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CRIMSON SEMICONDUCTOR, INC. v. ELECTRONUM

January 29, 1986

CRIMSON SEMICONDUCTOR, INC., Plaintiff
v.
ELECTRONUM, Defendant.



The opinion of the court was delivered by: CARTER

CARTER, District Judge

Plaintiff Crimson Semiconductor, Inc. ("Crimson"), a New York corporation, brought suit against Electronum, a Romanian state-owned trading company, asserting two claims of breach of contract. The defendant has moved to amend its answer and to dismiss the complaint, claiming sovereign immunity under the Foreign Sovereign Immunities Act ("FSIA" or "the Act"), Pub. L. 94-583, 90 Stat. 2891, codified at 28 U.S.C.§§ 1330, 1332(a)(2)-(4), 1391(f), 1441(d) and 1602- 1611, lack of personal jurisdiction, and forum non conveniens. Electronum also argues that the second count is barred by Uniform Commercial Code § 2-725, which establishes a four year statute of limitations for breaches of contracts for the sale of goods. *fn1"

 BACKGROUND

 Crimson buys and Electronum sells electronic components. The exhibits demonstrate that the two companies did business frequently, if acrimoniously, between 1972 and 1983. They communicated mostly by letter and telex. Electronum has no office or representative in the United States. However, representatives of Electronum did meet with plaintiff in New York several times. See Ross and Hummel Affidavits, Exhibits 42, 44-46 (February 22, 1985) (hereinafter designated as "Exhibit "). There is evidence that, at least during the pendency of this lawsuit, Electronum advertised its products in an American electronics trade publication. See Exhibits 34-37. There is also evidence that officials at Romania's consulate in New York sought to promote and facilitate trade between Crimson and Electronum. See Exhibits 43 & 47.

 The events underlying Count Two of the complaint, chronologically prior to Count One, are as follow. On February 2, 1977, Crimson and Electronum signed a "Memorandum of Understanding" whose terms provided that, for a six-month period, Crimson would explore the United States market for Electronum products. After these six months expired, the memorandum provided that Crimson and Electronum would "negotiate and conclude" a distributorship agreement if Crimson succeeded in generating $2 million in American orders for Electronum in 1977. See Exhibit 31. Negotiations did continue, in part at meetings in New York, but no general distributorship agreement ensued. In January, 1978, Crimson placed orders with Electronum for a component called "2N404A." Crimson had already signed contracts to supply these components to its American customers. Electronum agreed to "protect" Crimson as to future reorders from these customers, and to pay a five per cent commission to Crimson. See Exhibit 32. Crimson established a letter of credit for these orders. Many telexes crossed the Atlantic the orders were altered several times; the letters of credit were amended and extended. On November 10, 1978, Electronum wrote that it could not ship the components to Crimson on account of unnamed "problems." On December 11, 1978, Crimson notified Electronum that it had learned that Electronum had shipped 2N404A components to one of Crimson's customers.

 Almost five years later -- on August 30, 1983 -- Crimson ordered 125,00 pieces of an integrated circuit called "IC 7406" from Electronum, and opened an irrevocable letter of credit through Barclay's Bank of New York to Manufacturer's Hanover Trust Company of New York. On September 6, 1983, Electronum confirmed the order and noted that the letter of credit was to be payable through the Romanian Bank of Foreign Trade in Bucharest. Again, telexes were wired back and forth: conditions of sale were altered; shipping dates changed; letters of credit amended and extended. As before, Electronum failed to ship the components to Crimson. On October 31, 1983, Crimson told Electronum that it considered their contract breached. This lawsuit was filed five months later, on March 23, 1984.

 DISCUSSION

 I. Jurisdiction

 Subject-matter jurisdiction of this court is governed by the FSIA. That statute immunizes -- subject to certain exceptions -- foreign states and their agencies or instrumentalities from suit in both federal and state court. 28 U.S.C § 1604. If the case falls within one of the Act's exceptions, the court has subject-matter jurisdiction. That power plus adequate service of process yields statutory personal jurisdiction. 28 U.S.C § 1330. However, this court's inquiry into personal jurisdiction does not end when the statutory requirements are satisfied. We must continue to scrutinize the defendant's contacts with the forum to assure that they meet the Fifth Amendment's guarantee of due process of law, articulated in terms of "fair play and substantial justice." International Shoe v. Washington, 326 U.S.310, 90 L. Ed. 95, 66 S. Ct. 154 (1945). *fn2"

 Both parties concede that Electronum is an "agency or instrumentality" of Romania within the meaning of the Act. 28 U.S.C. § 1603(b). The FSIA grants Electronum sovereign immunity unless the plaintiff can show that the cause of action falls within one of the Act's exceptions. The sole relevant exception is that for a sovereign's commercial acts. 28 U.S.C. § 1605(a)(2). That subsection allows subject matter jurisdiction where the action is:

 based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] 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). Interpretation of this section presents the court with a mythic quest to find one of three incorporeal beings within the borders of the United States: commercial activity *fn3" , an act connected with that activity, or the act's direct effect. Once one of these is located in the United States, there is an adequate nexus between the cause of action and this country on which to base jurisdiction.

 Where the plaintiff is a United States corporation, the task of statutory interpretation is facilitated by the breadth that courts have given to the "direct effect" clause of § 1605(a)(2), In Carey v. National Oil Corp., 592 F.2d 673 (2d Cir. 1979) (per curiam), the Second Circuit held that a direct effect can arise from a breach of a contract as well as from a tort. In Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir. 1981), cert. denied, 454 U.S. 1148, 71 L. Ed. 2d 301, 102 S. Ct. 1012 (1982), the Second Circuit expanded this reading further and held that any failure to pay an American corporation in the United States creates a direct effect "in" the United States. Similarly, in Schmidt v. Polish People's Republic, 579 F. Supp. 23 (S.D.N.Y. 1984) (Carter, J.), aff'd, 742 F.2d 67 (2d Cir. 1985), this court held that there was a direct effect in the United States where an American corporation was the beneficiary of a contract payable in the United States.

 For the purpose of determining the applicability of § 1605(a)(2), we assume that the acts on which these claims are based -- defendant's failure to ship components to Crimson -- took place wholly outside the United States. *fn4" We also assume that the commercial activity connected with this act -- the sale of electronic components -- took place wholly outside the United States. *fn5" Nonetheless, this case falls within § 1605(a)(2) because the breach had a "direct effect" in the United States, namely, a financial loss suffered by the beneficiary of the contract, a New York corporation. *fn6" It is of no significance that the American contract beneficiary here was the buyer, and not the seller as in Texas Trading and Schmidt. Delivery was to have been made in the United States. The loss to plaintiff -- ...


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