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.
Tag Archives: FSIA
Recent Development: TJGEM LLC v. Republic of Ghana
In the recent case of TJGEM LLC v. Republic of Ghana, — F. Supp. 2d —, CV 13-382 (BAH), 2013 WL 6857988 (D.D.C. Dec. 31, 2013), District Judge Beryl Howell applied three important rules that are often implicated in cases under the FSIA’s commercial activity exception.
First, the district court emphasized that the commercial activity exception does not apply where the alleged commercial activity is unrelated to a plaintiff’s claims. Id. at *5; see also, e.g., Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 390 (2d Cir. 2000) (holding that the term “‘based upon’ [under the commercial activity exception] requires a degree of closeness between the acts giving rise to the cause of action and those needed to establish jurisdiction that is considerably greater than common law causation requirements”).
Second, the court followed Phaneuf v. Republic of Indonesia, 106 F.3d 302, 308 (9th Cir.1997), in holding that apparent authority is insufficient to confer jurisdiction over a foreign state under the commercial activity exception. TJGEM LLC, 2013 WL 6857988, at *6; see also The Second Circuit’s Apparent FSIA Authority.
Third, the district court reaffirmed that an alleged financial loss to an American individual or firm does not satisfy the “direct effect” requirement of section 1605(a)(2)’s third clause. TJGEM LLC, 2013 WL 6857988, at *6; see also Recent Development: The D.C. Circuit’s Latest FSIA Decision.
District Judge Howell’s decision is interesting with respect to another issue that I have previously addressed on this blog. The district court held that to “survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), the plaintiff must establish the court’s jurisdiction over the subject matter by a preponderance of the evidence.” TJGEM LLC, 2013 WL 6857988, at *4. The TJGEM case is therefore the latest opinion to indicate that traditional subject matter jurisdiction procedural rules apply with respect to a plaintiff’s burden under the FSIA. See Peterson v. Islamic Republic Of Iran, 627 F.3d 1117, 1125 (9th Cir. 2010) (“It must fall to the plaintiff to prove that immunity does not exist.”); see also Am. Telecom Co., L.L.C. v. Republic of Lebanon, 501 F.3d 534, 537 (6th Cir. 2007).
Discovery under the FSIA: An Examination of the Solicitor General’s Brief in NML Capital
On December 4, 2013, the United States Solicitor General filed an amicus curiae brief in the Supreme Court in Republic of Argentina v. NML Capital, Ltd., No. 12-842. I have several observations regarding the Solicitor General’s submission and related issues:
• On balance, the Solicitor General makes a persuasive case that the Court should grant certiorari. The Second Circuit’s decision in EM Ltd. v. Republic of Argentina, 695 F.3d 201 (2d Cir. 2012), is in conflict with Rubin v. Islamic Republic of Iran, 637 F.3d 783 (7th Cir. 2011), on an issue of considerable importance – namely the scope of discovery permissible in post-judgment proceedings under the FSIA. Moreover, for reasons cogently set forth by the Seventh Circuit in Rubin, there is no doubt that – contrary to the Second Circuit’s view – a general asset discovery order violates the FSIA. See Rubin, 637 F.3d at 794-99.
• The Solicitor General’s brief recognizes several important principles implicated by discovery against foreign sovereigns, including:
• “The presumptive immunity in the FSIA protects foreign sovereigns not only from liability or seizure of their property, but also from the costs, in time and expense, and other disruptions attendant to litigation.” Brief for the United States as Amicus Curiae (“Amicus Brf.”) at 10.
• “To permit burdensome and intrusive discovery . . . would be inconsistent with both the FSIA’s protections and the comity principles the statute implements.” Id.
• Discovery “should be conducted in a manner that respects the comity and reciprocity principles that the FSIA was enacted to implement and safeguard.” Id. at 11.
• If allowed, discovery should only “be ordered circumspectly and only to verify allegations of specific facts crucial to an immunity determination.” Id. at 12.
• The Solicitor General’s brief cites the Supreme Court’s decision in Société Nationale Industrielle Aérospatiale v. United States Dist. Ct. for the S.D. of Iowa, 482 U.S. 522 (1987). The principles relating to foreign discovery enunciated in Société Nationale are generally not, in my view, sufficiently relied upon by attorneys defending foreign sovereigns in U.S. litigation. In Société Nationale, the Supreme Court stated:
American courts, in supervising pretrial proceedings, should exercise special vigilance to protect foreign litigants from the danger that unnecessary, or unduly burdensome, discovery may place them in a disadvantageous position. Judicial supervision of discovery should always seek to minimize its costs and inconvenience and to prevent improper uses of discovery requests. When it is necessary to seek evidence abroad, . . . the district court must supervise pretrial proceedings particularly closely to prevent discovery abuses. . . . Objections to “abusive” discovery that foreign litigants advance should therefore receive the most careful consideration. In addition, we have long recognized the demands of comity in suits involving foreign states, either as parties or as sovereigns with a coordinate interest in the litigation. American courts should therefore take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.
Société Nationale, 482 U.S. at 546. Since Société Nationale addressed any case involving “foreign litigants,” its cautionary language should apply with particular force with respect to foreign sovereigns. In other words, Société Nationale should be considered the floor, and not the ceiling, of discovery protections afforded foreign states under the FSIA – and it is therefore a powerful tool to use on behalf of foreign sovereigns in discovery proceedings.
• The Solicitor General recognizes that “discovery requests directed at third parties may burden the foreign state itself, as it may have to participate in litigation over the scope and manner of discovery.” Amicus Brf. at 17. If accepted by the Supreme Court, this view could have a significant practical impact in FSIA cases involving attempts at discovery against third parties to obtain jurisdiction against foreign states.
• Although not mentioned in the Solicitor General’s brief, the circuit split created by EM Ltd. was long in the making. The Second Circuit has always been the circuit that is the least sensitive to the concerns of foreign sovereigns relating to discovery under the FSIA. See, e.g., Reiss v. Société Centrale Du Groupe Des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000). Given the importance of uniformity under the FSIA, NML Capital provides the opportunity to resolve significant differences in circuit law with respect to discovery involving foreign states.
• The Supreme Court has never before spoken to the issue of discovery under the FSIA. If certiorari is granted in NML Capital, the resulting decision could be the most important Supreme Court FSIA precedent since Nelson – particularly with respect to the practical aspects of litigation against foreign states in federal court.
Recent Development: Sachs v. Republic of Austria
The Ninth Circuit’s en banc decision yesterday in Sachs v. Republic of Austria, — F.3d —, 2013 WL 6333439 (9th Cir. Dec. 6, 2013), is a significant development in FSIA law. In today’s post I want to focus on two issues raised by the Sachs majority opinion that I discussed in prior posts and that may prove useful for FSIA practitioners:
• Sachs affirms the principle that circuit courts should be reluctant to create circuit splits under the FSIA in light of the principle of uniformity. See Sachs, 2013 WL 6333439, at *5 (stating that “Congress passed the FSIA to promote uniformity in the treatment of foreign sovereign immunity” and that the court “see[s] no compelling reason to create a split with our sister circuits.”). That is an important guiding principle in FSIA cases, and can be used with respect to issues such as apparent authority and the standard of compliance required under section 1608(a).
• The Sachs court describes the burden-shifting regimen under the FSIA as follows: “we must determine (1) whether [plaintiff] has carried her burden to prove, by offering evidence, that the commercial-activity exception to foreign sovereign immunities applies and (2) whether [the foreign sovereign defendant] has carried its burden to prove, by showing a preponderance of evidence, that the exception is not applicable.” Sachs, 2013 WL 6333439, at *3. That means that Sachs avoided the “public act” error that the Ninth Circuit made in Terenkian, which is a positive development for reasons I describe more fully here.
There are many other issues raised by the Sachs opinion, but I will address those in future posts.
An Unprofitable Test Under the FSIA’s Commercial Activity Exception
The relevance of profit motive under the FSIA’s commercial activity exception is the subject of continued confusion. The Second Circuit claims that the Seventh Circuit mischaracterizes its “profit” precedent (see, e.g., NML Capital, Ltd. v. Republic of Argentina, 680 F.3d 254, 259 (2d Cir. 2012)), and circuit courts have abrogated district court opinions addressing profit motive. See Intercontinental Dictionary Series v. De Gruyter, 822 F. Supp. 662 (C.D. Cal. 1993), abrogated by Sun v. Taiwan, 201 F.3d 1105 (9th Cir. 2000); see also Malewicz v. City of Amsterdam, 362 F. Supp. 2d 298, 314 n.5 (D.D.C. 2005). As one commentator recently stated, “insofar as ‘profit’ is concerned, the legislative instructions are ambiguous and misleading, while the case law appears unsettled at best.” Yang, State Immunity in International Law 92 (Cambridge Univ. Press, 2012). There is, in short, a distinct need for clarity, and this post seeks to explain the proper use of profit motive under section 1605(a)(2).
The FSIA Forecloses Subjective Profit Inquiries. Although some litigants continue to argue that a foreign sovereign’s subjective profit motive remains relevant under the commercial activity exception, there is no doubt that the FSIA precludes such an inquiry. Section 1603(d) specifically commands that “[t]he commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” 28 U.S.C. § 1603(d). Consistent with the statute’s plain language, the Supreme Court has unambiguously held that the “question is not whether the foreign government is acting with a profit motive.” Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992). Notwithstanding litigants’ occasional attempts to invoke a sovereign’s motive, any argument based upon a sovereign’s subjective profit motive (or lack thereof) has long been rejected by the courts. See, e.g., NML Capital, Ltd., 680 F.3d at 260 (“The [sovereign’s] lack of a profit motive is simply irrelevant.”); Beg v. Islamic Republic of Pakistan, 353 F.3d 1323, 1327 n.1 (11th Cir. 2003) (“We decline to examine the government’s motives in determining what is commercial activity.”); see also, e.g., Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic Republic, 877 F.2d 574, 581 (7th Cir. 1989); Joseph v. Office of Consulate Gen. of Nigeria, 830 F.2d 1018, 1024 (9th Cir. 1987).
An Objective Profit Inquiry Can be Used to Determine if an Activity is Commercial. In the section-by-section analysis addressing section 1603(d), the FSIA’s legislative history stated that “if an activity is customarily carried on for profit, its commercial nature could readily be assumed.” H.R. Rep. No. 94-1487, at 16 (1976) (emphasis added). As stated by the Second Circuit, “where a private party would customarily engage in an activity for profit, there can be little question that that private party is engaging in commercial activity. When a foreign sovereign engages in the same conduct, that activity retains its commercial nature, even though the foreign sovereign acts without a profit motive.” Weltover, Inc. v. Republic of Argentina, 941 F.2d 145, 150 (2d Cir. 1991); see also NML Capital, Ltd., 680 F.3d at 259-60; EM Ltd. v. Republic of Argentina, 389 F. App’x 38, 44 (2d Cir. 2010); Sun, 201 F.3d at 1108; MCI Telecommunications Corp. v. Alhadhood, 82 F.3d 658, 663 (5th Cir. 1996); United States v. Moats, 961 F.2d 1198, 1205 (5th Cir. 1992); Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 452 (6th Cir. 1988). The inquiry is not a subjective one directed at the foreign sovereign defendant, but instead an objective one based upon a theoretical “private person” engaged in the same conduct.
However, as some courts have pointed out, there are activities carried on “for profit” that should not be construed commercial activities under the FSIA:
Although trafficking in persons and property captured by sovereign entities solely for profit is certainly not unknown within the international community, this Court is of the opinion that state-supported kidnapping, hostage-taking, and similar universally criminal ventures were simply not the sorts of proprietary enterprises within the contemplation of Congress when it enacted the “commercial activity” exception to FSIA in conferring jurisdiction upon federal courts to entertain cases against foreign sovereigns.
Cicippio v. Islamic Republic of Iran, CIV. A. 92-2300, 1993 WL 730748, at *2 (D.D.C. Mar. 13, 1993) aff’d, 30 F.3d 164 (D.C. Cir. 1994); see also Mwani v. bin Laden, 417 F.3d 1, 16-17 (D.C. Cir. 2005). The scenarios set forth in the Cicippio opinion – and other conceivable situations where the nature of a profitable activity demonstrates that it is not “commercial” – suggest potential limits of any objective profit inquiry.
Courts are Divided as to Whether an Objective Profit Inquiry Can be Used to Determine that an Activity is Not Commercial. Relying on the same language from the FSIA’s legislative history, several courts have concluded that an activity that is customarily not undertaken for profit by private persons should be deemed noncommercial under section 1605(a)(2). See, e.g., Amorrortu v. Republic of Peru, 570 F. Supp. 2d 916, 923 (S.D. Tex. 2008) aff’d, 325 F. App’x 400 (5th Cir. 2009) (“confiscation and expropriation are not commercial actions, for they are not actions of a nature that a private person would, or could, engage in for profit”); see also Intercontinental Dictionary Series, 822 F. Supp. at 676 (“the compilation of a linguistic treatise spanning decades and the lifetimes of many scholars is not of the type an individual would customarily carry on for profit”) (quotations and citations omitted); Aschenbrenner v. Conseil Reg’l de Haute-Normandie, 851 F. Supp. 580, 584-85 (S.D.N.Y. 1994). Nevertheless, as noted above, such decisions have generally not fared well – the Ninth Circuit abrogated Intercontinental Dictionary Series in Sun, and the Aschenbrenner court’s conclusion is questionable under recent Second Circuit precedent. See NML Capital, Ltd., 680 F.3d at 259. Moreover, a number of courts have rejected the proposition that an activity that would customarily not be undertaken by a private person for profit should be deemed noncommercial under section 1605(a)(2). See, e.g., Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708-09 (9th Cir. 1992) (“Though activities that customarily are carried on for profit are certainly commercial, an activity need not be motivated by profit to be commercial”); Berdakin v. Consulado de la Republica de El Salvador, 912 F. Supp. 458, 462 (C.D. Cal. 1995) (“A transaction or act is commercial if it is of the type an individual would customarily carry on for profit, but although the presence of a profit motive may be sufficient to render activity commercial, it is not necessary.”) (quotations and citations omitted). As stated by the Eleventh Circuit in Guevara:
[S]aying that all for-profit activities are commercial is not the same thing as saying that all commercial activities are for profit. The premise that all A is B does not logically compel the conclusion that all B is A, unless A and B are the same thing. There is no reason in the FSIA to believe that commercial activity means the same thing, and no more than, for-profit activity.
. . . .
In fact, when private individuals purchase goods and services, they rarely do so with the intent to profit from their purchase. (Think of consumers at grocery stores and gas stations.) Peru’s [proposed] test would exclude most cases in which the government acts as a purchaser, rather than a vendor, of goods and services because most purchases made by private persons are not made with the intent to resell for profit. Nothing in the restrictive theory of sovereign immunity turns on whether the government is a buyer or a seller.
Guevara v. Republic of Peru, 468 F.3d 1289, 1303 (11th Cir. 2006).
Based upon such reasoning, courts have declined to use an objective profit test to determine that a particular activity is not commercial.
The Unprofitable “Profit” Test. Although the case law in this area is generally deemed confusing and inconsistent, the foregoing precedent in fact suggests relatively clear guidelines with respect to a “profit” inquiry under section 1605(a)(2). Any attempt to examine profit to determine the commercial nature of an activity should acknowledge the following limitations:
1. The foreign sovereign’s subjective profit motive is off limits, and will continue to be unless and until Congress amends section 1603(d).
2. The FSIA does not define commercial activity in terms of profit, instead requiring an examination of the “nature” of the conduct in question. 28 U.S.C. § 1603(d). In light of section 1603(d), the Supreme Court has specifically held that “the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in trade and traffic or commerce.” Weltover, 504 U.S. at 614. In addition, the rationale of the Cicippio decision demonstrates that there are limits to an objective profit inquiry. As a result, any determination of whether an activity is commercial cannot turn solely on an objective profit inquiry. Courts cannot, in other words, replace the statutory inquiry with a strict objective “profit” test. At best, under section 1603(d) and Weltover, the objective profit inquiry can be a factor in determining that an activity is commercial in nature.
3. The fact that an activity is customarily not undertaken for profit should be considered as a factor in determining that the activity is noncommercial. Such an inquiry is not foreclosed by the Guevara court’s reasoning; the problems identified by the Eleventh Circuit and other courts only appear under a strict objective “no profit = noncommercial” test. If courts can consider a profit motive from the perspective of an objective private person to determine that conduct is commercial, they should be able to consider the objective lack of a profit motive as a factor in determining that activity is noncommercial as well.
In the final analysis, much of the confusion relating to profit inquiries under section 1605(a)(2) stems from loose language in court opinions and in the legislative history. If courts make clear that they are undertaking an objective inquiry that considers profit motive solely as a factor, a profit inquiry could become a useful tool in commercial activity jurisprudence.
FSIA Immunity Determinations at Trial?
In the recent FSIA case of Funnekotter v. Agricultural Development Bank of Zimbabwe, No. 13 CIV. 1917 CM, 2013 WL 6091616 (S.D.N.Y. Nov. 15, 2013), the district court stated that “where the evidence on the [FSIA] jurisdictional issue overlaps with the evidence on the merits, the Court has the discretion even to ‘proceed to trial and make its jurisdictional ruling at the close of the evidence.’” Id. at *4, quoting Alliance for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 88 (2d Cir. 2006). The notion that a foreign sovereign should be forced to trial prior to an immunity determination conflicts with FSIA precedent.
A district court must resolve the question of FSIA immunity at the “threshold” of every action. Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 493-94 (1983); see also Republic of Austria v. Altmann, 541 U.S. 677, 691 (2004). An early resolution of immunity is essential, since a sovereign enjoys “‘an immunity from trial and the attendant burdens of litigation, and not just a defense to liability on the merits.’” Phoenix Consulting Inc. v. Republic of Angola, 216 F.3d 36, 39 (D.C. Cir. 2000), quoting Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 443 (D.C. Cir. 1990).
That an FSIA immunity issue may overlap with evidence on the merits does not change the equation. Courts routinely resolve factual disputes when addressing jurisdictional challenges under the FSIA, including with regard to issues intertwined with the merits. See, e.g., Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 173-74 (5th Cir. 1994) (affirming district court’s resolution of disputed facts with regard to whether foreign state employee acted within the scope of employment for purposes of the FSIA’s tort exception). The “jurisdiction and merits inquiries” may “[i]nevitably” overlap under the FSIA, but permitting a district court to resolve disputed facts “preserves the effectiveness of the immunity doctrine by avoiding put[ting the foreign government defendant] to the expense of defending what may be a protracted lawsuit without an opportunity to obtain an authoritative determination of its amenability to suit at the earliest possible opportunity.” Robinson v. Gov’t of Malaysia, 269 F.3d 133, 142 (2d Cir. 2001); see also id. at 143-44.
It is true that the general rule outside the FSIA – as stated in Alliance for Envtl. Renewal, the case cited by the Funnekotter court – is that the resolution of jurisdictional issues enmeshed with the merits can be postponed until trial. However, FSIA precedent has long made clear that it “would be inappropriate” to postpone the jurisdictional issue until trial under the FSIA “[b]ecause sovereign immunity is immunity from suit, not just from liability.” Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 451 (6th Cir. 1988); see also Moran, 27 F.3d at 172. As explained by the Fifth Circuit:
An exception to the general rule for FSIA cases is justified by the fact that we have held that the FSIA requires courts to fashion procedures that lead to pretrial resolution of a foreign state’s immunity from suit – even if such procedures depart from the usual rule. The need for special procedures designed to preserve a foreign sovereign’s immunity from suit is heightened in FSIA cases, which implicate notions of international comity.
Montez v. Dep’t of Navy, 392 F.3d 147, 150-51 (5th Cir. 2004) (emphasis added).
In short, if a plaintiff or a court seeks to invoke the general rule that jurisdictional issues enmeshed with the merits can be resolved at or after trial, defense counsel should object under FSIA precedent. Otherwise, given that many of the FSIA’s exceptions to immunity involve jurisdictional issues that overlap with evidence on the merits, application of the general rule in FSIA cases runs the risk of vitiating foreign sovereigns’ presumptive immunity from suit.
Litigation Comment: Richardson v. Attorney General of the British Virgin Islands
Another blog devoted to issues relating to foreign sovereigns in United States courts recently mentioned the case Richardson v. Attorney General of the British Virgin Islands, Civil No. 2008-144, 2013 WL 4494975 (D.V.I. Aug. 20, 2013). See www.foreignsovereignblog.com. Although Richardson is unusual because the foreign sovereign is appearing pro se, the case is indeed interesting for a number of reasons:
Capacity: Richardson addresses the circumstances under which a lawsuit against a foreign sovereign official should be deemed a lawsuit against the foreign sovereign itself. Richardson, 2013 WL 4494975, at *2. The official capacity issue frequently arises with respect to domestic government officials. Cf. Kentucky v. Graham, 473 U.S. 159, 166 (1985) (“[A]n official-capacity suit is, in all respects other than name, to be treated as a suit against the entity. It is not a suit against the official personally, for the real party in interest is the entity”). In Samantar, the Supreme Court recognized that it was an issue under the FSIA as well: “it may be the case that some actions against an official in his official capacity should be treated as actions against the foreign state itself, as the state is the real party in interest.” Samantar v. Yousuf, 560 U.S. 305, 325 (2010), citing Graham, 473 U.S. at 166. It is an issue that should be kept in mind whenever an attorney confronts a case against a foreign sovereign official.
Waiver: The Richardson court correctly held that a foreign state does not waive immunity simply by failing to appear in the matter. Richardson, 2013 WL 4494975, at *4. However, the court also accurately stated that a foreign state does waive immunity if it fails to assert immunity in a responsive pleading – which, according to a docket check, is what the pro se foreign sovereign defendant may just have done in a recent filing. Id. Richardson highlights that a foreign sovereign can actually increase the risk of waiver by appearing in the action, particularly if defense counsel is not familiar with the FSIA’s waiver rules.
Commercial Activity: In analyzing whether the plaintiff’s claims involved commercial activity, the Richardson court examined whether the conduct was “of a nature that a private person would undertake for profit.” Richardson, 2013 WL 4494975, at *4. The “for profit” test is controversial, particularly given the nature/purpose language in 28 U.S.C. section 1603(d). However, there is a strong argument that whether or not an activity is the type customarily undertaken for profit is an appropriate factor to consider, and I address that issue here.
Scope of Employment/Respondeat Superior: The Richardson court quotes the Fifth Circuit’s decision in Moran for the following proposition relating to the tort exception’s “scope of employment” requirement: “‘[T]he scope of employment provision of the tortious activity exception requires a finding that the doctrine of respondeat superior applies to the tortious act or omission committed by the officer or employee of the foreign state.’” Richardson, 2013 WL 4494975, at *5, quoting Moran v. Kingdom of Saudi Arabia, 27 F.3d 169, 173 (5th Cir. 1994). This again is an issue for a future post, but courts and attorneys in FSIA cases should be careful not to equate the tort exception’s “scope of employment” requirement with a respondeat superior analysis. Under most circumstances the two are identical, but in certain situations there is a big difference. Cf. Primeaux v. United States, 181 F.3d 876 (8th Cir. 1999) (en banc).
Political Subdivision: Richardson determined that BVI was a political subdivision of the United Kingdom for purposes of the FSIA. Richardson, 2013 WL 4494975, at *10. On its face that determination appears correct, but it is worth noting that there are not many cases under the FSIA addressing what is meant by the term “political subdivision.” Under the right circumstances, the political subdivision issue is one that could involve very interesting litigation.
Strict Compliance: The Richardson court correctly held that a plaintiff must strictly comply with section 1608(a)’s service of process requirements. See Richardson, 2013 WL 4494975, at *8; see also https://fsialaw.com/2013/11/07/the-ninth-circuits-substantial-service-error/. However, Richardson is unusual in that the court appeared to hold that the strict compliance standard applied to the requirements of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 658 U.N.T.S. 163 (“Hague Service Convention”). See Richardson, 2013 WL 4494975, at *13; see also 28 U.S.C. § 1608(a)(2). There are not many cases under section 1608(a)(2), but applying a strict compliance standard to the Hague Service Convention requirements appears to be a logical extension of FSIA service precedent.
Official Immunity: Official immunity is relatively straightforward when the Executive Branch files a suggestion of immunity. See, e.g., Rosenberg v. Lashkar-e-Taiba, — F. Supp. 2d — , 2013 WL 5502851 (E.D.N.Y. Sept. 30, 2013). Richardson provides an example of a court finding a foreign sovereign official immune even in the absence of a suggestion of immunity from the Executive Branch. Richardson, 2013 WL 4494975, at *16; see also Samantar, 560 U.S. at 311 (discussing that, under the common law, a district court “had authority to decide for itself whether all the requisites for such immunity existed” in the “absence of recognition of the immunity by the Department of State”) (citations and internal quotations omitted). A court determination of official immunity can be a useful tool for FSIA defense counsel in cases against officials or in situations where discovery is sought from foreign sovereign officials.
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.
The Second Circuit’s Apparent FSIA Authority
Agency is deeply enmeshed with FSIA jurisdiction. Because jurisdiction over a foreign state generally requires an act by the state, the question of whether an exception to immunity applies will often turn on whether the conduct of an individual – for example, an official, employee or agent – is attributable to the sovereign. Since jurisdiction is the key legal issue in FSIA cases, the need for clear rules relating to agency is paramount. Cf. H.R.Rep. No. 94-1487, at 32 (discussing “the importance of developing a uniform body of law in this area [of foreign sovereign immunity]”).
Unfortunately, FSIA jurisprudence does not provide the needed clarity with respect to agency. In this post, I will examine one of the agency problems in FSIA cases: whether an individual’s apparent authority to act on behalf of a foreign state is sufficient to give rise to subject matter jurisdiction under the commercial activity exception. As will be shown below, the Second Circuit’s unclear precedent on the issue of apparent authority unnecessarily gives rise to confusion and lack of uniformity. The issue should be litigated in the Second Circuit at the earliest opportunity.
The Ninth, Fourth and Fifth Circuits have all squarely held that apparent authority is insufficient to give rise to jurisdiction under the commercial activity exception. See Phaneuf v. Republic of Indonesia, 106 F.3d 302, 308 (9th Cir. 1997) (“We hold that an agent must have acted with actual authority in order to invoke the commercial activity exception against a foreign state.”); Velasco v. The Gov’t of Indonesia, 370 F.3d 392, 400 (4th Cir. 2004) (“we concur with the position of the Ninth Circuit and hold that the commercial activity exception may be invoked against a foreign state only when its officials have actual authority”); Dale v. Colagiovanni, 443 F.3d 425, 429 (5th Cir. 2006) (“We agree with the Fourth and Ninth Circuits that an agent’s acts conducted with the apparent authority of the state is insufficient to trigger the commercial activity exception to FSIA.”) [Author’s Note: I represented the foreign sovereign in the Dale district court and appellate proceedings].
There are two basic reasons for the rule. First, “[a]ll three clauses of the [commercial activity] exception require ‘a commercial activity of the foreign state.’” Phaneuf, 106 F.3d at 307, quoting 28 U.S.C. § 1605(a)(2) (emphasis in original). That language “clearly entails commercial activity in which the foreign state is engaged.” Id. “If the foreign state has not empowered its agent to act, the agent’s unauthorized act cannot be attributed to the foreign state; there is no ‘activity of the foreign state.’” Id. at 308, quoting 28 U.S.C. § 1605(a)(2); see also Dale, 443 F.3d at 428.
Second, “courts analyzing the sovereign immunity of the United States have held consistently that the act of an agent beyond what he is legally empowered to do is not binding upon the government.” Velasco, 370 F.3d at 399; see also Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 689 (1949); Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 383-84 (1947). Under basic principles of comity, similar principles apply to preclude foreign sovereigns from being drawn into litigation based upon the unauthorized acts of individuals. See, e.g., Long v. The Tampico & Progresso, 16 F. 491, 495 (S.D.N.Y. 1883) (“By international comity, and that tacit agreement which constitutes the law of nations, every government accords to every other friendly power the same respect to its dignity and sovereignty . . . which it enjoys itself within its own dominions.”); see also Velasco, 370 F.3d at 399; Phaneuf, 106 F.3d at 308.
While there is broad agreement among three circuit courts, the Second Circuit has twice assumed that apparent authority would be sufficient to confer jurisdiction under the FSIA. See Fidelity Bank, N.A. v. Gov’t of Antigua & Barbuda-Permanent Mission, 877 F.2d 189, 193-94 (2d Cir.1989); Reiss v. Societe Centrale du Groupe des Assurances Nationales, 235 F.3d 738, 748 (2d Cir. 2000). However, because First Fidelity and Reiss did not address the issue directly, it is arguable that neither constitutes binding precedent. See Estate of Magnin v. CIR, 184 F.3d 1074, 1077 (9th Cir. 1999) (“When a case assumes a point without discussion, the case does not bind future panels.”); Matter of Stegall, 865 F.2d 140, 142 (7th Cir. 1989) (“A point of law merely assumed in an opinion, not discussed, is not authoritative.”); Am. Portland Cement Alliance v. EPA, 101 F.3d 772, 776 (D.C. Cir. 1996) (“[J]urisdictional issues that were assumed but never expressly decided in prior opinions do not thereby become precedents.”); see also Phaneuf, 106 F.3d at 308 n.4 (stating that First Fidelity “assumed the appropriateness of invoking the commercial activity exception based on apparent authority” and “gave no analysis or explanation of its statements regarding apparent authority”); Dale, 443 F.3d at 429 (stating that only the Fourth and Ninth Circuits had previously “directly addressed the issue”). Nevertheless, district courts in the Second Circuit have adopted the apparent authority approach, and courts outside the circuit have recognized a circuit split. See Storr v. Nat’l Defence Sec. Council of Republic of Indonesia-Jakarta, 95 CIV. 9663 (AGS), 1997 WL 633405 (S.D.N.Y. Oct. 14, 1997) aff’d sub nom. Storr v. Nat’l Def. Sec. Council, 164 F.3d 619 (2d Cir. 1998); see also, e.g., EduMoz, LLC v. Republic of Mozambique, — F. Supp. 2d —, CV 13-02309 MMM CWX, 2013 WL 5040937, at *17 n.82 (C.D. Cal. Sept. 10, 2013). And there have been efforts to harmonize the different opinions, including a recent decision in the Southern District of New York that would embed a public vs. private analysis into the equation – which would likely deepen rather than alleviate any confusion. See Themis Capital, LLC v. Democratic Republic of Congo, 881 F. Supp. 2d 508, 522-26 (S.D.N.Y. 2012).
The issue of apparent authority is critical, because it can make all the difference on the question of FSIA immunity. For example, the plaintiffs’ cases in Phaneuf, Velasco and Dale all fell apart once apparent authority was taken off the table. See, e.g., Phaneuf v. Gov’t of Indonesia, 18 Fed. Appx. 648, 650 (9th Cir. 2001); Velasco, 370 F.3d at 400-02. On such an important issue, a circuit split – or, in this case, an apparent circuit split – should be resolved as soon as possible. See, e.g., Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation, 730 F.2d 195 (5th Cir. 1984) (“[I]t is highly desirable to avoid circuit conflicts in the sensitive area of sovereign immunity.”).
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.
FSIA LAW 