SAN FRANCISCO – A federal court has upheld a lower court's decision in a breach of contract suit between two Mexico-based corporations.
The Aug. 15 opinion by the U.S. Court of Appeals for the 9th Circuit affirmed the ruling of the U.S. District Court for the Central District of California that U.S. courts lack jurisdiction in the alleged multi-billion dollar deal that had been signed between Exportadora de Sal, S.A. de C.V. (“ESSA”) and Mexican corporation, and Packsys, S.A. de C.V., also a Mexican corporation, to sell the brine from its salt production process.
"When suit was filed in the United States, ESSA invoked sovereign immunity," Judge Kim McLane Wardlaw wrote.
Packsys, a Mexico-based company claimed that it signed a 40-year deal with ESSA for salt supplies at a fixed rate. The company asked the court to "create a new rule that would extend the commercial activity exception to embrace activities of a foreign agent," the suit states.
The court ruled, however, that due to a lack of jurisdiction that it could not do so. The affirmation was made by the panel based on the Foreign Sovereign Immunities Act (FSIA).
"The Foreign Sovereign Immunities Act provides that 'a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided' in the Act. 28 U.S.C. § 1604," according the ruling.
Packsys filed the claim in California courts claiming that it was written to be done so as part of the contract with ESSA. According to the lawsuit, the contract wrote in part, “For the event of controversy, interpretation or execution of the present agreement, the parties will subject themselves to the applicable federal laws of the city of Los Angeles, California, thus renouncing to any other jurisdiction that might apply by virtue of their future or present domiciles."
The initial contract, according to the ruling, was signed sometime between December 2013 and January 2014 with the then-director general for ESSA for a fixed price at "$4 USD or $6.50 USD per ton, depending on the delivery site and commits ESSA to sell at least 10 million tons of brine per year for at least 40 years."
However, in the opinion, Wardlaw wrote in part, "Mexican law required ESSA’s board to authorize or approve the Packsys contract, but the board did not do so. ... And because the contract was not executed with actual authority, it cannot serve as the basis for applying either the FSIA's commercial activity exception or its wavier exception...
"Moreover, ESSA’s internal policies require a board resolution supported by a six-vote supermajority to enter a contract that will have a duration greater than two years. The same rule applies to contracts for the sale of goods worth more than $2 million USD."
ESSA board members claimed they never formally approved the contract, the ruling states.