Embassy Law Web Log   
Washington, DC, USA      

FSIA Dispute Over 142-Year-Old Bonds

In a case whose main events dated as far back as 1875, the Court of Appeals for the Second Circuit dismissed a consultants’ suit against a foreign government for lack of subject-matter jurisdiction. The point-at-issue in MMA Consultants 1 Inc. v. Republic of Peru began when Peru signed and executed fourteen bonds and left them in MMA’s possession without payment. In 2015, 140 years after the fact, MMA sent three demand letters to the Peruvian embassy in Washington D.C. for payment on the Bonds, then sued to collect principal and interest. This was not, however, the first time legal issues related to these bonds had arisen, as one of the pieces of evidence the district court considered was an Arbitration Tribunal award from 1901.

Since Peru is a foreign state, the only method of judging whether or not the case was entitled to subject-matter jurisdiction in a United States district court arises under the Foreign Sovereign Immunities Act. The burden rested on the plaintiff to prove that this particular case should be permitted under an exception of the FSIA. MMA claimed the case fell under the FSIA's commercial activity exception: A foreign country may be entitled to jurisdiction if the action in question is based upon either a commercial activity carried on in the United States by the foreign state or an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere that causes a direct effect in the United States.

Since the act was Peru's failure to redeem the bonds, MMA had to prove that this failure either took place in the United States or caused a direct effect in the United States. According to case law, a foreign government’s decision not to redeem a bond is an act that occurs in the foreign country, not in the United States. Therefore, Peru’s failure to redeem the bonds did not take place in the United States and the first exception does not apply. Furthermore, simply because the plaintiff is an American corporation does not mean that direct effect was caused in the United States, thus the second exception does not apply. Accordingly, the case was correctly dismissed by the district court for lack of subject-matter jurisdiction, the appellate court in New York City determined on December 19, 2017. -- Madeline Henshaw-Greene, Legal Assistant, Berliner Corcoran & Rowe LLP , Washington, DC.