In a case arising against the backdrop of the emergence of the Chavez regime in Venezuela, the Sixth Circuit panel reviewing an appeal by the Republic of Venezuela split 2 to 1 in favor of finding that Venezuela was not immune from the district court’s jurisdiction to consider a lawsuit by a private U.S. party demanding payment on promissory notes.  In DRFP LLC v. Republica Bolivariana de Venezuela (Case Nos. 09-3424 & 09-3725) (PDF), writing for himself and Judge Kethledge, Judge Ryan found that, because of the “commercial activity exception” of the Foreign Sovereign Immunities Act (“FSIA”), Venezuela was unable to claim sovereign immunity.  In dissent, Judge Martin argued that the “commercial activity exception” was inapplicable to the facts.  All three judges were unanimous, however, in the decision to remand for reevaluation of whether the doctrine of forum non conveniens would apply.  This case is certainly a significant explication of the law on forum non conveniens and sovereign immunity in the Sixth Circuit.

The underlying dispute involved the alleged issuance in 1981 of no-coupon bearer promissory notes by a state-owned bank in Venezuela, where payment on the notes was guaranteed by the government of Venezuela.  After the notes matured in 1999, a Panamanian company acquired two of the notes, each in the amount of $50 million, and demanded payment from Venezuela in 2001.  In 2003, the Venezuelan Attorney General issued an opinion declaring that the notes were valid, but then a few weeks later retracted this opinion.  Based on the earlier opinion, the plaintiff, an Ohio company doing business as Skye Ventures, obtained the two promissory notes from the Panamanian company and demanded payment from Venezuela.  When Venezuela refused to honor the notes, claiming that they were forgeries, Skye filed suit to collect in the district court for the Southern District of Ohio.  In 2005, Venezuela moved to dismiss on two grounds: 1) lack of jurisdiction due to sovereign immunity, and 2) forum non conveniens.  In early 2009, the district court denied Venezuela’s motion to dismiss, holding that Venezuela did not enjoy sovereign immunity because of the “commercial activity exception” of the FSIA and also that the doctrine of forum non conveniens did not apply.

On appeal, the majority affirmed the district court’s application of the “commercial activity exception,” which provides an exemption from sovereign immunity where the lawsuit is based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” 28 U.S.C. § 1605(a)(2).  Since both parties agreed that the promissory notes involved “commercial activity,” the dispute was over whether such activity “cause[d] a direct effect in the United States.”  Because the notes stated that their terms were governed by the law of Switzerland and the regulations of the International Chamber of Commerce (“ICC”), the majority relied on affidavits by experts on Swiss law and the ICC, which suggested that the bearer of the notes was empowered to sue for collection in the jurisdiction of his choice, including the United States. Based on that, because the plaintiff had a right to collect in Ohio, failure of Venezuela to remit payment had a direct effect in the United States.  Judge Martin disagreed.  He found “incredible” the proposition that the absence of language in the promissory notes stating where they could be paid should be taken as a waiver of sovereign immunity by Venezuela “in every country in the world in which a noteholder could take the notes and find a bank to act as its proxy.”  Thus, Judge Martin found no direct effect on the United States as a result of a foreign act; rather, he found any effect on the United States was caused by the plaintiff’s choice to choose an American bank from which to seek payment.

The entire panel agreed, however, that the district court erred in its forum non conveniens analysis. The district court rejected application of forum non conveniens because it found that the plaintiff lacked an “available and adequate alternative forum,” as required by the doctrine.  Its rationale was that a 2007 decision by the Venezuelan Supreme Court — in which that court interpreted the Venezuelan Attorney General’s earlier opinions and found them non-binding — had eviscerated the plaintiff’s estoppel argument and had “‘effectively decided the issue of the Notes’ validity against the Plaintiff in the present case.'”  The panel disagreed, finding that the district court had “read too much into the Venezuelan Supreme Court decision.”  The panel was not convinced that the Venezuelan court had gutted the plaintiff’s estoppel theory, but it stated that, even if the plaintiff’s argument had been gutted, “such a ruling would weaken Skye’s case in Venezuela, but that is not the same as denying Skye the right to litigate the subject matter of the dispute.”  Finding this decision erroneous, the Sixth Circuit remanded to the district court to complete the second half of forum non conveniens analysis, which involves the balancing of private and public interests.