Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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U.S. Supreme Court Narrows the Coverage of the Foreign Sovereign Immunities Act
Lawrence W. Newman and Michael Burrows
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.
THE FSIA
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.
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.
