Community Finance Group, Inc., et al. v. Republic of Kenya, et al., No. 11-1816 (8th Cir. 2011), decided an FSIA case with practical implications for international dispute resolution practitioners. 

The transaction involved the purchase and release of gold from Kenya.  CFG paid, but there was no delivery, allegedly on the basis that there was more than gold in the shipment (diamonds).  There then ensued a series of statements from the Kenyan police.  The consignment was never released — but nor were the funds returned.

The Eight Circuit addressed the issue as one of subject matter jurisdiction.  The Court looked first at the commercial activity exception but found it inapplicable.  Since the allegations of the complaint alleged actions such as failure to investigate, failure to secure the gold, and failure to return funds, the District Court and the Court of Appeals found that there was no commercial activity exception; “[t]he decisions regarding whether or how too investigate an allegedly fraudulent commercial transaction between private parties, regulate exports, enforce criminal laws, and seize property during criminal investigations are governmental rather than commercial activities”.  The Court of Appeals did not address the question directly of the refusal to return the funds, which, allegedly, the defendants had, having seized it from the alleged wrongdoers.   So the alleged wrongdoers no longer had the funds; defendants did.  Where were the plaintiffs going to get the funds if not from the Defendants, who, based on allegations that were being accepted as true, were involved in the transaction and aftermath. (The plaintiffs said that the wrongdoer was not an agent of the Kenyan government but also alleges that the Kenyan police were involved.)

The Court of Appeals further ruled that the tort exception to the FSIA was inapplicable.  It covers “‘only torts occurring within the territorial jurisdiction of the United States’, regardless of whether the alleged tor ‘may have had effects in the United States’”.  Assuming the plaintiffs were U.S. entities, that the funds came from the U.S., and that the loss was suffered in the U.S., is there an argument that the tort occurred here?

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