B. Expanding Immunity to Non-Sovereigns and Indirectly-Owned Commercial Enterprises
- Two key decisions in 2008 - one from the US Supreme Court and the other from
the Court of Appeals for the Ninth Circuit - broadened and strengthened the
protections of sovereign immunity in US commercial litigation. Whether
this signals a more general trend remains unclear, in part because other recent
decisions, especially at the trial court level, have taken a more nuanced
approach to sovereign immunity, arguably with more concern for the rights of the
- Sovereign Immunity Compelling Dismissal of Claims Against Non-Sovereign Entities
(a) As discussed in the Guide, US courts seek, where possible, to exercise jurisdiction, not to abstain from or decline it. Sovereign immunity can, in some instances, create a tension with this principle.
(b) That tension is manifest in litigation in which a sovereign's interests arguably are at issue, but the sovereign has not been or cannot be joined in the action. Some courts resolve the issue by invoking the Act of State Doctrine. See discussion below.
(c) In 2008, the US Supreme Court took on the issue in the context of the FSIA and resolved the tension in favor of protecting the interests of the sovereign state over the interests of the private litigants in a US forum.
(d) In Republic of the Phillipines v. Pimentel, __ US ___, 128 S.Ct. 2180 (2008) the Court held "where sovereign immunity is asserted" by parties whose joinder is "required" under Fed. R. Civ. P. 19(a), the entire action must be dismissed if the sovereign's substantive claims/defenses in the action are not "frivolous" and there is risk that the sovereign's interests would be injured by proceeding without it. Id. at 2191. The Court intimated that such injury was virtually presumed in any case in which a sovereign was such a "required" party and immune under the FSIA.
(e) The Court recognized that its holding could deprive private litigants of a forum in some instances, but held that such result "is contemplated under the doctrine of sovereign immunity" and that any prejudice to the private litigants was outweighed by prejudice to the absent, immune sovereign entities.
Expanding Sovereign Immunity to Indirectly Held Commercial Enterprises
(a) As discussed in the Guide, FSIA immunity applies not only to claims against sovereign states, but to their "political subdivisions" and, critically, the "agencies and instrumentalities" of states and their subdivisions. "Agencies and instrumentalities" includes so-called "organs" of the state, as well as majority-owned entities. 28 USC § 1603(b).
(b) In 2003, the US Supreme Court held that the "majority-owned" branch of § 1603(b) required direct ownership by the state or political subdivision, thereby restricting application of the FSIA. Dole Food Co. v. Patrickson, 538 US 468, 474 (2003).
(c) This year, however, the Ninth Circuit Court of Appeals opened a potential new door to FSIA immunity for entities indirectly owned by a state or political subdivision. In Cal. Dep't of Water Resources v. Powerex Corp., 533 F.3d 1087 (9th Cir. 2008), the Ninth Circuit held that the defendant, Powerex, was an "organ" of British Colombia, Canada for purposes of the FSIA based, in part, on the fact that British Colombia was the ultimate "beneficial owner" of Powerex, which BC held indirectly through another entity, BC Hydro. Id. at 1100.
(d) The Circuit also agreed that it was "irrelevant" that Powerex is a for-profit corporation because the profits are passed through to the public, not to private shareholders. Id. at 1101-02.