Tubular Inspectors, Inc., Plaintiff-appellee, v. Petroleos Mexicanos D/b/a Refineria Salina Cruz Oaxaca,defendant-appellant.tubular Inspectors, Inc., Plaintiff-appellee, v. Petroleos Mexicanos A/k/a Pemex, D/b/a Refineria Salina Cruzoaxaca, Defendant-appellant, 977 F.2d 180 (5th Cir. 1992)

This court has had several occasions recently to consider interlocutory appeals of district court orders denying motions by Mexico's national oil company, Petroleos Mexicanos (Pemex), to dismiss various actions for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1330, 1601-11.²  Once again, we are called upon to consider such an order, and although the facts of this latest appeal are unrelated to those at issue in our previous decisions, "the task [of interpreting the FSIA] is no easier now than it has been before." Stena, 923 F.2d at 382. The underlying claims brought against Pemex by an American Company, Tubular Inspectors, Inc. (Tubular USA), sound in contract and tort law. Besides disputing the applicability of the "commercial activities" exception to sovereign immunity, see § 1605(a) (2),³  Pemex argues in the alternative that the district court's exercise of personal jurisdiction over Pemex violates due process, and that the doctrine of forum non conveniens compels dismissal of the case. Concluding that the district court erred in finding jurisdiction under the FSIA, we reverse.

BACKGROUND

Tubular USA sued Pemex in federal district court at Corpus Christi, Texas, for breach of contract and conversion. The disputed transaction began when Pemex agreed to purchase certain valves from Tubular USA's Mexican subsidiary, Inspectores Tubulares (Tubular Mexico), for one of Pemex's oil refineries in Oaxaca, Mexico known as the Salina Cruz Refinery. Tubular USA contends that Pemex contracted to buy a total of 19 valves, yet paid for only 15 of them. Pemex contends that it presented two non-negotiable cashier's checks for the unpaid balance, payable in pesos to Tubular Mexico, to two men, Juan Pablo Castilleja and Angel Belmudes Chavez, who claimed to be Tubular Mexico employees. Tubular USA asserts that Castilleja and Belmudes were not authorized by it or its Mexican subsidiary to receive the checks in question, adding that it has no idea who these "employees" were.⁴ 

While the parties agree on many of the essential facts, each characterizes the sale differently. Pemex contends that the transaction arose, occurred and ended in Mexico. The oil company also insists that it contracted only with Tubular Mexico so as to comply with Mexican law requiring it to enter into commercial agreements exclusively with companies registered to do business in Mexico. Pemex paid for all 19 of the valves by issuing non-negotiable checks to Tubular Mexico, payable in pesos and drawn on, deposited in, and cashed by Mexican banks.

Tubular USA concedes that representatives of Pemex's Salina Cruz Refinery sent written solicitations to Tubular Mexico in February 1987 for bids on possible sales of the valves. However, appellee emphasizes that neither it nor Tubular Mexico had any direct contact with Pemex until the oil company issued three purchase orders, addressed to Tubular Mexico's office in Reynosa, Tamaulipas, Mexico, in the name of "Tubular Mexico and/or Tubular Inspectors, USA." The three orders, by which Pemex purported to purchase all 19 valves, included Purchase Order No. 1054.⁵  All 19 valves were of U.S. origin, and Tubular USA purchased them in the United States. As a condition of sale, Tubular USA maintains that it required Pemex to accept delivery of the valves in Houston, with the sale invoiced directly to Pemex. After receiving the three purchase orders, Tubular USA purchased the specified equipment from U.S. suppliers and notified Pemex of its availability for inspection and delivery in Houston.⁶  Invoice No. 4983, prepared by Tubular USA on its letterhead, covered the four valves listed in Purchase Order No. 1054 and states in Spanish: "These products have been delivered, received, and accepted in Houston, Texas ... these products will be exported to Mexico before 8/31/87." Invoice No. 4983 purportedly bears Pemex official Banda's initials. According to Tubular USA, the sale was completed on July 13, 1987, when Pemex officials inspected and purported to accept the valves at a meeting in Houston, Texas.⁷ 

Almost contemporaneously with these events in Texas, Pemex was nominally following Mexican law, which mandated its procurement of the valves only from a Mexican supplier and only after a competitive bidding process. Pemex thus received Tubular Mexico's "bid" for the valves on August 19 and later bids from other would-be suppliers, even though the Tubular USA valves were imported to Mexico on August 25.⁸  A Mexican import/export agent billed $28,000 to "Tubular Mexico and/or Tubular USA" at Tubular Mexico's address for all customs charges and taxes as of that date. At the conclusion of the alleged competitive bidding process, Tubular Mexico invoiced Pemex for the four contested valves in December 1987. Pemex issued its checks in December, apparently in response to Tubular Mexico's invoice. The checks were made to the order of Tubular Mexico, nonnegotiable and payable in pesos. Tubular USA contends that neither it nor Tubular Mexico ever received the $234,000 balance owed by Pemex.

SUBJECT MATTER JURISDICTION

The district court based subject matter jurisdiction over Pemex on the first clause of § 1605(a) (2), which exempts from claims of sovereign immunity actions "based upon a commercial activity carried on in the United States by the foreign state."⁹  As defined elsewhere in the FSIA, " 'commercial activity carried on in the United States by a foreign state' means commercial activity carried on by such states and having substantial contact with the United States." 28 U.S.C. § 1603(e). Pemex does not dispute that it engaged in commercial activity with Tubular Mexico in this transaction, but it strenuously disputes that Tubular USA's claims are based upon commercial activity that occurred in the United States. This court recently held that the jurisdictional nexus requirement of § 1605(a) (2) mandates not only that Pemex's commercial acts be tied to the United States, but that they form the basis of Tubular USA's causes of action. Stena, 923 F.2d at 386-88. This "nexus test" does not require a direct causal relationship between the foreign state's commercial acts and the plaintiff's lawsuit. Id. at 387. On the other hand, " [i]solated or unrelated commercial actions ... do not authorize the exception." Arriba, 962 F.2d at 532.¹⁰  Such an argument did not impress the district court, which found substantial contacts between Tubular USA's cause of action and Pemex's commercial dealings in the United States. The district court wrote:

Although the act of non-payment did not occur in the United States, the goods were ordered from an American company in its name; there was an inspection of those goods in the United States; there was acceptance of those goods in the United States, and a further request for shipment to Mexico; delivery was accomplished as requested; an American invoice was sent by a permissible addressee of the purchase order; and payment may well have not been made. In conclusion, the Court holds that there is adequate jurisdictional nexus between the commercial activity and plaintiff's complaint.

It is our duty to review the district court's conclusions about sovereign immunity de novo. Walter Fuller, 965 F.2d at 1383.¹¹  Based on the uncertain status of Pemex's Purchase Order No. 1054, the fact that "acceptance" and delivery of the valves to Mexico strangely preceded Pemex's formal bid procedure, and the parallel invoices issued by Tubular USA and Tubular Mexico, there is plainly room for legitimate disagreement as to (1) whether Pemex's purchase transaction amounted to commercial activity carried on in the United States, and (2) whether Tubular USA's claim was "based upon" that activity. Having considered the matter carefully, however, we must disagree for several reasons with the district court's characterization of the transaction, and with its conclusion that FSIA jurisdiction exists.

First, the district court made too much of the fact that Pemex addressed its order to Tubular Mexico "and/or" Tubular USA. All of the sales documentation was in Spanish, all of it was addressed to Tubular Mexico's Reynosa address, and Pemex only sent representatives to Houston when specifically asked to do so by Tubular USA. Pemex's efforts to comply with the letter (if not the spirit) of Mexican law, by purchasing through a Mexican supply company and seeking competitive bids, and by making payment to the Mexican company in pesos in Mexico, should not lightly be disregarded. That Tubular Mexico and Tubular USA were joint addressees is not inconsistent with Pemex's attempt to craft a Mexican transaction.

Second, the district court misperceived the significance of Pemex's inspection and acceptance of the valves in the United States. While it made some sense for Pemex officials to verify before shipment to Mexico that $234,000 in industrial valves conformed to their specifications, it was clearly imperative for Tubular USA to gain Pemex's early approval. Tubular USA did not want to risk sending its valuable property to Mexico only to have it held up there for nonconformity with the contract. "Acceptance" by Pemex in this context meant only that the goods met the purchaser's technical requirements. Acceptance did not connote, as the district court may have believed, that Tubular had completed performance or was free of subsequent claims. Our conclusion is borne out by Tubular Mexico's or Tubular USA's having been responsible for paying the customs agent and for "nationalizing" the valves by importation to Tubular Mexico's home town of Reynosa. Tubular clearly continued to have responsibility for the valves until they were delivered to the Salina Cruz refinery.

Third, invoices for the valves represented in Purchase Order No. 1054 were sent both by Tubular USA and Tubular Mexico to Pemex, and payment was not made until after Tubular Mexico had submitted invoices, which occurred several months after Tubular USA sent its invoices. Further, the Pemex payments conformed to the 50% "advance"/50% "completion" mode requested only by Tubular Mexico, and they were directed to Tubular Mexico through its Mexican banks. The inescapable inference from this sequence of events, corroborated by the way in which Pemex paid for valves covered by Purchase Orders No. 1053 and 1055 in the face of similar duplicate invoices, is that Pemex intended to and did pay Tubular Mexico.

Fourth, not only is the jurisdictional nexus between Pemex's commercial activity and the United States insubstantial, but, as the district court acknowledged, there is no direct nexus between Pemex's meetings in this country and the breach of contract or conversion claims. Two mysterious Mexican individuals walked off with the proceeds of Pemex checks that only Tubular Mexico should have been permitted to cash and then only at its bank in Mexico. We do not hold that by itself, the occurrence on foreign soil of a cause of action arising from a sovereign's commercial activity in this country precludes domestic jurisdiction under the first clause of § 1605(a) (2). The contrary would often be true. See Santos v. Compagnie Nationale Air France, 934 F.2d 890, 892-94 (7th Cir. 1991). Here, however, the check was not even payable to an American entity, and the circumstances of its disappearance easily raise suspicions beyond simple malfeasance by Pemex.

While " [a] single contract or course of dealing executed within this nation's boundaries typically will constitute commercial activity carried on in the United States," Stena, 923 F.2d at 389 n. 11, and while this case presents a closer FSIA jurisdictional issue than others we have recently decided,¹²  we conclude that Pemex's contacts with Tubular USA in Texas were sufficiently isolated to deny subject matter jurisdiction. Pemex purposefully structured the transaction to anchor it in Mexico. Tubular USA deliberately created Tubular Mexico to facilitate compliance by Mexican entities like Pemex with Mexican law that required them to purchase from "local" concerns. Tubular USA's intervention was not sought by Pemex, which continued to deal directly only with Tubular's Mexican affiliate. The acts that form the basis of appellee's cause of action for non-payment did not occur in the United States. See Stena, 923 F.2d at 387-88. This result prevents Tubular USA from jurisdictionally having its cake and eating it, by doing business through a Mexican subsidiary as Mexican law requires but seeking to avoid the consequences of that choice when it comes time to sue for the purchase price of the valves.¹³ 

CONCLUSION

Pemex has also moved to dismiss on the grounds that the exercise of personal jurisdiction over it by the district court would violate due process. In light of the foregoing discussion, we need not address that question¹⁴  nor do we decide the applicability of the forum non conveniens doctrine.

The judgment of the district court is REVERSED with instructions to DISMISS with prejudice.