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A U.S. District judge with the Northern District of New York on Wednesday asserted jurisdiction over the Kingdom of Saudi Arabia in a commercial case hinging on an application of the Foreign Sovereign Immunities Act. The case, Tonaga Ltd., doing business as Taconic Plastics Ltd. v. Ministry of Public Works, 99-CV-0803, stems from a dispute involving an Irish manufacturer, a German construction company, a Saudi government customer and a plastics firm nestled in the tiny Rensselaer County town of Petersburgh, N.Y. Justice Lawrence E. Kahn, in refusing a dismissal motion brought by the Kingdom of Saudi Arabia, cited the commercial activity exception to the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1605. Taconic Plastics is a materials manufacturer incorporated in Ireland with its principal place of business in Petersburgh. In 1997, it contracted with a German construction firm to supply membrane material for a Saudi Arabian tent project to shelter religious pilgrims visiting religious sites. Shortly after the contract was signed, the German firm failed to make scheduled payments to Taconic and later filed for bankruptcy. Agents for the Saudi customers allegedly guaranteed the payments to Taconic, which continued to manufacture the material needed for the tents. However, it did not receive the final payment of about $3 million. Taconic then sued in the Northern District. The Saudi defendants responded with a motion to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction and forum non conveniens (inconvenient forum). Judge Kahn denied the motion. COMMERCIAL ACTIVITY Kahn agreed with the defendants that under FSIA, a foreign state is presumptively immune from U.S. jurisdiction. However, he said a number of statutory exceptions can be invoked to rebut that presumption. In this matter, Kahn applied an exception for commercial activity as his rationale for asserting subject matter jurisdiction. The court found that the test for whether such an exception applies is two-fold: First, the suit must be based on commercial activity of the foreign defendants; second, the activity must occur within the United States. “Here, the sovereign defendants allegedly engaged in a series of guarantee transactions that allowed it to step into the shoes of a financially troubled ‘private player,’ the German construction company, in order to ensure that the tent project was completed,” Kahn wrote. “Because of this, the court concludes that the sovereign defendants’ guarantee of the underlying material contract was commercial activity under the FSIA.” ‘SIGNIFICANT NEXUS’ Still, Kahn said, the exception is unavailable unless there exists a “significant nexus between the commercial activity alleged to occur in this country and plaintiff’s cause of action.” Here, the defendants contended that any commercial activity in question occurred abroad. Judge Kahn, however, citing the Southern District’s 1982 decision in Gibbons v. Udaras na Gaeltachta, 549 F Supp 1094, found that when the commercial activity at issue involves formation of a contract, “substantial contact” is established when significant portions of the contract were to be performed in the U.S., as occurred in this matter. Finally, Kahn rejected the defendants’ due process and reasonableness arguments. He said the defendants “should have foreseen the possibility of being hauled into an American court.” “Providing a forum to adjudicate contractual disputes that are substantially performed here furthers the substantive social policy of providing accountability against those that engage in commerce in this country and injure those that they deal with here,” Kahn wrote. Appearing were E. Guy Roemer of Roemer and Associates in Albany and Michael Savage of Gersten Savage and Kaplowitz in Manhattan for Taconic Plastics; Alexandra A.E. Shapiro and Matthew T. Martens of Latham & Watkins offices in Manhattan and Newark, N.J., respectively, for the Saudi government defendants; and Margaret J. Gillis of Whiteman Osterman & Hanna in Albany for the agent for the Saudi defendants.

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