Monetary Contempt Sanctions in FSIA Litigation

On January 24, 2014, United States District Judge Richard M. Berman found the Republic of Iraq, the Ministry of Industry of the Republic of Iraq, and the attorneys for the Republic and the Ministry in contempt of court for failure to comply with a discovery order dated August 29, 2012.  Servaas v. Republic of Iraq, Case No. 09 Civ. 1862(RMB), 2014 WL 279507 (S.D.N.Y. Jan. 24, 2014).  The court held that the “sanction imposed upon Iraq is $2,000 per day effective Friday, January 24, 2014, and continuing for each day that Iraq continues to fail to comply with the Discovery Order.”  Id. at *5.  The sanction imposed upon the sovereign defendants’ attorneys requires the payment of all reasonable attorneys’ fees and costs associated with the plaintiff’s pursuit of post-judgment discovery.  Id.  In an order dated February 7, 2014, the court found that the attorneys’ fees/cost amount was $70,422.13.  Docket No. 146.

Servaas is not the first case in which substantial sanctions have been imposed for discovery violations in FSIA cases.  For example, in FG Hemisphere Associates, LLC v. Democratic Republic of Congo, 637 F.3d 373 (D.C. Cir. 2011), the D.C. Circuit affirmed a finding of contempt of court against a foreign sovereign that failed to comply with a discovery order.  The court upheld monetary sanctions of up to $80,000 per week until the foreign sovereign complied with outstanding discovery requests.  Id. at 376.

I do not intend to examine here whether or not monetary contempt sanctions are permissible under the FSIA.  While the FSIA itself is silent on the issue, the FSIA’s legislative history states that “appropriate remedies would be available under Rule 37, F.R. Civ. P., for an unjustifiable failure to make discovery.”  H.R. Rep. 94-1487, at 23 (1976).  The D.C. Circuit strongly rejected the argument that monetary contempt sanctions could not be imposed under the FSIA.  See FG Hemisphere Assoc., 637 F.3d at 376-80.  However, the court’s conclusion is inconsistent with Fifth Circuit law (cf. Af-Cap, Inc. v. Republic of Congo, 462 F.3d 417, 428-29 (5th Cir. 2006)), and the United States Executive Branch has persuasively argued that any monetary contempt sanction would be unenforceable against a foreign sovereign.  See Brief of the United States as Amicus Curiae, filed on October 7, 2010, in FG Hemisphere Assoc. (“U.S. Amicus Brief”), at 7-14. 

Assuming arguendo that monetary contempt sanctions are permissible under the FSIA, the question remains whether such a step is an advisable exercise of a federal court’s power.  In the underlying discovery order, the Servaas court characterized the discovery dispute between the parties as a “routine matter[].” Docket No. 86, at 1 n.2.  However, there is nothing “routine” about ordering wide-ranging discovery against a foreign sovereign.  The language of the earlier order, and the lack of detailed analysis in the recent contempt order, suggest that the district court in Servaas did not appreciate the significance of imposing monetary contempt sanctions upon a foreign sovereign for failure to comply with a discovery order. 

At the very least, a court contemplating the imposition of monetary contempt sanctions against a foreign state for discovery violations should consider a range of issues, including:

1.  Is the contempt order enforceable against the foreign sovereign and, if not, does it constitute a proper exercise of the district court’s power?  Just as with any other form of equitable relief, enforceability should be a prime consideration for the court.  See In re Estate of Ferdinand Marcos Human Rights Litig., 94 F.3d 539, 548 (9th Cir. 1996) (holding that where a court was without power to enforce an injunction against a foreign sovereign, the court “abused its discretion by issuing a futile injunction”); see also Virginian Ry. Co. v. Sys. Fed’n No. 40, 300 U.S. 515, 550 (1937) (“a court of equity may refuse to give any relief when it is apparent that that which it can give will not be effective or of benefit to the plaintiff”).  If the district court cannot enforce a monetary contempt sanction against a foreign sovereign, it generally should not impose such a sanction.

2.  Is the contempt order imposed in the context of post-judgment proceedings or jurisdictional discovery?  Given that a foreign sovereign’s presumptive immunity from suit includes immunity from all of the burdens of litigation (Kelly v. Syria Shell Petroleum Dev., 213 F.3d 841, 849 (5th Cir. 2000)), it would appear that a district court’s discretion to impose monetary contempt sanctions should be limited to the post-judgment context – where the sovereign has already been held not to be immune.  Absent extraordinary circumstances, such sanctions should not be imposed in the context of FSIA jurisdictional discovery.

3.  Is the contempt order the sole remaining option, or are there other possible means to encourage compliance with the discovery order?  Since this is an important issue even outside of the FSIA context, it would appear particularly relevant in cases involving a foreign sovereign.  Cf. Hicks on Behalf of Feiock v. Feiock, 485 U.S. 624, 637 n.8 (1988) (stating that “in wielding its contempt powers, a court must exercise the least possible power adequate to the end proposed”) (citations and quotations omitted).

4.  Does the case involve a foreign sovereign or an agency/instrumentality of a foreign sovereign?  Given the policies underlying the FSIA, courts should be much more wary about imposing monetary contempt sanctions upon a foreign sovereign itself (as opposed to an agency or instrumentality).  Cf. H.R. Rep. No. 94-1487, at 11 (stating that the service provisions applying to foreign sovereigns were intended “to minimize potential irritants to relations with foreign states”).  Moreover, FSIA practitioners should be aware that “a court may not sanction a foreign instrumentality for discovery violations committed by its sovereign.”  Thai Lao Lignite (Thailand) Co., Ltd. v. Gov’t of Lao People’s Democratic Republic, 10 CIV. 5256 KMW DCF, 2013 WL 3970823, at *6 (S.D.N.Y. Aug. 2, 2013).

5.  Is the contempt order consistent with international law and international practice?  Given the prevailing rules in the international realm, and the fact that the FSIA was intended to be consistent with international law (cf. H.R. Rep. No. 94-1487, at 7), this factor would generally counsel against the imposition of monetary contempt sanctions against a foreign sovereign.  See, e.g., European Convention on State Immunity, Article 18 (E.T.S. No. 074); United Nations Convention on Jurisdictional Immunities of States and Their Properties, Article 24(1); UK State Immunity Act, § 13; Canadian State Immunity Act, §§ 12(1), 10(1); Singapore State Immunity Act, § 15; Pakistan State Immunity Ordinance, § 14; Australian Foreign States Immunities Act of 1985, § 34; see also U.S. Amicus Brief at 21-24.

6.  Is the contempt order consistent with the United States’ policy to encourage foreign states to appear in court?  It is well-established that it is in “the interest of United States’ foreign policy to encourage foreign states to appear before our courts in cases brought under the FSIA.”  Hester Int’l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 175 (5th Cir. 1989).  The United States government itself is not subject to monetary contempt sanctions in domestic courts.  U.S. Amicus Brief at 25-26.  Because the unequal treatment of foreign sovereigns in this regard is likely to be a significant foreign relations irritant, the policy of encouraging sovereigns to appear in United States courts generally does not appear well-served by the imposition of monetary contempt sanctions.

7.  What was the nature of the underlying discovery order?  If the underlying discovery order permitted wide-ranging and intrusive discovery against the sovereign, non-compliance with that order should rarely give rise to monetary contempt sanctions.  In this respect, the Servaas case is particularly troubling.  The underlying discovery order had granted the plaintiff’s motion to compel a wide range of discovery, including discovery relating to the sovereign defendants’ “‘assets and commercial activities with ties to the United States,'” requests “relating to the ‘formation of the [Ministry and Iraq’s Ministry of Trade and their] State Owned Enterprises and other agencies and/or instrumentalities,’ the ‘financial activity of the Ministry, including but not limited to all budget documents, balance sheets, income statements, and asset listings,’ and the ‘source of operating funds’ of the Ministry and Iraq’s Ministry of Trade.”  Docket No. 86, at 5 (brackets in original).  On its face, the scope of the discovery order is much too broad – both because it does not appear tailored to discover evidence relevant to the post-judgment proceedings and because it seeks sensitive (and presumably confidential) documents from Iraq’s Ministry of Trade.  Those factors alone should strongly counsel against the imposition of monetary contempt sanctions against the sovereign for failure to comply with the discovery order.

8.  Is the contempt order consistent with the doctrine of reciprocity?  Foreign sovereign immunity derives in part from “fair dealing” and “reciprocal self-interest.”   Republic of Philippines v. Pimentel, 553 U.S. 851, 866 (2008) (quotations and citations omitted).  That doctrine appears especially applicable in this context.  To provide a hypothetical, suppose that the United States is sued in foreign courts for the eavesdropping activities of the National Security Agency (“NSA”).  If the foreign court orders the United States to provide all NSA documents relevant to the particular lawsuit, the United States would almost certainly object and refuse to turn the documents over.  Under Servaas and other similar cases, the foreign court could then impose a major monetary sanction against the United States for the lack of compliance.  “In the field of international law, where no single sovereign reigns supreme, the Golden Rule takes on added poignancy.”  De Sanchez v. Banco Cent. De Nicaragua, 770 F.2d 1385, 1398 (5th Cir. 1985).  Before courts in the United States impose monetary contempt sanctions on foreign sovereigns, they should consider whether it is in the United States’ interest to face similar treatment overseas.

All of the foregoing issues should be properly taken into consideration by a court imposing monetary contempt sanctions upon a foreign sovereign; unfortunately, it does not appear that the Servaas court undertook such an analysis, and for that reason its opinion is disturbing.

Finally, as noted above, the Servaas court imposed sanctions exceeding $70,000 upon the attorneys defending Iraq and the Ministry.  Courts that contemplate imposing sanctions against FSIA defense counsel should consider that a foreign sovereign is not a typical client.  For example, with respect to discovery, a sovereign may take a principled stance that certain documents should not be turned over: “it is important to recognize the strongly held view of many foreign states that they are not subject to coercive orders by a U.S. court. Absent specific evidence to the contrary, the refusal of a sovereign state to conform to a judicial directive should not be considered as an expression of scorn or contempt for which such sanctions are normally imposed. Rather, such a refusal may reflect a determination by that foreign state that a U.S. court lacks power to control its conduct.”  U.S. Amicus Brief at 17.  It would be unfortunate if private attorneys are punished for such decisions made by foreign sovereigns, particularly since the sovereign is equal to the United States as a matter of international law – and is, unlike typical private parties in litigation, entitled to decide that it will not follow the directive of a United States court.  The sovereign itself may have to face the consequences of that decision, but the sovereign’s attorneys should not.

Recent Development: Smith Rocke Ltd. v. República Bolivariana de Venezuela

On January 27, 2014, District Judge Schofield granted Venezuela’s motion to dismiss a lawsuit arising out of the expropriation of a Venezuelan company and its assets.  See Smith Rocke Ltd. v. Republica Boliviariana de Venezuela, 12 CV. 7316 LGS, 2014 WL 288705 (S.D.N.Y. Jan. 27, 2014).  The district court’s opinion addressed several important issues under the FSIA:

Sovereign Activity: The court concluded that the commercial activity exception did not apply because the case was based upon a sovereign act – the expropriation a Venezuelan company – rather than commercial activity.  Smith Rocke Ltd., 2014 WL 288705, at *4.  In my view, foreign states do not sufficiently rely upon the “sovereign activity” defense in FSIA cases.  There is a tendency for attorneys to assume that the commercial activity exception applies if the case involves commercial conduct or a breach of contract.  However, even in the context of a commercial dispute, defense counsel in FSIA cases must carefully examine the allegations and determine whether the requirements of section 1605(a)(2) are met.  That includes an analysis of whether the sovereign activity defense applies.  See, e.g., Braka v. Bancomer, S.N.C., 762 F.2d 222, 225 (2d Cir. 1985) (no jurisdiction under commercial activity exception where contractual breach caused by the exercise of sovereign power); MOL, Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326, 1328 (9th Cir. 1984) (no jurisdiction under commercial activity exception where licensing agreement and its alleged breach concerned Bangladesh’s sovereign right to regulate its natural resources).

Gravamen Rule: In determining that the commercial activity exception did not apply, the district court held that only the expropriation exception could confer jurisdiction because the “gravamen here is that Defendants engaged in the unlawful taking of [the property] . . . without compensation, in violation of international law.”  Smith Rocke Ltd., 2014 WL 288705, at *4.  Judge Schofield’s reliance on the gravamen rule was correct, and highlights yet another critical issue for a sovereign challenging jurisdiction under the FSIA.  Cf. Saudi Arabia v. Nelson, 507 U.S. 349, 363 (1993); O’Bryan v. Holy See, 556 F.3d 361, 380 (6th Cir. 2009); Garb v. Republic of Poland, 440 F.3d 579, 588 (2d Cir. 2006); Randolph v. Budget Rent-A-Car, 97 F.3d 319, 324 (9th Cir. 1996); de Sanchez v. Banco Cent. de Nicaragua, 770 F.2d 1385, 1398 (5th Cir. 1985).

Violation of International Law: In holding that the expropriation exception did not confer jurisdiction, Judge Schofield applied the “widely accepted” rule “that the taking of property by a state from its own nationals does not violate international law.”  Smith Rocke Ltd., 2014 WL 288705, at *7; see also, e.g., Republic of Austria v. Altmann, 541 U.S. 677, 713 (2004) (Breyer, J., joined by Souter, J., concurring).  The court also made it clear that what counts is the nationality of the property owner at the time of the seizure itself.  Id. at *7; cf. Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 704, 711 (9th Cir. 1992) (plaintiff who became United States citizen prior to the taking could invoke the expropriation exception).

Capacity: The capacity issue under the FSIA – which I have addressed before – is likely to become increasingly important in the post-Samantar era.  In Smith Rocke Ltd., the district court dismissed the individual defendants because they were sued in their official capacity; as the court noted, “where an official is sued in his official capacity, and where the action is clearly against the foreign state itself as the real party in interest, the case may be treated as an action ‘against the foreign state itself, as the state is the real party in interest.’”  Smith Rocke Ltd., 2014 WL 288705, at *11, quoting Samantar v. Yousef, 560 U.S. 305, 325 (2010).

Injunctive Relief and the FSIA’s Tort Exception

There has been a lot of recent attention to the issue of whether injunctions are permitted under the FSIA.  See, e.g., NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246, 262-63 (2d Cir. 2012) cert. denied, 134 S. Ct. 201 (U.S. 2013).  However, one issue that has not been widely discussed is the possibility of injunctive relief in a lawsuit proceeding under the FSIA’s tort exception.  Using Federal Tort Claims Act (“FTCA”) precedent, a foreign sovereign has a strong basis for arguing that injunctive relief is impermissible under 28 U.S.C. section 1605(a)(5).

The FSIA’s tort exception was modeled on the waiver of immunity contained in the FTCA.  Compare 28 U.S.C. § 1605(a)(5) with 28 U.S.C. § 1346(b)(1); see also, e.g., De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1398 (5th Cir. 1985).  Similar to the FTCA’s immunity waiver, the tort exception is limited to cases “in which money damages are sought against a foreign state.”  28 U.S.C. § 1605(a)(5) (emphasis added).  Courts have repeatedly held that analogous language in the FTCA precludes injunctive relief.  See Kaskaskia River/Marina Campgrounds, Inc. v. United States, 07-CV-0166-MJR, 2008 WL 4594979, at *2 (S.D. Ill. Oct. 15, 2008) (“The explicit terms of the FTCA only provide for money damages. . . . Given the plain meaning of the statute, it is clear that this Court lacks subject matter jurisdiction to award any relief other than money damages.”); see also Moher v. United States, 875 F. Supp. 2d 739, 755 (W.D. Mich. 2012) (collecting cases).  Accordingly, applying FTCA precedent to cases under the FSIA’s tort exception, section 1605(a)(5) does not confer subject matter jurisdiction over claims seeking injunctive relief against foreign sovereigns.

The FSIA, Agency and Agents: Avoiding a Basic Pitfall

On appeal in the Ninth Circuit in Sachs v. Republic of Austria, et al., Case No. 11-15458, the Austrian instrumentality OBB Personenverkehr AG (“OBB”) argued that an entity’s conduct may be attributed to a foreign state under the FSIA only if that entity meets the “agency or instrumentality” requirements set forth in 28 U.S.C. section 1603(b).  OBB contended that because the entity in question did “not fall within the agency definition” set forth in section 1603(b), the “acts of [the entity] cannot be imputed to OBB for purposes of Section 1605(a)(2).”  OBB’s Supplemental Letter, dated Apr. 8, 2013, Docket No. 52, at 2.  Because OBB’s erroneous argument has been made by litigants in FSIA cases before (see Gates v. Victor Fine Foods, 54 F.3d 1457, 1460 n.1 (9th Cir. 1995)), this post examines the issue more closely.

Under the FSIA, the term “‘foreign state,’ except as used in section 1608 . . . , includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).”  28 U.S.C. § 1603(a) (emphasis added).  An “agency or instrumentality” is defined as any entity which (1) “is a separate legal person, corporate or other,” (2) “is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof,” and (3) “is neither a citizen of a State of the United States as defined in section 1332(c) and (e) of this title, nor created under the laws of any third country.”  28 U.S.C. § 1603(b).   The term “agency or instrumentality” was intended to include entities such as “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 16 (1976).

Despite section 1603(a)’s sole reference to section 1608 – the FSIA’s service provision – the statutory scheme reflects different treatment of agencies or instrumentalities that extends well beyond service of process.  For example, it is easier to establish jurisdiction under the international takings exception over an agency or instrumentality than it is over a foreign sovereign itself.  See 28 U.S.C. § 1605(a)(3).  The FSIA precludes recovery of punitive damages against a foreign sovereign, but not against an agency or instrumentality.  28 U.S.C. § 1606.  And it is easier to attach or execute on the property of an agency or instrumentality than it is on the property of a foreign sovereign.   Compare 28 U.S.C. § 1610(a) with § 1610(b).

As a result, the determination of whether an entity qualifies as a foreign sovereign or as an agency or instrumentality is an important one.  However, contrary to OBB’s argument, the determination has nothing to do with the issue of attribution – i.e., common law “agency” – under the FSIA.   Section 1603(b) was intended to delineate the entities entitled to the protections of the FSIA, but nothing suggests that the provision was meant to address attribution for purposes of jurisdiction or liability.

In contrast to the requirements of section 1603(b), “agency” for purposes of attribution is governed by common law principles as informed by international law and articulated congressional policies.  First Nat. City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 623 (1983).  For example, with respect to separate juridical entities, courts examine whether an entity is under the “day-to-day” control of a foreign sovereign.  See, e.g., Dale v. Colagiovanni, 443 F.3d 425, 429 (5th Cir. 2006).  In addition, an actual authority agency inquiry will typically turn on foreign law, since that will dictate whether the putative agent was in fact authorized to engage in the conduct alleged.  See, e.g., Velasco v. Gov’t Of Indonesia, 370 F.3d 392, 401-02 (4th Cir. 2004); see also Fed. R. Civ. P. 44.1.  And apparent authority is not permitted as an agency theory under the FSIA, for all of the reasons I have previously discussed.  Plainly, all of these issues are far afield from the statutory inquiry set forth in section 1603(b).

OBB’s erroneous argument may have arisen from use of the term “agency” in the FSIA, which at first blush may appear to refer to common law “agency” principles.  See Hester Int’l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 176 n.5 (5th Cir. 1989) (“The use of the single term ‘agency’ for two purposes . . . may cause some confusion.”).    However, as the Fifth Circuit explained long 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). 

The Ninth Circuit followed Hester in Gates, 54 F.3d at 1460 n.1.  The Ninth Circuit recently reaffirmed Gates when it strongly rejected OBB’s argument in Sachs:

The plain text of the FSIA does not support OBB’s proposed framework for determining whether [the entity in question] is an agent of OBB. Section 1603(b) defines what type of entity can be considered a foreign state for purposes of claiming sovereign immunity. If an entity cannot show that it meets that definition then it is not entitled to sovereign immunity. Whether an entity meets the definition of an “agency or instrumentality of a foreign state” to claim immunity is a completely different question from whether the acts of an agent can be imputed to a foreign state for the purpose of applying the commercial-activity exception.

Sachs v. Republic of Austria, 737 F.3d 584, 595 (9th Cir. 2013) (en banc) (citations and quotations omitted).

Because the term “agency” is used both under section 1603(b) and under the common law, the erroneous argument made by OBB in the Sachs appeal is capable of repetition.  However, FSIA practitioners should be aware of the distinction, and thereby avoid this basic pitfall in FSIA law.

The Sole Method of Service Upon a Diplomatic Agent

Although this site focuses on developments in FSIA law, I will also occasionally address legal issues relating to head-of-state immunity, official immunity and diplomatic immunity.  Today, I address an unusual issue: the proper method of service of process upon a diplomatic agent.

While a sitting diplomatic agent is immune from criminal jurisdiction under Article 31 of the Vienna Convention on Diplomatic Relations  (“VCDR”), there are three narrow exceptions to immunity from civil jurisdiction.  See VCDR, art. 31(1)(a)-(c).  In the (unlikely) event that a plaintiff’s attorney files an action against a diplomatic agent that falls within one of the three limited exceptions to diplomatic immunity, the issue arises of service of process upon a sitting diplomatic agent.  It is a matter not addressed by statute or rule, and it has received little attention in the commentary.  In this post, I conclude that international law requires that service upon a diplomatic agent may only be accomplished via diplomatic channels.

Under the principle of personal inviolability, it is without question that a diplomatic agent may not be personally served with legal process.  See VCDR, art. 29 (“The person of a diplomatic agent shall be inviolable.”); see also Tachiona v. United States, 386 F.3d 205, 221-24 (2d Cir. 2004); Hellenic Lines, Ltd. v. Moore, 345 F.2d 978, 979-81 (D.C. Cir. 1965).  Moreover, because the premises of a diplomatic mission are inviolable under Article 22 of the VCDR, a plaintiff’s attorney may not send a process server onto the premises of a mission to serve process upon an ambassador or any other individual.  See VCDR, art. 22(1) (“The premises of the mission shall be inviolable.”); see also 767 Third Ave. Assoc. v. Permanent Mission of Republic of Zaire to United Nations, 988 F.2d 295, 300 (2d Cir. 1993) (stating that the VCDR “recognized no exceptions to mission inviolability”); Harvard Research in International Law, Diplomatic Privileges and Immunities, 26 Am. J. Int’l L. Supp. 15, 55 (1932) (“Customary international law, recognized by municipal legislation, prohibits the serving of any writ, summons, order, or process within the premises of a mission.”).

Whether or not a diplomatic agent may be served by mail poses a more difficult question.  However, four decades ago, the United States Department of State concluded that service by mail would run afoul of Article 22’s inviolability provision.  The Department determined that “countries party to the Convention on Diplomatic Relations . . . would have a basis for objection to the propriety of process served [by mail] under Article 22, section 1, of that Convention, as interpreted in light of the negotiating history of that Convention (Official Records, Volume I, page 141).”  Diplomatic Premises – Inviolability, 69 Am. J. Int’l L. 146, 146-47 (1975); see also 1974 Digest of United States Practice in International Law 171, 171-72 (same).  The Vienna Convention negotiating history cited by the State Department consisted of the following statement by the Japanese representative, made upon withdrawal of an amendment prohibiting service by a process server on mission premises:

Mr. Takahashi (Japan) said that the purpose of the Japanese amendment was to establish a uniform rate concerning the service of judicial documents.  He was prepared to withdraw the amendment, on the understanding that it was the unanimous interpretation of the Committee that no writ could be served, even by post, within the premises of a diplomatic mission.

United Nations Conference on Diplomatic Intercourse and Immunities (Vienna – 2 March – 14 April 1961), Official Records, Vol. I: Summary Records of Plenary Meetings and of Meetings of the Committee of the Whole (1962), A.Conf.20/14, at 141 (emphasis added).

The few commentators who have addressed the issue agree that Article 22 of the Vienna Convention prohibits service by mail.  See, e.g., Brownlie, Principles of Public International Law 357 (7th ed. 2008) (“It follows from Article 22 that writs may not be served, even by post, within the premises of a mission.”); Dembinski, The Modern Law of Diplomacy 193 (1988) (stating that Article 22 “protects the mission from receiving by messenger or by mail any notification from the judicial or other authorities of the receiving State”); Salmon, Manuel de Droit Diplomatique § 302 (1994) (stating that service of process is not permitted by mail under Article 22).

As the same commentators recognize, the sole remaining method of service upon a diplomatic agent is via diplomatic channels.  See Brownlie, Principles of Public International Law 357 (stating that writs may be served “only through the local Ministry of Foreign Affairs”); Dembinski, The Modern Law of Diplomacy 193 (“If absolutely necessary such documents have to be transmitted through the Foreign Ministry.”); Salmon, Manuel de Droit Diplomatique § 302 (1994) (stating that service of process is permitted only via diplomatic channels under Article 22).

There are several important policy reasons underlying the requirement of service via diplomatic channels.  First, such service ensures that the head of the diplomatic mission and the foreign sovereign are apprised of the attempted service of process.  Notice in an international case with unique constitutional status (cf. U.S. Const. art. III, § 2, cl. 1) and potential serious foreign relations implications should not depend upon mere service by mail. 

Second, service by diplomatic channel guarantees notice to the receiving state’s foreign ministry – important under Article 22, given the receiving state’s “special duty” to “take all appropriate steps to protect the premises of the mission against any intrusion . . . and to prevent any . . . impairment of its dignity.”  VCDR, art. 22(3). 

Third, requiring service by diplomatic channel helps ensure similar treatment for U.S. diplomatic missions overseas.  See, e.g., 767 Third Ave. Assoc., 988 F.2d at 300 (in Article 22 case, stating that “the United States recognizes the privileges of foreign diplomats in the U.S. with the understanding that American diplomats abroad will be afforded the same protections from intrusions by the host state. The most secure way to guarantee this protection, the United States tells us, is through blanket immunities and privileges without exception.”); see also The Schooner Exchange v. McFaddon, 11 U.S. 116, 138-39 (1812).

In short, if a plaintiff’s attorney files a lawsuit against a diplomatic agent falling into one of the exceptions set forth in Article 31(1) of the Convention, the only acceptable means of service under international law is via diplomatic channels.  All other methods of service would be subject to challenge under Federal Rule of Civil Procedure 12(b)(5).

The Supreme Court’s Grant of Certiorari in Republic of Argentina v. NML Capital, Ltd.

The United States Supreme Court granted certiorari today in Republic of Argentina v. NML Capital, Ltd., Case No. 12-842.  For all of the reasons I discussed in a previous post, the NML Capital case has the potential of becoming a major development in FSIA jurisprudence, particularly with respect to the “nuts and bolts” of federal litigation involving foreign sovereigns.

Recent Development: TJGEM LLC v. Republic of Ghana

In the recent case of TJGEM LLC v. Republic of Ghana, — F. Supp. 2d —, CV 13-382 (BAH), 2013 WL 6857988 (D.D.C. Dec. 31, 2013), District Judge Beryl Howell applied three important rules that are often implicated in cases under the FSIA’s commercial activity exception.

First, the district court emphasized that the commercial activity exception does not apply where the alleged commercial activity is unrelated to a plaintiff’s claims.  Id. at *5; see also, e.g., Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 390 (2d Cir. 2000) (holding that the term “‘based upon’ [under the commercial activity exception] requires a degree of closeness between the acts giving rise to the cause of action and those needed to establish jurisdiction that is considerably greater than common law causation requirements”).

Second, the court followed Phaneuf v. Republic of Indonesia, 106 F.3d 302, 308 (9th Cir.1997), in holding that apparent authority is insufficient to confer jurisdiction over a foreign state under the commercial activity exception.  TJGEM LLC, 2013 WL 6857988, at *6; see also The Second Circuit’s Apparent FSIA Authority.

Third, the district court reaffirmed that an alleged financial loss to an American individual or firm does not satisfy the “direct effect” requirement of section 1605(a)(2)’s third clause.  TJGEM LLC, 2013 WL 6857988, at *6; see also Recent Development: The D.C. Circuit’s Latest FSIA Decision.

District Judge Howell’s decision is interesting with respect to another issue that I have previously addressed on this blog.  The district court held that to “survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), the plaintiff must establish the court’s jurisdiction over the subject matter by a preponderance of the evidence.”  TJGEM LLC, 2013 WL 6857988, at *4.  The TJGEM case is therefore the latest opinion to indicate that traditional subject matter jurisdiction procedural rules apply with respect to a plaintiff’s burden under the FSIA. See Peterson v. Islamic Republic Of Iran, 627 F.3d 1117, 1125 (9th Cir. 2010) (“It must fall to the plaintiff to prove that immunity does not exist.”); see also Am. Telecom Co., L.L.C. v. Republic of Lebanon, 501 F.3d 534, 537 (6th Cir. 2007).

Discovery under the FSIA: An Examination of the Solicitor General’s Brief in NML Capital

On December 4, 2013, the United States Solicitor General filed an amicus curiae brief in the Supreme Court in Republic of Argentina v. NML Capital, Ltd., No. 12-842.  I have several observations regarding the Solicitor General’s submission and related issues:

•       On balance, the Solicitor General makes a persuasive case that the Court should grant certiorari.  The Second Circuit’s decision in EM Ltd. v. Republic of Argentina, 695 F.3d 201 (2d Cir. 2012), is in conflict with Rubin v. Islamic Republic of Iran, 637 F.3d 783 (7th Cir. 2011), on an issue of considerable importance – namely the scope of discovery permissible in post-judgment proceedings under the FSIA.  Moreover, for reasons cogently set forth by the Seventh Circuit in Rubin, there is no doubt that – contrary to the Second Circuit’s view – a general asset discovery order violates the FSIA.  See Rubin, 637 F.3d at 794-99.

•       The Solicitor General’s brief recognizes several important principles implicated by discovery against foreign sovereigns, including:

•           “The presumptive immunity in the FSIA protects foreign sovereigns not only from liability or seizure of their property, but also from the costs, in time and expense, and other disruptions attendant to litigation.”  Brief for the United States as Amicus Curiae (“Amicus Brf.”) at 10.

•           “To permit burdensome and intrusive discovery . . . would be inconsistent with both the FSIA’s protections and the comity principles the statute implements.”  Id.

•           Discovery “should be conducted in a manner that respects the comity and reciprocity principles that the FSIA was enacted to implement and safeguard.”  Id. at 11.

•           If allowed, discovery should only “be ordered circumspectly and only to verify allegations of specific facts crucial to an immunity determination.”  Id. at 12.

•       The Solicitor General’s brief cites the Supreme Court’s decision in Société Nationale Industrielle Aérospatiale v. United States Dist. Ct. for the S.D. of Iowa, 482 U.S. 522 (1987).  The principles relating to foreign discovery enunciated in Société Nationale are generally not, in my view, sufficiently relied upon by attorneys defending foreign sovereigns in U.S. litigation.  In Société Nationale, the Supreme Court stated:

American courts, in supervising pretrial proceedings, should exercise special vigilance to protect foreign litigants from the danger that unnecessary, or unduly burdensome, discovery may place them in a disadvantageous position. Judicial supervision of discovery should always seek to minimize its costs and inconvenience and to prevent improper uses of discovery requests.  When it is necessary to seek evidence abroad, . . . the district court must supervise pretrial proceedings particularly closely to prevent discovery abuses. . . . Objections to “abusive” discovery that foreign litigants advance should therefore receive the most careful consideration.  In addition, we have long recognized the demands of comity in suits involving foreign states, either as parties or as sovereigns with a coordinate interest in the litigation.  American courts should therefore take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.

Société Nationale, 482 U.S. at 546.  Since Société Nationale addressed any case involving “foreign litigants,” its cautionary language should apply with particular force with respect to foreign sovereigns.  In other words, Société Nationale should be considered the floor, and not the ceiling, of discovery protections afforded foreign states under the FSIA – and it is therefore a powerful tool to use on behalf of foreign sovereigns in discovery proceedings.

•       The Solicitor General recognizes that “discovery requests directed at third parties may burden the foreign state itself, as it may have to participate in litigation over the scope and manner of discovery.”  Amicus Brf. at 17.  If accepted by the Supreme Court, this view could have a significant practical impact in FSIA cases involving attempts at discovery against third parties to obtain jurisdiction against foreign states.

•       Although not mentioned in the Solicitor General’s brief, the circuit split created by EM Ltd. was long in the making.  The Second Circuit has always been the circuit that is the least sensitive to the concerns of foreign sovereigns relating to discovery under the FSIA.  See, e.g., Reiss v. Société Centrale Du Groupe Des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000).  Given the importance of uniformity under the FSIA, NML Capital provides the opportunity to resolve significant differences in circuit law with respect to discovery involving foreign states.

•       The Supreme Court has never before spoken to the issue of discovery under the FSIA.  If certiorari is granted in NML Capital, the resulting decision could be the most important Supreme Court FSIA precedent since Nelson – particularly with respect to the practical aspects of litigation against foreign states in federal court.

Recent Development: Sachs v. Republic of Austria

The Ninth Circuit’s en banc decision yesterday in Sachs v. Republic of Austria, — F.3d —, 2013 WL 6333439 (9th Cir. Dec. 6, 2013), is a significant development in FSIA law.  In today’s post I want to focus on two issues raised by the Sachs majority opinion that I discussed in prior posts and that may prove useful for FSIA practitioners:

•           Sachs affirms the principle that circuit courts should be reluctant to create circuit splits under the FSIA in light of the principle of uniformity.  See Sachs, 2013 WL 6333439, at *5 (stating that “Congress passed the FSIA to promote uniformity in the treatment of foreign sovereign immunity” and that the court “see[s] no compelling reason to create a split with our sister circuits.”).  That is an important guiding principle in FSIA cases, and can be used with respect to issues such as apparent authority and the standard of compliance required under section 1608(a).

•           The Sachs court describes the burden-shifting regimen under the FSIA as follows: “we must determine (1) whether [plaintiff] has carried her burden to prove, by offering evidence, that the commercial-activity exception to foreign sovereign immunities applies and (2) whether [the foreign sovereign defendant] has carried its burden to prove, by showing a preponderance of evidence, that the exception is not applicable.”  Sachs, 2013 WL 6333439, at *3.  That means that Sachs avoided the “public act” error that the Ninth Circuit made in Terenkian, which is a positive development for reasons I describe more fully here.

There are many other issues raised by the Sachs opinion, but I will address those in future posts.

An Unprofitable Test Under the FSIA’s Commercial Activity Exception

The relevance of profit motive under the FSIA’s commercial activity exception is the subject of continued confusion.  The Second Circuit claims that the Seventh Circuit mischaracterizes its “profit” precedent (see, e.g., NML Capital, Ltd. v. Republic of Argentina, 680 F.3d 254, 259 (2d Cir. 2012)), and circuit courts have abrogated district court opinions addressing profit motive.  See Intercontinental Dictionary Series v. De Gruyter, 822 F. Supp. 662 (C.D. Cal. 1993), abrogated by Sun v. Taiwan, 201 F.3d 1105 (9th Cir. 2000); see also Malewicz v. City of Amsterdam, 362 F. Supp. 2d 298, 314 n.5 (D.D.C. 2005).  As one commentator recently stated, “insofar as ‘profit’ is concerned, the legislative instructions are ambiguous and misleading, while the case law appears unsettled at best.”  Yang, State Immunity in International Law 92 (Cambridge Univ. Press, 2012).  There is, in short, a distinct need for clarity, and this post seeks to explain the proper use of profit motive under section 1605(a)(2).

The FSIA Forecloses Subjective Profit Inquiries.  Although some litigants continue to argue that a foreign sovereign’s subjective profit motive remains relevant under the commercial activity exception, there is no doubt that the FSIA precludes such an inquiry.  Section 1603(d) specifically commands that “[t]he commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.”  28 U.S.C. § 1603(d).  Consistent with the statute’s plain language, the Supreme Court has unambiguously held that the “question is not whether the foreign government is acting with a profit motive.”   Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992).  Notwithstanding litigants’ occasional attempts to invoke a sovereign’s motive, any argument based upon a sovereign’s subjective profit motive (or lack thereof) has long been rejected by the courts.  See, e.g., NML Capital, Ltd., 680 F.3d at 260 (“The [sovereign’s] lack of a profit motive is simply irrelevant.”); Beg v. Islamic Republic of Pakistan, 353 F.3d 1323, 1327 n.1 (11th Cir. 2003) (“We decline to examine the government’s motives in determining what is commercial activity.”); see also, e.g., Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic Republic, 877 F.2d 574, 581 (7th Cir. 1989); Joseph v. Office of Consulate Gen. of Nigeria, 830 F.2d 1018, 1024 (9th Cir. 1987).

An Objective Profit Inquiry Can be Used to Determine if an Activity is Commercial. In the section-by-section analysis addressing section 1603(d), the FSIA’s legislative history stated that “if an activity is customarily carried on for profit, its commercial nature could readily be assumed.”  H.R. Rep. No. 94-1487, at 16 (1976) (emphasis added).  As stated by the Second Circuit, “where a private party would customarily engage in an activity for profit, there can be little question that that private party is engaging in commercial activity.  When a foreign sovereign engages in the same conduct, that activity retains its commercial nature, even though the foreign sovereign acts without a profit motive.”  Weltover, Inc. v. Republic of Argentina, 941 F.2d 145, 150 (2d Cir. 1991); see also NML Capital, Ltd., 680 F.3d at 259-60; EM Ltd. v. Republic of Argentina, 389 F. App’x 38, 44 (2d Cir. 2010); Sun, 201 F.3d at 1108; MCI Telecommunications Corp. v. Alhadhood, 82 F.3d 658, 663 (5th Cir. 1996); United States v. Moats, 961 F.2d 1198, 1205 (5th Cir. 1992); Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 452 (6th Cir. 1988).  The inquiry is not a subjective one directed at the foreign sovereign defendant, but instead an objective one based upon a theoretical “private person” engaged in the same conduct.

However, as some courts have pointed out, there are activities carried on “for profit” that should not be construed commercial activities under the FSIA:

Although trafficking in persons and property captured by sovereign entities solely for profit is certainly not unknown within the international community, this Court is of the opinion that state-supported kidnapping, hostage-taking, and similar universally criminal ventures were simply not the sorts of proprietary enterprises within the contemplation of Congress when it enacted the “commercial activity” exception to FSIA in conferring jurisdiction upon federal courts to entertain cases against foreign sovereigns.

Cicippio v. Islamic Republic of Iran, CIV. A. 92-2300, 1993 WL 730748, at *2 (D.D.C. Mar. 13, 1993) aff’d, 30 F.3d 164 (D.C. Cir. 1994); see also Mwani v. bin Laden, 417 F.3d 1, 16-17 (D.C. Cir. 2005).  The scenarios set forth in the Cicippio opinion – and other conceivable situations where the nature of a profitable activity demonstrates that it is not “commercial” – suggest potential limits of any objective profit inquiry.

Courts are Divided as to Whether an Objective Profit Inquiry Can be Used to Determine that an Activity is Not Commercial.  Relying on the same language from the FSIA’s legislative history, several courts have concluded that an activity that is customarily not undertaken for profit by private persons should be deemed noncommercial under section 1605(a)(2).  See, e.g., Amorrortu v. Republic of Peru, 570 F. Supp. 2d 916, 923 (S.D. Tex. 2008) aff’d, 325 F. App’x 400 (5th Cir. 2009) (“confiscation and expropriation are not commercial actions, for they are not actions of a nature that a private person would, or could, engage in for profit”); see also Intercontinental Dictionary Series, 822 F. Supp. at 676 (“the compilation of a linguistic treatise spanning decades and the lifetimes of many scholars is not of the type an individual would customarily carry on for profit”) (quotations and citations omitted); Aschenbrenner v. Conseil Reg’l de Haute-Normandie, 851 F. Supp. 580, 584-85 (S.D.N.Y. 1994).  Nevertheless, as noted above, such decisions have generally not fared well – the Ninth Circuit abrogated Intercontinental Dictionary Series in Sun, and the Aschenbrenner court’s conclusion is questionable under recent Second Circuit precedent.  See NML Capital, Ltd., 680 F.3d at 259.  Moreover, a number of courts have rejected the proposition that an activity that would customarily not be undertaken by a private person for profit should be deemed noncommercial under section 1605(a)(2).  See, e.g., Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708-09 (9th Cir. 1992) (“Though activities that customarily are carried on for profit are certainly commercial, an activity need not be motivated by profit to be commercial”); Berdakin v. Consulado de la Republica de El Salvador, 912 F. Supp. 458, 462 (C.D. Cal. 1995) (“A transaction or act is commercial if it is of the type an individual would customarily carry on for profit, but although the presence of a profit motive may be sufficient to render activity commercial, it is not necessary.”) (quotations and citations omitted).  As stated by the Eleventh Circuit in Guevara:

[S]aying that all for-profit activities are commercial is not the same thing as saying that all commercial activities are for profit.  The premise that all A is B does not logically compel the conclusion that all B is A, unless A and B are the same thing. There is no reason in the FSIA to believe that commercial activity means the same thing, and no more than, for-profit activity.

 . . . .

In fact, when private individuals purchase goods and services, they rarely do so with the intent to profit from their purchase. (Think of consumers at grocery stores and gas stations.) Peru’s [proposed] test would exclude most cases in which the government acts as a purchaser, rather than a vendor, of goods and services because most purchases made by private persons are not made with the intent to resell for profit.  Nothing in the restrictive theory of sovereign immunity turns on whether the government is a buyer or a seller.

Guevara v. Republic of Peru, 468 F.3d 1289, 1303 (11th Cir. 2006).

Based upon such reasoning, courts have declined to use an objective profit test to determine that a particular activity is not commercial.

The Unprofitable “Profit” Test.  Although the case law in this area is generally deemed confusing and inconsistent, the foregoing precedent in fact suggests relatively clear guidelines with respect to a “profit” inquiry under section 1605(a)(2).  Any attempt to examine profit to determine the commercial nature of an activity should acknowledge the following limitations:

1.         The foreign sovereign’s subjective profit motive is off limits, and will continue to be unless and until Congress amends section 1603(d).

2.         The FSIA does not define commercial activity in terms of profit, instead requiring an examination of the “nature” of the conduct in question.  28 U.S.C. § 1603(d).  In light of section 1603(d), the Supreme Court has specifically held that “the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in trade and traffic or commerce.”  Weltover, 504 U.S. at 614.  In addition, the rationale of the Cicippio decision demonstrates that there are limits to an objective profit inquiry.  As a result, any determination of whether an activity is commercial cannot turn solely on an objective profit inquiry.  Courts cannot, in other words, replace the statutory inquiry with a strict objective “profit” test.  At best, under section 1603(d) and Weltover, the objective profit inquiry can be a factor in determining that an activity is commercial in nature.

3.        The fact that an activity is customarily not undertaken for profit should be considered as a factor in determining that the activity is noncommercial.  Such an inquiry is not foreclosed by the Guevara court’s reasoning; the problems identified by the Eleventh Circuit and other courts only appear under a strict objective “no profit = noncommercial” test.  If courts can consider a profit motive from the perspective of an objective private person to determine that conduct is commercial, they should be able to consider the objective lack of a profit motive as a factor in determining that activity is noncommercial as well.

In the final analysis, much of the confusion relating to profit inquiries under section 1605(a)(2) stems from loose language in court opinions and in the legislative history.  If courts make clear that they are undertaking an objective inquiry that considers profit motive solely as a factor, a profit inquiry could become a useful tool in commercial activity jurisprudence.