Venezuela v. Helmerich & Payne International Drilling Co.: The Supreme Court Makes It Harder to Bring Claims Against Foreign Sovereigns in U.S. Courts

On May 1, 2017, as the United States Supreme Court delivered its decisions on many of the term’s divisive questions, a unanimous opinion in Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co.[1]slipped through the headlines largely unnoticed. The Court held that in order for a plaintiff invoking the expropriation exception to the Foreign Sovereign Immunities Act to survive a motion to dismiss, the plaintiff must show—rather than simply present a non-frivolous argument in the complaint—that there was property “taken in violation of international law.”[2] Notwithstanding the paucity of attention this decision received, its holding is very significant for two reasons. First, for any individual or business with assets outside of the United States, the opinion raises the threshold pleading requirements necessary to utilize the exceptions to the Foreign Sovereign Immunities Act (FSIA),[3] which is the only way to bring a claim against a foreign sovereign in a United States federal or state court. Second, the opinion continues a trend of mostly unanimous or nearly unanimous opinions over the last few years in which the Court has used jurisdiction as a way to reject attempts by plaintiffs to bring litigation in United States courts involving foreign entities and conduct. 

This Insight will first explore the Supreme Court’s decision in Helmerich & Payne, providing a factual overview and a summary of the Court’s holding. It then offers an analysis of the decision’s implications for future cases, as well as notes how the case fits into the Court’s recent jurisprudence concerning foreign conduct and foreign actors.

Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co.

Helmerich & Payne International Drilling Co. (H&P), an American company, and its wholly-owned Venezuelan-incorporated subsidiary, Helmerich & Payne de Venezuela, C.A. (H&P-V), contracted with Petróleos de Venezuela, S.A. and PDVSA Petróleo, S.A., oil development entities that were part of the Venezuelan Government, to supply oil drilling rigs.[4] In 2010, following the Venezuelan entities’ failure to pay more than $10 million to H&P-V, the Venezuelan government sent troops to the facility where the oil rig equipment was stored, issued a “Decree of Expropriation,” and nationalized the equipment.[5]

H&P and H&P-V brought suit in the United States District Court for the District of Columbia, seeking relief for breach of contract and takings in violation of international law. In response to Venezuela’s assertion of sovereign immunity in a motion to dismiss, the plaintiffs argued that the “commercial activities exception”[6] and “expropriation exception”[7] to the FSIA applied. The District Court denied Venezuela’s motion to dismiss with respect to H&P, but granted it with respect to H&P-V[8]; on appeal, the Court of Appeals for the District of Columbia Circuit reversed in part, holding that both plaintiffs’ claims might fall within the expropriation exception, but that the commercial activities exception did not apply because plaintiff had failed to show a direct effect in the United States.[9] The Court of Appeals explained that a motion to dismiss a claim brought under a FSIA exception should be granted “only if the claims are wholly insubstantial or frivolous. A claim fails to meet this exceptionally low bar if prior judicial decisions inescapably render the claim[] frivolous and completely devoid of merit.”[10]

The Supreme Court granted certiorari only on the question of whether “a party need only make a ‘nonfrivolous’ argument that the case falls within the scope of the [FSIA’s expropriation] exception” to avoid a dismissal.[11] Reversing the court of appeals, the Court unanimously[12] held that a party must do more than make a nonfrivolous argument. Justice Breyer, writing for the Court, explained that “the expropriation exception grants jurisdiction only where there is a valid claim that ‘property’ has been ‘taken in violation of international law.’ § 1605(a)(3). A nonfrivolous argument to that effect is insufficient.”[13] In other words, the court of appeals’ standard, which permitted a claim to move forward where a taking “might” have been in violation of international law or a pleading “arguably” shows such a taking, is insufficient. Rather, the Court explained, the district court must determine, as close to the start of the case as possible, that a right in property was, in fact, “taken in violation of international law.” According to the Supreme Court, only this higher standard is consistent with the language, history, and structure of the FSIA and the expropriation exception.[14]

Implications: The Bar Is Raised

The Supreme Court’s decision resolved a split among the courts of appeals concerning the appropriate standard to apply to cases invoking the expropriation exception, rejecting the lower bar used by the Ninth and District of Columbia Circuits.[15] As a result, plaintiffs seeking to invoke the exception will need to plead facts and law at the start of the case sufficient to demonstrate that (i) there was a taking, (ii) the taking was in violation of international law, and (iii) “property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state.”[16] Typically, to state a claim in federal court, regardless of whether the defendant is a sovereign or not, one need only satisfy Federal Rule of Civil Procedure 8, which sets a relatively low bar. Under this new rule, satisfying Rule 8 will not be sufficient. Applying the Court’s decision more broadly, this new pleading standard rule will likely impact plaintiffs seeking to invoke any of the FSIA exceptions, including the commercial activity exception[17] and tortious activity exception.[18] Because the FSIA exceptions are jurisdictional prerequisites, if a plaintiff cannot satisfy this new higher bar early in the litigation (if not in the initial pleading), the case must be dismissed.

While this standard may make it harder for plaintiffs to utilize the exceptions, it may also make it easier for sovereign defendants to secure a dismissal on jurisdictional grounds early in the case, preventing involvement in costly and burdensome litigation in the United States. Such a result, Justice Breyer explains, would be consistent with the FSIA’s intent, and, in turn the principles of the sovereign immunity doctrine and the “restrictive” theory of sovereign immunity.[19] Whether this outcome actually occurs, though, will depend on how district courts apply this new heightened pleading standard. If courts permit plaintiffs to obtain jurisdictional discovery and evidentiary hearings prior to making the required finding, then foreign sovereign defendants may still find themselves “embroil[ed] . . . in an American lawsuit for an increased period of time.”[20] The uncertainty concerning how this new standard will be applied and what it will mean about the possibilities for a foreign sovereign to secure a quick exit from litigation may undermine one of the apparent goals of the Supreme Court, to provide clarity so that “foreign nations and lawyers . . . understand our law.”[21]

More broadly, the Helmerich & Payne opinion represents the latest in a series of Supreme Court decisions—most of which have been unanimous or nearly unanimous—rejecting attempts to bring claims against foreign defendants for foreign conduct. Although the context of the cases varies, the results seem to be consistent. For example, in a 2015 decision involving the FSIA’s commercial activity exception, the Court unanimously held that a California resident who purchased a rail ticket online through a Massachusetts-based company could not invoke the exception to sue a railway owned by the Republic of Austria for injuries sustained in Austria.[22] Outside of the FSIA context, in 2014 the Court rejected, with an eight-member majority, an attempt by a group of Argentinean plaintiffs to bring claims against DaimlerChrysler Aktiengesellschaft for conduct that occurred in Argentina.[23] And in 2011, a unanimous Supreme Court held that plaintiffs could not bring claims against the foreign subsidiaries of an American company for injuries sustained abroad and allegedly caused by a product that was manufactured abroad.[24]

While the similarities in outcomes among these cases may only be a coincidence created by the unique circumstances of each case, it could also signal something more significant about the Supreme Court’s view of cases involving foreign defendants and claims arising from foreign conduct, namely that United States courts should, especially when a sovereign is involved, only exercise jurisdiction where the connection to the United States is clear and strong. If so, the unanimous or nearly unanimous decisions in these cases indicates that the view is one that is likely to remain for the foreseeable future. Such a view may have significant implications for international accountability. If a United States plaintiff cannot sue a sovereign in the sovereign’s own courts (or, at least, sue fairly), and cannot bring a claim in a United States court, then absent a way to bring a claim to arbitration, the plaintiff may be left without a remedy. Only time will tell whether such a result will come to pass.

About the Author: Daniel Mandell is an Associate in the Washington, D.C., office of Cohen & Gresser LLP. All opinions expressed in this piece are his own, and do not necessarily reflect the views of his firm.