New Supreme Court Term Includes Issues of Foreign Sovereign Immunity
October 22, 2002
In its current Term, the Supreme Court will address aspects of the Foreign Sovereign Immunities Act for the first time since its decision in Saudi Arabia v. Nelson a decade earlier.  Although the issues in Dole Food Company v. Patrickson appear technical, they are not without practical significance, and one of them raises profound questions about the nature of foreign sovereign immunity.
The Dole case was filed in the Hawaii courts by banana workers from Costa Rica, Ecuador, Guatemala and Panama seeking damages for injuries they attributed to the pesticide DBCP. They sued the Dole Food Company and other major fruit and chemical companies, alleging causes of action under state law. The defendants impleaded two Israeli chemical companies, which in turn removed the case to federal court, arguing that the suit against them could have been brought in federal court under 28 U.S.C. Â§ 1330, a provision of the FSIA that confers original jurisdiction over any suit brought against a foreign state in which the state is not entitled to immunity. The Israeli companies argued that they were "foreign states" for purposes of that section because a majority of their shares were owned by the state of Israel at the time of the events on which the lawsuit against them was based. The district court denied the plaintiffs' motion to remand the case to the state courts, and it dismissed the case on forum non conveniens grounds.
The plaintiffs appealed, and the Ninth Circuit reversed in an opinion by Judge Kozinski.  With respect to the FSIA, the court first expressed doubt about the Israeli companies' claim to be treated as foreign states just because the Israeli government owned their shares at the time of the relevant events. It noted that section 1330 is framed in the present tense, suggesting that the defendant must be a foreign state at the time the lawsuit is brought. The Court found it unnecessary to decide that issue, however, because, in its view, the companies did not qualify as foreign states for a distinct reason. Although the FSIA defines a foreign state as including a company a majority of whose shares are owned by a foreign state, the Court held that the term does not encompass a company a majority of whose shares are owned by a company a majority of whose shares are owned by a foreign state (known for these purposes as a "tiered subsidiary"  ).
When the Israeli companies filed a petition for certiorari, the Court invited the United States to present its views. The Solicitor General's brief took the position that the Ninth Circuit reached the correct result on the tiering question, but it recommended that the Court grant the petition because the Ninth Circuit's holding conflicted directly with that of the Fifth Circuit in Delgado v. Shell Oil Company  and the Seventh Circuit in In re Air Crash Disaster Near Roselawn.  The Solicitor General also recommended that the Court review the "timing" question that the Ninth Circuit had reserved. Although there was not a conflict among the Circuits on that question, the Solicitor General's brief took issue with the so-far-unanimous view of the courts of appeals that an entity is entitled to foreign state status if it was a foreign state at the time of the acts giving rise to the dispute, even if it was no longer a foreign state at the time the lawsuit was commenced. The Supreme Court granted certiorari on the following two issues: (1) "Whether a corporation is an 'agency or instrumentality' if a foreign state owns a majority of the shares of a corporate enterprise that in turn owns a majority of the shares of the corporation" and (2) "Whether a corporation is an 'agency or instrumentality' if a foreign state owned a majority of the shares of the corporation at the time of the events giving rise to litigation, but the foreign state does not own a majority of those shares at the time that a plaintiff commences a suit against the corporation."
The Ninth Circuit's holding on the tiering question appears to conflict with the plain text of the FSIA. Section 1603(a) defines "foreign state" as including a foreign state instrumentality and political subdivision of a foreign state. Section 1603(b) then defines a "foreign state instrumentality" as a company a majority or more of whose shares are owned by a foreign state or political subdivision and meets certain other requirements. Read literally, this means that a company a majority of whose shares are owned by the government of Israel and meets the other requirements (let's call it Company A) is a "foreign state instrumentality" by virtue of section 1603(b) and hence also a "foreign state" by virtue of section 1603(a). If Company A owns a majority of the shares of Company B, then Company B would qualify a foreign state instrumentality as that term is defined in section 1603(b) because a majority of its shares are owned by a "foreign state" as that term is defined in section 1603(a).
The Ninth Circuit and the Solicitor General interpret the term "foreign state" in section 1603(b) as encompassing only the sovereign state itself, notwithstanding the broader definition in section 1603(a). There is some textual support for this interpretation. Recall that the term "foreign state" is defined in section 1603(a) as including both instrumentalities and political subdivisions of a foreign state. Section 1603(b) then defines instrumentalities as including corporations a majority or more of whose shares are owned by a foreign state or a political subdivision of a foreign state. If the term "foreign state" in section 1603(b) were read to mean "foreign state" as the term is defined in section 1603(a), then the reference to "political subdivisions" in section 1603(b) would be redundant. On the other hand, there is an additional textual obstacle to reading the term "foreign state" in section 1603(b) as something other than the term "foreign state" as defined in section 1603(a). The latter section specifically addresses the scope of its application, and it specifies that the term "foreign state" is used in the FSIA as it is defined in section 1603(a) "except as used in section 1608 of this title" (which concerns service of process). Thus, according to the express terms of 1603(a), that section's definition applies to the term "foreign state" as used in section 1603(b).
There are strong policy arguments for reading section 1603(b)(2) as the Ninth Circuit did and as the Solicitor General proposes. The strongest is that other nations generally do not afford protection to subsidiaries of companies owned by foreign states. Considerations of reciprocity would thus appear to counsel against affording such protection to the subsidiaries of companies owned by foreign states. The issue for the Court is whether, in the light of the FSIA's text, this result can be accomplished through judicial interpretation or instead requires an amendment of the statute.
If the Court disagrees with the Ninth Circuit on the tiering issue, it may address the timing question as well. Although it did not rule on the issue, the Ninth Circuit expressed tentative disagreement with the way the issue has been resolved by the other courts of appeals that have addressed it. In the view of the Ninth Circuit, the fact that section 1330 is written in the present tense indicates that the FSIA confers federal jurisdiction if the defendant is a foreign state at the time the lawsuit is brought. That is surely correct, but it does not mean, as the court appeared to assume, that jurisdiction is lacking if the defendant was a foreign state at the time of the events on which the suit is based but not at the time the lawsuit was commenced. It is possible that jurisdiction exists as well if the defendant was a foreign state at the time of the events on which the suit is based.
Under the FSIA, the existence of sovereign immunity turns on the nature of the acts of the defendant on which the suit is based. This suggests that sovereign immunity is an immunity from liability as well as an immunity from federal court jurisdiction. This is confirmed by section 1608 of the Act, which establishes that a foreign state's liability turns on the absence of an entitlement to sovereign immunity under section 1604 of the Act. It is also supported by the Supreme Court's decision in The Western Maid,  concerning the analogous immunity of the United States. In the latter case, relied upon by the Sixth Circuit in holding that the FSIA applies to defendants who were foreign states at the time of the relevant events,  the Supreme Court, per Justice Holmes, held that no liability attached when a ship operated by the government collided with another vessel, even though the ship was no longer operated by the government at the time of the lawsuit.
It is possible that the defendant's status as a foreign state at the time of the relevant events should determine its immunity from liability, but only its status as a foreign state at the time the lawsuit is commenced its entitlement to remove the suit to federal court. The complexity of the issue, however, may warrant deferring its resolution until after the lower court has had a chance to consider it.
About the Author:
Carlos Manuel VÃ¡zquez is a Professor of Law at the Georgetown University Law Center and a Member of the Inter-American Juridical Committee, the legal advisory organ of the Organization of American States.
 Saudi Arabia v. Nelson, 507 U.S. 349 (1993).
 Patrickson v. Dole Food Co., 251 F.3d 795 (9th Cir. 2001).
 See Andrew Lowenstein, The Foreign Sovereign Immunities Act and Corporate Subsidiaries of Agencies or Instrumentalities of Foreign States, 19 Berkeley J. Int'l L. 350, 379 (2001).
 Delgado v. Shell Oil Co., 231 F.3d 165, 182 (5th Cir. 2000).
 In re Air Crash Disaster Near Roselawn, Ind. on Oct. 31, 1994, 96 F.3d 932 (7th Cir. 1996).
 The Western Maid, 257 U.S. 419 (1922).
 Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445 (6th Cir. 1998). The author was counsel to the appellants-defendants in this case.
On April 22, the Supreme Court handed down its decision in Dole Food Co. v. Patrickson, a case raising two technical yet significant questions under the Foreign Sovereign Immunities Act.  The first issue in the case was whether a corporation owned by a subsidiary of a foreign state qualifies as a foreign state instrumentality under the FSIA. The second is whether a corporation that was owned by a foreign state at the time of the events giving rise to the suit, but not at the time suit was brought, qualifies as a foreign state instrumentality. The Court answered both questions in the negative.
On the first question, the majority believed its conclusion was supported by the plain text of the FSIA, which defines a foreign state instrumentality as "any entity . . . a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof." 28 U.S.C. Â§1603(b). The Court held that petitioners the Dead Sea Companies were not foreign state instrumentalities because their shares were owned by a subsidiary of Israel but not by Israel itself. It concluded that, under section 1603(b), the companies would qualify as foreign state instrumentalities only if Israel directly owned a majority of their shares. Justices Breyer and O'Connor dissented on this point. In their view, if Israel indirectly owned a majority of their shares, it held a majority of "other ownership interest" in the companies. They noted that this construction was supported by sound policy, as there was no conceivable reason in their view why Congress would have wanted to distinguish in the FSIA between first and second-tier subsidiaries.
Neither the majority nor the dissenting Justices discussed the strongest textual argument supporting the conclusion that the Dead Sea Companies were foreign state instrumentalities. Section 1603(a) of the FSIA defines "foreign state" as including a foreign state instrumentality. Thus, if the company that directly owned the shares of the Dead Sea Companies was itself directly owned by Israel, then that company would qualify as a "foreign state instrumentality" under section 1603(b) and hence a "foreign state" under section 1603(a), and the Dead Sea companies would qualify as a foreign state instrumentality because its shares were directly owned by a foreign state as defined in section 1603(a).  The petitioners did not make this argument. During the oral argument, Justice Breyer stated, in framing a question to the attorney for the Solicitor General's Office, arguing for the United States as amicus, that he was "sure this is not a tenable argument, because no one has advanced it.  In response, the government's lawyer noted that the term "foreign state" in section 1603(b) should be understood as solely the foreign state proper because applying the definition from section 1603(a) would render the term "political subdivision" in section 1603(b) redundant.  This was a fair response, but hardly a conclusive one. No one offered the textual rebuttal that section 1603(a)'s definition of "foreign state" purports by its terms to apply the whole of the FSIA "except . . . section 1608 of this title,"  an express exception that would seem to preclude additional exceptions. 
The Court's holding significantly narrows the scope of the FSIA. The issue the Court decided had been considered in a number of reported decisions of the federal Courts of Appeals, and, until the 1995 decision by the Ninth Circuit in Gates v. Victor Fine Foods,  all of them concluded that second tier subsidiaries were foreign state instrumentalities.  After Gates, the only federal appellate courts to consider the issue, and most district courts, rejected the Ninth Circuit's interpretation.  Before Gates, numerous suits were brought against second or third tier subsidiaries and their status as foreign state instrumentalities was generally not questioned. 
The plain text of the FSIA was also the principal basis for the Court's holding that federal jurisdiction is lacking under the FSIA if the defendant was a foreign state instrumentality at the time of the relevant events but not at the time suit is brought. The Court relied on the use of the present tense in section 1603(b), which defines a foreign state instrumentality as a corporation "a majority of whose shares is owned by a foreign state."  The Court also relied on the "longstanding principle that 'the jurisdiction of the Court depends upon the state of things at the time the action is brought.'" 
Dole apparently means that federal jurisdiction exists under the FSIA if the corporation is privatized after the suit is brought. An important question that may remain open after Dole is whether a privatized entity sued in state court may claim immunity on the merits under sections 1604 and 1605 if it was a foreign state instrumentality at the time of the events giving rise to the dispute. Although those sections of the FSIA are written in the present tense as well, they provide that entitlement to immunity turns on the character of the acts on which the suit is based, and the connection of those acts to the United States.  In the unlikely event that the plaintiff's claim is based on the sovereign acts of a since-privatized corporation, would the corporation be entitled to sovereign immunity from liability? Support for an affirmative answer may be found in Gould, Inc. v. Pechiney Ugine Kuhlmann. 
About the Author: Carlos Manuel VÃ¡zquez is a Professor of Law at the Georgetown University Law Center and a Member of the Inter-American Juridical Committee, the legal advisory organ of the Organization of American States.
 123 S. Ct. 1655 (2003). The decision was previewed before the oral argument in Carlos Manuel VÃ¡zquez, New Supreme Court Term Includes Issues of Foreign Sovereign Immunity, ASIL Insight, Oct. 2002.
 For more on this argument, see VÃ¡zquez, supra.
 Transcript of Oral Argument at 44, Dole Food Co. v. Patrickson, --- U.S. ---, (2003) (Nos. 01-593, 01-594), available at 2003 WL 221855 at *43-46. (His tone suggested that he was not at all sure it was untenable.) Actually, the argument was raised by amicus curiae The Republic of Ireland and ICAROM PLC (Under Administration). Brief of the Republic of Ireland and ICAROM PLC (Under Administration) As Amicus Curiae In Support of Petitioners, 2001 U.S. Briefs 593 at *11-*15.
 Transcript at 45.
 28 U.S.C. Â§ 1603(a). Section 1608 relates to service of process, time to answer, and default.
 It is impossible to know whether the Court rejected the textual argument described above on the merits or instead declined to reach the argument because no party advanced it. Compare Franchise Tax Board v. Hyatt, 123 S.Ct. 1683 (2003) (declining the invitation to overrule Nevada v. Hall because no party had requested that the decision be overruled, even though an amicus brief had made such a request See Brief of the States of Oregon, et al. as Amicus Curiae in Support of Petitioner, 2002 U.S. Briefs 42 at *5-*12 (urging overruling of Nevada v. Hall); Brief of the States of Florida, et al. as Amicus Curiae in Support of Petitioner, 2002 WL 31863327 at *1-*19 (same). In any event, the argument would now appear to be unavailable.
 Gates v. Victor Fine Foods, 54 F.3d 1457, 1461-63 (9th Cir. 1995) (holding that a wholly owned pork-processing subsidiary of Canadian-owned pork marketer was not a foreign state).
 See See Joseph W. Dellapenna, Suing Foreign States and their Corporations at 83 (2d ed. 2003).
 See Delgado v. Shell Oil Co., 231 F.3d 165, 176 (5th Cir. 2000; In re Aircrash Disaster Near Roselawn Ind. on Oct. 31, 1994, 96 F.3d 932, 941 (7th Cir. 1996). ). See Dellapenna, supra note 8, at 84 & n.198 ("Most courts to which this argument has been made since Gates was handed down have rejected the argument on the strength of the many cases to the contrary.").
 The author represented one such subsidiary in Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445 (6th Cir. 1988). The straightforward textual argument supporting the subsidiary's status as a foreign state instrumentality (based on section 1603(a)) was not questioned by the plaintiff, the district court, or the Court of Appeals. For other reported cases in the courts of appeals, see, e.g, Allendale Mut. Ins. Co. v. Bull Data Sys., Inc., 10 F.3d 425, 426-27 (7th Cir. 1993) (treating as a foreign state a subsidiary of parent company majority owned by French government); Am. W. Airlines v. GPA Group, Ltd., 877 F.2d 793, 796 (9th Cir. 1989) (treating as a foreign state a subsidiary of Irish national airline wholly owned by Irish government); Gilson v. Republic of Ireland, 682 F.2d 1022, 1026 (D.C. Cir. 1982) (for purposes of FSIA treating as a foreign state a tiered subsidiary of the Irish government).
 Emphasis added. Section 1441(d) authorizes removal by a "foreign state as defined by section 1603(a)," which in turn incorporates the definition of a "foreign state instrumentality" found in section 1603(b).
 Quoting Keene Corp. v. United States, 508 U.S. 200, 207 (1993).
 See especially the commercial activity exception, 28 U.S.C. Â§1605(a)(2).
 853 F.2d 445, 450 (6th Cir. 1988) (relying on The Western Maid, 257 U.S. 419 (1922)).