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Sachs’s Meritless Commercial Activity Argument

September 14, 2015 By in Uncategorized Tags: , , , , , , , , Leave a comment

Last week, I examined the problems with the main attribution argument advanced by OBB in the Supreme Court.  Now it is time to analyze the merits of one of the central commercial activity arguments proffered by Sachs. 

The first clause of the commercial activity exception requires that a plaintiff’s action be “based upon a commercial activity carried on in the United States by the foreign state.”  28 U.S.C. § 1605(a)(2).  As a result, to establish jurisdiction under section 1605(a)(2)’s first clause, Sachs must show that her action – which arises from a railway accident in Innsbruck, Austria – is based upon a commercial activity carried on in the United States by OBB.

In her merits brief, Sachs argues that her claims are based upon “OBB’s overall commercial railway enterprise.”  There are three problems with Sachs’s argument.

First, Sachs did not advance the argument below.  It may be that Sachs can avoid a claim of waiver because the issue relates to subject matter jurisdiction (cf. Fed. R. Civ. P. 12(h)(3)), but the fact that Sachs did not raise the argument before her merits brief in the Supreme Court does not inspire confidence.  Like OBB’s novel (and unsupported) agency argument, this was probably an idea that would have been best left on the cutting room floor.

Second, Sachs’s claim ignores a host of FSIA cases (which are also not cited in OBB’s reply on the merits).  Under established law, a plaintiff cannot rely on a sovereign’s alleged general commercial activities under the commercial activity exception.  As courts have repeatedly held for over thirty-five years, it is not the sovereign’s general commercial activities that matter for purposes of the exception:

The focus of the exception to immunity recognized in § 1605(a)(2) is not on whether the defendant generally engages in a commercial enterprise or activity. . . ; rather, it is on whether the particular conduct giving rise to the claim in question actually constitutes or is in connection with commercial activity, regardless of the defendant’s generally commercial or governmental character.

Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1379 (5th Cir. 1980); see also, e.g., Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic Republic, 877 F.2d 574, 580 n.8 (7th Cir. 1989) (same); Jungquist v. Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d 1020, 1030 (D.C. Cir. 1997) (stating that the plaintiffs “confuse general activity related to the claim with the specific activity upon which the claim is based”); cf. Sun v. Taiwan, 201 F.3d 1105, 1109 (9th Cir. 2000) (holding that the “focus must be solely upon those specific acts that form the basis of the suit”).  In other words, if the Supreme Court accepts Sachs’s argument, it would be overturning decades of FSIA precedent.  The Court would also be swinging the gates wide open to jurisdiction under the first clause of the commercial activity exception, since plaintiffs’ lawyers can almost always conjure an underlying general commercial activity that can serve as a “basis” for their suits.

Finally, Sachs’s argument lacks merit because OBB “carries on” its “overall commercial railway enterprise” in Austria – and not, as the first clause of the commercial activity exception requires, “in the United States.”  28 U.S.C. § 1605(a)(2).  I understand that Sachs relies on section 1603(e), which defines a “commercial activity carried on in the United States by a foreign state” to mean “commercial activity carried on by such state and having substantial contact with the United States.”  28 U.S.C. § 1605(e).  However, Sachs cannot have it both ways.  If the commercial activity is deemed to be the ticket sale by the travel agency in Massachusetts (and that sale is attributable to OBB), then it may be true that the sale constitutes commercial activity carried on in the United States by OBB.  See Sachs v. Republic of Austria, 737 F.3d 584, 598-99 (9th Cir. 2013) (en banc).  Yet, for reasons I will explain in a subsequent post, Sachs’s lawsuit is not based upon the ticket sale.  And even if a plaintiff were not precluded under FSIA precedent from relying on a foreign state’s general commercial activity, OBB’s operation of its “overall commercial railway enterprise” is carried on in Austria; OBB is Austria’s national railroad company, and it appears undisputed that OBB does not have offices, employees or bank accounts in the United States. 

On its face, this analysis may seem hyper-technical and unfair to Sachs.  The opposite is true.  It is Sachs who is trying to fit a square peg into a round hole.  Sachs’s claims, after all, arise from an alleged tortious act or omission occurring in Austria in connection with a commercial activity overseas.  Sachs should therefore be asserting jurisdiction under the third clause of the commercial activity exception.  Cf. 28 U.S.C. § 1605(a)(2) (third clause stating that a foreign state is not immune in any case based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States”).  Sachs is not doing so, presumably because she cannot demonstrate the requisite “direct effect in the United States” under existing law.  See, e.g., Zernicek v. Brown & Root, Inc., 826 F.2d 415, 418 (5th Cir.1987) (“consequential damages [from personal injury tort abroad] are insufficient to constitute a ‘direct effect in the United States’ for purposes of abrogating sovereign immunity”).  Sachs also cannot assert jurisdiction under the FSIA’s tort exception for her slip-and-fall case, because the alleged tortious conduct occurred overseas.  See  Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 441 (1989) (stating that the FSIA’s tort exception, 28 U.S.C. § 1605(a)(5), “covers only torts occurring within the territorial jurisdiction of the United States”).  As a result, to get around the requirements of the FSIA’s other (and more applicable) exceptions to sovereign immunity, Sachs is forced to proceed under the first clause of the commercial activity exception.  However, reliance on that clause does not work — at least not if Sachs’ argument is based on OBB’s general commercial activity of operating a national railway in Austria.

In the end, because she cannot rely on OBB’s general commercial activity in Austria, Sachs is stuck with arguing that her personal injury action is “based upon” the ticket sale in the United States.  As I will explain in subsequent posts, that should spell the end of Sachs’s lawsuit under existing Supreme Court precedent.

[Next week, I will examine why the Supreme Court’s decision in Saudi Arabia v. Nelson, 507 U.S. 349 (1993), should control the result in OBB v. Sachs.]

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

April 15, 2014 By in Discovery, Uncategorized Tags: , , , , , , , , , , Leave a comment

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.

Execution and Separate Juridical Status

March 10, 2014 By in Uncategorized Tags: , , , , Leave a comment

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

February 24, 2014 By in Default Judgment, Uncategorized Tags: , , , , Leave a comment

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.