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.