The Second Circuit’s Apparent FSIA Authority

Agency is deeply enmeshed with FSIA jurisdiction.  Because jurisdiction over a foreign state generally requires an act by the state, the question of whether an exception to immunity applies will often turn on whether the conduct of an individual – for example, an official, employee or agent – is attributable to the sovereign.  Since jurisdiction is the key legal issue in FSIA cases, the need for clear rules relating to agency is paramount.  Cf. H.R.Rep. No. 94-1487, at 32 (discussing “the importance of developing a uniform body of law in this area [of foreign sovereign immunity]”).

Unfortunately, FSIA jurisprudence does not provide the needed clarity with respect to agency.  In this post, I will examine one of the agency problems in FSIA cases: whether an individual’s apparent authority to act on behalf of a foreign state is sufficient to give rise to subject matter jurisdiction under the commercial activity exception.  As will be shown below, the Second Circuit’s unclear precedent on the issue of apparent authority unnecessarily gives rise to confusion and lack of uniformity.  The issue should be litigated in the Second Circuit at the earliest opportunity.

The Ninth, Fourth and Fifth Circuits have all squarely held that apparent authority is insufficient to give rise to jurisdiction under the commercial activity exception.  See Phaneuf v. Republic of Indonesia, 106 F.3d 302, 308 (9th Cir. 1997) (“We hold that an agent must have acted with actual authority in order to invoke the commercial activity exception against a foreign state.”); Velasco v. The Gov’t of Indonesia, 370 F.3d 392, 400 (4th Cir. 2004) (“we concur with the position of the Ninth Circuit and hold that the commercial activity exception may be invoked against a foreign state only when its officials have actual authority”); Dale v. Colagiovanni, 443 F.3d 425, 429 (5th Cir. 2006) (“We agree with the Fourth and Ninth Circuits that an agent’s acts conducted with the apparent authority of the state is insufficient to trigger the commercial activity exception to FSIA.”) [Author’s Note: I represented the foreign sovereign in the Dale district court and appellate proceedings].

There are two basic reasons for the rule.  First, “[a]ll three clauses of the [commercial activity] exception require ‘a commercial activity of the foreign state.’”  Phaneuf, 106 F.3d at 307, quoting 28 U.S.C. § 1605(a)(2) (emphasis in original).  That language “clearly entails commercial activity in which the foreign state is engaged.”  Id.  “If the foreign state has not empowered its agent to act, the agent’s unauthorized act cannot be attributed to the foreign state; there is no ‘activity of the foreign state.’”  Id. at 308, quoting 28 U.S.C. § 1605(a)(2); see also Dale, 443 F.3d at 428.

Second, “courts analyzing the sovereign immunity of the United States have held consistently that the act of an agent beyond what he is legally empowered to do is not binding upon the government.”  Velasco, 370 F.3d at 399; see also Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 689 (1949); Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383-84 (1947). Under basic principles of comity, similar principles apply to preclude foreign sovereigns from being drawn into litigation based upon the unauthorized acts of individuals.  See, e.g., Long v. The Tampico & Progresso, 16 F. 491, 495 (S.D.N.Y. 1883) (“By international comity, and that tacit agreement which constitutes the law of nations, every government accords to every other friendly power the same respect to its dignity and sovereignty . . . which it enjoys itself within its own dominions.”); see also Velasco, 370 F.3d at 399; Phaneuf, 106 F.3d at 308.

While there is broad agreement among three circuit courts, the Second Circuit has twice assumed that apparent authority would be sufficient to confer jurisdiction under the FSIA.  See Fidelity Bank, N.A. v. Gov’t of Antigua & Barbuda-Permanent Mission, 877 F.2d 189, 193-94 (2d Cir.1989); Reiss v. Societe Centrale du Groupe des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000).  However, because First Fidelity and Reiss did not address the issue directly, it is arguable that neither constitutes binding precedent.  See Estate of Magnin v. CIR, 184 F.3d 1074, 1077 (9th Cir. 1999) (“When a case assumes a point without discussion, the case does not bind future panels.”); Matter of Stegall, 865 F.2d 140, 142 (7th Cir. 1989) (“A point of law merely assumed in an opinion, not discussed, is not authoritative.”); Am. Portland Cement Alliance v. EPA, 101 F.3d 772, 776 (D.C. Cir. 1996) (“[J]urisdictional issues that were assumed but never expressly decided in prior opinions do not thereby become precedents.”); see also Phaneuf, 106 F.3d at 308 n.4 (stating that First Fidelity “assumed the appropriateness of invoking the commercial activity exception based on apparent authority” and “gave no analysis or explanation of its statements regarding apparent authority”); Dale, 443 F.3d at 429 (stating that only the Fourth and Ninth Circuits had previously “directly addressed the issue”).  Nevertheless, district courts in the Second Circuit have adopted the apparent authority approach, and courts outside the circuit have recognized a circuit split.  See Storr v. Nat’l Defence Sec. Council of Republic of Indonesia-Jakarta, 95 CIV. 9663 (AGS), 1997 WL 633405 (S.D.N.Y. Oct. 14, 1997) aff’d sub nom. Storr v. Nat’l Def. Sec. Council, 164 F.3d 619 (2d Cir. 1998); see also, e.g., EduMoz, LLC v. Republic of Mozambique, — F. Supp. 2d —, CV 13-02309 MMM CWX, 2013 WL 5040937, at *17 n.82 (C.D. Cal. Sept. 10, 2013).  And there have been efforts to harmonize the different opinions, including a recent decision in the Southern District of New York that would embed a public vs. private analysis into the equation – which would likely deepen rather than alleviate any confusion.   See Themis Capital, LLC v. Democratic Republic of Congo, 881 F. Supp. 2d 508, 522-26 (S.D.N.Y. 2012).

The issue of apparent authority is critical, because it can make all the difference on the question of FSIA immunity.  For example, the plaintiffs’ cases in Phaneuf, Velasco and Dale all fell apart once apparent authority was taken off the table.  See, e.g., Phaneuf v. Gov’t of Indonesia, 18 Fed. Appx. 648, 650 (9th Cir. 2001); Velasco, 370 F.3d at 400-02.  On such an important issue, a circuit split – or, in this case, an apparent circuit split – should be resolved as soon as possible.   See, e.g., Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation, 730 F.2d 195 (5th Cir. 1984) (“[I]t is highly desirable to avoid circuit conflicts in the sensitive area of sovereign immunity.”).

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