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).

The FSIA’s Recurring Burden Problem

The FSIA has a burden problem, and it is not going away.

The trouble began with loose language in the House Report at the time of the FSIA’s passage.  The Report characterized the FSIA’s burden-shifting regimen as follows:

Evidence must be produced to establish that a foreign state or one of its subdivisions, agencies or instrumentalities is the defendant in the suit and that the plaintiff’s claim relates to a public act of the foreign state – that is, an act not within the exceptions in sections 1605-1607.  Once the foreign state has produced such prima facie evidence of immunity, the burden of going forward would shift to the plaintiff to produce evidence establishing that the foreign state is not entitled to immunity.  The ultimate burden of proving immunity would rest with the foreign state.

H.R. Rep. No. 94-1487, at 17 (1976) (emphasis added).

The House Report’s description of the foreign state’s initial burden was inconsistent with the FSIA’s statutory scheme.  Indeed, a foreign state’s claim of immunity can rest on the contention that a plaintiff’s claim arises out of a private act.  For example, if a foreign state employee has a car accident after work, the foreign state is likely to claim that the employee was engaged in private, personal conduct that is outside the scope of employment – and therefore not within the scope of the FSIA’s tort exception to immunity.  See, e.g., Randolph v. Budget Rent-A-Car, 97 F.3d 319, 326-28 (9th Cir. 1996); Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 173-74 (5th Cir. 1994); see also 28 U.S.C. § 1605(a)(5).  Similarly, a foreign state may concede that a plaintiff’s commercial claim arises out of private conduct, but contend that there is no jurisdiction under the commercial activity exception because the actions are not attributable to the sovereign or because the specific requirements of section 1605(a)(2)’s clauses are not met.  See 28 U.S.C. § 1605(a)(2).  In other words, whether or not a claim arises out of a public act is not coextensive with a foreign state’s entitlement to immunity under the FSIA, and it thus makes no sense to require a foreign state to make a prima facie showing that a plaintiff’s claim arises out of a public act.

Nevertheless, the legislative history’s “public act” language found its way into important early FSIA cases.  See, e.g., Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708 n.9 (9th Cir. 1992); Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 451 n.5 (6th Cir. 1988); Alberti v. Empresa Nicaraguense De La Carne, 705 F.2d 250, 256 (7th Cir. 1983).  And although the majority of courts now do not identify the public act requirement as part of a foreign sovereign’s initial burden, the problem persists in recent jurisprudence.  See, e.g., Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012); Malewicz v. City of Amsterdam, 517 F. Supp. 2d 322, 327 (D.D.C. 2007); see also O’Bryan v. Holy See, 549 F.3d 431 (6th Cir. 2008), opinion amended and superseded by O’Bryan v. Holy See, 556 F.3d 361 (6th Cir. 2009).

To the extent that a plaintiff or a court relies upon a public act requirement, defense counsel in FSIA cases would be well-served to argue that a foreign state need not make that initial showing to shift the burden of production to the plaintiff.  Such an argument should include three basic points.

First, as set forth above, the public act requirement is inconsistent with the statutory scheme since a foreign sovereign can be immune for private conduct.  See, e.g., Phaneuf v. Republic of Indonesia, 106 F.3d 302, 306 (9th Cir. 1997) (holding that requiring a foreign state “to prove a public act conflicts with the plain language of the statute: a foreign state is immune from suit unless one of the enumerated exceptions applies.  There is no exception for non-public acts.”)

Second, if the legislative history opened the door to a public act requirement, it was closed by the Supreme Court’s decision in Saudi Arabia v. Nelson, 507 U.S. 349 (1993).  The Nelson Court held that “a foreign state is presumptively immune from the jurisdiction of United States courts” under 28 U.S.C. section 1604.  Id. at 355.  Since a presumption “imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption,” Fed. R. Evid. 301, the presumption of immunity based upon sovereign status automatically shifts a burden of production to the plaintiff.  In fact, since Nelson was decided, courts have generally determined that the party claiming FSIA immunity bears only the initial burden of establishing prima facie that it satisfies the FSIA’s definition of a foreign state.  See Cargill Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993) (relying on Nelson in describing burden-shifting regimen under FSIA with no public act requirement); Orient Mineral Co. v. Bank of China, 506 F.3d 980, 991-92 (10th Cir. 2007) (same); Good v. Aramco Serv. Co., 971 F. Supp. 254, 256 (S.D. Tex. 1997) (same); see also Mann v. Hanil Bank, 900 F. Supp. 1077, 1087 (E.D. Wis. 1995) (stating that the public act requirement “violated the . . . notion of presumptive immunity as articulated” by the Nelson Court).

Third, while there were early FSIA cases that followed the public act requirement, the overwhelming majority of circuit courts now describe the foreign sovereign’s initial burden as requiring only that a defendant make a prima facie showing that it qualifies as a foreign state under the FSIA.  See BP Chemicals Ltd., an English Corporation v. Jiangsu SOPO Corp., 420 F.3d 810, 816 (8th Cir. 2005);  Int’l Ins. Co. v. Caja Nacional De Ahorro y Seguro, 293 F.3d 392, 397 (7th Cir. 2002); Keller v. Central Bank of Nigeria, 277 F.3d 811, 815 (6th Cir. 2002); S & Davis Intern., Inc. v. The Republic of Yemen, 218 F.3d 1292, 1300 (11th Cir. 2000); Byrd v. Corporacion Forestal y Industrial de Olancho S.A., 182 F.3d 380, 388 (5th Cir. 1999); Fed. Ins. Co. v. Richard I. Rubin & Co., 12 F.3d 1270, 1285 (3d Cir. 1993).  While the D.C. Circuit left the issue open in 2004 (Kilburn v. Socialist People’s Libyan Arab Jamahiriya, 376 F.3d 1123, 1131 (D.C. Cir. 2004)), it now appears to follow the other circuits as well.  See Bell Helicopter Textron, Inc. v. Islamic Republic of Iran, — F.3d —, 2013 WL 5853916, at *6 (D.C. Cir. Nov. 1, 2013); see also Recent Developments: The D.C. Circuit’s Latest FSIA Decision.

The Ninth Circuit’s holding in Phaneuf that a foreign state is not required to make an initial showing of a “public act” makes the recent re-emergence of the public act requirement in Terenkian – a case that cited the Phaneuf precedent (694 F.3d at 1131) – all the more baffling.  Terenkian and other recent cases show that counsel must remain vigilant to ensure that courts do not require a sovereign to meet a burden that is contrary to the statutory scheme, in violation of Nelson, and inconsistent with the vast majority of circuit cases.

Recent Development: The D.C. Circuit’s Latest FSIA Decision

The D.C. Circuit’s decision last week in Bell Helicopter Textron, Inc.v. Islamic Republic of Iran, — F.3 —, 2013 WL 5853916 (D.C. Cir. Nov. 1, 2013), raises several issues of interest under the FSIA.

First, the affirmance of the district court’s grant of Iran’s motion to vacate the judgment — a motion that was filed nearly a year after the default judgment was entered against the sovereign — acknowledges a powerful tool in the arsenal of foreign states in FSIA cases.  It is significantly easier for foreign sovereigns to vacate default judgments in federal court than it is for non-sovereign corporations or individuals, and that could have important strategic implications in certain cases.

Second, Bell Helicopter is one of relatively few cases in which a plaintiff was found to have failed to meet the burden of production under the FSIA’s burden-shifting scheme.  To function properly, the FSIA’s burden-shifting regimen should require plaintiffs to meet a substantial burden — a burden of production “with bite.”  With the Ninth Circuit’s 2010 decision in Peterson (see Peterson v. Islamic Republic of Iran, 627 F.3d 1117, 1125 (9th Cir. 2010)) and now with Bell Helicopter, that trend may be gathering steam in FSIA cases.

Third, Bell Helicopter properly refused to recognize remote, attenuated or speculate effects as sufficient for purposes of the “direct effect” requirement of the commercial activity exception’s third clause.  The Court of Appeals’ decision is consistent with appellate courts’ recent resistance to accepting creative “direct effect” arguments from plaintiffs’ attorneys in FSIA cases.  Early in FSIA jurisprudence, Judge Leval recognized the danger of a liberal construction of the direct effect requirement:

[T]he direct/indirect distinction serves a meaningful end in relation to the statute’s objectives in foreign relations. The statute seeks a balance between the provision of a convenient forum for claimants aggrieved in commercial dealings with foreign states and the promotion of comity and harmony between the United States and other nations. To extend jurisdiction to claims brought by all persons indirectly injured by commercial acts of foreign states would subject them to the jurisdiction of United States courts in an enormously expanded number of cases (including, no doubt, many that would eventually be dismissed for failure to state a cause of action). Given the proclivity of the United States population to devise lawsuits for every contretemps, the harassment of foreign sovereigns by exposure to the jurisdiction of United States courts would no doubt be considerable. Thus the statutory clause limiting jurisdiction over foreign sovereignties to instances of “direct” effect serves a valuable goal of foreign relations and should not be nullified by freehanded court interpretation.

Colonial Bank v. Compagnie Generale Mar. et Financiere, 645 F. Supp. 1457, 1465 (S.D.N.Y. 1986) (citation omitted).  Judge Leval’s words hold true nearly thirty years later, and it is good to see that federal courts continue to be cognizant of that danger today.