumes.

Each volume of the call records had a “key” taped to its

insider cover and contained tapes that added up the cost

of each unauthorized telephone call.

9. My cover letter submitted with the information dis-

cussed in paragraph 8 above again detailed for Ambassa-

dor Mokarrab the results of MCI’s investigation into the

unauthorized calls. My January 12, 1988 letter with the

list of Student Battalion members attached is attached

hereto as Exhibit 1. Due to their size, the two volumes

ci call records are not attached to Exhibit 1. MCI will

bring these materials to the hearing.

10. On January 18, 1988, Ambassador Mokarrab

called me and told me that he had turned the information

submitted by MCI over to Colonel Mubarak for investi-

gation.

11. On February 25, 1988, Marcel Scheidegger, an

MCI International Senior Manager, and I met with Colo-

nel Mubarak to explain to him MCI’s proof that the mem-

bers of the Student Battalion had made the unauthorized

telephone calls. During this meeting, Colonel Mubarak

requested a written breakdown of the unauthorized tele-

phone calls by destination.

23a

12. Although preparing a written breakdown of the

unauthorized telephone calls by destination was very ex-

pensive and time consuming, MCI prepared the data and

delivered it to Ambassador Mokarrab on June 10, 1988.

The new data was contained in two reports. As requested

by Colonel Mubarak, Report No. | sorted the fraudulent

telephone calls by the telephone number called and Re-

port No. 2 sorted the calls by date. In addition, both

reports contained a listing of the MCI authorization code

used, the date the call was made, the digits dialed, and

the duration of the call in minutes. |

13. While MCI was working with the UAE Embassy

to resolve this matter, the law enforcement authorities

were fully prepared to arrest the members of the Student

Battalion and they were pressuring MCI to make a deci-

sion regarding restitution. Since MCI feared that it might

lose its chance at both restitution and prosecuting the

members of the Student Battalion, MCI pressed for an-

other meeting with Ambassador Mokarrab. However,

Ambassador Mokarrab repeatedly delayed scheduling a

meeting with MCI, purportedly because Colonel Mubarak

was not available.

14. On June 10, 1988, I sent a Ambassador Mokarrab

a letter explaining that due to pressure from law enforce-

ment authorities to prosecute certain members of the Stu-

dent Battalion, MCI was anxious to resolve this matter

quickly. Enclosed with this letter was the data requested

by Colonel Mubarak at the February 25, 1988 meeting

which is discussed in paragraphs 11-12 above. Mr. Scorce’s

June 10, 1988 letter is attached hereto as Exhibit 2. Due

to its large size, the data requested by Colonel Mubarak

is not attached to Mr. Scorce’s letter, MCI will bring this

data to the hearing.

15. Prior to Ambassador Mokarrab’s arrival at the

meeting, Colonel Mubarak stated that MCI had failed to

prove that any individual Student Battalion member made

any of the unauthorized telephone calls. He suggested

that MCI simply send the Student Battalion members bills

24a

for the calls. Finally, Colonel Mubarak stated that he

would not assist MCI due to the lack of proof.

16. When Ambassador Mokarrab arrived at the meet-

ing, he stated that he had never promised MCI any com-

pensation and that MCI’s failure to provide proof that the

members of the Student Battalion made the calls was

“serious.”

17. Mr. Fraser and I again reviewed MCI’s proof

against the list of Student Battalion members which MCI

had provided to the Ambassador in January 1988. After

reviewing the list, Ambassador Mokarrab and Colonel

Mubarak left the room and compared the list with some

other list of UAE personnel. After returning to the room,

Ambassador Mokarrab stated that 10% of the individuals

on MCT’s list were not UAE personnel. When asked to

respond as to the 90% who were UAE personnel, he said

that they had not been prepared for the meeting and that

he wanted to adjourn the meeting for four weeks to review

the situation. Ambassador Mokarrab never disputed that

90% of the individuals on the list were in fact members

of the UAE Student Battalion.

20. In or about August 1988, the UAE informed MCI

that the UAE would not honor its agreement to MCI that

it would assume responsibility for the use of the unauth-

orized codes by the officers and enlisted men of the Stu-

dent Battalion, as previously represented. Ambassador

Mokarrab refused to meet again with MCI to discuss this

matter.

21. By the time that the UAE informed MCI that it

would not honor its agreement to MCT, the officers and

enlisted men of the Student Battalion who had made the

unauthorized telephone calls had been rotated back to the

UAE—where no United States court could obtain per-

sonal jurisdiction over them.

FURTHER AFFIANT SAYETH NOT.

/s/ John M. Scorce

JOHN M. SCORCE

aia iii iii

25a

APPENDIX E

[Filed Jun. 11, 1992]

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

No. EP-89-CA-164H

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff,

Vv.

CAPTAIN ALHADHOOD, ef al...

Defendant.

EX PARTE ORDER OF ATTACHMENT

AND EXECUTION

On January 5, 1990, this Court entered Judgment in

this action in favor of Plaintiff MCI TELECOMMUNI.

CATIONS CORPORATION (“MCIT”) and against De-

fendant UNITED ARAB EMIRATES in the amount of

$1,155,010.39 plus costs of court and post-judgment in-

terests at the prevailing rate from the date of judgment

until paid (“Judgment”). The Judgment provided that

MCIT shall have “all writs of execution and other process

necessary to enforce this judgment.” On May 7, 1990,

the Judgment was properly served upon Defendant

UNITED ARAB EMIRATES pursuant to 28 U.S.C.

§ 1608.

Pursuant to 28 U.S.C. § 1610(c), the Court has deter-

mined that a reasonable period of time has elapsed follow-

ing entry of the Judgment against the UNITED ARAB

EMIRATES and service of the Judgment upon said De-

26a

fendant and that MCIT may therefore attach the property

of the UNITED EMIRATES in the United States in aid

of execution and may execute upon said property in satis-

faction of the Judgment. It is therefore

ORDERED that MCI TELECOMMUNICATIONS

CORPORATION may attach the property of Defend-

ant UNITED ARAB EMIRATES in the United States in

aid of execution to the extent provided for in 28 U.S.C.

§ 1610 and may execute upon said property in order to

satisfy the Judgment.

Dated this 10th day of June, 1992.

/s/ Harry Lee Hudspeth

United States District Judge

27a

APPENDIX F

[Filed Jan. 5, 1990]

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

No. EP-89-CA-164H

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff,

Vv.

CAPTAIN SUBHI ALHADHOOD, et al.,

Defendant.

JUDGMENT AND ORDER

On the Sth day of January, 1990, came on to be heard

the application of Plaintiff MCI TELECOMMUNICA-

TIONS CORPORATION (“MCIT”) for entry of judg-

ment against UNITED ARAB EMIRATES. MCIT had

previously moved for entry of default against UNITED

ARAB EMIRATES and a default was entered by the

clerk of the Court on December 7, 1989. The Court

finds that at a hearing held on October 20, 1989 in sup-

port of MCIT’s Motion for Judgment against the MIN-

ISTRY OF DEFENSE OF THE UNITED ARAB

EMIRATES, MCIT appeared through counsel and pre-

sented both testimonial and documentary evidence as to

the amount of damages it suffered and the expenses it

incurred as a consequence of the conduct of the MIN-

ISTRY OF THE UNITED ARAB EMIRATES. Based

upon the pleadings and official records on file in this

cause, the Court entered judgment against the MIN-

28a

ISTRY OF DEFENSE OF THE UNITED ARAB

EMIRATES and in favor of MCIT in the amount of

$1,155,010.39.

The Court having found that the same testimony and

documentary evidence introduced on October 20, 1989

supports the entry of default against UNITED ARAB

EMIRATES, one of the Defendants herein. It is therefore

ORDERED that judgment be entered against UNITED

ARAB EMIRATES in favor of MCI TELECOMMU-

NICATIONS CORPORATION in the amount of

$1,155,010.39. It is further

ORDERED that Plaintiff be granted judgment for post-

judgment interest at the prevailing rate from date of

judgment until paid and costs of Court. It is further

ORDERED that nothing contained herein shall affect

Plaintiff's causes of action against any of the other De-

fendants named in this cause. It is further

ORDERED that there being no just reason for delay,

this final judgment shall be entered against UNITED

ARAB EMIRATES pursuant to Fed. R. Civ. P. 54(b).

It is further

ORDERED that Plaintiff have all writs of execution

and other process necessary to enforce this judgment.

/s/ Harry Lee Hudspeth

Harry LEE HUDSPETH

United States District Judge

DATED: January 5, 1990

SERPS ARYA, IO es

29a

APPENDIX G

[Filed Aug. 28, 1989]

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

No. EP-89-CA-164H

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff,

Vv.

UNITED ARAB EMIRATES, ef al.,

Defendants.

CLERK’S ENTRY OF DEFAULT

AGAINST THE MINISTRY OF DEFENSE

OF THE UNITED ARAB EMIRATES

AND MEDHAT JASSIM ALSOORI

On the 28th day of August, 1989, came on to be heard

Plaintiff's Motion for Entry of Partial Default Judgment

against The Ministry of Defense of the United Arab

Emirates and Bedhat Jassim Alsoori and Affidavit in

Support. Based upon same as well as my review of the

pleadings in this matter, I find as follows:

1. On May 11, 1989, MCT filed with this Court a

Complaint for Damages against The Ministry of Defense

of the United Arab Emirates, Medhat Jassim Alsoori, and

others.

2. On May 11, 1989, this Court issued a summons to

be served on Defendant Medhat Jassim Alsoori. Said

summons was served on this Defendant on July 11, 1989,

30a

The original summons is and has been made an official

part of the Court’s record in this matter.

3. On May 11, 1989, this Court issued a summons

to be served on Defendant The Ministry of Defense of

the United Arab Emirates pursuant to 28 U.S.C. § 1608

(a)(3). A certified mail receipt was received and re-

turned on May 25, 1989 as is reflected by item 2 on the

Court’s docket sheet in this matter. The original certified

mail receipt is and has been made an official part of the

Court’s record in this matter.

4. Over thirty (30) days have passed since Medhat

Jassim Alsoori was served and over sixty (60) days have

passed since The Ministry of Defense of the United Arab

Emirates and Medhat Jassim Alsoori were served with

the summons or Complaint in this action. Neither has

answered, moved, or otherwise responded to the summons

and Complaints.

Accordingly, MCI is entitled to have a default entered

against Defendants The Ministry of Defense of the United

Arab Emirates and Medhat Jassim Alsoori.

SIGNED AND ENTERED this 28th day of August,

1989.

/s/ William T. [Illegible]

Deputy Clerk of the

United States District Court

for the Western District of

Texas, El] Paso Division

3la

APPENDIX H

[Filed Jan. 11, 1989]

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

EL PASO DIVISION

Civil Action No. EP-89-CA-164

JuRY TRIAL DEMANDED

MCI TELECOMMUNICATIONS CORPORATION,

Plaintiff,

CAPTAIN SUBHI ALHADHOOD, CAPTAIN AL-Bousul, Cap-

TAIN MUSTASA IBRAHIM, MAyor AHMED ABBAS, Ma-

JOR MOHAMMED Salp HASSAN, SERGEANT MOHAMMED

SAEED, SERGEANT ABDULLAH AL-SHAMSI, SERGEANT

ALI SALEM SIEF, PRIVATE MOHAMMED SAEED, PRIVATE

ABDULLATEAF, PRIVATE KHLFAN, PRIVATE KHALED,

ABDULLAH ABDUL ALHAMMaADI, SALEH ALMANSOUR,

JEHAD Hassan, Ayap HASSAN, MOHAMMED BAKRAD,

KOTYBAH AZUAR, MEDHAT JAssIM ALSooRI, SAEED

SALEM AL Baap, MOHAMMED ALISALEH ALAKAR,

SALEM ALKAABI, ANGELOS Pappas, MOHAMMED ALI,

Hussan SAYED HASHEM, THE MINISTRY OF DEFENSE

OF THE UNITED ARAB EMIRATES, STATE OF THE

UNITED ARAB EMIRATES,

COMPLAINT FOR DAMAGES

MCI Telecommunications Corporation (“MCI”), by

and through its counsel of record, complains against the

individual defendants named above, the Ministry of De-

32a

fense of The United Emirates (“Ministry of Defense”)

and the State of the United Arab Emirates (“UAE”)

representing as follows:

INTRODUCTION

1. This is an action for injury suffered by MCI as a

result of the activities of the individual defendants in

their capacity as agents for the Ministry of Defense and

the UAE in conspiring to defraud MCI in connection

with their obtaining long distance telephone service and

converting property of MCI and the refusal of the UAE

to ensure payment of the services incurred as required

under a written agreement entered into between the United

States Department of Defense and the UAE. It is also

an action against the individual defendants, the Ministry

of Defense and the UAE for money damages suffered by

MCI on the basis of services provided to the individual

defendants and for damages suffered by MCI as the result

of representations made by the UAE with respect to the

payment for telephone services improperly obtained by

the individual defendants.

PARTIES

2. MCI is a Delaware corporation organized and exist-

ing under the laws of the state of Delaware with its cor-

porate offices located at 1133 19th Street, N.W., Wash-

ington, D.C. 20036. MCI is duly authorized to do busi-

ness within the state of Texas and at all times pertinent

to the Complaint was conducting business within the

state.

3. Upon information and belief, CAPTAIN SUBHI

ALHADHOOD is an officer in the armed forces of the

UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

4. Upon information and belief, CAPTAIN AL-

BOUSHI is an officer in the armed forces of the UAE

33a

who is or was previously assigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

5. Upon information and belief, CAPTAIN MUS-

TASA IBRAHIM is an officer in the armed forces of the

UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

6. Upon information and belief, MAJOR AHMED

ABBAS is an officer in the armed forces of the UAE who

is or was previously assigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

7. Upon information and belief, MAJOR MOHAM-

MED SAID HASSAN is an officer in the armed forces

of the UAE who is or was previously assigned to the

Student Battalion, Air Defense Command, UAE, at Fort

- Bliss, El Paso, Texas.

8. Upon information and belief, SERGEANT MO-

HAMMED SAEED is a member in the armed forces of

the UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

9. Upon information and belief, SERGEANT AB-

DULLAH AL-SHAMSI is a member in the armed forces

of the UAE who is or was previously assigned to the

Student Battalion, Air Defense Command, UAE at Fort

Bliss, El Paso, Texas.

10. Upon information and belief, SERGEANT ALI

SALEM SIEF is a member of the armed forces of the

UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

11. Upon information and belief, PRIVATE MO-

HAMMED SAEED is a member of the armed forces of

34a

the UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

12. Upon information and belief, PRIVATE ABDUL-

LATEAF is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

13. Upon information and belief, PRIVATE KHLFAN

is a member of the armed forces of the UAE who is or

was previously assigned to the Student Battalion, Air

Defense Command, UAE at Fort Bliss, El Paso, Texas.

14. Upon information and _ belief, PRIVATE

KHALED is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battal-

ion, Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

15. Upon information and belief, ABDULLA ABDUL

ALHAMMADI is a member of the armed forces of the

UAE who is or was previously assigned to the Student

Battalion, Air Defense Command, UAE at Fort Bliss,

El Paso, Texas.

16. Upon information and belief, SALEH ALMAN-

SOUR is a member of the armed forces of the UAE who

is Or was previously assigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

17. Upon information and belief, JEHAD HASSAN

is a member of the armed forces of the UAE who is or

was previously assigned to the Student Battalion, Air

Defense Command, UAE at Fort Bliss, El Paso, Texas.

18. Upon information and belief, AYAD HASSAN

is a member of the armed forces of the UAE who is or

was previously assigned to the Student Battalion, Air

Defense Command, UAE at Fort Bliss, El Paso, Texas.

35a

19. Upon information and belief, MOHAMMED

BAKRAD is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battal-

ion, Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

20. Upon information and belief, KOTYBAH

AZUAR is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battal-

ion, Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

21. Upon information and belief, MEDHAT JASSIM

ALSOORI is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battal-

ion, Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

22. Upon information and belief, SAEED SALEM

AL BAAD is a member of the armed forces of the UAE

- who is or was previously asigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

23. Upon information and belief, MOHAMMED

ALISALEH ALAKAR is a member of the armed forces

of the UAE who is or was previously assigned to the

Student Battalion, Air Defense Command, UAE at Fort

Bliss, El Paso, Texas.

24. Upon information and belief, SALEM ALKAABI

is a member of the armed forces of the UAE who is or

was previously assigned to the Student Battalion, Air

Defense Command, UAE at Fort Bliss, El Paso, Texas.

25. Upon information and belief, ANGELOS PAP-

PAS is a member of the armed forces of the UAE who

is Or was previously assigned to the Student Battalion,

Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

26. Upon information and belief, MOHAMMED ALI

is a member of the armed forces of the UAE who is or

36a

was previously assigned to the Student Battalion, Air De-

fense Command, UAE at Fort Bliss, El Paso, Texas.

27. Upon information and belief, HUSSAN SAYED

HASHEM is a member of the armed forces of the UAE

who is or was previously assigned to the Student Battal-

ion, Air Defense Command, UAE at Fort Bliss, El Paso,

Texas.

28. THE MINISTRY OF DEFENSE is an agency or

instrumentaiity of the UAE. The Student Battalion, Air

Defense Command, UAE is, upon information and belief,

a component of the UAE armed forces under the direct

control of the Ministry of Defense. The Student Battal-

ion, Air Defense Command, UAE is presently located

at Fort Bliss, El Paso, Texas, and the above-referenced

individuals are or have been assigned to the Student Bat-

talion in connection with their status as members of the

armed forces of the UAE.

29. THE UNITED ARAB EMIRATES is a foreign

state which maintains personnel, agencies and instruinen-

talities within the United States.

JURISDICTION

30. This Court has jurisdiction over this action with

respect to the individual defendants pursuant to 28 U.S.C.

§ 1332(a)(2), in that the individual defendants are, upon

information and belief, citizens or subjects of a foreign

state and the amount in dispute exceeds $10,000. This

Court has jurisdiction over the Ministry of Defense and

the UAE pursuant to 28 U.S.C. § 1330(a) in that the

Ministry of Defense is an agency or instrumentality of

the UAE and the UAE is a foreign state which, under

28 U.S.C. § 1605-1607, is not entitled to immunity for

the acts complained of herein.

31. Venue in this Court with respect to the individual

defendants is appropriate pursuant to 28 U.S.C. § 1391

(a) and (d) in that this is the district in which the claims

a ee ee ee en ee mr

37a

arose and, upon information and belief, each of the in-

dividual defendants is an alien. Venue in this Court is

appropriate as to the Ministry of Defense and the UAE

pursuant to 28 U.S.C. § 1391(f)(1), in that this is the

district in which a substantial portion of the events giving

rise to this action occurred.

FACTS COMMON TO ALL COUNTS

32. MCI is engaged in the business of selling long

distance telephone services to the general public. Among

the telephone services which MCI makes available to its

customers is a service known as “MCI Dial-Up Service”.

Customers who subscribe to this service agree to pay a

prescribed rate for telephone calls made by them through

this service and such customers are provided by MCI

with a unique, confidential code number (the “authoriza-

tion code”) which enables them to enter into the system.

33. B entering an authorization code into MCTI’s

cyumputer records through the key-pad of a touch tone

telephone, MCI customers may obtain long distance tele-

phone service to any foreign country throughout the

world and to any area within the United States. Once an

authorization code is activated, charges for long distance

calls made by an authorized customer will be billed by

MCT to that customer’s account.

34. Upon information and belief, beginning in approx-

imately October, 1986, officers and enlisted men of the

Student Battalion, Air Defense Command, UAE (“Stu-

dent Battalion, UAE”) at Fort Bliss, Texas, including the

above named defendants and others, came into possession

of one or more MCI authorization codes without the

knowledge, consent or authorization of MCI (the “un-

authorized codes” ).

35. At or about the same time, the officers and en-

listed men of the Student Battalion, UAE and others came

into possession of a number for a maintenance circuit

within the MCI telephone system without the knowledge,

38a

consent or authorization of MCI (the “unauthorized cir-

cuit”). Because telephone calls made through a mainte-

nance circuit are not charged to a customer of MCI, the

telephone calls made by the officers and enlisted men of

the Student Battalion, UAE and others using the un-

authorized code numbers and entered through the mainte-

nance circuit went undetected for a substantial period of

time.

36. On or about August 17, 1987, MCT first began

to investigate the high level of calling activity through the

maintenance circuit which had been noted by MCI per-

sonnel and which could not be attributed to a particular

customer. In connection with its investigation of a poten-

tial unauthorized use of MCI’s facilities, MCI obtained a

trap trace through Southwestern Bell Telephone Company

which revealed that telephone calls using the unauthorized

codes and unauthorized circuit were being made from

telephones maintained in the names of the individual de-

fendants, other telephones located at the Student Battal-

ion, UAE at Fort Bliss, as well as telephones maintained

by other individuals in the El Paso community. In addi-

tion, as a result of its investigation, MCI was able to

establish that during the period from October, 1986

through March, 1988, more than $1,500,000 in calls

using the unauthorized codes and unauthorized circuit

were placed from the El Paso, Texas area to the UAE

and other overseas locations.

37. Because the unauthorized codes were being utilized

in connection with an unauthorized circuit, the unauthor-

ized telephone activity was not easily detectable and MCI

had no reasonable basis to suspect that its facilities were

being improperly and illegally utilized until it began its

investigation in August of 1987. During the period from

August, 1987 through March, 1988, MCI undertook vari-

ous measures to prevent individuals who had obtained

access to the unauthorized codes from utilizing such codes

in the MCT system.

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39a

38. The officers and enlisted men of the Student Bat-

talion, UAE agreed to and used one or more of the

unauthorized codes and the unauthorized circuit to obtain

long distance telephone services without paying MCI for

the services and with the intent not to pay for these

services.

39. Upon information and belief, the officers and en-

listed men of the Student Battalion, UAE, and others at

various times gave and transferred the unauthorized code

numbers and instructions on their use to other persons,

both known and unknown, who used the unauthorized

code numbers to obtain long distance telephone services

for themselves from MCI without paying for such serv-

ices. Upon information and belief, those same individuals

gave and transferred the unauthorized code numbers and

instructions on their use to other individuals who also

used the unauthorized code numbers to obtain phone

services and/or transferred the unauthorized code num-

bers in a continuing chain of unauthorized use.

40. Each use of one of the unauthorized code num-

bers described above constituted a representation to MCI

by the user that he was a duly authorized user of the

account to which the authorization code was assigned and

that the service obtained from MCI through such an au-

thorization code would be paid. In reliance upon this

implied representation, MCI was induced to provide, with-

out compensation, long distance telephone services for

which it is entitled to receive compensation in an amount

which is yet unknown but which exceeds the minimal

jurisdictional limits of this Court.

41. On September 23, 1986 the UAE entered into a

contract with the United States Department of Defense

for the training of the members of the UAE Armed

Forces (“Agreement”). Note 5 to the Agreement pro-

vided that the UAE would ensure prompt payment of any

personal expenses incurred by its officers and enlisted men

in the United States.

40a

42. The actions by the officers and the enlisted men

of the Student Battalion, UAE in obtaining long distance

phone services through the use of unauthorized access

codes and the UAE’s agreement to ensure payment of

personal expenses incurred by its officers and enlisted

men constitute commercial activity of the Ministry of

Defense and the UAE undertaken by its duly authorized

agents.

43. As a result of the actions of the officers and en-

listed men of the Student Battalion, UAE, MCI has in-

curred, in addition to the cost of the unauthorized

services, additional costs, including, without limitation,

costs for replacement of authorization codes which it

would not have incurred but for the aforementioned

conduct.

COUNT I

CONSPIRACY TO DEFRAUD

44. MCI repeats and realleges the allegations of para-

graphs 1-43 as if specifically set forth herein.

45. The officers and enlisted men of the Student Bat-

talion, UAE, acting in their canacity as agents of the

Ministry of Defense and the UAE, as well as others, con-

spired together to defraud MCI by obtaining and utilizing

access codes for MCI telephone service which they knew

were unauthorized, by making the unauthorized codes

available to other individuals, by concealing their actions

from MCI and by continuing the conspiracy at MCI’s

expense.

46. Defendants and the other persons to whom un-

authorized code numbers were transferred knew that MCI

would not provide the long distance telephone services,

if MCI knew that the telephone services were being ob-

tained through the use of the unauthorized codes and the

unauthorized circuit.

47. Defendants, and the other persons to whom the

unauthorized code numbers were transferred, conspired

4la

to misrepresent and conceal the use of the unauthorized

codes and the unauthorized circuit from MCI in order

to obtain unlawfully long distance telephone services from

MCI without paying MCI for the telephone services.

48. Defendants, and the other persons to whom the

unauthorized code numbers were transferred, continue to

participate in the conspiracy by attempting to conceal the

existence of the conspiracy from MCI.

49. As a direct and proximate result of the conspiracy

and the acts of the individual defendants, MCI has suf-

fered damage for which each of the individual defendants,

the Ministry of Defense and the UAE are jointly and

severally liable to MCI in an amount equal to the cost

of the services provided by MCI.

50. In addition, because defendants knowingly, inten-

tionally and maliciously sought to defraud MCI, MCI is

entitled to recover punitive damages in an amount to be

determined by the trier of fact.

COUNT II

CONSPIRACY TO CONVERT PROPERTY OF MCI

51. MCI repeats and realleges the allegations of para-

graphs 1-50 as if specifically set forth herein.

52. The officers and enlisted men of the Student Bat-

talion, UAE, acting in their Capacity as agents of the

Ministry of Defense and the UAE, conspired together to

unlawfully convert property of MCI by exercising domin-

ion over such property and placing unauthorized calls

through MCT’s long distance telephone system, by conceal-

ing their actions from MCI and by continuing the con-

spiracy at MCI’s expense.

53. Each authorization code is the property of MCI

and MCT is the leasee or owner of certain equipment and

facilities through which the long distance calls were placed

by each individual defendant and each of the other per-

42a

sons to whom the unauthorized code numbers as described

above were transmitted.

54. Each use of the unauthorized code numbers of

MCI equipment and facilities as described above consti-

tuted an unlawful and unauthorized act of dominion over

the property of MCI inconsistent with the rights of MCI.

55. Defendants, and others to whom the unauthorized

codes were transferred, continue to participate in the con-

spiracy to convert property of MCI by attemtping to con-

ceal the existence of the conspiracy from MCI.

56. As a direct and proximate result of the con-

spiracy to convert property of MCI, MCI has suffered

damages for which each individual defendant, the Min-

istry of Defense and the UAE are jointly and severally

liable to MCI in an amount equal to the cost of the serv-

ices provided by MCI.

57. In addition, because defendants knowingly, inten-

tionally and maliciously sought to convert property of

MCI, MCI is entitled to recover punitive damages in an

amount to be determined by the trier of fact.

COUNT Iii

AIDING AND IN ABETTING FRAUD

AND CONVERSION

58. MCI repeats and realleges the allegations of para-

graphs 1-57 as if specifically set forth herein.

59. Having received unauthorized codes, the officers

and enlisted men of the Student Battalion, UAE had ac-

tual knowledge that the codes were unauthorized and that

use of the codes constituted a fraud against MCI and

conversion of its property. By agreeing to and by trans-

ferring the unauthorized code numbers and instructions

on their use to other individuals, both known and un-

known, the individual defendants substantially aided and

abetted these other individuals in defrauding MCI and

converting property belonging to MCI.

43a

60. The individual defendants acted knowingly in

aiding and abetting other individuals to defraud MCI and

to convert its property.

61. MCI was injured as a direct and proximate result

of the defendants’ tortuous activity and MCI has suffered

damages for which each individual defendant, the Min-

istry of Defense and the UAE are jointly and severally

liable to MCI in an amount equal to the cost of the

services provided by MCI.

62. In addition, because defendants knowingly and

intentionally aided and abetted others to defraud MCI

and convert its property, MCI is entitled to recover puni-

tive damages in an amount to be determined by the trier

of fact.

COUNT IV

FRAUD

63. MCI repeats and realleges the allegations set forth

in paragraphs 1-62 as if specifically set forth herein.

64. Each of the individual defendants herein repre-

sented to MCI that he was a duly authorized user of its

authorization codes and that the services obtained from

MCT through such use would be paid.

65. These material representations to MCI were false

when made and were known by the individual defendants

to be false at the time they obtained long distance tele-

phone services through the use of the unauthorized code

numbers.

66. Each individual defendant misrepresented said

material facts to MCI for the specific purpose of induc-

ing MCI to provide long distance telephone services

without paying MCI for the services.

67. MCI reasonably relied upon the material misrep-

resentations of each individual defendant by providing

long distance telephone services to each such defendant.

44a

68. As a direct and proximate result of the material

misrepresentation of each individual defendant, MCI has

suffered damages for which each individual defendant, the

Ministry of Defense and the UAE are jointly and severally

liable to MCI in an amount equal to the cost of the

services provided by MCI.

69. In addition, because defendants knowingly, inten-

tionally and maliciously made such misrepresentations,

MCT is entitled to recover punitive damages in an amount

to be determined by the trier of fact.

COUNT V

CONVERSION

70. MCI repeats and realleges the allegation set forth

in paragraphs 1-69 as if specifically set forth herein.

71. Each authorization code utilized by the individual

defendants is the property of MCI.

72. Each use of the unauthorized codes constituted an

unlawful and unauthorized act of dominion over the prop-

erty of MCI inconsistent with the rights of MCI. As a

result of these activities, each of the individual defendants

has converted and/or misappropriated the property of

MCT to his own use and benefit.

73. As a direct and proximate result of the activities

of the defendants, MCI has suffered damages for which

each individual defendant, the Ministry of Defense and

the UAE are jointly and severally liable to MCI in an

amount equal to the cost of the services provided by MCI.

74. In addition, because defendants acted knowingly,

intentionally and maliciously, MCI is entitled to punitive

damages in an amount to be determined by the trier of

fact.

45a

COUNT VI

QUANTUM MERUIT

75. MCI repeats and realleges the allegations set forth

in paragraphs 1-74 as if specifically set forth herein.

76. During the period from October of 1986 through

March of 1988, MCI provided long distance telephone

Services to each of the individual defendants at the re-

quest of various members of the Student Battalion, UAE,

and each of the officers and enlisted men in their capacity

as agents of the Ministry of Defense and the UAE im-

plicitly agreed to pay MCI the charges lawfully imposed

for services pursuant to tariffs duly filed.

77. During the period from October of 1986 through

March of 1988, the individual defendants, in their capac-

ities as officers and enlisted men of the Student Battalion,

UAE, enjoyed the benefits of long distance telephone

services provided to them by MCI. Each individual de-

fendant, the Ministry of Defense and the UAE has failed

to and refused to pay MCI for the services provided to

the officers and enlisted men of the Student Battalion,

UAE.

78. As a direct result thereof, MCI has suffered dam-

ages for which each individual defendant, the Ministry of

Defense and the UAE is jointly and severally liable to

MCI in an amount equal to the value of the services pro-

vided by MCI.

COUNT VII

MONEY DUE AND OWING

79. MCI repeats and realleges the allegations set forth

in paragraphs 1-78 as if specifically set forth herein.

80. Pursuant to Note 5 of the Agreement between the

UAE and the United States Department of Defense, the

UAE agreed to ensure payment of personal expenses in-

curred by individuals training in the United States under

the Agreement.

46a

81. During the period from October 26, 1986 through

March 1988, the individual defendants, in their capacities

as officers and enlisted men of the Student Battalion, UAE

enjoyed the benefits of long distance telephone service

provided by MCI. Despite demand, the UAE has failed

to ensure payment to MCI for the services provided to the

officers and enlisted men of the Student Battalion, UAE

as represented in the Agreement between the UAE and

the United States Department of Defense.

82. As a direct result thereof, MCI has suffered dam-

ages for which the UAE is liable to MCI in an amount

equal to the value of the services provided by MCI.

COUNT VIII

PROMISSORY ESTOPPEL

83. MCI repeats and realleges the allegations set forth

in paragraphs 1-82 as if specifically set forth herein.

84. MCI having discovered, as a result of its investi-

gation, that the officers and enlisted men of the Student

Battalion, UAE made extensive use of unauthorized codes

to place long distance telephone calls through MCI’s

communications system, MCI in early 1988 sought to

obtain restitution directly from the UAE.

85. In January of 1988, representatives of MCI’s In-

ternational Division met with The Honorable Ahmed

Al-Mokarrab, the UAE Ambassador to the United States.

At this meeting, the Ambassador told the representatives

of MCI that, if the unauthorized telephone calls were

attributable to the members of the Student Battalion,

UAE, the UAE would assume responsibility for the un-

authorized telephone services and pay MCI for such

services. At the same time, the Ambassador requested

that MCI take no further legal action with respect to this

matter and, instead, that it forward to the Ambassador

information relating to its investigation and its claim

RES alg Yar pn re pee 2

47a

that the unauthorized calls were placed by officers and

enlisted men of the Student Battalion, UAE.

86. These representations were reaffirmed by the Am-

bassador and by Colonel Mubarak, the military attache

for the UAE, between January 1988 and June 1988.

87. As a result of the representations made by Am-

bassador Al-Mokarrab and Colonel Mubarak, MCI re-

frained from continuing to pursue its legal rights against

the officers and enlisted men in the Student Battalion,

UAE and the UAE.

88. In July 1988, a further meeting was held be-

tween representatives of MCI and The Honorable Ahmed

Al-Mokarrab and Colonel Mubarak. At this meeting the

Ambassador requested that MCI refrain from taking ac-

tion in the case for another month in order for the

Ambassador to attempt to finally resolve the matter. In

or about August 1988, the UAE informed MCI that the

UAE would not honor its agreement to MCI that it

would assume responsibility for the use of the unau-

thorized codes by the officers and enlisted men of the

Student Battalion, UAE, as previously represented.

89. Having agreed to assume responsibility for and

pay for the unauthorized calls attributable to the officers

and enlisted men of the Student Battalion, UAE, the

UAE is bound by the actions of Ambassador Al-Mokarrab

and Colonel Mubarak, and MCI is entitled to recovery

from the UAE an amount equal to the cost of the services

provided by MCI.

COUNT IX

IMPLIED CONTRACT

90. MCI repeats and realleges the allegations set forth

in paragraphs 1-89 as if specifically set forth herein.

91. Having specifically agreed to assume responsibility

for and to pay for the unauthorized calls attributable

48a

to the officers and enlisted men of the Student Battalion,

UAE, the UAE assumed full responsibility for the unau-

thorized telephone service and MCI is entitled to recover

from the UAE an amount equal to the value of the

services provided by MCI.

WHEREFORE, MCI prays this Court to enter judg-

ment as follows:

A. As to Counts I-VI, MCI demands the follow-

ing relief against each of the individual defendants,

the Ministry of Defense and the UAE jointly and

severally:

1. Money damages in excess of $1,500,000

and in such amount as will be determined at

trial;

2. Punitive damages in an amount to be deter-

mined at trial;

3. Attorney’s fees, pre-judgment interest and

costs;

4. Such other and further relief as this Court

shall deem appropriate and just.

B. As to Counts VII-[IX, MCI demands the fol-

lowing relief against the UAE:

1. Damages in an amount in excess of

$1,500,000 and in such amount as will be

determined at trial; and

2. Attorney’s fees, pre-judgment interest and

costs;

3. Such other and further relief as this Court

shall deem appropriate and just.

49a

Respectfully submitted,

MCI Telecommunications Corporation

LAXALT, WASHINGTON, PERITO & Dusuc

By: /s/ John P. Wintrol

JOHN P. WINTROL

Robert E. Pokusa

1120 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 857-4000

and

ScoTT, HULSE, MARSHALL, FEUILLE,

FINGER & THURMOND, P.C.

By: /s/ Stuart R. Schwartz

STUART R. SCHWARTZ

Texas Commerce Bank Building

11th Floor

201 E. Main Street

El Paso, Texas 79901

(915) 533-2493

50a

JURY DEMAND

Plaintiff demands a trial by jury as to all appropriate

claims and issues.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.