Community Finance Group, Inc., et al. (CFG) v. Republic of Kenya, et al., Civil No. 10-838 (DSD/JJG) (D. Minn. 2011), presents an issue in international litigation that arises when a U.S. person or entity does business with a non-U.S. sovereign.  CFG sought to purchase gold from Kenya.  Funds were wired for the gold, the funds were certified, but the gold was not delivered in the time required.  CFG brought suit against Kenya et al. in the District of Minnesota.  CFG alleged breach of duty, improper taking, conversion, conspiracy to commit a tort, aiding and abetting, and unjust enrichment.

The business transaction was either not papered or was papered without a waiver of sovereign immunity.  Nor, apparently, did the governing documentation define or delimit what Kenya’s duties were and the extent to which the conduct of the sovereign was commercial or sovereign in nature.

The Court decided the motion on subject matter grounds, Fed. R. Civ. R. 12(h)(3) and believed it was obliged to dismiss the action under the Foreign Sovereign Immunities Act, 28 U.S.C. secs. 1602-1611.  The only way a non-U.S. sovereign can be sued in the U.S. is through an exception to the FSIA.  The only potentially applicable exception was the commercial exception; the FSIA provides that a non-U.S. entity is not immune from suit if the cause of action is based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States”.  A “commercial activity” is defined in the FSIA to mean “a regular course of commercial conduct or a particular commercial transaction or act”. 

The difficulty here is that, though the transaction was clearly commercial in nature, the grounds for non-performance included alleged failure to investigate the legitimacy of the transaction, securing the gold stored  by Customs, failure to investigate the criminal activity of the alleged wrongdoers, and failure to turn over the gold or resititute the funds seized from the alleged wrongdoers.  These acts, said the Court, were not commercial activity but were exercises of the “sovereign power”.  The commericial activity exception, therefore, didn’t apply, and the court lacked subject matter jurisdiction over the claims.

Could a contract or corporate lawyer or draftmen altered the result here?