("NEK") is a "workers' organization" founded under the constitution and laws of the Socialist Federal Republic of Yugoslavia ("SFRY") for the purpose of constructing and operating a nuclear power generating facility at Krsko, Yugoslavia.

In December 1975, Jack Edlow, vice president of the plaintiff and a shareholder of Edlow Resources, received a telex message to call Ms. France Millet, Paris representative of a French nuclear concern called Framatome. Upon his doing so, he learned that a Yugoslav utility desired to purchase about 200,000 pounds of uranium oxide for use as nuclear fuel. Mr. Edlow embarked on a canvass of uranium sources over the next several weeks, and finally ascertained that United Nuclear Corporation, a United States producer, could meet the utility's needs. On January 21, 1976, he telexed Ms. Millet to that effect, advising her also that the transaction was subject to a brokerage fee of 15 cents per pound. Two days later, Ms. Millet conveyed this information either to NEK or to the Metalka agency of Ljubljana, Yugoslavia, a "workers' organization" serving as NEK's import-export agent. On January 28, apparently in response to a query from Metalka, Ms. Millet telexed Metalka a message identifying United Nuclear and Edlow International as the seller and broker respectively. After communications between Mr. Edlow and a representative of Metalka, a meeting was arranged for February 16, in Paris. Plaintiff asserts NEK expressly affirmed its obligation to pay Edlow a broker's fee of 15 cents per pound. In February and March 1976, NEK allegedly communicated with United Nuclear and with NEK's American legal counsel (retained in connection with the ongoing negotiations) via Edlow International's telex outlet. In early March 1976 United Nuclear and NEK entered into a contract for 160,000 pounds of uranium oxide to be delivered over a four-year period. On March 9, 1976, the Bermuda based Edlow Resources firm submitted an invoice for $24,000.

3. Action Against a Foreign State

Under the Foreign Sovereign Immunities Act, the district courts have jurisdiction over any nonjury civil claim against a foreign state, provided no immunity under statute or international agreement attaches to the claim. 28 U.S.C.A. 1330 (a) .... So far as subject matter jurisdiction is concerned, the issue here is whether NEK is a "foreign state" as that term is statutorily defined. 28 U.S.C.A. 1603 . . ., added by Foreign Sovereign Immunities Act, supra, § 4(a), 90 Stat. 2892. The definition specifies that the term "foreign state" is to include not only orthodox governmental bodies but also "an agency or instrumentality of a foreign state." Id. § 1603 (a). To qualify as "an agency or instrumentality of a foreign state," an entity must meet three criteria: first, it must be "a separate legal person, corporate or otherwise:" second, it must be "an organ of a foreign state or political subdivision thereof," or alternatively be owned by a foreign state or political subdivision thereof as majority shareholder, and third, it cannot be a citizen of the United

States or be organized under the laws of any nation save the foreign state in question. Id. § 1603 (b) (1)-(3). That NEK meets the first and third criteria is undisputed. The point of controversy is whether it is either an "organ" of the Yugoslav state or owned by the state

or a subdivision thereof.

As noted above, NEK is a "work organization" within the meaning of article 35 of the SFRY constitution, which defines such an organization as "an independent self-managing organization of workers linked in labor by common interests and organized in basic organizations of associated labor. . . ." Its twelve founding organizations also are "work organizations", at least some of which are producers and distributors of electric power. A "founders organ of management" supervises operation of NEK, and day-to-day operations are conducted by NEK management employees. Plaintiff's argument that NEK is an agency or instrumentality of SFRY rests, at bottom, on the principle that all property under a socialist system such as Yugoslavia's is subject to the ultimate ownership and authority of the state. . . . On the basis of this premise plaintiff argues that "NEK and other Yugoslav work organizations are ultimately owned by the state."

Defendant's counterargument rests in part on the status of "social property" in Yugoslavia as neither state owned nor privately owned, but rather "held and used 'in trust' by the work organization for the general social good of all the Yugoslav people." . . . Although these aspects of property ownership under the SFRY system bear on the matter under consideration, they cannot support a finding in plaintiff's favor: to accept plaintiff's argument on this point would be to characterize virtually every enterprise operated under a socialist system as an instrumentality of the state within the terms of the Foreign Sovereign Immunities Act of 1976. The Act's legislative history evinces Congress' intent that the definition of "agency or instrumentality of a foreign state" be read broadly to encompass "a variety of forms, including a state trading corporation, a mining enterprise, a transport organization such as a shipping line or airline, a steel company, a central bank, an export association, a governmental procurement agency or a department or ministry which acts and is suable in its own name." H. Rep. No. 94-1486, 94th Cong., 2d Sess. 15-16 (1976). However, there is no suggestion that a foreign state's system of property ownership, without more, should be determinative on the question whether an entity operating within the state is a state agency or instrumentality under the Act.

Two more precise indices of an entity's status as state agency or instrumentality focus on the degree to which the entity discharges a governmental function, and the extent of state control over the entity's operations. Defendant suggests that the generation and distribution of electricity in Yugoslavia are committed to independent work organizations such as NEK. The work organization in Yugoslavia appears to serve as the principal vehicle for enterprise and production in that nation, much as the private corporation fulfills comparable functions in the United States. That NEK and its cofounders all are work organizations that generate and distribute power is a persuasive suggestion that power

generation and distribution is a nongovernmental function in Yugoslavia. Plaintiff's argument that NEK is subject to state control rests on the extent of government regulation of work organizations in such areas as control of assets, dissolution and liquidation Defendant, on the other hand, observes that the Yugoslav Government does not subsidize NEK, holds no seats on the NEK board, and otherwise takes no direct hand in daily management of NEK operations. These factors are crucial to application of the so-called "control test." In deciding the analogous question whether a community action agency funded federally under the Economic Opportunity Act of 1964, 42 U.S.C. 2781 et seq., is an agency or instrumentality of the Federal Government for purposes of the Federal Tort Claims Act, 28 U.S.C. 1346 (1970), as amended, Pub. L. No. 94-455, tit. XII, § 1204 (c) (1), tit. XIII, § 1306 (b) (7), 90 Stat. 1697, 1719 (1976), the Supreme Court noted that a critical factor is the "power of the Federal Government 'to control the detailed physical performance of the contractor." "United States v. Orleans, 425 U.S. 807, 814 (1976), quoting Logue v. United States, 412 U.S. 521, 528 (1973). The Court pointed out also that the degree to which an entity is subject to government regulation aimed at assuring compliance with government goals is not determinative on the question whether the entity is an agency or instrumentality of the state. Id. at 815, 816. Without depreciating the extent to which the Yugoslav state exercises ultimate control over the policies and operations of work organizations like NEK, we are persuaded by defendant's showing that NEK's daily operations are virtually free of direct government control.

The only basis, therefore, for concluding that NEK is an “organ” of the Yugoslav Government, or is at least 50 percent owned by the government, is that the state "owns" all forms of property in Yugoslavia. Having determined that this premise, however valid it may be in political theory, is not present to confer jurisdiction under the Foreign Sovereign Immunities Act, we lack subject matter jurisdiction under that Act.

Footnotes omitted.

The Court's analysis of the diversity jurisdiction issue appears below:

When a motion to dismiss is premised, as NEK's is in part, on section 1359, the burden is on the party invoking the Court's jurisdiction to prove its existence. Fowler v. Coals, 418 F. Supp. 909, 911 (E.D. Tenn. 1976). Plaintiff has not met its burden. The fact that the Edlow family dominates Edlow International and Edlow Resources may have afforded them the opportunity to credit the NEK work and fee to either corporation. Jack Edlow's status as a principal in each corporation would support an argument that his services in finding a seller were performed for either Edlow corporation. Once Edlow Resources was identified as the source of the invoice, and hence the party entitled to press whatever rights there may have been to payment on the invoice, however, the common ownership could not be used to shift credit for the services back to Edlow International when the expected tax benefits evaporated. That this action is grounded in part on principles of quantum meruit does not rectify the jurisdictional defect here: the question

in quantum meruit is which corporation performed the services. Jack Edlow's position within each corporation would require the determination to be made on the basis of the representations made in the course of events. These representations were that Jack Edlow was representing Edlow Resources. Inasmuch as Edlow Resources and NEK are alien enterprises and diversity jurisdiction does not exist in suits between aliens, IIT v. Vencap, Ltd., 519 F.2d 1001, 1015 (2d Cir. 1975), we lack diversity jurisdiction.

U.S.D.C. D.C., Civ. No. 77-1117.

Department of State Determinations

In response to a note from the Embassy of the Union of Soviet Socialist Republics delivered to the Department of State on March 18, 1977, the Department of State delivered on March 30, 1977, a note to the embassy concerning the effect of the Foreign Sovereign Immunities Act (28 U.S.C. 1330, 1332, 1602-1611, 1391, 1441) on the Department's previous practice of filing suggestions of sovereign immunity with the courts. The embassy had requested the assistance of the Department in seeking the dismissal of actions against Novosti Press Agency (Novosti) and the Telegraph Agency of the Union of Soviet Socialist Republics (TASS), which had been brought in the U.S. District Court for the Southern District of New York (77 Civ. 639 (C.H.T.)).

Portions of the Department's March 30, 1977, note follow:

* *

With respect to this matter, the Department of State wishes to bring to the attention of the Embassy the following information. On January 19, 1977, the Foreign Sovereign Immunities Act, P.L. 94-583, became effective. That law provides, among other things, that "claims of foreign states to immunity should henceforth be decided by courts of the United States and of the States in conformity with the principles set forth" in that law. The statute, consequently, precludes the Department of State from continuing its previous practice of filing suggestions of sovereign immunity with the courts. This change is discussed in further detail in the Department's circular note dated November 19, 1976.

In its note, the Embassy states that attorneys for Novosti and TASS have filed motions to dismiss the actions against them. The court will, under the provisions of the new law, be able to decide directly upon the merits of such motions, including any defenses of sovereign immunity raised in those motions.

Dept. of State File Nos. P77 0040-1484 and P77 0051-368.

In response to a subsequent note from the embassy dated April 29, 1977, the Department of State in a note dated May 16, 1977, reaffirmed its position that the Department was not in a position to render the embassy any assistance. Portions of the May 16, 1977, note read as follows:

*

The Department . . . adheres to the position that it cannot at this time render the assistance requested. The Department concurs in the position taken by the attorneys for Novosti and TASS that the Foreign Sovereign Immunities Act applies in this case, even though the actions were commenced before January 21, 1977. The Legal Adviser in a letter to the Attorney General dated November 10, 1976, and published in the Federal Register of November 18, 1976, at volume 41, page 50883 stated that it would "not make any sovereign immunity determinations after the effective date of" the Act and that "it would be inconsistent with the legislative intent of that Act for the executive branch to file any suggestion of immunity on or after January 19, 1977." If the court were to decide this question in a different sense, the Department, in conjunction with the Department of Justice, would have to consider whether some action by the executive branch would be possible and appropriate. In the meantime, the filing of a recognition and suggestion based upon the hypothetical possibility that the court might so decide seems clearly inappropriate.

In its last note, the Embassy further requests that the Department inform the court that it accepts the statement made by the Ambassador of the Soviet Union to the United States that Novosti is an instrumentality of the Soviet Union. The Foreign Sovereign Immunities Act defines the phrase "agency or instrumentality of a foreign state" in some detail and it further makes it apparent that the application of that term to concrete cases is one of the tasks transferred by that Act to the courts of the United States from the Department.

Dept. of State File Nos. P77 0062-2141 and P77 0076-2018.

For the text of the regulations issued by the Dept. of State on Jan. 19, 1977, pursuant to sec. 4 of the Foreign Sovereign Immunties Act of 1976 (28 U.S.C. 1608(a)), prescribing the form of a "Notice of Suit" which, in certain circumstances, would accompany the service of a summons and complaint on a foreign state or its political subdivisions, see the 1976 Digest, Ch. 6, § 7, pp. 325-326, or 42 Fed. Reg. 6367 (1977). For further information concerning the Foreign Sovereign Immunities Act of 1976, see the 1976 Digest, Ch. 1, § 3, p. 1, and Ch. 6, §7, pp. 320-325, 327-328. See also the 1975 Digest, Ch. 6, § 7, pp. 346–368.

In D'Angelo v. Petroleos Mexicanos, 422 F. Supp. 1280 (1976), the U.S. District Court for the District of Delaware held, inter alia, that the opinion of the Attorney General of Mexico had to be accepted as an official declaration that the effect of an expropriation decree constituted an act of state requiring the district court to abstain from further inquiry into the oil rights in Mexico of the plaintiff receiver of a dissolved Delaware corporation. In arriving at its decision in this action brought by a receiver seeking among other things a judg