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BAE Systems Technology Solution & Services, Inc. v. Republic of Korea's Defense Acquisition Program Administration

United States District Court, D. Maryland, Southern Division

October 24, 2016

BAE SYSTEMS TECHNOLOGY SOLUTION & SERVICES, INC., Plaintiff,
v.
REPUBLIC OF KOREA'S DEFENSE ACQUISITION PROGRAM ADMINISTRATION, et al., Defendants.

          MEMORANDUM OPINION

          Paul W. Grimm United States District Judge.

         This case involves a contract dispute between BAE Systems Technology Solutions & Services, Inc. (“BAE”) and the Republic of Korea and its Defense Acquisition Program Administration (collectively, “South Korea”) arising out of South Korea's efforts to upgrade its F-16 fighter fleet. Each side has raised claims against one another in this Court. Second Am. Compl. ¶¶ 68-96, ECF No. 22; Am. Answer 12-19, ECF No. 53. In addition, South Korea filed an analogous claim against BAE in South Korea, but only after this litigation commenced. Feb. 4, 2016 Mem. Op. & Order 2, ECF No. 43. BAE moved preliminarily to enjoin the South Korea litigation. Pl.'s Mot. Prelim. Inj., ECF No. 73. In its Opposition to BAE's Motion, South Korea argued that the Court could not issue a preliminary injunction because it lacks subject-matter jurisdiction and because the act-of-state doctrine bars it from exercising any jurisdiction it does possess. Defs.' Opp'n Prelim. Inj. 24-27, ECF No. 80. Following a hearing held on July 18, 2016, I preliminarily enjoined South Korea “from taking any further action to prosecute the Korean suit[] until I resolve the threshold issues of subject matter and personal jurisdiction and the pending motion for summary judgment, or until the parties agree to stay the Korean lawsuit during the time that I take to resolve the jurisdictional issues and summary judgment motion, whichever occurs first.” July 19, 2016 Mem. Op. & Order 1-2, ECF No. 84. South Korea has appealed this preliminary injunction. Notice of Appeal, ECF No. 91.

         I construe the jurisdictional arguments raised in South Korea's Opposition to Plaintiff's Motion for a Preliminary Injunction as a Motion for Summary Judgment, and I have permitted supplemental briefing on the issue. See Defs.' Supp. Br., ECF No. 101; Pl.'s Supp. Br., ECF No. 102. This Memorandum Opinion and Order denies South Korea's Motion because the core of the dispute involves South Korea's commercial activity, not a foreign sovereign's official acts.

         Background

The United States Government hired BAE Systems Technology Solution & Services, Inc. (“BAE”) as the lead contractor for an agreement between the U.S. Government and the Republic of Korea's Defense Acquisition Program Administration (“DAPA”) “under the U.S. Foreign Military Sales (‘FMS') Program to upgrade South Korea's existing fleet of F-16 fighter aircraft for approximately $1.7 billion.” Second Am. Compl. ¶ 1, ECF No. 22. Before the governments finalized their agreement, BAE entered into a Memorandum of Agreement (“MOA”) with DAPA and “provided DAPA with a Letter of Guarantee for Payment of Bid Bond in the amount of $43, 250, 000” (“Guarantee”), under which BAE agreed “to pay the bond if it failed to take certain actions during the bid phase of the Upgrade Program.” Id. ¶ 3. According to BAE, “DAPA continued to insist that BAE [] renew its Letter of Guarantee, ” even after the FMS contract was in effect, and BAE complied. Id. ¶ 23.
BAE “performed successfully the initial phases of work under the KF-16 Upgrade Program.” Id. ¶ 1. But then, “the U.S. Government informed South Korea that the overall price of the Upgrade Program could increase by as much as $800 million, ” id. ¶ 2, and the U.S. Air Force “terminated for convenience” BAE's contract, at South Korea's direction to cancel BAE's “selection . . . as the KF-16 system integrator for the KF-16 Upgrade Program, ” id. ¶ 4. DAPA now demands payment under the renewed Guarantee, and in BAE's view, “bases its claim for payment not on an alleged violation of the terms of the Guarantee, but on BAE[]'s inability to force the U.S. Government to withdraw its proposed price increases.” Id. ¶ 5.

         Feb. 4, 2016 Mem. Op. & Order 1-2.

BAE filed this declaratory judgment action against DAPA on November 12, 2014, seeking a declaration of rights under the MOA and Guarantees between it and DAPA. ECF No. 1; see [Feb. 4, 2016] Mem. Op. 2. “Primarily, BAE seeks a declaration that the Guarantee and its renewals are ‘incompatible with, and invalid under, the Foreign Military Sales Program . . . and federal common law of the United States, and . . . therefore unenforceable'; alternatively, it seeks a declaration that it ‘did not fail to perform any obligations required of it under such Letter(s) of Guarantee.'” [Feb. 4, 2016] Mem. Op. 2. Plaintiff then amended to name the Republic of Korea as a second defendant. Am. Compl., ECF No. 12. . . .
In July 2015, the Republic of Korea filed suit in Seoul Central District Court in South Korea, alleging breach of contract. [Feb. 4, 2016] Mem. Op. 2. South Korea then filed a motion to dismiss or, alternatively, to stay this case during the pendency of the Republic of Korea's suit against BAE in South Korea. ECF No. 26. I concluded that venue is proper in this Court, and I declined to exercise my discretion to dismiss this case under forum non conveniens, or to stay it. I reasoned, based on the evidence before me at that preliminary stage, that “the MOA's validity is entwined with the FMS Program, which is a matter of national security, such that venue certainly should be in this Court.” [Feb. 4, 2016] Mem. Op. 3.

July 19, 2016 Mem. Op. & Order 2-3.

         BAE then moved for a preliminary anti-suit injunction against the suit in Korea. Pl.'s Mot. Prelim. Inj. I granted the injunction, noting that “it is not clear whether [this] Court has jurisdiction or whether that jurisdiction is threatened” but concluding that “BAE has shown sufficiently that it is likely that the Court has jurisdiction, that its jurisdiction is threatened, and that national security interests are implicated, outweighing considerations of comity to justify an injunction of brief duration to enable me to resolve the preliminary matters of jurisdiction and whether the contracts are divisible.” July 19, 2016 Mem. Op. & Order 36.

         Because this suit involves claims against a foreign government and one of its agencies, it raises complex jurisdictional issues. The Foreign Sovereign Immunities Act (FSIA) codified the longstanding practice by U.S. courts to grant limited immunity to foreign governments and their political subdivisions as a matter of comity. See Curtis A. Bradley, International Law in the U.S. Legal System 234-40 (2d ed. 2015). But the FSIA also recognizes several exceptions to the general grant of immunity. 28 U.S.C. § 1605. The FSIA constitutes “[t]he only source of subject matter jurisdiction over a foreign sovereign or its instrumentalities in the courts of the United States.” Blue Ridge Investments, L.L.C. v. Republic of Argentina, 375 F.3d 72, 83 (2d Cir. 2013). In suits against foreign states, the FSIA “intertwine[s]” the “issues of personal jurisdiction, subject matter jurisdiction, and immunity.” Bradley, supra, at 240. The FSIA confers subject-matter jurisdiction to federal courts “as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity.” 28 U.S.C. § 1330(a). And “personal jurisdiction [over a foreign state] exists with respect to any claim for which there is federal subject matter jurisdiction.” Bradley, supra, at 240. Thus, “if the court finds that there is an exception to immunity, and that proper service has been made, the court automatically has personal and subject matter jurisdiction” over the claim. Id. at 241. This Court cannot, therefore, exercise jurisdiction over BAE's claim unless a FSIA exception applies.

         Additionally, the act-of-state doctrine “precludes any review whatever of the acts of the government of one sovereign State done within its own territory by the courts of another sovereign State.” First Nat'l Bank v. Banco Nacional de Cuba, 406 U.S. 759, 763 (1972). Thus, even if this Court has personal and subject-matter jurisdiction over the matter, it must decline to exercise jurisdiction if the acts that form the basis of the claim fall within the doctrine. See id.

         Preliminary ...


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