International Litigation

The Commercial Activity Exception The commercial activity exception to jurisdictional immunity under Section 1605(a)(2) provides that a foreign state is not immune from suit where it has engaged in one of the enumerated categories of commercial activity.5 For example, the refusal by a state to honor an agreement that payment could be demanded anywhere might constitute a direct effect under the statute.6 Additionally, a state's actions preventing a U.S. corporation from entering into contractually required subcontracts with two U.S. entities causing lost profits was a direct effect because they were guaranteed and the subcontracts had sufficient connections to the United States.7 Conversely, a successor state's automatic succession to a prior state's liability does not constitute sufficient activity, but an affirmative assumption of liability, e.g., through passage of a treaty and legislation agreeing to honor the debts of the prior state.8 In Guevara v. Peru, the Eleventh Circuit declined to find that a sovereign's failure to pay a reward within the U.S. was a form of negative activity constituting a direct effect.