Community Finance Group, Inc., et al v. Republic of Kenya, et al

Filing

OPINION FILED - THE COURT: ROGER L. WOLLMAN, DIANA E. MURPHY and DUANE BENTON. Roger L. Wollman, Authoring Judge (PUBLISHED) [3859558] [11-1816]

United States Court of Appeals
FOR THE EIGHTH CIRCUIT

___________
No. 11-1816
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Community Finance Group, Inc.;
Andrew Vilenchik,

*
*
*
Appellants,
*
* Appeal from the United States
v.
* District Court for the
* District of Minnesota.
Republic of Kenya; Kenya Revenue
*
Authority; Kenya Department of
*
Customs; Kenya Central Bank,
*
*
Appellees.
*
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Submitted: November 15, 2011
Filed: December 15, 2011
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Before WOLLMAN, MURPHY, and BENTON, Circuit Judges.
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WOLLMAN, Circuit Judge.
Community Finance Group, Inc. and its general manager Andrew Vilenchik
(collectively referred to as “CFG” or “plaintiffs”), appeal the district court’s1 dismissal
of their claims for lack of subject matter jurisdiction under Rule 12(b)(1) of the
Federal Rules of Civil Procedure. Because the Foreign Sovereign Immunities Act of

1

The Honorable David S. Doty, United States District Judge for the District of
Minnesota.

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1976 (FSIA), 28 U.S.C. §§ 1330, 1602 et seq., applies to all defendants and no
exception to sovereign immunity exists in this case, we affirm.2
I.
According to CFG’s amended complaint, in October of 2008, Vilenchik
commenced discussions with John Saina, a United States citizen and former Kenyan
national who previously worked for the Kenyan police, concerning opportunities for
purchasing gold for CFG. Saina explored such opportunities in Kenya on CFG’s
behalf. CFG ultimately contracted with Zilicon Freighters, Ltd. to purchase 300
kilograms of gold for $6 million. CFG and Zilicon, through representative Illunga
Ngoei (Illunga), agreed that CFG would establish a $350,000 escrow account with
Miller & Company to cover Kenyan taxes, customs fees, and storage associated with
the transaction. Later, CFG instead wired the $350,000 to a bank account of Great
Lakes Auto Tech Int’l Ltd. (Great Lakes), a holding company of Zilicon, apparently
to expedite customs payments and export. CFG and Great Lakes facilitated the
transfer through Bay Forex Bureau, a Kenyan-licensed foreign exchange bureau.
The Kenya Central Bank verified the $350,000 transaction on June 16, 2009.
The next day, Paul Kazungu, a Kenyan customs officer, informed CFG that a permit
from the United Nations was necessary before the gold could be released for export.
On June 18, 2009, two individuals claiming to be officials with the Nairobi United
Nations office told CFG that the gold derived from a consignment confiscated by
Kenyan customs officials that also contained diamonds and that CFG would be
required to purchase the entire consignment. CFG became suspicious, retained a
Kenyan lawyer, and filed a complaint with the Kenya Central Bank Fraud
Investigations Department (BFID). Police then arrested Illunga.
2

Defendants argue that dismissal also is proper under the pleading standard set
forth in Ashcroft v. Iqbal, 556 U.S. 662 (2009). In light of the lack of subject matter
jurisdiction, we need not take a position on this contention.
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On June 26, 2009, Kenyan police brought CFG representatives to the customs
office at Kenyatta International Airport, where the representatives were informed that
the gold had been removed from the airport and was being stored at the Kenya Central
Bank. During the BFID investigation, various currency, check cards, and bank
statements of Illunga were seized, and ten of Illunga’s Kenyan bank accounts were
frozen. In February of 2010, the Kenyan police informed CFG that Illunga’s
prosecution had been put on hold. This was CFG’s last communication with the
Kenyan police. None of CFG’s $350,000 has been returned, and CFG never received
any gold. In addition, plaintiffs have discovered that the Kenyan attorney they
retained also represents the Kenya Central Bank.
CFG brought suit against the Republic of Kenya, Kenya Revenue Authority,
Kenya Department of Customs, and Kenya Central Bank for breach of duty, improper
taking in violation of international law, conversion, conspiracy to commit a tort,
aiding and abetting an improper taking and fraudulent scheme, and unjust enrichment.
Following defendants’ motion to dismiss, the district court dismissed the action for
lack of subject matter jurisdiction.
II.
“We review de novo questions of subject matter jurisdiction.” Wells Fargo
Bank, N.A. v. WMR E-Pin LLC, 653 F.3d 702, 705 (8th Cir. 2011) (citing Sac & Fox
Tribe v. Bureau of Indian Affairs, 439 F.3d 832, 835 (8th Cir. 2006)). “We must
accept all factual allegations in the pleadings as true and view them in the light most
favorable to the nonmoving party.” Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir.
2008) (citations omitted).

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III.
“[T]he FSIA provides the sole basis for obtaining jurisdiction over a foreign
state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping
Corp., 488 U.S. 428, 443 (1989); see also 28 U.S.C. §§ 1330(a), 1604. Under the
FSIA, a foreign state is “presumptively immune” from the jurisdiction of American
courts and “unless a specified exception applies, a federal court lacks subject-matter
jurisdiction over a claim against a foreign state.” Saudi Arabia v. Nelson, 507 U.S.
349, 355 (1993) (citations omitted). The FSIA defines a foreign state as including “a
political subdivision of a foreign state or an agency or instrumentality of a foreign
state . . . .” 28 U.S.C. § 1603(a).
“Once a foreign state makes a prima facie showing of immunity, the plaintiff
seeking to litigate in the United States then has the burden of showing that an
exception applies.” Gen. Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382 (8th
Cir. 1993) (internal citation omitted). Here, defendants consist of the foreign state of
Kenya and agencies or instrumentalities of Kenya. Plaintiffs thus seek to establish
jurisdiction under three of the FSIA’s enumerated exceptions to sovereign immunity:
(1) the commercial activity exception under § 1605(a)(2); (2) the expropriation
exception under § 1605(a)(3); and (3) the tort exception under § 1605(a)(5).
A.
The FSIA provides an exception to sovereign immunity in cases “in which the
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.” 28 U.S.C. § 1605(a)(2). When a foreign state acts “not
as regulator of a market, but in the manner of a private player within it, the foreign
sovereign’s actions are ‘commercial’ within the meaning of [the FSIA].” Gen. Elec.

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Capital Corp., 991 F.2d at 1382 (quoting Republic of Argentina v. Weltover, Inc., 504
U.S. 607, 614 (1992)).
The district court correctly concluded that none of the acts or alleged breaches
of duty attributed to defendants were commercial in nature. CFG alleged that the
defendants: (1) failed to investigate the underlying commercial transaction between
CFG and Zilicon to ensure that it was legitimate; (2) failed to secure the gold stored
by customs and place a hold on the funds transferred by CFG until the transaction
could be verified; (3) failed to investigate the criminal activities of alleged
wrongdoers; and (4) failed to return as restitution funds seized from alleged
wrongdoers. Am. Compl. ¶¶ 54-57. The decisions regarding whether or how to
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. See Tucker v.
Whitaker Travel, Ltd., 620 F. Supp. 578, 584 (E.D. Pa. 1985) (granting motion to
dismiss challenge to Bahamian government’s decisions how to regulate tourism
industry, police its citizens, and investigate accidents within its borders, because such
decisions “are peculiarly governmental and may not be subjected to scrutiny in the
United States courts”), aff’d, 800 F.2d 1140 (3d Cir. 1986); World Wide Minerals,
Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1165 (D.C. Cir. 2002) (“right to
regulate imports and exports is a sovereign prerogative”) (citations omitted); Nelson,
507 U.S. at 361 (“a foreign state’s exercise of the power of its police has long been
understood . . . as peculiarly sovereign in nature”) (citations omitted); First Merchs.
Collection Corp. v. Republic of Argentina, 190 F. Supp. 2d 1336, 1338-39 (S.D. Fla.
2002) (“The seizure of goods by a nation’s police force is not the type of action by
which a private party engages in trade, traffic or commerce,” but rather is
“quintessentially sovereign in nature”). As a result, the alleged acts fall outside the
scope of the commercial activity exception to sovereign immunity.

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B.
Under the FSIA, a foreign state is not immune from jurisdiction in any case:
[I]n which rights in property taken in violation of international law are
in issue and that property or any property exchanged for such property
is present in the United States in connection with a commercial activity
carried on in the United States by the foreign state; or that property or
any property exchanged for such property is owned or operated by an
agency or instrumentality of the foreign state and that agency or
instrumentality is engaged in a commercial activity in the United States.
28 U.S.C. § 1605(a)(3).
The expropriation exception does not apply in this case. Count II of the
amended complaint, which asserts a claim for “Improper Taking in Violation of
International Law,” alleges that defendants “improperly retained monetary funds
owned by Plaintiffs” and “improperly retained gold purchased by Plaintiffs.” Am.
Compl. ¶¶ 61-62. Neither could constitute a taking under the factual allegations in the
amended complaint, however, because plaintiffs never paid for or acquired the gold
that they allege was taken from them and they do not allege that the $350,000 paid to
Great Lakes was ever transferred to defendants. Even if such property had been taken
by defendants, CFG still failed to establish that the property is present in the United
States or that the expropriating defendants engage in commercial activity in the United
States.
C.
The FSIA provides an exception to sovereign immunity in a case in which a
plaintiff seeks money damages:

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[F]or personal injury or death, or damage to or loss of property,
occurring in the United States and caused by the tortious act or omission
of that foreign state or of any official or employee of that foreign state
while acting within the scope of his office or employment.
28 U.S.C. § 1605(a)(5) (emphasis added). This exception does not apply to “any
claim based upon the exercise or performance or the failure to exercise or perform a
discretionary function . . . .” § 1605(a)(5)(A). The tort exception covers “only torts
occurring within the territorial jurisdiction of the United States,” regardless of whether
the alleged tort “may have had effects in the United States.” Amerada Hess Shipping
Corp., 488 U.S. at 441.
Because all the alleged torts would have occurred in Kenya rather than the
United States, the tort exception does not apply. The alleged taking or conversion of
CFG’s funds or gold could have occurred only in Kenya, and CFG’s conspiracy
allegations expressly state that the conspiracy occurred “within Kenya.” Am. Compl.
¶ 70. Although plaintiffs argue that their $350,000 wire transfer constituted an act in
the United States, that act was performed by plaintiffs themselves. Plaintiffs also
argue that the conspiracy originated in the United States with Saina’s acts, but the
amended complaint does not allege that Saina was an agent of any defendant.3
IV.
The order of dismissal is affirmed.
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3

Furthermore, CFG represented to the district court that “we did not allege -we have not alleged, nor do we have direct evidence that [Saina] was a -- specific
agent of the Kenyan government for purposes of this transaction . . . .” Mot. Hr’g Tr.
15.
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