CVSG in OBB v. Sachs

On May 19, 2014, the United States Supreme Court invited the Solicitor General to file a brief in OBB v. Sachs (No. 13-1067), a case that I have previously discussed.  Given that Sachs involves the key issue of attribution under the FSIA — an issue that has not be addressed by the Supreme Court for over thirty years — it will be very interesting to see the Solicitor General’s response to the CVSG.

The Practical Impact of Strict Compliance Under Section 1608(a)

Two recent decisions reaffirm the need for a plaintiff’s strict compliance with the service requirements set forth in 28 U.S.C. section 1608(a).  Although I have addressed the standard for service upon a foreign state before, the new decisions demonstrate the practical effect of a strict compliance standard in FSIA litigation.

First, in Barot v. Embassy of Republic of Zambia, CV 13-0451 (ABJ), 2014 WL 1400849 (D.D.C. Apr. 11, 2014), the district court held that the plaintiff failed to comply with section 1608(a)(3)’s requirement that service of process must “be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned.”  28 U.S.C. § 1608(a)(3).  Instead of addressing the package to the head of the foreign ministry, the plaintiff addressed the mailing to the “Embassy of Zambia, P.O. Box 50069, Lusaka City, Zambia.”  Barot, 2014 WL 1400849, at *5.  While the district court noted that it “would be inclined to overlook such a technical error” in another context, the court held that section 1608(a) requires strict compliance and that the service attempt “did not comply with the strict terms of section 1608(a)(3).”  Id. at *5-6.

Second, in Doe v. Holy See, CIV.A. 13-128, 2014 WL 1329985 (E.D. La. Apr. 2, 2014) (a case in which I am one of the attorneys for the foreign sovereign), the district court held that service of the original complaint did not strictly comply with section 1608(a) when the complaint had been amended before service was accomplished.  The court held that “the plaintiff’s attempted service of process failed to strictly comply with the FSIA’s service requirements in 28 U.S.C. § 1608(a) because the plaintiff failed to serve the operative amended complaint [and] did not serve a translation of the operative complaint.”  Id. at *6. 

The strict compliance standard requires plaintiffs to follow the rules set forth under section 1608(a) and the underlying federal regulations.  When a plaintiff fails to do so, there is a good chance that the plaintiff will be compelled to return to square one.

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.

Republic of Argentina v. NML Capital, Ltd.: Reaction to Argentina’s Reply Brief

I only have time for a short post today, but — especially in light of my article about the NML case last week (“NML Article”) — I wanted to share my thoughts about the reply brief filed by Argentina yesterday.

Argentina repeats its claim that “the FSIA make all foreign-state property presumptively immune from judgment execution.”  Reply Brief for Petitioner (“Arg. Reply”) at 3 (emphasis added); see also id. at 14.  As I explained in my article, Argentina’s contention is untenable given the plain language of the FSIA.  NML Article at 5-9.  Section 1609, the statutory provision that confers presumptive execution immunity on a foreign state’s property, is expressly limited to property “in the United States.”  28 U.S.C. § 1609 (emphasis added).  Contrary to Argentina’s argument, nothing in the FSIA confers presumptive immunity upon foreign state property throughout the world. 

Argentina’s response to section 1609’s clear limitation appears to be relegated to a footnote in the middle of its brief, where it states the following: “NML is wrong that foreign-state property outside the United States is not ‘immune,’ but in any event does not dispute that U.S. courts may not execute on such property, and acknowledged as much to the Second Circuit.”  Arg. Reply at 10 n.4 (emphasis in original) (citations omitted).  The fact that Argentina did not even repeat the full argument it made to the Second Circuit on the issue does not, in my opinion, bode well for its position in the Supreme Court.  Cf. NML Article at 7-8.  Moreover, as I stated last week, section 1609’s “in the United States” limitation means that it “neither provides immunity to foreign property nor empowers U.S. courts to order execution against assets held abroad.”  NML Article at 8.  That the FSIA fails to accord United States courts with the power to execute upon property located in foreign jurisdictions does not mean that such property receives “presumptive immunity” under the statute.  Instead — and as Argentina has previously conceded in this litigation — the status of foreign state property overseas is simply a matter of foreign law properly resolved by foreign courts.  Cf. NML Article at 7-8.

Argentina also appears to argue that the pre-FSIA common law should govern with respect to a foreign state’s property overseas.  Arg. Reply at 4-5, 11.  But principles of statutory construction — including those relating to adherence to pre-statutory common law — do not trump a statute’s plain language.  Cf. Sebelius v. Cloer, — U.S. —, 133 S. Ct. 1886, 1895-96 (2013).  Moreover, Argentina nowhere shows that the pre-FSIA regime accorded immunity to a foreign state’s property abroad.  In the absence of such a showing, it is just as likely that immunity issues relating to foreign property were treated as matters of foreign law before the FSIA’s enactment, just as they are now.

Finally, Argentina’s waiver argument (Arg. Reply at 20-23) — which disregards that the issue of waiver with respect to foreign assets is a question of foreign law — fails for the reasons I explained more fully in my article last week.  See NML Article at 10-11.

Republic of Argentina v. NML (No. 12-842) – Why Both Sides Are Wrong

NML, a Cayman Islands hedge fund, obtained numerous federal judgments against Argentina arising out of Argentina’s default on payment of its public debt. Argentina refuses to satisfy any of the judgments. Because NML has had little success in finding Argentinian assets in the United States subject to execution under the Foreign Sovereign Immunities Act (FSIA), the district court granted NML broad discovery from non-party banks relating to Argentina’s assets overseas. The discovery dispute between NML and Argentina is currently pending in the United States Supreme Court, with oral argument scheduled for April 21, 2014.

The FSIA has been called a “statutory labyrinth” with “many deliberately vague provisions.” While that characterization may hold true regarding certain sections of the FSIA, the statute is a model of clarity and simplicity with respect to the threshold issue in this case: whether foreign assets are accorded a statutory presumption of immunity from execution. Section 1609 provides that only a foreign state’s property “in the United States” is presumptively immune from execution. Nowhere does the FSIA confer presumptive immunity on a foreign state’s assets held outside the United States.

Notwithstanding section 1609’s plain language, the central contention advanced in the Supreme Court by Argentina and the United States (as amicus) is that Argentina’s assets overseas are entitled to presumptive statutory immunity and, as a result, are immune from discovery under the FSIA. Because Argentina and the United States’ argument cannot be squared with section 1609 itself, it is wrong as a matter of law.

Since the FSIA does not accord presumptive sovereign immunity upon a foreign state’s assets overseas, the discovery dispute between Argentina and NML should not be analyzed under the FSIA. Instead, the Supreme Court’s decision in Société Nationale Industrielle Aérospatiale v. USDC, 482 U.S. 522 (1987), controls. The district court and the Second Circuit should have reviewed NML’s discovery requests under the comity analysis set forth in Société Nationale, which is broad enough to accommodate all of the interests and policy considerations raised by the parties and the United States.

With regard to NML’s main argument in the Supreme Court, NML fails to recognize the protections afforded by immunity under United States law. NML contends that because the text of the FSIA does not mention “discovery,” the FSIA does not limit the discovery available to plaintiffs in post-judgment proceedings. With respect to domestic assets, NML’s contention is contrary to settled law. Under Supreme Court and circuit precedent, protection from discovery inheres in the very concept of immunity itself. Moreover, with regard to foreign assets, NML does not undertake the comity analysis required under the Supreme Court’s decision in Société Nationale.

In the end, while the discovery dispute between NML and Argentina may be of critical importance to the parties, this case does not belong in the Supreme Court. There is no circuit split with regard to the threshold issue, namely whether foreign assets are protected from execution under the FSIA. Instead, the NML case simply involves the lower courts’ erroneous failure to apply the Société Nationale comity analysis to NML’s discovery requests targeting Argentina’s assets overseas. To avoid issuing an unnecessary decision in the sensitive area of foreign sovereign immunity law, the Supreme Court should consider remanding the matter with instructions to analyze the requested discovery under Société Nationale.

Read the full article via the PDF version below:

Removal, Non-Sovereign Defendants, and Jury Trials

The FSIA’s removal provision states that “[a]ny civil action brought in a State court against a foreign state . . . may be removed by the foreign state to the district court of the United States for the district and division embracing the place where such action is pending.”  28 U.S.C. § 1441(d).  In Guan v. Bi, 13-CV-05537-WHO, 2014 WL 953757 (N.D. Cal. Mar. 6, 2014), District Judge William H. Orrick held that a non-sovereign defendant was not entitled to remove an action to federal court under the FSIA. 

The district court in Guan noted that “the FSIA does not require that every action against a foreign state be in federal court,” and that the FSIA simply gave foreign sovereigns the right to decide whether or not to remove the case.  Guan, 2014 WL 953757, at *7.  The court agreed with the plaintiffs that “section 1441(d) is the exclusive basis for removing actions against foreign states,” and held that section 1441(a) did not enable a non-sovereign defendant to remove a case against a foreign sovereign.      Id. at *9; see also 28 U.S.C. § 1441(a) (“Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court”).  The district judge concluded that because the individual defendant was “not a foreign state,” section 1441(d) was likewise “unavailable to him.”  Guan, 2014 WL 953757, at *10.  In the absence of a notice of removal filed by the foreign state defendant, “the FSIA does not allow [the non-sovereign defendant] to remove [the] case.”  Id.

An issue not addressed in Guan but one that should be considered and evaluated by an FSIA practitioner contemplating not seeking removal of a case against a foreign sovereign to federal court – is whether there would be a jury trial in the state court proceeding.  Section 1330(a) provides that “district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state,” but the statute is silent with respect to jury trials in state court.  28 U.S.C. § 1330(a) (emphasis added).  Similarly, section 1441(d) states that “[u]pon removal the action shall be tried by the court without jury.”  28 U.S.C. § 1441(d).  Section 1441(d) says nothing with regard to a jury trial in state court proceedings.  Finally, 28 U.S.C. 1602 et seq. – the portion of the FSIA that would apply in any state court proceeding – nowhere prohibits a trial by jury.  As a result, at least on the face of the FSIA’s statutory language, nothing bars a jury trial in state court.  See also, e.g., Martinelli v. Djakarta Lloyd P. N., 106 Misc. 2d 429, 430, 431 N.Y.S.2d 748 (Civ. Ct. 1980).  If that is correct, it should provide a strong reason for foreign sovereigns to seek removal of all cases filed in state court.

Execution and Separate Juridical Status

The Ninth Circuit’s decision last week in FG Hemisphere Assocs., LLC v. Unocal Corp., — F. Appx. —, No. 12-56031, 2014 WL 820803 (9th Cir. Mar. 4, 2014), serves as a reminder of the importance of the presumption of separateness in FSIA litigation.  The separate juridical status of entities is a critical issue under the FSIA, from the determination of status (28 U.S.C. § 1603(b)(1)) to the jurisdictional inquiry (Doe v. Holy See, 557 F.3d 1066, 1077-79 (9th Cir. 2009)) to post-judgment proceedings (EM Ltd. v. Republic of Argentina, 473 F.3d 463, 475-80 (2d Cir. 2007)).  FG Hemisphere Assocs. is a case in point: Applying California law, the Ninth Circuit declined to disregard the separate corporate status of two entities for purposes of the applicability of an exception to immunity from execution.  FG Hemisphere Assocs., 2014 WL 820803, at *1.  As shown by the Ninth Circuit’s latest decision, unless the case falls under the terrorism exception (cf. 28 U.S.C. § 1610(g)(1)), the presumption of separate juridical status remains crucial to preserving a foreign sovereign’s immunity from execution.

The Default Strategy Under the FSIA

The Third Circuit last week denied a petition for writ of mandamus in In re Abdulla, No. 14-1244, 2014 WL 594347 (3d Cir. Feb. 18, 2014).  The procedural posture of the Abdulla case was unusual.  The foreign state, despite being served, decided not to appear in the litigation.  As a result, the district court proceeded under 28 U.S.C. section 1608(e), and its decision provides an interesting perspective on default proceedings under the FSIA.

In the absence of the foreign state, the district court in Abdulla followed a two-step procedure.  First, the court determined whether the action –  which arose out of an alleged breach of contract by the Embassy of Iraq – satisfied the commercial activity exception to sovereign immunity.  Abdulla v. Embassy of Iraq, CIV.A. 12-2590, 2013 WL 4787225, at *1 (E.D. Pa. Sept. 9, 2013).  Examining the relevant facts and law – all without any briefing from the sovereign – the district court found that the action fell within the FSIA’s commercial activity exception.  In so holding, the district court noted that the plaintiff’s burden was to produce “some evidence that an exception to immunity applies,” but that the ultimate burden of persuasion remained with the foreign state.  Id. at *6.  The court also noted that the plaintiff “cannot be expected to produce evidence peculiarly within the possession of the defendant government,” thereby indicating that the court did not place a particularly high burden on the plaintiff with respect to a factual showing of jurisdiction.  Id. (citation omitted); cf. Recent Development: The D.C. Circuit’s Latest FSIA Decision.

In the second step of the analysis, the district court recognized that “[u]nder the FSIA, unlike in a case against a private party, a court may not enter a default judgment against a foreign state ‘unless the claimant establishes his claim or right to relief by evidence satisfactory to the court.’”  Abdulla, 2013 WL 4787225, at *7, quoting 28 U.S.C. § 1608(e); see also Fed. R. Civ. P. 55(d) (same requirement with respect to actions against the United States).  The district court thereafter engaged in a detailed evidentiary analysis of whether plaintiff had established his claim or right to relief under section 1608(e).  Abdulla, 2013 WL 4787225, at *7-13.  The court stated that section 1608(e)’s requirement “does not impose on plaintiffs the burden of producing the full range of evidence that would be available to them if the opposing party had participated in discovery; rather, the quantum and quality of evidence that might satisfy a court can be less than that normally required.”  Id. at *7 (citation and quotations omitted).  Nevertheless, after a careful review of the evidence, the district court held that plaintiff had not met his burden on the merits.  Id. at *13.  The district court also rejected the plaintiff’s argument that the court should not apply section 1608(e) “because the Embassy’s default was willful,” finding the plaintiff’s position “not supported by the language of the statute or the case law.”  Id. at 7 n.9. 

Abdulla demonstrates that foreign sovereigns can pursue an intentional “default strategy” under the FSIA.  A foreign sovereign can, under sections 1330(a) and 1608(e), leave it to the court to resolve both jurisdiction and merits issues without any participation by the sovereign in the litigation.  In Abdulla, the strategy paid off, and the sovereign likely saved litigation fees and costs in the process. 

However, while the strategy may be appropriate in certain cases, foreign sovereigns should be aware that it comes with substantial risks.  The United States legal system is fundamentally adversarial, and the courts depend upon counsel for all parties to identify the applicable law and develop the relevant evidence.  Foreign sovereigns cannot expect judges to be familiar with the vast and complex case law under the FSIA, and it is possible that a judge would miss important cases that materially affect the jurisdictional analysis.  And, with regard to facts, the Abdulla case shows that courts will generally apply a more lenient standard in the default context.  As a result, foreign sovereigns are free to choose to the “default strategy,” but in so doing they significantly increase the risk of a negative judgment – and of potential harmful precedent that can be used against the sovereign in future litigation.

Applicable Law and the FSIA Jurisdictional Inquiry: A Warning

In its latest FSIA decision, the Second Circuit stated the following regarding choice-of-law issues in cases involving foreign sovereigns:

Congress did not intend that the FSIA establish substantive rules of liability. See Barkanic, 923 F.2d at 960. The FSIA operates as a pass-through, granting federal courts jurisdiction over otherwise ordinary actions brought against foreign states. . . . Because the FSIA creates federal question jurisdiction but does not supply any substantive law of liability, . . . choice of law problems arise in the FSIA context. The FSIA contains no express choice of law provision, but Section 1606 provides that a foreign sovereign “shall be liable in the same manner and to the same extent as a private individual under like circumstances.” 28 U.S.C. § 1606. In Barkanic, we found that the goal of like-treatment is best served by applying the state choice of law rules if the action is governed by state substantive law. Barkanic, 923 F.2d at 959.

Bank of New York v. Yugoimport, — F.3d —, 2014 WL 503039 (2d Cir. Feb. 10, 2014) (citations and quotations omitted). 

To the unwary FSIA practitioner, the language of Yugoimport appears to provide an easy formula: section 1606 states that a foreign sovereign shall be liable “in the same manner and to the same extent as a private individual under like circumstances,” and therefore state substantive law – including state choice-of-law rules – applies under the FSIA.  

Not so fast.

Other commentators have discussed choice-of-law issues under the FSIA at length.  See, e.g., Joseph W. Dellapenna, Suing Foreign Governments and Their Corporations, at 469-557 (2d ed. 2003); Joel Mendal Overton, II, Will the Real FSIA Choice-of-Law Rule Please Stand Up?, 49 Wash. & Lee L. Rev. 1591 (1992).  I will not do so here.  But I want to highlight two important points.

First, section 1606 only applies once jurisdiction has been established.  See 28 U.S.C. 1606 (“As to any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607 of this chapter, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances”) (emphasis added); Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488-89 (1983) (quoting 28 U.S.C. 1606) (“When one of these or the other specified exceptions applies, ‘the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances’”) (emphasis added); Price v. Socialist People’s Libyan Arab Jamahiriya, 384 F. Supp. 2d 120, 132 (D.D.C. 2005) (quoting 28 U.S.C. 1606) (“Once a foreign state’s immunity has been lifted under section 1605 and jurisdiction is proper, section 1606 provides that ‘the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances.’”) (emphasis added); see also H.R. Rep. No. 94-1487, at 22 (“Section 1606 makes clear that if the foreign state . . . is not entitled to immunity from jurisdiction, liability exists as it would for a private party under like circumstances”) (emphasis added).  Indeed, the Second Circuit itself appears to recognize that limitation.  See Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 85 (2d Cir. 2002) (stating that “in Barkanic, we explained that in FSIA cases, we use the forum state’s choice of law rules to resolve ‘all issues,’ except jurisdictional ones”) (italics in original) (underline added).  As a result, it would be a mistake to rely on section 1606 to determine the law applicable to a jurisdictional inquiry under section 1605.

Second, there are powerful reasons why state law may be inappropriate to apply to a jurisdictional inquiry under the FSIA.  Consider, for example, the issue of whether an individual who commits a tort in the United States qualifies as a foreign state “official” under section 1605(a)(5).  Since a sovereign should be entitled to determine who qualifies as an official of its own government (cf. Gregory v. Ashcroft, 501 U.S. 452, 460 (1991)), the law of the foreign state – and not the law of a particular state in the United States – should apply to that inquiry.

Similarly, while courts have applied state law to determine who qualifies as an “employee” of a foreign state under section 1605(a)(5) (see, e.g., Randolph v. Budget Rent-A-Car, 97 F.3d 319, 325 (9th Cir. 1996)), there are good reasons to conclude that such issues should “not be left to divergent and perhaps parochial state interpretations.”  First Nat. City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 622 n.11 (1983) (citations and quotations omitted).  The Supreme Court has repeatedly held that “when Congress has used the term ‘employee’ without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine.”  Clackamas Gastroent. Assocs. v. Wells, 538 U.S. 440, 445 (2003); see also, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992) (same); Adcock v. Chrysler Corp., 166 F.3d 1290, 1292 n.3 (9th Cir. 1999) (stating that Darden’s holding that the term “employee” was “subject to an analysis of common law agency principles . . . . applies to statutes that contain the term ‘employee’ and do not otherwise define the term”).  This rule “reflects the fact that federal statutes are generally intended to have uniform nationwide application.”  Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 741 (1989).  Given that uniformity is a core principle underlying the FSIA (Verlinden, 461 U.S. at 489), it is unclear why the undefined term “employee” in section 1605(a)(5) should be governed by the law of a particular state rather than the general common law of agency.

Choice-of-law issues under the FSIA are complex and often neglected.  Given the complicated nature of the inquiry, both courts and practitioners should be cautious not to adopt over-simplistic tests to determine the applicable law, particularly with respect to jurisdictional inquiries under section 1605.