Discovery Targeting FSIA Counsel

A recent decision by the Second Circuit serves as a warning signal to foreign states and their attorneys in the United States.  In Mare Shipping Inc. v. Squire Sanders (US) LLP, No. 13-4426-CV, — Fed. Appx. —, 2014 WL 3733133 (2d Cir., July 30, 2014), the Second Circuit held that the FSIA does not preclude discovery requests targeting a foreign state’s counsel in the United States.  Relying on Rep. of Argentina v. NML Capital, Ltd., — U.S. —, 134 S.Ct. 2250, 2256, (2014), the court held that the FSIA’s “explicit definition” of a “foreign state,” by “its plain text, excludes a foreign sovereign’s U.S. counsel.”  Mare Shipping, 2014 WL 3733133, at *3. 

It is unclear what practical impact Mare Shipping will have, since documents and other information obtained by FSIA defense counsel from a foreign state would presumably remain protected by the attorney-client privilege.  In addition, FSIA counsel’s work should remain protected by the attorney work product doctrine.  However, in the event that such protections do not apply, defense counsel should be aware that they likely cannot rely upon the FSIA to fight discovery related to their representation of foreign states.

The Narrow Implied Waiver Exception

A recent decision from the United States District Court for the District of Columbia underscores the difficulty of establishing FSIA jurisdiction based upon a foreign state’s implied waiver of immunity.  The case also highlights that defense counsel in FSIA cases should take a simple step to prevent an inadvertent waiver of immunity in litigation.

The FSIA’s legislative history indicates that implied waivers may be found “in cases where a foreign state has agreed to arbitration in another country or where a foreign state has agreed that the law of a particular country should govern a contract.”  H.R.Rep. No. 94–1487, at 18 (1976).  In addition, “[a]n implicit waiver would . . . include a situation where a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity.”  Ibid.  Based upon this legislative history, “[f]ederal courts have been virtually unanimous in holding that the implied waiver provision of Section 1605(a)(1) must be construed narrowly.”  Shapiro v. Republic of Bolivia , 930 F.2d 1013, 1017 (2d Cir. 1991).  Moreover, while “the examples given in the House Report are not necessarily the only circumstances in which an implied waiver might be found,” Smith v. Socialist People’s Libyan Arab Jamahiriya, 101 F.3d 239, 244 (2d Cir. 1996), “courts have been reluctant to stray beyond these examples when considering claims that a nation has implicitly waived its defense of sovereign immunity.” Princz v. Federal Republic of Germany, 26 F.3d 1166, 1174 (D.C. Cir. 1994).

Diag Human S.E. v. Czech Republic-Ministry of Health, CV 13-0355 (ABJ), 2014 WL 3956747 (D.D.C. Aug. 14, 2014), is consistent with precedent narrowly construing implied waivers under section 1605(a)(1).  In determining whether the Czech Republic had implicitly waived its immunity, the district court held that there had been no implied waiver because the foreign state’s conduct did not fall within any of the three examples set forth in the legislative history.  Diag Human, 2014 WL 3956747, at *6.

While the analysis in Diag Human is straightforward, the case highlights an important issue for FSIA defense counsel.  The Czech Republic filed a motion to dismiss in Diag Human that did not raise the issue of foreign sovereign immunity.  The district court determined that such a filing did not fall within the “responsive pleading” implicit waiver exception, because a motion to dismiss is not a responsive pleading.  Diag Human, 2014 WL 3956747, at *6.  As a procedural matter, the district court was correct: under the Federal Rules of Civil Procedure, a motion to dismiss is technically not a “responsive pleading.”  See, e.g., Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995).  However, as a practical matter, defense counsel in FSIA cases should be cautious about filing a motion to dismiss that fails to include a sovereign immunity defense.  At a bare minimum, any such motion should expressly reserve the sovereign immunity defense so that the plaintiff cannot argue implicit waiver under section 1605(a)(1).  In fact, it is good practice for defense counsel to include explicit “non-waiver” language in all early filings in an FSIA case – including, for example, stipulations to extend time to file an answer or otherwise respond – to avoid waiver becoming an issue in the litigation.

NML Capital and FSIA Jurisdictional Discovery

Following NML Capital, a significant issue is whether the Supreme Court’s holding applies with respect to FSIA jurisdictional discovery.  Some commentators believe that NML Capital indicates that “lower courts have been too generous in protecting foreign sovereigns from [jurisdictional] discovery requests.”   See Wuerth, Republic of Argentina v. NML Capital: Discovery and the Foreign Sovereign Immunities Act. Although the issue is complex and requires further analysis, this post sets forth my preliminary thoughts.

First, Argentina’s position in the NML Capital litigation was wholly unlike that of a foreign sovereign facing FSIA jurisdictional discovery.  Argentina had previously waived both immunity from jurisdiction and immunity from execution, and the Supreme Court concluded that the FSIA did not confer any immunity over Argentina’s overseas assets.  See The Republic of Argentina v. NML Capital, Ltd. (No. 12-842): Why Both Sides Are Wrong (“NML Article”) at 2-3; see also Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2250, 2256, 2257 (2014).  The district court had held that it had subject matter jurisdiction over the action, a conclusion that was uncontested by Argentina.  NML Article at 3.  The district court had entered judgments against Argentina that were indisputably valid.  Id.  Argentina’s position had, in short, no similarities to that of a foreign sovereign that is presumptively immune from suit in a court where jurisdiction is in doubt.  See Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993) (“Under the Act, a foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state.”).  Given the contrast between Argentina’s position and the position of foreign sovereigns confronting the possibility of jurisdictional discovery, it would be injudicious to draw conclusions from the NML Capital case with regard to FSIA jurisdictional discovery.  See, e.g., Cohens v. State of Virginia, 19 U.S. 264, 399, 6 Wheat. 264, 399 (1821) (“It is a maxim not to be disregarded, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used.” ); see also Armour & Co. v. Wantock, 323 U.S. 126, 132-33 (1944) (“words of . . . opinions are to be read in the light of the facts of the case under discussion . . . . General expressions transposed to other facts are often misleading.”).

Second, while plaintiffs’ counsel are likely to rely upon the Supreme Court’s discussion of Rule 69(a)(2) and its conclusion that the FSIA does not modify the Rule’s authorization of broad post-judgment discovery (cf. NML Capital, 134 S. Ct. at 2254-57), it is unclear whether the same analysis is applicable with respect to FSIA jurisdictional discovery.  To draw a sustainable analogy to NML Capital, a plaintiff’s attorney would need to show that the scope of discovery provided by Rule 26(b) applies where subject matter jurisdiction has not even been established.  This is a complicated issue that merits further examination, but there are reasons to believe that Rule 26(b) discovery is inappropriate if the district court has not yet resolved the issue of subject matter jurisdiction.  See Steven R. Swanson, Jurisdictional Discovery Under the Foreign Sovereign Immunities Act, 13 Emory Int’l L. Rev. 445, 457-58 (1999) (“[I]t has not always been clear whether the FRCP permit jurisdictional discovery.  After all, before jurisdiction has been established a court technically lacks power to order discovery.”); cf. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 n.13 (1978) (indicating that discovery is available with respect to jurisdictional issues, without distinguishing between personal jurisdiction and subject matter jurisdiction); Insurance Corporation of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 701-03 (1982) (distinguishing subject matter jurisdiction from personal jurisdiction); see also, e.g., United States v. Sherwood, 312 U.S. 584, 589-90 (1941) (holding that the rules of civil procedure do not “modify, abridge or enlarge the substantive rights of litigants or  . . . enlarge or diminish the jurisdiction of federal courts”); Am. Telecom Co., L.L.C. v. Republic of Lebanon, 501 F.3d 534, 538-39 (6th Cir. 2007) (“Courts are constituted by authority and they cannot [go] beyond the power delegated to them. If they act beyond that authority, and certainly in contravention of it, their judgments and orders are regarded as nullities. They are not voidable, but simply void, and this even prior to reversal.”); Rolls Royce Indus. Power (India) v. M.V. Fratzis M. Stratilatis Navigation Ltd., 905 F. Supp. 106, 107 (S.D.N.Y. 1995) (declining to order discovery in the absence of subject matter jurisdiction).

Third, the “Civil Rule vs. FSIA” conflict advanced by Argentina – which was the “single, narrow question” resolved by the Supreme Court (NML Capital, 134 S. Ct. at 2255) – is a red herring in the context of FSIA jurisdictional discovery.  The issue is not whether the FSIA itself governs jurisdictional discovery; indeed, as the Supreme Court correctly pointed out, the FSIA only expressly addresses discovery in a very limited way.  NML Capital, 134 S. Ct. at 2256; see also 28 U.S.C. § 1605(g).  Instead, the question is whether a district court should exercise its discretion to limit any jurisdictional discovery ordered against a foreign sovereign.  See Crawford-El v. Britton, 523 U.S. 574, 598 (1998).  In this regard, two important observations are in order:

  • District courts limit FSIA jurisdictional discovery in recognition of the fact that (1) a foreign sovereign is presumptively immune from discovery at the beginning of the litigation (cf. NML Article at 12-13) and (2) the court’s subject matter jurisdiction is in doubt. That is true not only with respect to jurisdictional discovery under the FSIA, but also in other circumstances where a defendant is presumptively immune or jurisdiction has not yet been established.   In fact, there are strong similarities between the rules applied in FSIA jurisdictional discovery cases and the rules applied in other situations where a court confronts the propriety of jurisdictional discovery.  See, e.g., Freeman v. United States, 556 F.3d 326, 342 (5th Cir. 2009); St. Clair v. City of Chico, 880 F.2d 199, 202 (9th Cir. 1989); Razore v. Tulalip Tribes of Wash., 66 F.3d 236, 240 (9th Cir. 1995); Encompass Office Solutions, Inc. v. Ingenix, Inc., No. 4:10-CV-96, 2010 WL 2639563, at *2 (E.D. Tex. June 28, 2010); Dichter-Mad Family Partners, LLP v. United States, 707 F. Supp. 2d 1016, 1053-54 (C.D. Cal. 2010).  Because precedent regarding FSIA jurisdictional discovery does not rely on any textual analysis of the FSIA – but instead relies upon well-established precedent regarding the propriety of discovery prior to a resolution of immunity or a determination of subject matter jurisdiction – such precedent remains unaffected by NML Capital.
  • The Supreme Court in NML Capital expressly recognized that comity considerations govern discovery requests targeting foreign sovereigns. See NML Capital, 134 S. Ct. at 2258 n. 6 (“Although this appeal concerns only the meaning of the Act, we have no reason to doubt that . . . other sources of law ordinarily will bear on the propriety of discovery requests of this nature and scope, such as . . . the discretionary determination by the district court whether the discovery is warranted, which may appropriately consider comity interests and the burden that the discovery might cause to the foreign state.”).  In support of this proposition, the Supreme Court cited Société Nationale Industrielle Aérospatiale v. USDC, 482 U.S. 522, 543-44, and n. 28 (1987).  In the portion of Société Nationale relied upon by the NML Capital Court, the Supreme Court stated that factors relevant to “any comity analysis” include “(1) the importance to the . . . litigation of the documents or other information requested; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of securing the information; and (5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located.”  Société Nationale Industrielle Aérospatiale v. USDC, 482 U.S. at 544 n.28.  Because these are similar to factors considered in a traditional FSIA jurisdictional discovery analysis, a plaintiff would at best be jumping from the frying pan (FSIA jurisdictional discovery precedent) into the fire (international comity analysis).  Regardless of which mode of analysis is utilized, it is unlikely to make a material difference in any given case.

In short, a plaintiff seeking to rely upon NML Capital to argue for broader jurisdictional discovery is unlikely to succeed.  Foreign sovereigns – like other similarly situated litigants – should continue to enjoy discovery protections in the context of a challenge to a district court’s jurisdiction under the FSIA.

Republic of Argentina v. NML Capital, Ltd. (No. 12-842): The Supreme Court (and this Website) Got It Right

Yesterday, the Supreme Court ruled against the Republic of Argentina (7 to 1) in the NML case.  In correctly rejecting Argentina and the United States’ interpretation of the Foreign Sovereign Immunities Act, Justice Scalia’s majority opinion echoed the arguments made on this website two months ago.

Recap: In the NML case, Argentina and the United States argued that the district court’s order permitting broad discovery regarding Argentina’s extraterritorial assets violated the FSIA.  The key premise of Argentina and the United States’ contention was that the FSIA conferred execution immunity over a foreign state’s property held overseas.  See Brief for Petitioner on the Merits (No. 12-842), filed Feb. 24, 2014, at 6, 21; Brief for the United States as Amicus Curiae in Support of Petitioner (No. 12-842), filed Mar. 3, 2014, at 12, 18.  Argentina and the United States advanced their argument by largely ignoring the plain language of 28 U.S.C. section 1609, which conferred execution immunity only upon a foreign state’s property “in the United States.”  28 U.S.C. § 1609 (emphasis added); see also The Republic of Argentina v. NML Capital, Ltd. (No. 12-842): Why Both Sides Are Wrong (“NML Article”) at 6, 7 n.9.

While NML raised the section 1609 argument (Brief for Respondent on the Merits (No. 12-842), filed Mar. 26, 2014 (“NML Br.”) at 9, 46, 52), it was not the focus of its brief in the Supreme Court.  NML Br., passim.

On April 11, 2014, I posted the NML Article on this website.  In the article and a follow-up post regarding Argentina’s reply brief, I made three major contentions regarding Argentina and the United States’ position.  First, I argued that “the threshold issue” in the NML case was “whether foreign assets are accorded a statutory presumption of immunity from execution” under the FSIA.  NML Article at 1.  I stated that “[u]nder section 1609’s plain language, the FSIA does not accord Argentina’s foreign assets with presumptive immunity from execution.  Since Argentina’s property overseas is not presumptively immune under the FSIA, the FSIA does not provide such property with protection from discovery.”  NML Article at 5; see also id. at 5-10.

Second, with regard to Argentina’s contention in its reply brief that pre-FSIA common law controls, I stated that “Argentina nowhere shows that the pre-FSIA regime accorded immunity to a foreign state’s property abroad.  In the absence of such a showing, it is just as likely that immunity issues relating to foreign property were treated as matters of foreign law before the FSIA’s enactment, just as they are now.”  See Republic of Argentina v. NML Capital, Ltd.: Reaction to Argentina’s Reply Brief.

Third, I argued that “[s]ince the FSIA does not accord presumptive sovereign immunity upon a foreign state’s assets overseas, the discovery dispute between Argentina and NML should not be analyzed under the FSIA.  Instead, the Supreme Court’s decision in Société Nationale Industrielle Aérospatiale v. USDC,  482 U.S. 522 (1987), controls.”  NML Article at 2; see also id. at 14-19.  I also noted that while NML cited Société Nationale Industrielle Aérospatiale in its Supreme Court brief, neither party had raised the Société Nationale Industrielle Aérospatiale comity issue in the district court or in the Second Circuit.  Ibid. at 18-19 n.27.

The Supreme Court’s Opinion: In rejecting Argentina and the United States’ position, the Supreme Court’s opinion echoed the analysis I set forth in the NML Article and the subsequent post. 

First, the Supreme Court concluded that the plain language of the FSIA undermined the central premise of Argentina and the United States’ position.  The Supreme Court squarely held that section 1609 “immunizes only foreign-state property ‘in the United States’” and thus does “not shield from discovery a foreign sovereign’s extraterritorial assets.”  Republic of Argentina v. NML Capital, Ltd., No. 12-842, 573 U.S. ___ (2014) (slip op., at 9) (emphasis in original).

Second, with regard to pre-FSIA common law immunity, the Supreme Court observed that “Argentina cites no case holding that, before the Act, a foreign state’s extraterritorial assets enjoyed absolute execution immunity in United States courts. No surprise there. Our courts generally lack authority in the first place to execute against property in other countries, so how could the question ever have arisen?”  NML Capital, 573 U.S. ___ (slip op., at 9).

Third, the Supreme Court agreed that Société Nationale Industrielle Aérospatiale applies with regard to NML’s discovery requests.  See NML Capital, 573 U.S. ___ (slip op., at 11-12 n.6).

Final Thoughts Regarding Argentina and the United States’ Argument: In the end, the NML case was not a close call.  Argentina and the United States’ position – that the FSIA conferred execution immunity over a foreign state’s extraterritorial assets – was simply irreconcilable with the plain language of section 1609.  While I understand why Argentina nevertheless made the argument given the precarious legal situation that it finds itself in, I am disappointed that the Solicitor General supported a position that was contrary to the plain language of the FSIA.  The United States’ untenable legal position may have been driven by overarching political and economic concerns, but the Solicitor General’s brief was, in my view, inconsistent with the responsibilities of the “Tenth Justice” of the Supreme Court.   

Note: I will post another article regarding the NML case in the next few weeks, this time focused on the effect (if any) of the decision with respect to FSIA jurisdictional discovery.

A Common Service Error

Since the enactment of the FSIA, plaintiffs have repeatedly attempted to serve foreign states via their embassies in Washington, D.C.  That is the wrong approach.  The FSIA does not provide for service via an embassy (cf. 28 U.S.C. § 1608(a)), and indeed such service is inconsistent with international law.  As demonstrated by a recent case from the United States District Court for the Eastern District of California, any attempt to serve via a foreign state’s embassy will be quashed by the court.  See Rhuma v. Libya, 2:13-CV-2286 LKK AC, 2014 WL 1665042, at *4 (E.D. Cal. Apr. 24, 2014) (“personal service on a foreign state’s embassy fails to comply with Section 1608(a)”); see also, e.g., BPA Intern., Inc. v. Kingdom of Sweden, 281 F. Supp. 2d 73, 84 (D.D.C. 2003) (personal service on Embassy of Sweden was insufficient under 28 U.S.C. § 1608(a)); Ibiza Business Ltd. v. U.S., 2010 WL 2788169, at *2 (D.D.C. 2010) (personal service on Brazilian Embassy was insufficient pursuant to 28 U.S.C. § 1608(a)).

The Tort Exception’s Situs Requirement

The FSIA’s tort exception requires an action “in which money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States . . . .”  28 U.S.C. § 1605(a)(5).  As exemplified by a recent decision from the United States District Court for the District of Puerto Rico, courts have long held that jurisdiction lies under the tort exception only if the entire tort occurred within the United States.  See Fernandez v. Spain, CIV. 13-1911 PG, 2014 WL 1807069, at *2 (D.P.R. May 7, 2014); see also, e.g., Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 441 (1989); In re Terrorist Attacks on September 11, 2001, 714 F.3d 109, 116 (2d Cir. 2013); O’Bryan v. Holy See, 556 F.3d 361, 382 (6th Cir. 2009); Cabiri v. Gov’t of Republic of Ghana, 165 F.3d 193, 200 n.3 (2d Cir. 1999); Wolf v. Fed. Republic of Germany,95 F.3d 536, 542 (7th Cir. 1996); Jones v. Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1065 (5th Cir. 1992); Asociacion de Reclamantes v. United Mexican States, 735 F.2d 1517, 1524-25 (D.C. Cir. 1984); Abrams v. Societe Nationale des Chemins de Fer Francais, 175 F. Supp. 2d 423, 431 (E.D.N.Y. 2001), vacated on other grounds by 332 F.3d 173 (2d Cir. 2003), cert. granted and vacated, 542 U.S. 901 (2004), aff’d 389 F.3d 61 (2d Cir. 2004); Sampson v. Fed. Republic of Germany, 975 F. Supp. 1108, 1118 (N.D. Ill. 1997); S. Seafood Co. v. Holt Cargo Sys., Inc., No. Civ.A.96-5217, 1997 WL 539763, at *7 (E.D. Pa. Aug. 11, 1997); Cabiri v. Gov’t of Republic of Ghana, 981 F. Supp. 129, 132 (E.D.N.Y. 1997), aff’d in part and rev’d on other grounds in 165 F.3d 193 (2d Cir. 1999); Hirsh v. State of Israel, 962 F. Supp. 377, 383-84 (S.D.N.Y. 1997); Rein v. Rein, No. 95 Civ. 4030 (SHS), 1996 WL 273993, at *3 (S.D.N.Y. May 23, 1996); Coleman v. Alcolac, Inc., 888 F. Supp. 1388, 1403 (S.D. Tex. 1995); Smith v. Socialist People’s Libyan Arab Jamahiriya, 886 F. Supp. 306, 313 (E.D.N.Y. 1995); El-Fadl v. Cent. Bank of Jordan, No. Civ.A. 93-1895 RMU, 1994 WL 1656111, at *4 (D.D.C. Nov. 9, 1994); Velasquez v. Gen. Consulate of Mexico, No. C-92-3745 CFL, 1993 WL 69493, at *3 (N.D. Cal. Mar. 4, 1993); Intercont’l Dictionary Series v. De Gruyter, 822 F. Supp. 662, 677 (C.D. Cal. 1993), disapproved on other grounds in Sun v. Taiwan, 201 F.3d 110 (9th Cir. 2000); Denegri v. Republic of Chile, Civ. A. No. 86-3085, 1992 WL 91914, at *2 (D.D.C. Apr. 6, 1992); Antares Aircraft L.P. v. Fed. Republic of Nigeria, No. 89 Civ. 6513(JSM), 1991 WL 29287, at *4 (S.D.N.Y. Mar. 1, 1991); Polanco v. Dominican Republic, No. 90 Civ. 7089 (WK),1991 WL 146306, at *2 (S.D.N.Y. July 22, 1991); Fickling v. Commw. of Australia, 775 F. Supp. 66, 72 (E.D.N.Y. 1991); Von Dardel v. Union of Soviet Socialist Republics, 736 F. Supp. 1, 7-8 (D.D.C. 1990); Goquiolay v. Philippines Nat’l Bank, No. 90 CIV. 893 (CSH), 1990 WL 144118, at *3 (S.D.N.Y. Sept. 28, 1990); Bennett v. Stephens, CIV. A. No. 88-2610 (RCL), 1989 WL 17751, at *4 (D.D.C. Feb. 23, 1989); Kline v. Kaneko, 685 F. Supp. 386, 391 (S.D.N.Y. 1988); Four Corners Helicopters, Inc. v. Turbomeca S.A., 677 F. Supp. 1096, 1102 (D. Colo. 1988); English v. Thorne, 676 F. Supp. 761, 764 (S.D. Miss. 1987); Ledgerwood v. State of Iran, 617 F. Supp. 311, 314 (D.D.C. 1985); Kline v. Republic of El Salvador, 603 F. Supp. 1313, 1315-16 (D.D.C. 1985); Evans v. Petroleo, Civil Action No. H-83-91, 1984 WL 1887, at *1 (S.D. Tex. Aug. 2, 1984); In re Sedco, Inc., 543 F. Supp. 561, 567 (S.D. Tex. 1982); cf. H.R. Rep. No. 1487, at 21 (1976).

The tort exception’s situs requirement is a critical limitation on jurisdiction over foreign torts under the FSIA.  In light of the recognized importance of such limitations in international law (cf. Kiobel v. Royal Dutch Petroleum Co., — U.S. —, 133 S. Ct. 1659, 1669 (2013)), it should continue to be strongly enforced by courts in the United States.

The Practical Impact of Strict Compliance Under Section 1608(a)

Two recent decisions reaffirm the need for a plaintiff’s strict compliance with the service requirements set forth in 28 U.S.C. section 1608(a).  Although I have addressed the standard for service upon a foreign state before, the new decisions demonstrate the practical effect of a strict compliance standard in FSIA litigation.

First, in Barot v. Embassy of Republic of Zambia, CV 13-0451 (ABJ), 2014 WL 1400849 (D.D.C. Apr. 11, 2014), the district court held that the plaintiff failed to comply with section 1608(a)(3)’s requirement that service of process must “be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned.”  28 U.S.C. § 1608(a)(3).  Instead of addressing the package to the head of the foreign ministry, the plaintiff addressed the mailing to the “Embassy of Zambia, P.O. Box 50069, Lusaka City, Zambia.”  Barot, 2014 WL 1400849, at *5.  While the district court noted that it “would be inclined to overlook such a technical error” in another context, the court held that section 1608(a) requires strict compliance and that the service attempt “did not comply with the strict terms of section 1608(a)(3).”  Id. at *5-6.

Second, in Doe v. Holy See, CIV.A. 13-128, 2014 WL 1329985 (E.D. La. Apr. 2, 2014) (a case in which I am one of the attorneys for the foreign sovereign), the district court held that service of the original complaint did not strictly comply with section 1608(a) when the complaint had been amended before service was accomplished.  The court held that “the plaintiff’s attempted service of process failed to strictly comply with the FSIA’s service requirements in 28 U.S.C. § 1608(a) because the plaintiff failed to serve the operative amended complaint [and] did not serve a translation of the operative complaint.”  Id. at *6. 

The strict compliance standard requires plaintiffs to follow the rules set forth under section 1608(a) and the underlying federal regulations.  When a plaintiff fails to do so, there is a good chance that the plaintiff will be compelled to return to square one.

An Austrian Instrumentality’s “Agency” Error

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.

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

I only have time for a short post today, but — especially in light of my article about the NML case last week (“NML Article”) — I wanted to share my thoughts about the reply brief filed by Argentina yesterday.

Argentina repeats its claim that “the FSIA make all foreign-state property presumptively immune from judgment execution.”  Reply Brief for Petitioner (“Arg. Reply”) at 3 (emphasis added); see also id. at 14.  As I explained in my article, Argentina’s contention is untenable given the plain language of the FSIA.  NML Article at 5-9.  Section 1609, the statutory provision that confers presumptive execution immunity on a foreign state’s property, is expressly limited to property “in the United States.”  28 U.S.C. § 1609 (emphasis added).  Contrary to Argentina’s argument, nothing in the FSIA confers presumptive immunity upon foreign state property throughout the world. 

Argentina’s response to section 1609’s clear limitation appears to be relegated to a footnote in the middle of its brief, where it states the following: “NML is wrong that foreign-state property outside the United States is not ‘immune,’ but in any event does not dispute that U.S. courts may not execute on such property, and acknowledged as much to the Second Circuit.”  Arg. Reply at 10 n.4 (emphasis in original) (citations omitted).  The fact that Argentina did not even repeat the full argument it made to the Second Circuit on the issue does not, in my opinion, bode well for its position in the Supreme Court.  Cf. NML Article at 7-8.  Moreover, as I stated last week, section 1609’s “in the United States” limitation means that it “neither provides immunity to foreign property nor empowers U.S. courts to order execution against assets held abroad.”  NML Article at 8.  That the FSIA fails to accord United States courts with the power to execute upon property located in foreign jurisdictions does not mean that such property receives “presumptive immunity” under the statute.  Instead — and as Argentina has previously conceded in this litigation — the status of foreign state property overseas is simply a matter of foreign law properly resolved by foreign courts.  Cf. NML Article at 7-8.

Argentina also appears to argue that the pre-FSIA common law should govern with respect to a foreign state’s property overseas.  Arg. Reply at 4-5, 11.  But principles of statutory construction — including those relating to adherence to pre-statutory common law — do not trump a statute’s plain language.  Cf. Sebelius v. Cloer, — U.S. —, 133 S. Ct. 1886, 1895-96 (2013).  Moreover, Argentina nowhere shows that the pre-FSIA regime accorded immunity to a foreign state’s property abroad.  In the absence of such a showing, it is just as likely that immunity issues relating to foreign property were treated as matters of foreign law before the FSIA’s enactment, just as they are now.

Finally, Argentina’s waiver argument (Arg. Reply at 20-23) — which disregards that the issue of waiver with respect to foreign assets is a question of foreign law — fails for the reasons I explained more fully in my article last week.  See NML Article at 10-11.

Republic of Argentina v. NML (No. 12-842) – Why Both Sides Are Wrong

NML, a Cayman Islands hedge fund, obtained numerous federal judgments against Argentina arising out of Argentina’s default on payment of its public debt. Argentina refuses to satisfy any of the judgments. Because NML has had little success in finding Argentinian assets in the United States subject to execution under the Foreign Sovereign Immunities Act (FSIA), the district court granted NML broad discovery from non-party banks relating to Argentina’s assets overseas. The discovery dispute between NML and Argentina is currently pending in the United States Supreme Court, with oral argument scheduled for April 21, 2014.

The FSIA has been called a “statutory labyrinth” with “many deliberately vague provisions.” While that characterization may hold true regarding certain sections of the FSIA, the statute is a model of clarity and simplicity with respect to the threshold issue in this case: whether foreign assets are accorded a statutory presumption of immunity from execution. Section 1609 provides that only a foreign state’s property “in the United States” is presumptively immune from execution. Nowhere does the FSIA confer presumptive immunity on a foreign state’s assets held outside the United States.

Notwithstanding section 1609’s plain language, the central contention advanced in the Supreme Court by Argentina and the United States (as amicus) is that Argentina’s assets overseas are entitled to presumptive statutory immunity and, as a result, are immune from discovery under the FSIA. Because Argentina and the United States’ argument cannot be squared with section 1609 itself, it is wrong as a matter of law.

Since the FSIA does not accord presumptive sovereign immunity upon a foreign state’s assets overseas, the discovery dispute between Argentina and NML should not be analyzed under the FSIA. Instead, the Supreme Court’s decision in Société Nationale Industrielle Aérospatiale v. USDC, 482 U.S. 522 (1987), controls. The district court and the Second Circuit should have reviewed NML’s discovery requests under the comity analysis set forth in Société Nationale, which is broad enough to accommodate all of the interests and policy considerations raised by the parties and the United States.

With regard to NML’s main argument in the Supreme Court, NML fails to recognize the protections afforded by immunity under United States law. NML contends that because the text of the FSIA does not mention “discovery,” the FSIA does not limit the discovery available to plaintiffs in post-judgment proceedings. With respect to domestic assets, NML’s contention is contrary to settled law. Under Supreme Court and circuit precedent, protection from discovery inheres in the very concept of immunity itself. Moreover, with regard to foreign assets, NML does not undertake the comity analysis required under the Supreme Court’s decision in Société Nationale.

In the end, while the discovery dispute between NML and Argentina may be of critical importance to the parties, this case does not belong in the Supreme Court. There is no circuit split with regard to the threshold issue, namely whether foreign assets are protected from execution under the FSIA. Instead, the NML case simply involves the lower courts’ erroneous failure to apply the Société Nationale comity analysis to NML’s discovery requests targeting Argentina’s assets overseas. To avoid issuing an unnecessary decision in the sensitive area of foreign sovereign immunity law, the Supreme Court should consider remanding the matter with instructions to analyze the requested discovery under Société Nationale.

Read the full article via the PDF version below: