Tag Archives: Agency or Instrumentality

The D.C. Circuit’s Recent Decision Reinforces the Urgent Need for a Cyberattack Exception to the FSIA

March 16, 2017 By in Attachment and Execution, Cyberattack Exception, FSIA, Tort Exception Tags: , , , , , , , , , Leave a comment

On March 14, 2017, the D.C. Circuit affirmed the district court’s dismissal of a lawsuit against Ethiopia that arose out of an alleged hacking of a computer in the United States.  See Doe v. The Federal Democratic Republic of Ethiopia, — F.3d —, 2017 WL 971831 (D.C. Cir., Mar. 14, 2017, No. 16-7081). You can read the opinion here. 

The D.C. Circuit’s opinion makes it clear that the FSIA’s tort exception is wholly inadequate as a means to assert jurisdiction over a foreign state in a cyberattack case.  As the D.C. Circuit correctly held, the tort exception is inapplicable in such cases because of the situs requirement: “The tort [the plaintiff] alleges . . . did not occur entirely in the United States; it is a transnational tort over which we lack subject matter jurisdiction.”  Doe, 2017 WL 971831, at *3, citations, quotations and brackets omitted. The D.C. Circuit stated that Congress’s “primary purpose in enacting § 1605(a)(5) was to eliminate a foreign state’s immunity for traffic accidents and other torts committed in the United States,” and that “[i]t is thus unsurprising that transnational cyberespionage should lie beyond section 1605(a)(5)’s reach.”  Ibid., citation and quotations omitted.

The D.C. Circuit’s holding – that the tort exception’s situs requirement bars a claim arising out of a cyberattack originating overseas – corresponds exactly with the point that I made in my prior post. It is the reason why commentators who argue that the tort exception is sufficient to address the growing cyberattack problem are simply wrong.

Sovereign immunity was born centuries ago, and it underwent an important evolution in the 20th century to reflect a changing world. The FSIA now needs to catch up to the modern realities of the Internet Age. Given the prevalence of computer hacking by foreign states, and the resulting harm to American individuals and companies, a new cyberattack exception to the FSIA is urgently needed. However, as I previously explained, such an exception will only work if it has teeth – such as, for example, the ability to collect on judgments against foreign states from the state’s instrumentalities and agencies, even if such entities were not involved in the cyberattack at issue.  Cf. 28 U.S.C. § 1610(g)(1)(A)-(E). Otherwise, a new exception will do little to stem the rising tide of cyberattacks by foreign sovereigns in the United States.

OBB’s Novel “Agency or Instrumentality” Argument Revisited

September 11, 2015 By in Agency Tags: , , , , , , , , , Leave a comment

OBB v. Sachs is scheduled for oral argument in the United States Supreme Court on October 5, 2015.  During the period leading up to oral argument, I intend to publish a series of posts regarding issues in the Sachs case.  My general view is that Sachs is an easy case to resolve under Saudi Arabia v. Nelson, 507 U.S. 349 (1993), but that there is potential for a major mistake by the Supreme Court on the critical issue of attribution.  I will provide more information on these key points in the upcoming weeks.

Today, I want to focus on an issue that I have discussed before, namely OBB’s argument that the determination of whether an entity is an “agent” of a foreign state should be resolved through the definition of “agency or instrumentality” set forth in 28 U.S.C. section 1603(b).  I will not revisit the points I made in previous posts (here and here).  I do, however, want to add three points:

(1) OBB did not raise its argument that section 1603(b) controls the inquiry of whether an entity is an “agent” of a foreign state during district court proceedings.  OBB also did not raise the argument in its main briefing before the Ninth Circuit Court of Appeals.  Instead, OBB raised the issue for the first time during oral argument on en banc rehearing, and was subsequently ordered by the Ninth Circuit to submit supplemental briefing addressing its new argument.  See Sachs v. Republic of Austria, 737 F.3d 584, 594 n. 7 (9th Cir. 2013) (en banc).  OBB’s novel argument – which was contrary to FSIA precedent – was thereafter squarely rejected by the Ninth Circuit.  Sachs, 737 F.3d at 594-98.  That OBB itself did not see fit to raise the issue until oral argument on en banc rehearing fails to inspire confidence, and a closer look shows why OBB’s novel interpretation of the FSIA should have remained on the cutting room floor.

(2) OBB’s argument would require an extremely strained (and confusing) interpretation of 28 U.S.C. section 1603.  The relevant portion of section 1603 states:

(a) A “foreign state”, except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).

(b) An “agency or instrumentality of a foreign state” means any entity—

. . .

(2) which 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

. . . .

28 U.S.C. § 1603(a), (b)(2).  For OBB’s argument to work, the term “foreign state” in section 1603(b) must include “agencies or instrumentalities” of foreign states; otherwise, under OBB’s framework, an “agency or instrumentality” of a foreign state could never be held to have an “agent.”  Yet, as applied to OBB’s situation (that is, the question of whether an entity is an agent of an agency or instrumentality), OBB’s interpretation would effectively yield a statute that states the following:

(b) An “agency or instrumentality of [an agency or instrumentality of] a foreign state” means any entity—

. . .

(2) which is an organ of [an agency or instrumentality of] a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by [an agency or instrumentality of] a foreign state or political subdivision thereof

. . . .

Such a reading of section 1603(b) is not only deeply confusing, but it is also inconsonant with the statute’s use of the term “political subdivision thereof” (since agencies or instrumentalities of a foreign state do not have “political subdivisions”).  In other words, when section 1603(b) used the term “foreign state,” it was referring to foreign states proper – such as the Republic of Austria – and not to agencies or instrumentalities of a foreign state.  That is, in fact, exactly what the FSIA’s legislative history demonstrates.  See H.R. Rep. No. 94-1487, at 15 (1976) (stating that an agency or instrumentality must “be either an organ of a foreign state (or of a foreign state’s political subdivision), or that a majority of the entity’s shares or other ownership interest be owned by a foreign state (or by a foreign state’s political subdivision)”).  It is also what the Supreme Court concluded in Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), when the Court held “that only direct ownership of a majority of shares by the foreign state satisfies the statutory requirement [set forth in section 1603(b)(2)].”  Id. at 474 (emphasis added).

There is, in short, no statutory support for OBB’s approach.  Nothing in the FSIA indicates that a court first needs to examine section 1603(b) to determine whether the defendant (like OBB) is an agency or instrumentality of a foreign state, and then re-examine section 1603(b) to determine whether the putative agent is an “agency or instrumentality” of the “agency or instrumentality.”  No court has ever adopted that type of circular analysis under section 1603, and for good reason: it makes no sense. 

(3) OBB’s agency or instrumentality argument fails for another reason: it would render far too many entities incapable of being deemed an “agent” of a foreign state, and thereby deeply undermine the FSIA’s commercial activity exception.

Consider the following scenario: through individual intermediaries, a foreign state creates a separate corporation in New York State.  The foreign state exercises extensive day-to-day control over the corporation, which engages in a series of commercial transactions in the United States.  After the corporation’s conduct leads to multi-million dollar losses for a number of United States citizens, the individuals damaged file suit against the corporation and the foreign state.  Their main jurisdictional argument under the FSIA is that the corporation was an agent of the foreign state through the latter’s exercise of day-to-day control, and that the corporation’s conduct is attributable to the foreign state for jurisdictional purposes. 

Under OBB’s (mis)interpretation of section 1603(b), the plaintiffs in this scenario could not proceed against the foreign state itself because the corporation does not meet the definition of an agency or instrumentality under the FSIA.  The corporation was created in New York, not in the foreign state, and therefore could never (under OBB’s theory) be an agent of a foreign state.  See 28 U.S.C. § 1603(b)(3) (stating that an “agency or instrumentality of a foreign state” means any entity which, inter alia, “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”).  The same would hold true if the foreign state created the entity under the law of a third country, such as the law of the Bahamas or Panama.  In fact, OBB’s formulation would provide a blueprint to foreign states about how to engage in commercial activity in the United States without risking the possibility of litigation: if the foreign state engages in commercial activity through a corporation created under the law of the United States or a third country, it will never be held to engage in commercial activity in the United States — even if the foreign state exercises day-to-day control over the corporation created, and effectively engages in extensive commercial activity in the United States through the nominally separate corporation.

OBB’s position, in other words, would profoundly undermine the effectiveness of the FSIA’s commercial activity exception.  Where a foreign state dominates a separate corporation to such an extent that a principal-agent relationship is created, courts must be permitted to attribute the corporation’s conduct to the foreign state for jurisdictional purposes.  Otherwise, the first clause of the commercial activity exception would contain a loophole that would swallow the exception itself.

[Next week, I will examine Sachs’s argument that OBB’s “overall commercial railway enterprise” satisfies the “commercial activity” requirement under the first clause of the FSIA’s commercial activity exception.]

Plaintiffs and Their Counsel Should Determine a Foreign State Entity’s Status Early in the Litigation

September 24, 2014 By in FSIA Tags: , , , , , , Leave a comment

In FSIA cases, plaintiffs and their counsel frequently fail to examine carefully at the outset of the litigation a foreign state entity’s status under section 1603.  That mistake, which is easily avoidable, has resulted in numerous instances of defective service of process and other unnecessary delays in FSIA litigation.  

In Howe v. Embassy of Italy, No. CV 13-1273 (BAH), 2014 WL 4449697 (D.D.C. Sept. 11, 2014), the court recently held that the Italian Embassy was a foreign state for purposes of the FSIA’s service provisions.  The court relied on the “categorical” approach adopted by the D.C. Circuit in Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148 (D.C. Cir. 1994), which examines if an entity is “an integral part of a foreign state’s political structure” in determining whether the entity qualifies as a “foreign state.”  Howe, 2014 WL 4449697, at *5-6; see also Transaero, 30 F.3d at 151.  The Howe court also relied on a line of FSIA cases that have determined that an embassy is part of the foreign state itself.  See Howe, 2014 WL 4449697, at *6; see also Barot v. Embassy of Republic of Zam., No. 13-451, 2014 WL 1400849, at *4 (D.D.C. Apr. 11, 2014) (holding defendant foreign embassy in Washington, D.C., is “foreign state or [a] political subdivision of a foreign state” for FSIA purposes (alteration in original)); Ellenbogen v. The Can. Embassy, No. 05-1553, 2005 WL 3211428, at *2 (D.D.C. Nov. 9, 2005) (“[I]t is well-settled that an embassy is a ‘foreign state’ . . . not an ‘agency or instrumentality’ thereof”); Int’l Rd. Fed’n v. Embassy of Dem. Republic of the Congo, 131 F. Supp. 2d 248, 250 (D.D.C. 2001) (holding embassy of foreign state in Washington, D.C., a “foreign state” for the purposes of the FSIA and collecting cases); Underwood v. United Republic of Tanz., No. 94-902, 1995 WL 46383, at *2 (D.D.C. Jan. 27, 1995) (“Applying the categorical approach to the status of the Embassy, we conclude that as a matter of law an embassy of a sovereign nation is a foreign state which must be served pursuant to § 1608(a).”).  Based upon this conclusion regarding the Italian Embassy’s status, the Howe court held that the plaintiff’s attempted service – which did not meet the requirements of section 1608(a) – was defective.  Howe, 2014 WL 4449697, at *6.

It is not always easy to tell whether an entity is a foreign state or an agency or instrumentality thereof.  While each entity must be analyzed separately in the context of the foreign political system at issue, a good rule of thumb is that ministries or departments, the military, and embassies will be deemed “foreign states” – and not agencies or instrumentalities thereof – under 28 U.S.C. § 1603(a).  See, e.g., Garb v. Republic of Poland, 440 F.3d 579, 597-98 (2d Cir. 2006) (holding that the Ministry of the Treasury of Poland is a foreign state and not an “agency or instrumentality” thereof); Transaero, 30 F.3d at 153 (“We hold that armed forces are as a rule so closely bound up with the structure of the state that they must in all cases be considered as the ‘foreign state’ itself, rather than a separate ‘agency or instrumentality’ of the state.”); Howe, 2014 WL 4449697, at *5-6 (holding that an embassy is a foreign state under section 1603(a)). 

In any event, plaintiffs and their counsel would be well-served to examine the issue carefully at the outset of the case.  An entity’s status can have a major impact on the ensuing litigation, including with respect to service (28 U.S.C. § 1608), jurisdiction (28 U.S.C. § 1605(a)(3)), damages (28 U.S.C. § 1606), and attachment or execution (28 U.S.C. § 1610).  An early resolution of the issue should not be difficult – Transaero is the key case to get the research started – and can avoid costly and unnecessary litigation.

An Austrian Instrumentality’s “Agency” Error

April 29, 2014 By in Agency Tags: , , , , , , Leave a comment

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.

The FSIA, Agency and Agents: Avoiding a Basic Pitfall

January 20, 2014 By in Agency Tags: , , , , , , , , , , , Leave a comment

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.