Facts
- Virtual Defense and Development International, Inc. (Virtual), a consulting firm based in Bethesda, Maryland, claimed it was hired to help arrange the sale of Moldovan MiG‑29 fighter aircraft.
- After the Soviet Union dissolved, the Republic of Moldova faced serious economic difficulty and sought revenue by selling former Soviet military assets, including MiG‑29s.
- Moldova had arranged a sale of MiG‑29s to Iran, but cancelled it after the United States objected on international-security grounds.
- In 1997, Moldovan representatives (including an economic adviser) communicated with a New York consultant, Marty Miller, regarding economic opportunities, including disposition of the MiG‑29s.
- Virtual alleged that Moldova authorized Virtual to pursue negotiations for a sale of the aircraft to a buyer acceptable to the United States, and that Moldovan officials gave written authorization for Virtual to initiate discussions with governments and other entities regarding the aircraft.
- Virtual alleged an agreement under which it would assist in securing the sale and Moldova would pay Virtual a 15% commission if the sale was successfully arranged.
- Moldova ultimately sold twenty-one MiG‑29s to the United States under a Cooperative Threat Reduction-related arrangement; the reported terms included $40 million in cash and $100 million in economic aid.
- Virtual contended that the cash value should have been $60 million and that it was owed roughly $9 million in commission for its role, but Moldova refused to pay.
- Virtual sued Moldova for breach of contract and, alternatively, quantum meruit in the U.S. District Court for the District of Columbia.
- Moldova moved to dismiss, asserting immunity under the Foreign Sovereign Immunities Act (FSIA) and arguing the act of state doctrine barred adjudication.
Issues
- Whether Virtual’s suit fell within the FSIA’s commercial-activity exception, so that Moldova was not immune from suit.
- Whether the alleged nonpayment of a commission to a U.S. company satisfied the FSIA requirement of a sufficient U.S. connection, including a “direct effect” in the United States under 28 U.S.C. § 1605(a)(2).
- Whether the act of state doctrine required dismissal because the dispute related to Moldova’s decision to sell military aircraft and related diplomatic considerations.
Decision
- The court denied Moldova’s motion to dismiss.
- The court held that the alleged agreement to pay a commission for assistance in selling the MiG‑29s was “commercial activity” under the FSIA and fit within the commercial-activity exception.
- The court concluded that the alleged failure to pay a commission to an American company was sufficient at the pleading stage to satisfy the FSIA’s U.S. nexus, including the “direct effect” requirement.
- The court rejected Moldova’s act of state argument because resolving whether Moldova owed a commission did not require the court to invalidate or pass judgment on sovereign acts.
Legal Principles
- Under the FSIA, a foreign state is presumptively immune unless a statutory exception applies; the plaintiff bears the burden to produce facts showing an exception, and the court evaluates whether immunity is defeated for jurisdictional purposes.
- For FSIA “commercial activity,” the focus is on the nature of the conduct (whether it is the type of action a private party may take), not the sovereign’s reasons for acting.
- Contracting for services to facilitate a sale and agreeing to pay a broker’s commission are market-type acts that can qualify as commercial activity, even when the subject matter involves military equipment.
- Under 28 U.S.C. § 1605(a)(2), jurisdiction may exist where an act outside the United States in connection with commercial activity causes a direct effect in the United States, including an alleged failure to pay money claimed to be due to a U.S. entity.
- The act of state doctrine bars adjudication only when a court must declare invalid, or otherwise sit in judgment on, a foreign sovereign’s public acts performed within its own territory; it does not bar ordinary disputes over asserted commercial payment obligations that can be resolved without questioning the validity of sovereign decisions.
Conclusion
The court allowed Virtual’s commission claim to proceed, ruling that Moldova’s alleged agreement to pay a U.S. firm a commission for helping arrange the sale of MiG‑29 aircraft was commercial activity under the FSIA, that the alleged nonpayment had a direct effect in the United States sufficient for the commercial-activity exception, and that deciding a fee dispute would not require the court to invalidate Moldova’s sovereign acts under the act of state doctrine.