A federal appeals court today in Washington unanimously sided with a North Carolina cruise ship company, saying its $54 million contract and unfair trade practices suit against Canada can proceed in federal district court in the United States.
A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit ordered additional proceedings in the suit Cruise Connections filed in November 2008 against the Royal Canadian Mounted Police and the attorney general of Canada, among other defendants. The suit was filed in the U.S. District Court for the District of Columbia.
Cruise Connections, based in Winston-Salem, signed a $54 million contract in 2008 with the Royal Canadian Mounted Police to provide three cruise ships to house security staff needed in Vancouver for the Olympic games in February. Cruise Connections planned to subcontract with Holland America and Royal Caribbean to provide the ships.
Holland America and Royal Caribbean sought assurances that they would not incur tax liability for Canadian corporate income and payroll taxes, according to court records. The Royal Canadian Mounted Police (RCMP) reversed, leaving the planned subcontractors exposed to tax liability. Cruise Connections was unable to provide an agreement by the required date. The RCMP terminated the contract.
Cruise Connections sued the RCMP and the attorney general of Canada, among others, in the U.S. District Court for the District of Columbia. The complaint alleged breach of contract and unfair trade practices. Judge James Robertson dismissed the suit, saying that the RCMP has sovereign immunity. Cruise Connections appealed.
The appeals court panel—Judge David Tatel heard the case with Senior Judges Laurence Silberman and Stephen Williams—heard argument on Feb. 8. Jack Strauch of Strauch Fitzgerald & Green in Winston-Salem argued for Cruise Connections. Hughes Hubbard & Reed litigation partner John Townsend in the firm’s Washington office argued for the Canadian government.
The appellate panel found the termination of the contract had a “direct effect” in the United States, voiding the sovereign immunity generally accorded to foreign governments and foreign agencies that do business in the United States.
Tatel noted in the opinion that Cruise Connection’s effort to negotiate its “charter party agreements” occurred in the United States. The judge also said at least one of the ships would have moved through U.S. waters to Vancouver, and the termination of the contract “thwarted” over $40 million worth of cruise-related business in the United States.