## Facts

- Nigeria undertook a large infrastructure program and contracted with multiple foreign suppliers, including four U.S. trading companies, to purchase Portland cement worth nearly $1 billion.
- Nigeria arranged payment by causing irrevocable letters of credit to be issued through Morgan Guaranty Trust Company in New York.
- Severe congestion in Lagos harbor and an oversupply of cement prompted Nigeria to instruct Morgan not to honor further payments under the letters of credit absent Nigeria’s special approval.
- After learning of the instructions, the U.S. suppliers stopped shipment and sued in the Southern District of New York for breach of contract and breach of the letters of credit.
- Nigeria and its Central Bank did not substantially contest breach but asserted sovereign immunity as the primary defense.
- District judges reached conflicting results on immunity; the related cases were consolidated on appeal.

## Issues

1. Whether Nigeria’s cement purchasing and related payment arrangements constituted “commercial activity” under the Foreign Sovereign Immunities Act (FSIA).
2. Whether Nigeria’s acts outside the United States caused a “direct effect in the United States” under 28 U.S.C. § 1605(a)(2) by directing nonpayment at a New York bank.
3. Whether the FSIA’s jurisdictional grant (28 U.S.C. § 1330(a)) supplied subject-matter jurisdiction once an immunity exception applied.
4. Whether personal jurisdiction existed under 28 U.S.C. § 1330(b), including proper service under 28 U.S.C. § 1608.
5. Whether asserting personal jurisdiction over Nigeria and its Central Bank satisfied constitutional due process (minimum contacts).

## Decision

- The Second Circuit held that Nigeria and the Central Bank were not immune under the FSIA commercial-activity exception.
- The court found the suits were based on commercial conduct and that the nonpayment of letters of credit payable in New York caused a direct effect in the United States.
- The court held federal subject-matter jurisdiction existed under 28 U.S.C. § 1330(a).
- The court held personal jurisdiction existed because service was properly made under 28 U.S.C. § 1608 and defendants had sufficient U.S. contacts through their use of a New York bank.
- The court reversed the dismissal of Texas Trading’s case, affirmed the denials of immunity in the companion cases, and remanded for merits proceedings.

## Legal Principles

- Under the FSIA, immunity turns on the nature of the foreign state’s conduct; commercial purchases and payment mechanisms typical of private trade are “commercial activity” even if undertaken for governmental goals.
- A “direct effect in the United States” exists when a foreign state’s act causes an immediate, legally significant consequence in the United States, including nonpayment in the United States where payment is due at a U.S. bank.
- Once an FSIA exception to immunity applies, 28 U.S.C. § 1330(a) supplies federal subject-matter jurisdiction for claims “with respect to which” the foreign state is not entitled to immunity.
- Personal jurisdiction under the FSIA requires both subject-matter jurisdiction and service under 28 U.S.C. § 1608; constitutional due process is satisfied where the foreign state purposefully creates U.S. contacts tied to the dispute (e.g., structuring payment through a New York bank).

## Conclusion

The court treated Nigeria’s mass cement purchases and letter-of-credit arrangements as commercial conduct and held that directing a New York bank to stop paying letters of credit created a direct U.S. effect, eliminating immunity under the FSIA and permitting both subject-matter and personal jurisdiction in federal court.


Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir. 1981)