The Ninth Circuit’s Substantial Service Error

This blog dedicated to FSIA jurisprudence begins, fittingly, by addressing the issue that confronts parties at the start of FSIA litigation: service of process.

On December 10, 2010, in Peterson v. Islamic Republic of Iran, 627 F.3d 1117 (9th Cir. 2010), the Ninth Circuit created a circuit split with respect to a significant issue relating to service of process under the FSIA.  The ruling has attracted little attention or commentary.  But the Peterson court’s decision was in error, and it should one day be challenged.

The basic rules relating to service of process under the FSIA are well known.   Service upon a foreign state is governed by 28 U.S.C. section 1608(a), whereas the requirements for service upon a foreign state agency or instrumentality are set forth in section 1608(b).  Until the Ninth Circuit’s decision in Peterson, the law was unambiguous: a plaintiff had to strictly comply with section 1608(a)’s requirements for service upon a foreign state.  Seee.g.Magness v. Russian Fed’n, 247 F.3d 609, 611 (5th Cir. 2001) (“strict compliance”); Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148, 153-54 (D.C. Cir. 1994) (“strict adherence”); Gray v. Permanent Mission of People’s Republic of Congo to United Nations, 443 F. Supp. 816, 821 (S.D.N.Y. 1978), aff’d, 580 F.2d 1044 (2d Cir. 1978) (“strict compliance”); Alberti v. Empresa Nicaraguense De La Carne, 705 F.2d 250, 253 (7th Cir. 1983) (strict compliance); see also O’Bryan v. Holy See, 490 F. Supp. 2d 826, 831 (W.D. Ky. 2005) (“Service of process on a foreign state must be effected in strict compliance with the provisions of section 1608(a).”).  By contrast, with regard to service upon an agency or instrumentality, courts agreed that substantial compliance was sufficient.  Seee.g.Magness, 247 F.3d at 616 (“substantial compliance with section 1608(b) is sufficient so long as the defendants have actual notice of the suit”); see also Semtek Int’l Inc. v. Info. Satellite Sys., CIV.A. 09-10183-RWZ, 2012 WL 831475 (D. Mass. Mar. 9, 2012) (“While service on a ‘foreign state’ under FSIA § 1608(a) must be accomplished in accordance with standard of ‘strict compliance,’ service on an agency or instrumentality of a foreign state under § 1608(b) requires only ‘substantial compliance.'”).

As courts have found – and as I have previously successfully argued in FSIA litigation – there are weighty reasons underlying the more careful treatment of foreign states with respect to service of process.  Most importantly, application of a strict compliance standard comports with the statutory scheme.   For example, in the absence of a special arrangement or an international convention, section 1608(a) requires service upon the “head of foreign affairs of the foreign state concerned” – a requirement that is absent in Section 1608(b).  See 28 U.S.C. § 1608(a)(3); compare 28 U.S.C. § 1608(b).  In the event service by mail upon the foreign minister fails, service is permitted only through diplomatic channels – a procedure also absent in Section 1608(b).  See 28 U.S.C. § 1608(a)(4); compare 28 U.S.C. § 1608(b).  The adoption of high-level procedures in Section 1608(a)’s service provisions reflects Congress’s determination that service upon a foreign state has greater political and diplomatic significance, requiring a more exacting standard of compliance.  See Note, Service of Process Under the Foreign Sovereign Immunities Act of 1976: The Arguments for Exclusivity, 14 Cornell Int’l L. J. 357, 362 (1981) (“The utilization of diplomatic service when other methods fail [under Section 1608(a)], instead of court-ordered service [as permitted under Section 1608(b)], indicates an unwillingness on Congress’s part to entrust the courts with power to deal with foreign states and subdivisions.”).

The same holds true with Section 1608(a)’s notice of suit requirement, which is absent from section 1608(b).  The notice of suit was a “new document” created by Congress, unique to service upon foreign sovereigns and designed “to minimize potential irritants to relations with foreign states.”  H.R. Rep. No. 94-1487, at 11.  The notice of suit’s requirements are separate and distinct from notice requirements imposed by other rules.  See 28 U.S.C. § 1608(a); 22 C.F.R. § 93.2 (detailing notice of suit requirements).  The notice of suit reflects the added importance attached to service on foreign states and the need to minimize irritants to foreign relations, which both require service in accordance with the statute’s provisions.  See Arthur L. George, A Practical and Theoretical Analysis of Service of Process under the Foreign Sovereign Immunities Act, 19 Int’l Law. 49, 75 & n.177 (1985) (notice of suit required under Section 1608(a) demonstrates Congress’s “sensitivity to the need for greater delicacy in suits against foreign states themselves as opposed to their agencies and instrumentalities”).

In addition, the legislative history of Section 1608(a) – unlike the legislative history of Section 1608(b) – states that the Section 1608(a) service provisions provide the “exclusive procedures” for service upon a foreign state.  H.R. Rep. No. 94-1487, at 24; cf. H.R. Rep. No. 94-1487, at 25 (no “exclusive procedures” language in discussion of section 1608(b) provisions).  The “exclusive procedures” language “simply does not support a finding that anything less than strict compliance will suffice under the law.”  Magness, 247 F.3d at 615; see also Finamar Investors, 889 F. Supp. at 117 (same).

By contrast, section 1608(b) contains relatively informal service procedures that are akin to service provisions for foreign individuals and corporations under Rules 4(f) and (h)(2) of the Federal Rules of Civil Procedure rather than to service upon foreign states.  See, e.g., 28 U.S.C. § 1608(b)(3)(C) (permitting service “as directed by order of the court consistent with the law of the place where service is to be made”); see also George, supra, at 55 (stating that the service options under section 1608(b) “are more numerous and offer more flexibility than those of section 1608(a).”).  Indeed, section 1608(b)(3) explicitly allows a range of service options “if reasonably calculated to give actual notice.”  As several courts have found, the “actual notice” language in section 1608(b)(3) shows “that Congress was there concerned with substance rather than form; but the analogous subsection of Section 1608(a) says nothing about actual notice.”  Transaero, Inc., 30 F.3d at 154; see also Magness, 247 F.3d at 616 (same); Finamar Investors, 889 F. Supp. at 117 (same).

The distinctions in the service provisions are “neatly tailored to the differences between ‘foreign states’ and ‘agencies or instrumentalities.’  The latter, typically international commercial enterprises, often possess a sophisticated knowledge of the United States’ legal system that other organs of foreign governments may lack . . . .”  Transaero, Inc., 30 F.3d at 154; see also H.R. Rep. No. 94-1487, at 25 (foreign states may be “unfamiliar with U.S. law or procedures”).  Given Congress’s adoption of procedures to ensure service upon a foreign state which would both “minimize potential irritants to relations with foreign states” and take into consideration a foreign state’s lack of sophistication (H.R. Rep. No. 94-1487, at 11), leniency in section 1608(a) cases “would disorder the statutory scheme.”  Transaero, Inc., 30 F.3d at 154.  Accordingly, in keeping with the language, structure and legislative history of the FSIA, service upon foreign states requires strict compliance.

The Peterson court failed to address any of these issues.  Even worse, there is no indication that the court was ever advised of the relevant case law or legislative history.  Iran did not appear in the Peterson case, and neither the third-party’s answering brief nor the United States’ amicus brief addressed the standard applicable to service under section 1608(a).

Deprived of the benefit of adversarial briefing on the standard applicable to service of process, the Peterson court relied on Straub v. A P Green, Inc., 38 F.3d 448 (9th Cir. 1994), which had stated in a section 1608(b) case that “[w]e formally adopt a substantial compliance test for the FSIA.”  Id. at 453.  Citing Straub, Peterson stated that the “Ninth Circuit has adopted a substantial compliance test for the FSIA’s notice requirements; a plaintiff’s failure to properly serve a foreign state defendant will not result in dismissal if the plaintiff substantially complied with the FSIA’s notice requirements and the defendant had actual notice.”  But Straub was a case under section 1608(b), and therefore is not precedent on the standard applicable under section 1608(a).  See Straub, 38 F.3d at 451 (holding that defendant was “an instrumentality of a foreign state”); id. at 452-53 (addressing solely whether service had been effected under sections 1608(b)(2) and (b)(3)).  This was, in fact, the oral ruling of the United States District Court for the District of Oregon in John V. Doe v. Holy See (a case in which I represented the foreign sovereign defendant), where the court adopted a strict compliance standard notwithstanding the Ninth Circuit’s decision in Straub: “I believe that Straub intends to be a holding about the appropriate standard under subsection (b) or, more particularly, under subsection (b)(3), and that in the broader language in one sentence of that opinion isn’t an intention by the Ninth Circuit to decide a very important issue that wasn’t before the court in any way.”  Oral Transcript of February 5, 2004 Hearing, at 30 (on file with author).

In the aftermath of Peterson, it appears that district courts in the Ninth Circuit may no longer believe they have the flexibility to adopt a strict compliance standard under section 1608(a).  Cf. FSM Dev. Bank v. Arthur, 11-CV-05494-LHK, 2012 WL 1438834, at *4 (N.D. Cal. Apr. 25, 2012) (“Under the Ninth Circuit’s ‘substantial compliance’ test, which is binding on this Court, the pivotal factor is whether the defendant receives actual notice and was not prejudiced by the lack of compliance with the FSIA”) (emphasis in original).  That is a shame, because an important development in FSIA jurisprudence – and the creation of a circuit split – should be based upon reasoned legal analysis rather than a court error arising from the unusual non-adversarial posture of the relevant appellate proceedings.

If and when the issue presents itself again in the Ninth Circuit, Peterson should be challenged.  And if the challenge is carefully done, Peterson could be – and should be – reversed.

One response

  1. Pingback: Litigation Comment: Richardson v. Attorney General of the British Virgin Islands « FSIA LAW

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