Tubular Inspectors, Inc. v. Petroleos Mexicanos

• Court: Court of Appeals for the Fifth Circuit
• Decided: November 11, 1992
• Docket: 91-6222
• Status: Published

Opinion

United States Court of Appeals,

Fifth Circuit.

Nos. 91–6156, 91–6222.

TUBULAR INSPECTORS, INC., Plaintiff–Appellee,

v.

PETROLEOS MEXICANOS d/b/a Refineria Salina CRUZ OAXACA, Defendant–Appellant.

PETROLEOS MEXICANOS a/k/a Pemex, d/b/a Refineria Salina Cruz Oaxaca, Defendant–Appellant.

Nov. 16, 1992.

Appeals from the United States District Court for the Southern District of Texas.

Before JONES and WIENER, Circuit Judges, and LITTLE, District Judge.1

EDITH H. JONES, Circuit Judge:

This court has had several occasions recently to consider interlocutory appeals of district

court orders denying motions by Mexico's national oil company, Petroleos Mexicanos (Pemex), to

dismiss various actions for lack of subject matter jurisdiction under the Foreign Sovereign Immunities

Act (FSIA), 28 U.S.C. §§ 1330, 1601–11.2 Once again, we are called upon to consider such an

order, and although t he facts of this latest appeal are unrelated to those at issue in our previous

decisions, "the task [of interpreting the FSIA] is no easier now than it has been before." Stena, 923

F.2d at 382. The underlying claims brought against Pemex by an American Company, Tubular

Inspectors, Inc. (Tubular USA), sound in contract and tort law. Besides disputing the applicability

of the "commercial activities" exception to sovereign immunity, see § 1605(a)(2),3 Pemex argues in

1 District Judge of the Western District of Louisiana, sitting by designation. 2 See Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528 (5th Cir.1992); United States v. Moats, 961 F.2d 1198 (5th Cir.1992); and Stena Rederi A.B. v. Comision de Contratos, 923 F.2d 380 (5th Cir.1991). 3 Section 1605 provides in relevant part: the alternative that the district court's exercise of personal jurisdiction over Pemex violates due

process, and that the doctrine of forum non conveniens compels dismissal of the case. Concluding

that the district court erred in finding jurisdiction under the FSIA, we reverse.

I.

BACKGROUND

Tubular USA sued Pemex in federal district court at Corpus Christi, Texas, for breach of

contract and conversion. The disputed transaction began when Pemex agreed to purchase certain

valves from Tubular USA's Mexican subsidiary, Inspectores Tubulares (Tubular Mexico), for one of

Pemex's oil refineries in Oaxaca, Mexico known as the Salina Cruz Refinery. Tubular USA contends

that Pemex contracted to buy a total of 19 valves, yet paid for only 15 of them. Pemex contends that

it presented two non-negotiable cashier's checks for the unpaid balance, payable in pesos to Tubular

Mexico, to two men, Juan Pablo Castilleja and Angel Belmudes Chavez, who claimed to be Tubular

Mexico employees. Tubular USA asserts that Castilleja and Belmudes were not authorized by it or

its Mexican subsidiary to receive the checks in question, adding that it has no idea who these

"employees" were.4

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—

(2) In which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.

28 U.S.C. § 1605(a)(2) (emphasis added). Under the FSIA, foreign states and their agencies and instrumentalities are immune from suit in the courts of the United States except as otherwise provided in the Act. 28 U.S.C. § 1604. A failure to satisfy the statute's exceptions deprives the district court of subject matter jurisdiction. See Walter Fuller Aircraft Sales v. Rep. of Philippines, 965 F.2d 1375 (5th Cir.1992). 4 At this stage of the litigation, the exact circumstances of nonpayment for the valves are not clear. However, the briefs of the parties and the record developed by the district court suggest a conspiracy, possibly involving Pemex officials, to pocket the money that Pemex allegedly paid for the four valves listed in Purchase Order No. 1054. According to Pemex, Castilleja and Belmudes "held themselves out as Tubular Mexico's attorneys-in-fact, acting under a power of attorney ... written on Tubular Mexico's letterhead." The two men managed to cash the checks at Tubular Mexico's bank in Mexico, in violation of Mexican law. They then allegedly used the proceeds to While the parties agree on many of the essential facts, each characterizes the sale differently.

Pemex contends that the transaction arose, occurred and ended in Mexico. The oil company also

insists that it contracted only with Tubular Mexico so as to comply with Mexican law requiring it to

enter into commercial agreements exclusively with companies registered to do business in Mexico.

Pemex paid for all 19 of the valves by issuing non-negotiable checks to Tubular Mexico, payable in

pesos and drawn on, deposited in, and cashed by Mexican banks.

Tubular USA concedes that representatives of Pemex's Salina Cruz Refinery sent written

solicitations to Tubular Mexico in February 1987 for bids on possible sales of the valves. However,

appellee emphasizes that neither it nor Tubular Mexico had any direct contact with Pemex until the

oil company issued three purchase orders, addressed to Tubular Mexico's office in Reynosa,

Tamaulipas, Mexico, in the name of "Tubular Mexico and/or Tubular Inspectors, USA." The three

orders, by which Pemex purported to purchase all 19 valves, included Purchase Order No. 1054.5

All 19 valves were of U.S. origin, and Tubular USA purchased them in the United States. As a

condition of sale, Tubular USA maintains that it required Pemex to accept delivery of the valves in

Houston, with the sale invoiced directly to Pemex. After receiving the three purchase orders, Tubular

USA purchased the specified equipment from U.S. suppliers and notified Pemex of its availability for

inspection and delivery in Houston.6 Invoice No. 4983, prepared by Tubular USA on its letterhead,

covered the four valves listed in Purchase Order No. 1054 and states in Spanish: "These products

have been delivered, received, and accepted in Houston, Texas ... these products will be exported to

Mexico before 8/31/87." Invoice No. 4983 purportedly bears Pemex official Banda's initials.

purchase a money order payable to Jose Montalva Banda, who at the time served as counsel to the assistant for Pemex's central administrative office. Banda is the uncle of Frederico Montalvo Robles, the then general superintendent of the Salina Cruz refinery. According to Pemex, Mexico's Attorney General is now conducting a criminal investigation into the alleged conspiracy. 5 Pemex acknowledges the validity of Purchase Orders No. 1053 and No. 1055 but alleges that No. 1054 is invalid because of an insufficient number of authorized signatures. The parties' dispute over the validity of No. 1054 is irrelevant to our decision. 6 Pemex maintains an office in Houston primarily for the purchase of U.S. equipment needed for its Mexican operations. It is undisputed that Pemex's Houston office never contracted with Tubular USA or otherwise participated in this transaction. According to Tubular USA, the sale was completed on July 13, 1987, when Pemex officials inspected

and purported to accept the valves at a meeting in Houston, Texas.7

Almost contemporaneo usly with these events in Texas, Pemex was nominally following

Mexican law, which mandated its procurement of the valves only from a Mexican supplier and only

after a competitive bidding process. Pemex thus received Tubular Mexico's "bid" for the valves on

August 19 and later bids from other would-be suppliers, even though the Tubular USA valves were

imported to Mexico on August 25.8 A Mexican import/export agent billed $28,000 to "Tubular

Mexico and/or Tubular USA" at Tubular Mexico's address for all customs charges and taxes as of

that date. At the conclusion of the alleged competitive bidding process, Tubular Mexico invoiced

Pemex for the four contested valves in December 1987. Pemex issued its checks in December,

apparently in response to Tubular Mexico's invoice. The checks were made to the order of Tubular

Mexico, nonnegotiable and payable in pesos. Tubular USA contends that neither it nor Tubular

Mexico ever received the $234,000 balance owed by Pemex.

II.

SUBJECT MATTER JURISDICTION

The dist rict court based subject matter jurisdiction over Pemex on the first clause of §

1605(a)(2), which exempts from claims of sovereign immunity actions "based upon a commercial

activity carried on in the United States by the foreign state."9 As defined elsewhere in the FSIA, "

7 According to an affidavit by Robert Gough, Executive Vice President of Tubular USA, Banda, Robles and Miguel Angel Andrade, Engineer and Chief of Maintenance at the Salina Cruz Refinery, met in Houston to discuss the deal. Gough also claims to have met in Corpus Christi with Robles between August 14 and August 17, 1987. Pemex dismisses Gough's affidavit as "conclusory," adding that the affidavit provides no other information about the substance of these meetings. 8 The district court agreed with Tubular USA that the timing of the bidding process was "suspicious," citing "the almost contemporaneous inspection, acceptance, and request for delivery by Pemex in Houston and the subsequent importation of the valves into Mexico, while a national bidding procedure designed to insure the integrity and cost-efficiency of the valve purchased by Pemex was in progress...." 9 Neither party argues to this court subject matter jurisdiction may be based on the other two clauses of § 1605(a)(2), which exempt from sovereign immunity acts performed in the United States by the foreign state in connection with commercial activity elsewhere, as well as extraterritorial acts of the foreign state that have a direct effect on the United States. See e.g., "commercial activity carried on in the United States by a fo reign state' means commercial activity

carried on by such states and having substantial contact with the United States." 28 U.S.C. §

1603(e). Pemex does not dispute that it engaged in commercial activity with Tubular Mexico in this

transaction, but it strenuously disputes that Tubular USA's claims are based upon commercial activity

that occurred in the United States. This court recently held that the jurisdictional nexus requirement

of § 1605(a)(2) mandates not only that Pemex's commercial acts be tied to the United States, but that

they form the basis of Tubular USA's causes of action. Stena, 923 F.2d at 386–88. This "nexus test"

does not require a direct causal relationship between the foreign state's commercial acts and the

plaintiff's lawsuit. Id. at 387. On the other hand, "[i]solated or unrelated commercial actions ... do

not authorize the exception." Arriba, 962 F.2d at 532.10 Such an argument did not impress the

district court, which found substantial contacts between Tubular USA's cause of action and Pemex's

commercial dealings in the United States. The district court wrote:

Although the act of non-payment did not occur in the United States, the goods were ordered from an American company in its name; there was an inspection of those goods in the United States; there was acceptance of those goods in the United States, and a further request for shipment to Mexico; delivery was accomplished as requested; an American invoice was sent by a permissible addressee of the purchase order; and payment may well have not been made. In co nclusion, the Court holds that there is adequate jurisdictional nexus between the

Republic of Argentina v. Weltover, Inc., ––– U.S. ––––, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992). 10 Pemex urges us to abandon the imprecise nexus test that our cases have invoked to construe whether an action is based upon a commercial activity carried on in the United States by the foreign state. See, e.g., Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation, 730 F.2d 195, 200 (5th Cir.1984). Not only is this panel unable to overrule controlling circuit authority, but in this case the "nexus test" has been adopted by other circuits. See Velidora v. L/P/G Benghazi, 653 F.2d 812, 820 (3d Cir.1981); Gould v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 452 (6th Cir.1988); American West Airlines, Inc. v. GPA Group, Ltd., 877 F.2d 793, 796 (9th Cir.1989). But cf. Santos v. Compagnie Nationale Air France, 934 F.2d 890, 892–94 (7th Cir.1991); and Gilson v. Rep. of Ireland, 682 F.2d 1022, 1027 (D.C.Cir.1982). Another good reason for not straying further into this thicket of statutory interpretation and gloss is that the Supreme Court will this term hear argument in a case allegedly decided under the "nexus test." Nelson v. Saudi Arabia, 923 F.2d 1528, 1534 (11th Cir.1991), cert. granted, ––– U.S. ––––, 112 S.Ct. 2937, 119 L.Ed.2d 562 (1992). In Nelson, the plaintiff was recruited by an advertisement to work in a Saudi-owned hospital in Saudi Arabia. While there, he reported safety violations and was, in retaliation, held prisoner, tortured and beaten. Back in the U.S., he sued Saudi Arabia, the hospital and its government-owned purchasing agent. The Eleventh Circuit found a "nexus" between Saudi Arabia's commercial activity of advertising in this country and Nelson's detention and torture, which were "based upon" his being hired here. 923 F.2d at 1536. commercial activity and plaintiff's complaint.

It is our duty to review the district court's conclusions about sovereign immunity de novo. Walter

Fuller, 965 F.2d at 1383.11 Based on the uncertain status of Pemex's Purchase Order No. 1054, the

fact that "acceptance" and delivery of the valves to Mexico strangely preceded Pemex's formal bid

procedure, and the parallel invoices issued by Tubular USA and Tubular Mexico, there is plainly

room for legitimate disagreement as to (1) whether Pemex's purchase transaction amounted to

commercial activity carried on in the United States, and (2) whether Tubular USA's claim was "based

upon" that activity. Having considered the matter carefully, however, we must disagree for several

reasons with the district court's characterization of the transaction, and with its conclusion that FSIA

jurisdiction exists.

First, the district court made too much of the fact that Pemex addressed its order to Tubular

Mexico "and/or" Tubular USA. All of the sales documentation was in Spanish, all of it was addressed

to Tubular Mexico's Reynosa address, and Pemex only sent representatives to Houston when

specifically asked to do so by Tubular USA. Pemex's efforts to comply with the letter (if not the

spirit) of Mexican law, by purchasing through a Mexican supply company and seeking competitive

bids, and by making payment to the Mexican company in pesos in Mexico, should not lightly be

disregarded. That Tubular Mexico and Tubular USA were joint addressees is not inconsistent with

Pemex's attempt to craft a Mexican transaction.

Second, the district court misperceived the significance of Pemex's inspection and acceptance

of the valves in the United States. While it made some sense for Pemex officials to verify before

shipment to Mexico that $234,000 in industrial valves conformed to their specifications, it was clearly

imperative for Tubular USA to gain Pemex's early approval. Tubular USA did not want to ri sk

sending its valuable property to Mexico only to have it held up t here for nonconformity with the

contract. "Acceptance" by Pemex in this context meant only that the goods met the purchaser's

11 Once it was argued that Pemex is a "foreign state," see Stena, 923 F.2d at 386 n. 7, Tubular USA had to produce some facts to show that the commercial activity exception to immunity applies. Arriba, 962 F.2d at 533. Nonetheless, Pemex "retains the ultimate burden of proof on immunity." Id. See also Forsythe v. Saudi Arabian Airlines Corp., 885 F.2d 285, 289 n. 6 (5th Cir.1989). technical requirements. Acceptance did not connote, as t he district court may have believed, that

Tubular had completed performance or was free of subsequent claims. Our conclusion is borne out

by Tubular Mexico's or Tubular USA's having been responsible for paying the customs agent and for

"nationalizing" the valves by importation to Tubular Mexico's home town of Reynosa. Tubular

clearly continued to have responsibility for the valves until they were delivered to the Salina Cruz

refinery.

Third, invoices for the valves represented in Purchase Order No. 1054 were sent both by

Tubular USA and Tubular Mexico to Pemex, and payment was not made until after Tubular Mexico

had submitted invoices, which occurred several months after Tubular USA sent its invoices. Further,

the Pemex payments conformed to the 50% "advance"/50% "completion" mode requested only by

Tubular Mexico, and they were directed to Tubular Mexico through its Mexican banks. The

inescapable inference from this sequence of events, corroborated by the way in which Pemex paid for

valves covered by Purchase Orders No. 1053 and 1055 in the face of similar duplicate invoices, is that

Pemex intended to and did pay Tubular Mexico.

Fourth, not only is the jurisdictional nexus between Pemex's commercial activity and the

United States insubstantial, but, as the district court acknowledged, there is no direct nexus between

Pemex's meetings in this country and the breach of contract or conversion claims. Two mysterious

Mexican individuals walked off with the proceeds of Pemex checks that only Tubular Mexico should

have been permitted to cash and then only at its bank in Mexico. We do not hold that by itself, the

occurrence on foreign soil of a cause of action arising from a sovereign's commercial activity in this

country precludes domestic jurisdiction under the first clause of § 1605(a)(2). The contrary would

often be true. See Santos v. Compagnie Nationale Air France, 934 F.2d 890, 892–94 (7th Cir.1991).

Here, however, the check was not even payable to an American entity, and the circumstances of its

disappearance easily raise suspicions beyond simple malfeasance by Pemex.

While "[a] single contract or course of dealing execut ed within this nation's boundaries

typically will constitute commercial activity carried on in the United States," Stena, 923 F.2d at 389

n. 11, and while this case presents a closer FSIA jurisdictional issue than others we have recently decided,12 we conclude that Pemex's contacts with Tubular USA in Texas were sufficiently isolated

to deny subject matter jurisdiction. Pemex purposefully structured the transaction to anchor it in

Mexico. Tubular USA deliberately created Tubular Mexico to facilitate compliance by Mexican

entities like Pemex with Mexican law that required them to purchase from "local" concerns. Tubular

USA's intervention was not sought by Pemex, which continued to deal directly only with Tubular's

Mexican affiliate. The acts that form the basis of appellee's cause of action for non-payment did not

occur in the United States. See Stena, 923 F.2d at 387–88. This result prevents Tubular USA from

jurisdictionally having its cake and eating it, by doing business through a Mexican subsidiary as

Mexican law requires but seeking to avoid the consequences of that choice when it comes time to sue

for the purchase price of the valves.13

III.

CONCLUSION

Pemex has also moved to dismiss on the grounds that the exercise o f personal jurisdiction

over it by the district court would violate due process. In light of the foregoing discussion, we need

12 In Arriba, supra, the plaintiff, a Bahamian corporation that had allegedly contracted with Pemex's labor union to purchase the company's residual oil, failed to allege any commercial activities in the United States, related to the agreement, by or on behalf of Pemex. 962 F.2d at 534. Indeed, the agreement at issue in Arriba was deliberately structured by the parties to avoid any direct dealings between Arriba and Pemex; and Pemex was never a party to it. In United States v. Moats, supra, the court noted that the original agreement between the parties consisted of a series of Pemex activities performed in the United States, including contracts to purchase U.S.-made steel and inspection trips by Pemex representatives to Pennsylvania prior to shipment. However, the disputed Moats litigation arose not from these original contracts, but from the alleged breach of a settlement agreement later executed in Mexico. Because that agreement "functioned as a new contract between the parties," Moats concluded that the plaintiff could not demonstrate the required material connection between its cause of action and Pemex's commercial activities in the United States. 961 F.2d at 1206. Finally, Stena, heavily relied upon by both parties for its statement of the governing legal principles, is inapposite on the facts. Pemex was not directly connected to the dispute between a Mexican shipping company and a Swedish supplier to the company. 923 F.2d at 389. 13 In Santos, supra, the Seventh Circuit, in discussing this clause of § 1605(a)(2), noted that if a U.S. citizen purchased an airline ticket outside this country, the fact that he was a U.S. citizen does not confer jurisdiction. 934 F.2d at 894. Similarly, in this case, we have concluded that Tubular USA cannot find jurisdiction on its citizenship plus one visit of Pemex officials, where it organized a Mexican entity specifically to do business in Mexico and the contract was structured as between two Mexican companies. not address that question14 nor do we decide the applicability of the forum non conveniens doctrine.

The judgment of the district court is REVERSED with instructions to DISMISS with

prejudice.

.....

14 The Supreme Court has reserved deciding whether a foreign sovereign may be a "person" under the Fifth Amendment's due process clause. Republic of Argentina v. Weltover, Inc., ––– U.S. at ––––, 112 S.Ct. at 2169.