United States District Court, Southern District of New York
January 16, 1990
MARATHON INTERNATIONAL PETROLEUM SUPPLY CO., PLAINTIFF,
I.T.I. SHIPPING, S.A., IN PERSONAM, M/T RUTH M, HER ENGINES, TACKLE, APPAREL, ETC., IN REM, AND SAYBOLT DE MEXICO, S.A., IN PERSONAM, DEFENDANTS. I.T.I. SHIPPING, S.A., IN PERSONAM, M/T RUTH M., HER ENGINES, TACKLE, APPAREL, ETC., IN REM, AND SAYBOLT DE MEXICO, S.A., IN PERSONAM, DEFENDANTS AND THIRD-PARTY PLAINTIFFS, V. PETROLEOS MEXICANOS, THIRD-PARTY DEFENDANT.
The opinion of the court was delivered by: Sweet, District Judge.
Third-party defendant Petroleos Mexicanos ("Pemex"), brings
this action to dismiss the Third-Party Complaint of defendant
and third-party plaintiff, I.T.I. Shipping, S.A. ("I.T.I.") for
lack of jurisdiction to adjudicate*fn1 and personal
jurisdiction over Pemex under the Foreign Sovereign Immunities
Act of 1976 ("FSIA"). 28 U.S.C. § 1602 et seq. For the reasons
set forth below, the motion is granted.
Pemex is a decentralized agency of the Mexican government
charged with the exploration and development of Mexico's
petroleum resources. It is a separate legal person having been
created in 1938 by Special Decree of the Mexican Congress. It
is not privately owned and has no shares of stock. Pemex is a
"foreign state" within the definition of 28 U.S.C. § 1603(a)-(b)
of the FSIA.
I.T.I. is a foreign corporate entity with a United States
office and place of business at 1144 Avenue of the Americas,
New York, New York, and is the registered owner of the M/T
Saybolt de Mexico ("Saybolt") is a corporate entity existing
under the laws of Mexico, with an office and principal place of
business in Coatzacoalos, Mexico.
Marathon International Petroleum Supply Co. ("Marathon"), is
the plaintiff in the underlying cause of action and a United
On July 1, 1981, Marathon and Pemex entered into a contract
for the sale of Maya crude oil. The contract was negotiated and
signed in Mexico. The oil was to be loaded onto vessels
nominated by Marathon at one of three Mexican ports. Under the
contract, it was agreed that the base, sediment, and water ("BS
& W") contained in the crude oil would be deducted from the
total price. Title to the crude oil and risk of loss passed to
the buyer at the time the oil passed the flange connection
between the delivery hose and the vessel's cargo intake at the
loading port in Mexico. The crude oil was to be tested for BS
& W content at the loading port in Mexico. There was a Mexican
choice-of-law provision in the contract. In the event of a
dispute, the contract contained an arbitration clause which
provided for arbitration before the International Chamber of
Commerce in Paris.
A wholly-owned subsidiary of Marathon, Hancock Shipping
Company, Ltd., entered into a tanker voyage charter party of
the M/T "Ruth M" with I.T.I. to transport and deliver the cargo
of oil purchased from Pemex from a Mexican East Coast port to
a United States port.
Marathon retained Saybolt to sample and analyze the purchased
crude oil to ensure that the BS & W content was deducted from
the total price of the crude oil loaded on the Ruth M. Prior to
departure of the Ruth M from Mexico, Saybolt conducted its
analysis of the crude oil and advised Marathon that the BS & W
content constituted 0.10% of the total amount of crude oil
provided by Pemex. Upon the arrival and discharge of the cargo
in the Louisiana Offshore Oil Port, a loss of 12,438 barrels of
crude oil and a corresponding increase of 12,605 barrels in
free water was noted by Marathon.
Marathon alleges damages for cargo loss. The basis for
Marathon's suit is the failure of I.T.I. and the Ruth M to
deliver the crude oil in the same good order as it was
delivered at the port of shipment and the alleged negligence of
Saybolt resulting in the inaccurate measurement and
under-reporting of the BS & W content of the crude oil. I.T.I.
contends that the only evidence as to the source of the alleged
free water is that it originated from Pemex's shore facility at
Rabon Grande, Mexico and that Pemex furnished free water rather
than Maya crude oil to Marathon during the loading of the M/T
I.T.I. has impleaded Pemex alleging that any loss in cargo
sustained by Marathon is solely the result of negligence,
breach of express and implied warranties, and breach of
contract by Pemex. Marathon, however, has not commenced an
action against Pemex or commenced arbitration against Pemex
pursuant to the terms of the crude oil supply contract. I.T.I.
contends that Pemex is an indispensable party to this action
and should Pemex's motion to dismiss be granted, then
Marathon's complaint should be dismissed under Rule 19 of the
Federal Rules of Civil Procedure for lack of an indispensable
Pemex's contacts with the United States consist of: (1) a
listing of an office and telephone number on page 1214 of New
York Telephone's Official White Pages for Manhattan 1988-1989;
(2) advertisements in 1989 in the Journal of Commerce published
in New York; (3) An office and telephone number at 3600 South
Gessner, Suite 100, Houston, Texas 77063.
Federal Sovereign Immunities Act
The FSIA provides the exclusive basis for asserting
jurisdiction over a foreign state in a United States court.
Argentine Republic v. Amerada Hess Shipping Corp., ___ U.S.
___, 109 S.Ct. 683, 684, 102 L.Ed.2d 818 (1989). Pemex, as a
decentralized agency of the Mexican Government, is within the
definition of a "foreign State" under the FSIA. 28 U.S.C. § 1603(a)
The FSIA is structured to integrate the three issues of
sovereign immunity, personal jurisdiction, and jurisdiction to
adjudicate in all actions against foreign states. Under
28 U.S.C. § 1330(a), federal district courts have jurisdiction to
adjudicate over an action against a foreign state only when
that foreign state is not entitled to jurisdictional immunity
under 28 U.S.C. § 1604-1607. Personal jurisdiction likewise is
incorporated in the immunity provisions by 28 U.S.C. § 1330(b),
which provides that personal jurisdiction can exist only if
jurisdiction to adjudicate exists under § 1330(a) and process
is served in accordance with the exclusive service provisions
of 28 U.S.C. § 1608. Consequently, the claims against Pemex
must be dismissed for lack of jurisdiction to adjudicate and
personal jurisdiction if Pemex is entitled to jurisdictional
In 28 U.S.C. § 1604, Congress provided that all foreign
states are "immune from the jurisdiction of the courts of the
United States and of the States, except as provided in sections
1605 and 1607." The relevant jurisdiction issues in the present
case turn upon the immunity exceptions listed in
28 U.S.C. § 1605. Specifically, I.T.I. contends that jurisdiction
to adjudicate and personal jurisdiction exist over Pemex
pursuant to the final clause of 28 U.S.C. § 1605(a)(2), the
"direct effect" clause, when that clause is viewed in light of
28 U.S.C. § 1605(a)(2) provides in pertinent part that a
foreign state is not entitled to immunity from jurisdiction
 . . . 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 by the foreign state 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). The phrases
"commercial activity" and "commercial activity carried on in
the United States" are defined in the FSIA:
(d) A `commercial' activity means either a regular
course of commercial conduct or a particular
commercial transaction or act. The commercial
character of an activity shall be determined by
reference to the nature of the course of conduct
or particular transaction or act, rather than by
reference to its purpose.
(e) A `commercial activity carried on in the
United States by a foreign state' means commercial
activity carried on by such state and having
substantial contact with the United States.
28 U.S.C. § 1603(d) and (e).
Jurisdiction cannot be asserted over Pemex in this action
under the first commercial activity exception of § 1605(a)(2).
Insofar as Pemex is concerned, this action involves activity
carried on wholly in Mexico. The negotiation and execution of
the contract for sale of crude oil to Marathon occurred in
Mexico; the crude oil was loaded onto a vessel by Pemex in
Mexico; the first testing of the crude oil by Saybolt was
performed in Mexico; and title to the crude oil and any risk of
loss passed to Marathon while the vessel was docked in Mexico.
Mexican law was to govern any dispute, and, if necessary, the
dispute was to be presented to an arbitral body in Paris. The
underlying action in this case is not based upon an activity
Pemex conducted in the United States.
Similarly, the second clause of Section 1605(a)(2) does not
provide jurisdiction. That clause requires that the cause of
action be based upon an act of the foreign state committed in
the United States in connection with a commercial activity of
the foreign state elsewhere. I.T.I. does not allege the
commission of any act by Pemex in the United States relevant to
the contract at issue in the underlying cause of action.
"Direct Effect" Clause & Rule 14(c)
The dispute over jurisdiction centers around the third clause
of 28 U.S.C. § 1605(a)(2). Pemex's involvement with the instant
claim constitutes a "commercial activity" within the meaning of
28 U.S.C. § 1603(d). In drafting the FSIA, Congress intended
that "commercial activity" encompass "import-export
transactions involving sales to or purchases from concerns in
the United States." H.Rep. No. 94-1487, 94th Cong., 2d Sess.
17, reprinted in 1976 U.S. Code Cong. & Admin.News 6604, 6615
("House Report"). See Hatzlachh Supply Inc. v. Savannah Bank of
Nigeria, 649 F. Supp. 688, 690 (S.D.N.Y. 1986).
Consequently, jurisdictional immunity rests on fulfillment of
the second requirement of this clause, that the commercial
activity cause a "direct effect" in the United States. See
International Housing Ltd. v. Rafidain Bank Iraq, 893 F.2d 8,
10-11 (2d Cir. 1989). I.T.I. has not based its third-party
claim upon any relationship, contractual or otherwise, that it
had with Pemex and therefore I.T.I. has not suffered injury in
the United States because of Pemex's failure to perform some
obligation in the United States. See Texas Trading & Milling
Corp. v. Federal Rep. of Nigeria, 647 F.2d 300, 312 (2d Cir.
1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d
301 (1982). Nor does financial injury to the third-party
plaintiff, I.T.I., a
foreign corporation, constitute a direct effect in the United
States. See Carey v. National Oil Corp., 592 F.2d 673, 677 (2d
Nevertheless, I.T.I. contends that the question of direct
effect must be assessed in view of Rule 14(c) of the Federal
Rules of Civil Procedure. Rule 14(c) states:
Admiralty Maritime Claims. When a plaintiff
asserts an admiralty or maritime claim within the
meaning of Rule 9(h), the defendant or claimant,
as a third-party plaintiff, may bring in a
third-party defendant who may be wholly or partly
liable, either to the plaintiff or to the
third-party plaintiff, by way of remedy over,
contribution, or otherwise on account of the same
transaction, occurrence, or series of transactions
or occurrences. In such a case the third-party
plaintiff may also demand judgment against the
third-party defendant in favor of the plaintiff, in
which event the third-party defendant shall make
any defense to the claim of the plaintiff as well
as to that of the third-party plaintiff in the
manner provided in Rule 12 and the action shall
proceed as if the plaintiff had commenced it
against the third-party defendant as well as the
Fed.R.Civ.P. 14(c) (emphasis added).
I.T.I. contends that Marathon's claim is deemed to have been
made directly against third-party defendant Pemex as well as
I.T.I. and Saybolt by virtue of Rule 14(c). Consequently,
I.T.I. claims that the financial loss suffered by Marathon
constitutes the "direct effect" required by the third clause of
§ 1605(a)(2) of the FSIA to defeat jurisdictional immunity.
Rule 14(c) allows this court to consider the existence of
subject matter jurisdiction as if Marathon had brought the
complaint against Pemex. See Shipping Corporation of India,
Ltd. v. American Bureau of Shipping v. Brodogradiliste I
Trornica Diesel Motora-Split, No. 84 Civ. 1920, 1989 WL 97821
(S.D.N.Y. Aug. 17, 1989). Nevertheless, this procedural
posture, for the reasons set forth below, does not confer
subject matter jurisdiction.
In the seminal case in the Second Circuit, the Court
recognized the difficulty present in the determination of what
constitutes a "direct" effect "in the United States" for
jurisdictional purposes under § 1605(a)(2). See Texas Trading
v. Federal Rep. of Nigeria, 647 F.2d 300. This Circuit has held
that a breach of contract as well as a tort can cause a direct
effect within the meaning and purpose of § 1605(a)(2). Carey v.
National Oil Corp., 592 at 676-77. See Schmidt v. Polish
People's Republic, 579 F. Supp. 23, 27 (S.D.N.Y. 1984), aff'd,
742 F.2d 67 (2d Cir. 1984).
In Texas Trading, the Court held that the determination of
whether there is a direct effect in the United States involves
an inquiry as to "whether the corporation [Marathon] has
suffered a `direct' financial loss." 647 F.2d at 312. In the
same case, however, the Second Circuit warned that "no rigid
parsing of § 1605(a)(2) should lose sight of [Congress's]
purpose," namely whether an American court should hear the
case. Texas Trading, 647 F.2d at 313.
Here, I.T.I., a foreign corporation, through Rule 14(c)
asserts on behalf of Marathon, an American corporation, that
Marathon has suffered a financial loss in the United States,
the result of the loss of 12,438 barrels of Maya crude oil.
I.T.I. contends that Marathon's loss constitutes a direct
effect for purposes of § 1605 and that therefore this court has
subject matter jurisdiction over Pemex. Regardless of whether
Marathon's loss constitutes a direct effect for purposes of §
1605(a)(2), the Second Circuit's warning and the policy behind
effects jurisdiction counsels against the use of Rule 14(c) to
confer subject matter jurisdiction over a party that could not
otherwise be brought into an American Court.
The FSIA is designed to define the conditions under which one
sovereign state may assert jurisdiction over another. The
direct effect clause of the FSIA is designed to provide a forum
for disputes between United States residents or businesses over
commercial activities that were conducted elsewhere. As one
commentator has stated:
Effects jurisdiction derives from a state's
interest in protecting those within its borders
and in governing events within its borders. Thus,
to determine whether a corporation has sustained a
direct effect within a particular state a court
must inquire whether the corporation, by its
activity vis-a-vis the potential forum state,
sufficiently implicates that state's interest in
protecting persons within its territory.
L'Europeenne De Banque v. La Republica De Venezuela,
700 F. Supp. 114, 121 (S.D.N.Y. 1988) (quoting Note, Effects
Jurisdiction Under the Foreign Sovereign Immunities Act and the
Due Process Clause, 55 N.Y.U.L.Rev. 474, 512 (1980) (footnote
In the present case, Marathon agreed by contract to resolve
all disputes with Pemex through arbitration in Paris. Here the
American court has no interest to protect. Neither an American
party nor an American interest invites the court to assert
jurisdiction. Even if Marathon could have asserted that
financial loss alone constituted a direct effect for purposes
of satisfying the exceptions to jurisdictional immunity under
the FSIA, the policy behind the immunity exception is not
furthered by allowing I.T.I., a foreign corporation, to use
Rule 14(c) to assert jurisdiction on behalf of a corporation
that did not seek recourse in an American court, but indeed,
contracted away such recourse.
In the absence of jurisdiction to adjudicate there is no need
to reach the question of personal jurisdiction.
For the reasons set forth above, Pemex's motion to dismiss
the third-party complaint for lack of jurisdiction to
adjudicate and personal jurisdiction under the FSIA is granted.
Absent a motion pending with respect to I.T.I.'s Rule 19
claims, we do not reach the issue.
It is so ordered.