An Austrian Instrumentality’s “Agency” Error

On March 5, 2014, OBB Personenverkehr AG (“OBB”) – an instrumentality of the Republic of Austria – filed a petition for a writ of certiorari seeking the Supreme Court’s review of the Ninth Circuit’s opinion in Sachs v. Republic of Austria, 737 F.3d 584 (9th Cir. 2013) (en banc).  The matter is scheduled for conference on May 2, 2014.  See United States Supreme Court Docket for OBB Personenverkehr AG v. Carol P. Sachs, No. 13-1067.  While I have written about OBB’s argument regarding agency and attribution before, I wanted to revisit the issue in light of the pending Supreme Court proceeding. 

The facts of the Sachs case are relatively straightforward.  The plaintiff, a California resident, purchased a Eurail pass from Rail Pass Experts (“RPE”), an online ticket seller based in Massachusetts.  RPE and OBB have no direct relationship; instead, RPE may be a subagent of The Eurail Group, an entity incorporated in Luxemburg whose membership comprises 30 rail carriers (including OBB).  The plaintiff suffered severe injuries while trying to board a train in Innsbruck, Austria, that was bound for Prague.  She sued OBB for her injuries.

There are several interesting legal issues in Sachs, but here I want to focus on the main argument that OBB raises in the Supreme Court.  OBB argues that United States courts lack jurisdiction because the acts of RPE cannot be imputed to OBB.  That contention is what one would usually expect from a defendant in such a case, since attribution is a critical issue under the FSIA in general (and under the first clause of the commercial activity exception in particular).  But OBB goes one step further, claiming that courts must determine whether an entity is an “agent” of a foreign state by utilizing the “agency or instrumentality” test set forth in 28 U.S.C. section 1603.  According to OBB, “to determine whether the acts of RPE were acts ‘by the foreign state,’ the Ninth Circuit should have looked to the definitions of ‘foreign state’ and ‘agency’ [in section 1603] to decide if RPE is an agent of OBB.”  OBB’s Petition for a Writ of Certiorari, at 18. 

OBB’s “agency” argument is meritless.

The term “agency or instrumentality” in section 1603 has nothing to do with attribution.  Instead, section 1603’s definition of “agency or instrumentality” identifies which entities are entitled to the protections of the Foreign Sovereign Immunities Act.  28 U.S.C. § 1603.  Section 1603 shows unequivocally that RPE is not entitled to foreign sovereign immunity, since it is a Massachusetts corporation.  Cf. 28 U.S.C. § 1603(b)(3) (requiring a foreign state to be “neither a citizen of a State of the United States . . .  nor created under the laws of any third country”).  However, section 1603 does not address – much less resolve – the issue of whether RPE’s conduct is attributable to OBB.

OBB’s claim that the term “agency or instrumentality” in section 1603 refers to attribution ignores that the FSIA was not written on a blank slate.  The statute used “agency or instrumentality” because it was a term of art long utilized by courts and commentators during the period preceding the FSIA in discussing whether an entity was entitled to foreign sovereign immunity.  See, e.g., Et Ve Balike Kurumu v. B.N.S. International Sales Corp., 204 N.Y.S.2d 971, 974 (1960) (“where the corporation functions as a public agency or instrumentality or where evidence of corporate separateness from the government was not strong, immunity has been granted”); F.W. Stone Engineering Co. v. Petreolos Mexicanos, 42 Atl.2d 57, 60 (1945) (discussing immunity of foreign state “instrumentality”); United States of Mexico v. Schmuck, 56 N.E.2d 577 (1944) (discussing immunity of “public agency” of foreign state); Dunlap v. Banco Central Del Ecuador, 41 N.Y.S.2d 650, 652 (1943) (discussing immunity of “instrumentality” and “agency” of foreign government); Telkes v. Hungarian Nat’l Museum, 38 N.Y.S.2d 419 (1942) (holding that a suit is not maintainable if “the defendant is an agency or instrumentality of [a foreign state] exercising a governmental function”); Hannes v. Kingdom of Roumania Monopolies Institute, 20 N.Y.S.2d 825, 832 (1940) (stating that foreign sovereign immunity extends to “instrumentalities” of a foreign state); United States v. Deutsches Kalisyndikat Gesellschaft, 31 F.2d 199, 202 (S.D.N.Y.1929) (holding that “instrumentalities in which there are private interests” are not entitled to immunity); Molina v. Comision Reguladora Del Mercado de Henequen, 91 N.J.L. 382 (Supreme Court of New Jersey, 1918) (discussing the lack of immunity of “governmental agencies”); see also, e.g., Comment, The Jurisdictional Immunity of Foreign Sovereigns, 63 Yale L.J. 1148, 1152-53 (1954) (“Traditional doctrine grants immunity to government agencies, commissions, and other instrumentalities unless they have corporate personality.”); Bernard Fensterwald, Sovereign Immunity and Soviet State Trading, 63 Harv.L.Rev. 614, 619-20 (1950) (discussing distinction between incorporated and unincorporated “agencies” of a foreign government); Arthur Kuhn, The Extension of Sovereign Immunity to Government-Owned Commercial Corporations, 39 Am. J. Int’l. L. 772, 772 ( 1945) (“The distinction between agencies of foreign governments engaged in a public function and those which are engaged in purely private commercial transactions has long been recognized.”); cf. Note, Immunity from Suit of Foreign Sovereign Instrumentalities and Obligations, 50 Yale L.J. 1088, 1089 (1941); William C. Hoffman, The Separate Entity Rule in International Perspective: Should State Ownership of Corporate Shares Confer Sovereign Status for Immunity Purposes?, 65 Tul. L. Rev. 535, 546 (1991).

Consistent with the treatment of the agency/instrumentality issue before the enactment of the FSIA, the section-by-section analysis accompanying the first proposed iteration of the FSIA discussed the bill’s use of the term as follows:

An ‘agency or instrumentality’ of a state . . . could assume a variety of forms – a state trading corporation, a transport organization such as a shipping line or airline, or a banking activity.  The traditional rule was that such agencies and instrumentalities of a foreign government were entitled to the same immunities as the government itself, especially if they engaged in clearly governmental activities.

Departments of State and Justice, Section-by-Section Analysis, 119 Cong. Rec. 2216 (1973). 

Similarly, the FSIA’s House Report stated that “entities which meet the definition of an ‘agency or instrumentality of a foreign state’ could assume 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.R. Rep. No. 94-1487, at 15-16 (1976).  The report made it clear that the agency/instrumentality definition set forth in section 1603 was intended solely to determine whether a particular entity was entitled to claim sovereign immunity.  See id. at 15 (“An entity which does not fall within the definitions of sections 1603 (a) or  (b) would not be entitled to sovereign immunity in any case before a Federal or State court.  On the other hand, the fact that an entity is an ‘agency or instrumentality of a foreign state’ does not in itself establish an entitlement to sovereign immunity.  A court would have to consider whether one of the sovereign immunity exceptions contained in the bill . . . was applicable.”).  Nothing in the legislative history suggests that section 1603 was intended to address the issue of attribution.

Litigants’ past attempts to characterize section 1603 as setting forth the standard for attribution have not fared well.  As the Fifth Circuit explained twenty-five years ago:

The FSIA uses [the term] to determine whether an “agency” of the state may potentially qualify for foreign sovereign immunity itself under the FSIA. This is a completely different question from that which we must address here: whether or not the [entity] enjoyed an alter ego relationship with the [foreign sovereign] so that it could bind [the sovereign] to a contract. Although such an alter ego relationship may be described in terms of “agency,” it is a completely different inquiry than that which might be conducted under § 1603.

Hester Int’l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 176 (5th Cir. 1989); see also, e.g., Gates v. Victor Fine Foods, 54 F.3d 1457, 1460 n.1 (9th Cir. 1995) (same).  In addition, the argument makes little sense: if OBB’s interpretation were accepted, a foreign state could freely use agents who did not meet the definition of section 1603 – such as individuals (cf. Samantar v. Yousuf, 560 U.S. 305, 314-19 (2010)) or a corporation in the United States or in a third country (cf. 28 U.S.C. § 1603(b)(3)) – and avoid jurisdiction even though the foreign state explicitly authorized the agent’s relevant conduct in the United States.  Such an approach would create a hole that could swallow the doctrine of restrictive immunity, since foreign states would have an easy method through which to engage in commercial conduct without the risk of litigation.

In the end, OBB’s argument should be rejected.  More importantly, with regard to whether OBB’s certiorari petition should be granted, it is clear that there is no circuit split (or conflict with Supreme Court precedent) with respect to the issue of section 1603 and attribution.  In fact, all courts have agreed that section 1603 has nothing to do with attribution.  Regarding this issue, at least, the Supreme Court’s decision in Sachs is easy: certiorari should be denied.

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