Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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  1. Waiver (§ 1605(a)(1)): No immunity where there is an express or implied waiver.
    1. Express waivers:
      1. These most often arise where there is a contract or agreement – such as a loan agreement – that expressly states that sovereign immunity is waived.
      2. Note: Contractual waivers may also bind successors, related entities, etc. under applicable principles of contract, agency, and corporate relations.
      3. Express waivers may also arise from express language in an applicable international agreement. See, e.g., Harris Corp. v. Nat’l Iranian Radio & Television, 691 F.2d 1344 (11th Cir. 1982).
    2. Implicit waivers evidencing agreement to be sued in the U.S.:
      1. Choice of law clause: Agreement to be “governed by” U.S. law may be an implied waiver. See, e.g., Marlowe v. Argentine Naval Commission, 604 F.2d 703 (D.D.C. 1985).
      2. Conduct within the lawsuit: Filing a responsive pleading without raising an immunity defense. See, e.g., Drexel Burnham Lambert v. Committee of Receivers, 12 F.3d 317 (2d Cir. 1993).
      3. Agreeing to arbitration with an expectation of enforcement of award in the U.S. Creighton v. Qatar, 181 F.3d 118 (D.C. Cir. 1999).
      4. Signing an international convention permitting enforcement of award in the U.S. Seetransport Wiking Trader v. Navimpex Centrala Navala, 989 F.2d 572 (2d Cir. 1993).
    3. Practice Tip: Even an express waiver of immunity from suit might not be sufficient to constitute a waiver from immunity from execution or attachment of property. Prudence suggests expressly stating the full scope of the waiver to avoid later disputes.
  2. Commercial Activities (§ 1605(a)(2)):
    1. After waiver, this is perhaps the most widely-applicable exception in commercial litigation.
    2. Three prongs for claims “based upon”
      1. Commercial activity by the foreign state in the U.S.;
      2. An act performed in the U.S. in connection with commercial activity of the foreign state elsewhere; OR
      3. An act outside the U.S. in connection with ex-U.S. commercial activity where the act “causes a direct effect” in the U.S.
    3. What constitutes commercial activity?
      1. Commercial conduct is determined by reference to “the nature” of the conduct, transaction, or act, “rather than by reference to its purpose.” 28 U.S.C. § 1603(d).
      2. Thus, if the nature of the conduct is commercial, it is irrelevant that it may be serving an inherently sovereign purpose. Example: A contract to purchase boots is commercial activity even if the boots are for the army. Or, a bond offering is commercial activity, even if used to raise funds to build state schools or roads.
      3. Common examples of commercial conduct:
        1. Loan agreements
        2. Securities offerings
        3. Contracts for sale or purchase of goods, although disputes may arise with respect to the sale of natural resources such as oil, timber, etc.
        4. Potentially employment agreements
    4. U.S. connections of the commercial activity
      1. Existence of some commercial activity in the U.S. may not be enough unless there is a sufficient nexus between that activity and the claims being made. The commercial conduct must form some aspect of the basic elements of the claim. See Saudi Arabia, supra.
      2. U.S. conduct in “connection with” foreign commercial activity might include solicitation of offers, extension of offers, provision of prospectus for a foreign transaction.
      3. To use the “direct effect” in the U.S. prong, must only show that effect in the U.S. was an “immediate consequence” of the ex-U.S. commercial conduct. Republic of Argentina v. Weltover, 504 U.S. 607 (1992).
        1. The “direct effect” requirement has been described as “breathtakingly broad.” Amerada Hess Shipping Corp. v. Argentine Republic, 638 F. Supp. 73, 75 (S.D.N.Y. 1986) rev’d on other grounds, 830 F.2d 421 (2d Cir. 1987), rev’d 488 U.S. 428 (1989); accord Crimson Semiconductor, Inc. v. Electronum, 629 F. Supp. 903 (S.D.N.Y. 1986)
        2. Failure to pay bonds or loans payable in the U.S. is a “direct effect.” Weltover, supra. So long as the U.S. is the place of payment, it is irrelevant where any other place of performance may be (Hanil Bank v. Pt. Bank Negara Indonesia, 148 F.3d 127, 132 (2d Cir. 1998)), whether the creditor was permitted to unilaterally designate the place of payment (id.), and whether the payment was made to an agent’s account for the benefit of non-U.S. creditors. See Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238 (2d Cir. 1994) (“direct effect” in the U.S. where payments were made to New York lead banks that eventually passed payments to non-U.S. principals).
        3. Merely suffering some loss in the U.S. may not be sufficient to constitute a direct effect if the loss is not immediate enough to the challenged action.
    5. Jurisdiction turns on what the claims are “based upon,” meaning “those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case.” Saudi Arabia v. Nelson, 507 U.S. 349, 357 (1993).
      1. Careful pleading of the connection between the commercial activity and the claim may avoid the need for jurisdictional discovery and the consequent delay.
      2. On the flipside, the defendant should carefully examine the claims and how they are connected to the alleged commercial activity to see whether a basis exists to move to dismiss. See, e.g., Saudi Arabia, supra (claims dismissed where the commercial activity of the foreign state was unrelated to the basis for the claims (torture and unlawful detention)).
  3. Expropriation (§ 1605(a)(3)):
    1. The FSIA also provides an exception to sovereign immunity for “any case: (1) “in which rights in property taken in violation of international law are in issue;” (2) “that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state;” and (3) “that agency or instrumentality is engaged in commercial activity in the United States.” 28 U.S.C. § 1605(a)(3).
      1. A “taking violates international law” if it is done “without payment of the prompt adequate and effective compensation required by international law” or is “arbitrary or discriminatory in nature.” H.R. Rep. 94-1487, reprinted in 1976 U.S.C.C.A.N. 6604, 6618.
      2. “At the jurisdictional stage,” “substantial and non-frivolous” allegations provide “a sufficient basis for the exercise of [] jurisdiction” under the FSIA. Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 711 (9th Cir. 1992) (finding FSIA jurisdiction over claim by U.S. citizen that Argentina expropriated property in violation of international law).
  4. Gifts/Immovable property (§ 1605(a)(4)):
    1. No immunity for claims involving real or immovable property in the U.S.
      1. This provision had been strictly interpreted to be limited to claims for rights in the property, not nuisance or breach of contract/leases claims. See MacArthur Area Citizen’s Ass’n v. Republic of Peru, 809 F.2d 918 (D.C. Cir. 1987) (does not apply to nuisance claims); Rodriguez v. Rep. of Costa Rica, 139 F. Supp. 2d 173 (D. P. R. 2001) (does not apply to claims for breach of lease).
      2. However, the Supreme Court held in June 2007 that the exception broadly encompasses any claim where "rights in immovable property" are in issue.  Permanent Mission of India to the US v. City of New York, 551 U.S.  (2007).  Thus, the FSIA does not provide immunity, for example, from a suit to enforce a tax lien. 
    2. No immunity for claims involving property acquired by gift or bequest or inheritance (as opposed to acquired by corporate succession or commercial transaction). 767 Third Avenue Assocs. v. Consulate General of Yugoslavia, 218 F.3d 152 (2d Cir. 2000) (does not apply to real property acquired by non-testamentary succession).
  5. Tort (§ 1605(a)(5)): No immunity for claims for money damages for tort.
    1. Tort must involve a non-discretionary act. A discretionary act is one that involves “an element of choice or judgment based on considerations of public policy” reflecting acts “performed at the planning level of government, as opposed to the operational level.” In re Terrorist Attacks on September 11, 2001, 349 F.Supp.2d 765 (S.D.N.Y. 2005)
    2. Provision does not apply to certain categories of tort: “malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.”
      1. However, there may be other exceptions to immunity, such as the commercial activity exception, that apply to such tort claims.
  6. Enforcement of arbitration award (§ 1605(a)(6)): Three possibilities:
    1. The arbitration occurs in the U.S.;
    2. There is an applicable treaty or international agreement concerning recognition and enforcement of the award; OR
    3. The underlying claim could have been brought in the U.S. but for the arbitration agreement.
  7. Terrorist act (§ 1605(a)(7)): As of 1996, no immunity for claims for “money damages” for “personal injury or death” caused by torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support for the same.
    1. Defendant must be an officially designated “state sponsor of terrorism;”
    2. Arbitration must have been exhausted if available; and
    3. Either the victim or the claimant must have been a U.S. national.
  8. Maritime liens (§ 1605(a)(8)): Permits enforcement of a maritime lien against the vessel or cargo of a foreign state.
    1. Lien itself must arise from commercial activity of the state.
    2. If considering such a claim, attention should be paid to the complex procedural requirements.
  9. Counterclaims (§ 1607): If a foreign state brings a suit or intervenes in an action, it has no immunity against counterclaims (a) as to which it otherwise would not be immune under § 1605, (b) that arise out of the same transaction or occurrence as the foreign state’s claim; or (c) the counterclaim seeks relief that does not exceed the amount of the relief sought by the foreign state or differing in kind from that sought by the foreign state.

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