On April 11, 2014 — ten days before Republic of Argentina v. NML Capital, Ltd. (No. 12-842) is argued in the United States Supreme Court — I will post on this site a detailed analysis of why both sides are wrong in the case. Stay tuned.
The FSIA’s removal provision states that “[a]ny civil action brought in a State court against a foreign state . . . may be removed by the foreign state to the district court of the United States for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441(d). In Guan v. Bi, 13-CV-05537-WHO, 2014 WL 953757 (N.D. Cal. Mar. 6, 2014), District Judge William H. Orrick held that a non-sovereign defendant was not entitled to remove an action to federal court under the FSIA.
The district court in Guan noted that “the FSIA does not require that every action against a foreign state be in federal court,” and that the FSIA simply gave foreign sovereigns the right to decide whether or not to remove the case. Guan, 2014 WL 953757, at *7. The court agreed with the plaintiffs that “section 1441(d) is the exclusive basis for removing actions against foreign states,” and held that section 1441(a) did not enable a non-sovereign defendant to remove a case against a foreign sovereign. Id. at *9; see also 28 U.S.C. § 1441(a) (“Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court”). The district judge concluded that because the individual defendant was “not a foreign state,” section 1441(d) was likewise “unavailable to him.” Guan, 2014 WL 953757, at *10. In the absence of a notice of removal filed by the foreign state defendant, “the FSIA does not allow [the non-sovereign defendant] to remove [the] case.” Id.
An issue not addressed in Guan – but one that should be considered and evaluated by an FSIA practitioner contemplating not seeking removal of a case against a foreign sovereign to federal court – is whether there would be a jury trial in the state court proceeding. Section 1330(a) provides that “district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state,” but the statute is silent with respect to jury trials in state court. 28 U.S.C. § 1330(a) (emphasis added). Similarly, section 1441(d) states that “[u]pon removal the action shall be tried by the court without jury.” 28 U.S.C. § 1441(d). Section 1441(d) says nothing with regard to a jury trial in state court proceedings. Finally, 28 U.S.C. 1602 et seq. – the portion of the FSIA that would apply in any state court proceeding – nowhere prohibits a trial by jury. As a result, at least on the face of the FSIA’s statutory language, nothing bars a jury trial in state court. See also, e.g., Martinelli v. Djakarta Lloyd P. N., 106 Misc. 2d 429, 430, 431 N.Y.S.2d 748 (Civ. Ct. 1980). If that is correct, it should provide a strong reason for foreign sovereigns to seek removal of all cases filed in state court.
The Ninth Circuit’s decision last week in FG Hemisphere Assocs., LLC v. Unocal Corp., — F. Appx. —, No. 12-56031, 2014 WL 820803 (9th Cir. Mar. 4, 2014), serves as a reminder of the importance of the presumption of separateness in FSIA litigation. The separate juridical status of entities is a critical issue under the FSIA, from the determination of status (28 U.S.C. § 1603(b)(1)) to the jurisdictional inquiry (Doe v. Holy See, 557 F.3d 1066, 1077-79 (9th Cir. 2009)) to post-judgment proceedings (EM Ltd. v. Republic of Argentina, 473 F.3d 463, 475-80 (2d Cir. 2007)). FG Hemisphere Assocs. is a case in point: Applying California law, the Ninth Circuit declined to disregard the separate corporate status of two entities for purposes of the applicability of an exception to immunity from execution. FG Hemisphere Assocs., 2014 WL 820803, at *1. As shown by the Ninth Circuit’s latest decision, unless the case falls under the terrorism exception (cf. 28 U.S.C. § 1610(g)(1)), the presumption of separate juridical status remains crucial to preserving a foreign sovereign’s immunity from execution.
The Third Circuit last week denied a petition for writ of mandamus in In re Abdulla, No. 14-1244, 2014 WL 594347 (3d Cir. Feb. 18, 2014). The procedural posture of the Abdulla case was unusual. The foreign state, despite being served, decided not to appear in the litigation. As a result, the district court proceeded under 28 U.S.C. section 1608(e), and its decision provides an interesting perspective on default proceedings under the FSIA.
In the absence of the foreign state, the district court in Abdulla followed a two-step procedure. First, the court determined whether the action – which arose out of an alleged breach of contract by the Embassy of Iraq – satisfied the commercial activity exception to sovereign immunity. Abdulla v. Embassy of Iraq, CIV.A. 12-2590, 2013 WL 4787225, at *1 (E.D. Pa. Sept. 9, 2013). Examining the relevant facts and law – all without any briefing from the sovereign – the district court found that the action fell within the FSIA’s commercial activity exception. In so holding, the district court noted that the plaintiff’s burden was to produce “some evidence that an exception to immunity applies,” but that the ultimate burden of persuasion remained with the foreign state. Id. at *6. The court also noted that the plaintiff “cannot be expected to produce evidence peculiarly within the possession of the defendant government,” thereby indicating that the court did not place a particularly high burden on the plaintiff with respect to a factual showing of jurisdiction. Id. (citation omitted); cf. Recent Development: The D.C. Circuit’s Latest FSIA Decision.
In the second step of the analysis, the district court recognized that “[u]nder the FSIA, unlike in a case against a private party, a court may not enter a default judgment against a foreign state ‘unless the claimant establishes his claim or right to relief by evidence satisfactory to the court.’” Abdulla, 2013 WL 4787225, at *7, quoting 28 U.S.C. § 1608(e); see also Fed. R. Civ. P. 55(d) (same requirement with respect to actions against the United States). The district court thereafter engaged in a detailed evidentiary analysis of whether plaintiff had established his claim or right to relief under section 1608(e). Abdulla, 2013 WL 4787225, at *7-13. The court stated that section 1608(e)’s requirement “does not impose on plaintiffs the burden of producing the full range of evidence that would be available to them if the opposing party had participated in discovery; rather, the quantum and quality of evidence that might satisfy a court can be less than that normally required.” Id. at *7 (citation and quotations omitted). Nevertheless, after a careful review of the evidence, the district court held that plaintiff had not met his burden on the merits. Id. at *13. The district court also rejected the plaintiff’s argument that the court should not apply section 1608(e) “because the Embassy’s default was willful,” finding the plaintiff’s position “not supported by the language of the statute or the case law.” Id. at 7 n.9.
Abdulla demonstrates that foreign sovereigns can pursue an intentional “default strategy” under the FSIA. A foreign sovereign can, under sections 1330(a) and 1608(e), leave it to the court to resolve both jurisdiction and merits issues without any participation by the sovereign in the litigation. In Abdulla, the strategy paid off, and the sovereign likely saved litigation fees and costs in the process.
However, while the strategy may be appropriate in certain cases, foreign sovereigns should be aware that it comes with substantial risks. The United States legal system is fundamentally adversarial, and the courts depend upon counsel for all parties to identify the applicable law and develop the relevant evidence. Foreign sovereigns cannot expect judges to be familiar with the vast and complex case law under the FSIA, and it is possible that a judge would miss important cases that materially affect the jurisdictional analysis. And, with regard to facts, the Abdulla case shows that courts will generally apply a more lenient standard in the default context. As a result, foreign sovereigns are free to choose to the “default strategy,” but in so doing they significantly increase the risk of a negative judgment – and of potential harmful precedent that can be used against the sovereign in future litigation.
In its latest FSIA decision, the Second Circuit stated the following regarding choice-of-law issues in cases involving foreign sovereigns:
Congress did not intend that the FSIA establish substantive rules of liability. See Barkanic, 923 F.2d at 960. The FSIA operates as a pass-through, granting federal courts jurisdiction over otherwise ordinary actions brought against foreign states. . . . Because the FSIA creates federal question jurisdiction but does not supply any substantive law of liability, . . . choice of law problems arise in the FSIA context. The FSIA contains no express choice of law provision, but Section 1606 provides that a foreign sovereign “shall be liable in the same manner and to the same extent as a private individual under like circumstances.” 28 U.S.C. § 1606. In Barkanic, we found that the goal of like-treatment is best served by applying the state choice of law rules if the action is governed by state substantive law. Barkanic, 923 F.2d at 959.
Bank of New York v. Yugoimport, — F.3d —, 2014 WL 503039 (2d Cir. Feb. 10, 2014) (citations and quotations omitted).
To the unwary FSIA practitioner, the language of Yugoimport appears to provide an easy formula: section 1606 states that a foreign sovereign shall be liable “in the same manner and to the same extent as a private individual under like circumstances,” and therefore state substantive law – including state choice-of-law rules – applies under the FSIA.
Not so fast.
Other commentators have discussed choice-of-law issues under the FSIA at length. See, e.g., Joseph W. Dellapenna, Suing Foreign Governments and Their Corporations, at 469-557 (2d ed. 2003); Joel Mendal Overton, II, Will the Real FSIA Choice-of-Law Rule Please Stand Up?, 49 Wash. & Lee L. Rev. 1591 (1992). I will not do so here. But I want to highlight two important points.
First, section 1606 only applies once jurisdiction has been established. See 28 U.S.C. 1606 (“As to any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607 of this chapter, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances”) (emphasis added); Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488-89 (1983) (quoting 28 U.S.C. 1606) (“When one of these or the other specified exceptions applies, ‘the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances’”) (emphasis added); Price v. Socialist People’s Libyan Arab Jamahiriya, 384 F. Supp. 2d 120, 132 (D.D.C. 2005) (quoting 28 U.S.C. 1606) (“Once a foreign state’s immunity has been lifted under section 1605 and jurisdiction is proper, section 1606 provides that ‘the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances.’”) (emphasis added); see also H.R. Rep. No. 94-1487, at 22 (“Section 1606 makes clear that if the foreign state . . . is not entitled to immunity from jurisdiction, liability exists as it would for a private party under like circumstances”) (emphasis added). Indeed, the Second Circuit itself appears to recognize that limitation. See Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 85 (2d Cir. 2002) (stating that “in Barkanic, we explained that in FSIA cases, we use the forum state’s choice of law rules to resolve ‘all issues,’ except jurisdictional ones”) (italics in original) (underline added). As a result, it would be a mistake to rely on section 1606 to determine the law applicable to a jurisdictional inquiry under section 1605.
Second, there are powerful reasons why state law may be inappropriate to apply to a jurisdictional inquiry under the FSIA. Consider, for example, the issue of whether an individual who commits a tort in the United States qualifies as a foreign state “official” under section 1605(a)(5). Since a sovereign should be entitled to determine who qualifies as an official of its own government (cf. Gregory v. Ashcroft, 501 U.S. 452, 460 (1991)), the law of the foreign state – and not the law of a particular state in the United States – should apply to that inquiry.
Similarly, while courts have applied state law to determine who qualifies as an “employee” of a foreign state under section 1605(a)(5) (see, e.g., Randolph v. Budget Rent-A-Car, 97 F.3d 319, 325 (9th Cir. 1996)), there are good reasons to conclude that such issues should “not be left to divergent and perhaps parochial state interpretations.” First Nat. City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 622 n.11 (1983) (citations and quotations omitted). The Supreme Court has repeatedly held that “when Congress has used the term ‘employee’ without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine.” Clackamas Gastroent. Assocs. v. Wells, 538 U.S. 440, 445 (2003); see also, e.g., Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992) (same); Adcock v. Chrysler Corp., 166 F.3d 1290, 1292 n.3 (9th Cir. 1999) (stating that Darden’s holding that the term “employee” was “subject to an analysis of common law agency principles . . . . applies to statutes that contain the term ‘employee’ and do not otherwise define the term”). This rule “reflects the fact that federal statutes are generally intended to have uniform nationwide application.” Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 741 (1989). Given that uniformity is a core principle underlying the FSIA (Verlinden, 461 U.S. at 489), it is unclear why the undefined term “employee” in section 1605(a)(5) should be governed by the law of a particular state rather than the general common law of agency.
Choice-of-law issues under the FSIA are complex and often neglected. Given the complicated nature of the inquiry, both courts and practitioners should be cautious not to adopt over-simplistic tests to determine the applicable law, particularly with respect to jurisdictional inquiries under section 1605.
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.
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).
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.
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 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.