(CN) – The 5th Circuit allowed Lear to sue the Kingdom of Saudi Arabia in U.S. courts over F-5 storage in San Antonia, but said the aircraft maker can’t sue for the training and support its employees provided to the Royal Saudi Air Force.
In 1995, Saudi Arabia hired Lear to coordinate F-5 repairs. The kingdom would ship broken parts to Lear in Texas, and Lear would gauge the repairs needed and their expected costs. If the kingdom approved Lear’s assessment, Lear would solicit bids for repairs and then return the fixed parts to Saudi Arabia.
The kingdom paid for the repairs on a letter of credit.
The next year, Saudi Arabia awarded Lear a contract to send hundreds of employees to the kingdom to train its Air Force. Lear employees taught members of the Royal Saudi Air Force lessons in post-ejection survival, photo reconnaissance, flight operations, tactics and weapons.
Lear claimed Saudi Arabia withheld the last $12.2 million payment under the contract, due to the alleged failure of Lear to pay taxes. But Lear said the tax claim relied on the kingdom’s misrepresentation of Lear’s income to tax authorities.
Lear also accused Saudi Arabia of forcing it to store F-5 parts for free after the spare-parts contract expired in 1999. Saudi Arabia argued that Lear had kept the parts as a gesture of goodwill, and that the kingdom had no duty to pay for it.
When Lear filed a contract claim against Saudi Arabia in 2004, the kingdom moved to dismiss the complaint based on its sovereign immunity. It also claimed that any legal action had to be litigated in Saudi Arabia, not the United States.
The district court refused to dismiss the lawsuit, partly because it found that the services Lear provided fell within a “commercial activities” exception to the Foreign Sovereign Immunities Act.
The 5th Circuit said that’s only partly true.
The storage services fall under the exception, the three-judge panel ruled, but the training services do not.
“Unlike a contract to buy army boots or bullets … the TSP [technical support program] was a contract to provide personnel that were vital to the operation of a national air defense system,” Judge W. Eugene Davis wrote. “While the purpose of the TSP contract was undeniably sovereign, the nature of the contract was also sovereign.”
But that wasn’t the case with the equipment contract, the court said.
“Regardless of the end use of the F-5 components in aircraft that were used for national defense, the [spare parts] contract was for goods and services and is properly construed as commercial activity.”
The court held that Lear could pursue its claims under the spare-parts contract, but not under the service contract.