## Facts

- Three U.S.-based hedge funds purchased Brazilian sovereign bonds issued in 1902 and 1911 on a secondary market in the United States.
- The bonds required payment at designated “empowered branches,” including Brazilian Public Debt Offices; no empowered branch was located in the United States.
- In 1969, after an exchange opportunity, Brazil decreed that any remaining 1902 and 1911 bonds were worthless.
- Plaintiffs never presented the bonds for payment and never demanded payment before filing suit; they sued for anticipatory breach.
- Plaintiffs alleged Brazil had refused payment to other holders after presentment and had publicly stated it would not pay these bonds.

## Issues

1. Whether the action was “based upon” commercial activity carried on in the United States by Brazil under the first clause of 28 U.S.C. § 1605(a)(2).
2. Whether the action was “based upon” acts outside the United States connected to Brazil’s commercial activity that caused a “direct effect” in the United States under the third clause of § 1605(a)(2).

## Decision

- The court granted Brazil’s motion for summary judgment and dismissed for lack of subject-matter jurisdiction under the FSIA.
- The commercial-activity exception did not apply because the suit was not “based upon” qualifying U.S. commercial activity.
- The exception also did not apply because the alleged breach did not cause a “direct effect” in the United States.

## Legal Principles

- Under the FSIA, a foreign state is presumptively immune unless a statutory exception applies; the plaintiff bears the burden to show an exception.
- For § 1605(a)(2)’s first clause, “based upon” focuses on the conduct forming the gravamen of liability, not activity merely related to the dispute.
- Issuance of other securities in U.S. markets does not create jurisdiction over a separate breach claim unless that U.S. activity is the conduct on which the claim is based.
- A “direct effect in the United States” generally requires an immediate consequence tied to a contractual or legal obligation with a U.S. place of performance; economic loss felt by U.S. investors alone is insufficient.
- Speculative scenarios about where payment might have been made cannot establish a direct effect, particularly where the bonds required payment abroad and the plaintiff never demanded payment.

## Conclusion

The court held that Brazil remained immune under the FSIA because plaintiffs’ bond claims were anchored in alleged nonpayment on instruments issued and payable abroad, and plaintiffs could not connect the dispute to qualifying U.S. commercial activity or to a non-speculative, contractually grounded direct effect in the United States.


Croseus EMTR Master Fund L.P. v. Federative Republic of Brazil, 212 F. Supp. 2d 30 (D.D.C. 2002)