U.S. Supreme Court Narrows the Coverage of the Foreign Sovereign Immunities Act - Part 1 Chapter 31 -The Practice of International Litigation - 2nd Edition
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
Practitioners who regularly follow decisions in the area of international litigation are aware of the fact that the Foreign Sovereign Immunities Act (“FSIA”) 28 U.S.C. §1602 et seq. is the subject of much litigation. In April, the Supreme Court handed down what is probably its most significant FSIA decision in years. In Dole Food Co. v. Patrickson, the court held that the only corporations that can assert coverage under the FSIA when sued in the United States are those owned directly by a foreign state, not those that might be owned through one or more subsidiaries. The Supreme Court also made clear that the status of the entity must be determined as of the date of the lawsuit, not the time of the events giving rise to the suit. This decision could have a significant impact in defining those entities that may invoke the protections of the FSIA. Lawyers who counsel regarding business arrangements involving foreign governments should be mindful of the decision as well.
Some details about the FSIA will help put the decision in context. The FSIA sets forth the general rule that a foreign sovereign is immune from the jurisdiction of the courts of the United States unless it is party to a case that comes within one of the exceptions enumerated in the statute. The FSIA is “intended to preempt any other State or Federal law” and the Supreme Court has confirmed that the FSIA constitutes the exclusive basis for obtaining jurisdiction over a foreign state.
Moreover, a case governed by the FSIA implicates issues other than immunity. There are special provisions concerning service of process. Prejudgment attachments are available only if the foreign state has explicitly waived its immunity from attachment prior to judgment and only against property that is used for a commercial activity in the United States. There are also restrictions on post-judgment attachments and executions. And, jury trials are excluded against foreign sovereigns. Thus, whether an entity qualifies as a foreign sovereign makes a significant difference to the conduct of a lawsuit.
Which entities are entitled to invoke the protections of the FSIA? Section 1603(a) states that the term “foreign state” “includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state ….” In Section 1603(b), the term “agency or instrumentality of a foreign state” is defined as “a separate legal person, corporate or otherwise, [inter alia,] a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof ….” Where foreign government (G) wholly owns a parent corporation (P) that, in turn, is the majority owner of subsidiary (S), may S invoke the protections of the FSIA?
A split in the Circuits on the answer to this question was the backdrop to the Supreme Court’s recent decision. The Fourth Circuit and the Seventh Circuit held that the subsidiary could invoke the FSIA. The Ninth Circuit held that the subsidiary could not. A majority of the Supreme Court sided with the Ninth Circuit and held that only direct ownership of a majority of shares by the foreign state satisfies the statutory requirement for immunity.