Embassy Law Web Log   
Washington, DC, USA      

The Direct-Effect Clause in the FSIA

In Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC, the United States Court of Appeals for the Second Circuit in New York City confirmed subject-matter jurisdiction of the district court over a foreign government-owned sovereign wealth fund under the direct-effects clause of the Foreign Sovereign Immunities Act, quoting the Supreme Court in Republic of Argentina v. Weltover, 504 U.S. 607, (1992):

Under the direct‐effect clause, a foreign state is not immune from jurisdiction if the plaintiff's "lawsuit is (1) 'based upon … an act outside the territory of the United States'; (2) that was taken 'in connection with a commercial activity' of [the foreign state] outside this country; and (3) that 'cause[d] a direct effect in the United States.'""
The required facts for the direct effect of foreign acts in the United States are often disputed, but in this matter involving commercial notes, securities, a bankrupt foreign bank and representations to investors, the facts clearly pointed to effects in the United States where investors obtained interests in the securities and suffered the alleged harm. The February 3, 2016 decision rests in part on the recent Supreme Court precedent in OBB Personenverkehr AG v. Sachs, 136 S.Ct. 390 (2015). -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Enforcement into Foreign State's U.S. Assets

On January 15, 2016, the United States Supreme Court published the transcript and audio recordings of its January 13, 2016 hearing in the Bank Markazi v. Petersen case. The bank argued that Congress acted unconstitutionally when it created a law for the enforcement of a specific judgment for damages into the assets of Iran. A decision is expected before the end of the current term of the Supreme Court. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Can Embassy Visits Change Extradition Law?

Would a foreign fugitive's regular visits to his embassy avoid tolling the statute of limitations on the alleged crimes for which his home country has requested his extradition? In the matter USA v. Liuksila, a Finnish citizen in Washington argued that the statute of limitations had run.

He may have been absent from Finland but through his embassy contacts had been available to Finnish authorities, and he had also cooperated with a Finnish detective. Since he remained available to them, he suggested, he was not truly absent from Finland. Therefore, the tolling effect could not have occurred, the statute had run and he could no longer be extradited from the United States to Finland, he claimed.

In a 14-page opinion of January 5, 2016, the United States District Court for the District of Columbia analyzed the law in light of these facts and concluded that the mere absence from Finland is determinative. Visits to the embassy do not have the same effect as returning to the jurisdiction seeking extradition! -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Comity for Sovereign's Acts

On January 5, 2015, the United States Court of Appeals for the Second Circuit in New York City ruled that a federal judge had not appropriately considered the validity of trademark transfers under Russian law in the matter of Fed. Treasury Enter. Sojuzplodoimport v. Spirits Int'l B.V.. Bearing in mind the ideas of state sovereignty and comity, Judge Dennis Jacobs writes: …the US District Court for the Southern District of New York erred in considering whether the asserted basis for standing to pursue the section 32(1) claims was valid under Russian law.

During the prime of the Soviet Union, the Soviet enterprise known as VVO-SPI obtained a trademark in the United States in order to sell its vodka Stolichanya through various US distributors such as PepsiCo. VVO-SPI eventually assigned the trademark licenses to PepsiCo from 1990 to 2000.

The subsequent collapse of the Soviet Union in the early 1990s led to widespread privatization of various Soviet enterprises, purportedly including VVO-SPI, which ultimately became controlled by SPI International. As successor in interest to VVO-SPI, SPI International claimed ownership of the Stolichanya trademarks. After discontinuing the licensing agreement with PepsiCo in 2000, SPI sold the trademark rights to the Dutch company Allied Domecq. However, in 2001, a court in the Russian Federation ruled that VVO-SPI had not actually been privatized. In response to the ruling, the Russian Federation established the agency and VVO-SPI successor known as the Federal Treasury Enterprise Sojuzplodoimport in an effort to reclaim the trademarks. FTE and Cristall - a company that FTE had entered into exclusive licensing agreements with - sued Allied Domecq, its subsidiaries, and SPI International.

In the US District Court for the Southern District of New York, FTE laid claim to the Stolichnaya vodka trademarks that originated during the Soviet Union, arguing violations of section 32(1) of the Lanham Act, as well as other federal and state law claims. Ultimately, the district court dismissed all the claims, citing incontestability of the trademarks due to the duration of the trademark's existence.

A subsequent issuance of a Decree by the Russian Federation on behalf of FTE led to the vacating of the dismissal of section 32(1) claim. As Judge Jacobs writes:

The Degree and Assignment were indisputably acts of a foreign government. The declaration of a United States court that the executive branch of the Russian government violated its own law by transferring its own rights to its quasi-governmental entity (FTE) would be an affront to the government of a foreign sovereign.
The court further cited a potential violation of foreign sovereignty, stating,
The doctrines of comity and act of state preclude a United States court from invalidating an action of a foreign sovereign with respect to a transfer of rights among its branches or entities on the ground that the transfer is invalid under the law of that foreign sovereign.
Put simply, the ruling acknowledges the power of the sovereign state and its government - a factor that cannot be ignored in a United States Court. The case, in regards to the section 32(1) claim, has been remanded for further proceedings. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

State Wins Stay of Enforcement After Arbitration

The November 3, 2015 decision in Getma International v. Republic of Guinea by the United States District Court for the District of Columbia illustrates usefully the conditions for a stay of excution of a disputed arbitral award. The District Court determined that the main conditions for the enforcement of the foreign award existed but it accepted the limitations established by the Federal Arbitration Act, namely an application of discretion.

Relying on the factors established by the United States Court of Appeals for the Second Circuit in Europcar Italia, S.p.A. v. Maiellano Tours Inc., 156 F.3d 310, 316-17 (2d Cir. 1998), the court carefully examined six EuropCar factors. It concluded that the dispute surrounding the award counseled against confirmation and enforcement. However, it noted that staying these proceedings indefinitely could be seen as an abuse of discretion. See Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 732-33 (D.C. Cir. 2012) and limited the stay for a period through April 30, 2016. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

FSIA Attachment After Judgment Against State

Arguments in two cases rolled into one decision in Owens v. Republic of Sudan, decided by the United States District Court for the District of Columbia on October 28, 2015. The disputed issue is whether plain­tiffs with default judgments in hand against Iran and Sudan may initiate the attach­ment into American property of these nations.

The plaintiffs gave proper notice; the court observed that suffi­cient time lapsed between notice under 28 USC §1608(e) and the appli­cation to initiate attach­ment. Sudan objected because the nation belatedly had moved to challenge the default judgment.

Sudan raised several concerns, based on the statute in 28 USC §1610(c), the legislative history of the Foreign Sovereign Immunities Act and its presentation by then-Legal Adviser Monroe Leigh, and comity. Ultimately, the court rejected these objections in a reasoned opionion after also taking issue with diverging views by the United States Court of Appeals for the Seventh Circuit in Rubin v. Iran, among others. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Supreme Court Oral Argument Audio Files

The audio files from the oral argument before the Supreme Court of the United States in the Foreign Sovereign Immunities Matter involving a railroad accident in Austria became available today on the court's website. The matter is OBB Personenverkehr AG v. Sachs.

Embassy Duty to Preserve EMails

When litigation in U.S. courts looms, parties need to preserve and protect evidence, including emails. Does an embassy need to follow this procedural rule despite the sanctity of its documents under the Vienna Convention of 1961? Or will it be subject to sanctions by an American court if it follows its own organizational procedures in destroying emails under standard procedures imposed by its foreign office?

An opportunity to explore this conflict presented itself in the matter Ashraf-Hassan v. Embassy of France but the September 17, 2015 decision by the United States District Court for the District of Columbia avoided addressing the potential conflict and an exploration of an embassy's right to self-organization which many jurisdictions consider a generally accepted principle of international law.

Both parties had requested sanctions against each other, for failing to preserve evidence. The court found that sanctions were not appropriate in this matter because the case would not be heard by a jury. In a bench trial, there is no risk of misleading a jury. In any case, the court held, clear notice of imminent litigation was not given before the emails at the defendant embassy were destroyed under the data protection laws of France in its ordinary course of administration.

Interestingly, both parties requested in their motions in limine only that the court draw adverse inferences for lost correspondence. The court declined. With respect to the plaintiff's request, it noted that the plaintiff has the burden of proof which it can attempt to meet with evidence other than the lost writings. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Central Bank not Alter Ego of State

In a very instructional decision, the United States District Court for the Second Circuit, located in New York City, ruled on August 31, 2015 that a nation's central bank is not that nation's alter ego for purposes of the Foreign Sovereign Immunities Act. The plaintiff, a bond creditor of Argentina, sought to attach assets of Argentina's central bank. The district court believed that exceptions to immunity applied but the higher court reversed in the matter EM Ltd. v. Banco Central de la Republica Argentina:

Relevant to this appeal, the District Court concluded that BCRA had waived its sovereign immunity under two statutory exceptions. First, the District Court held that the FAA's express waiver of sovereign immunity also waived BCRA’s immunity—under 28 U.S.C. § 1605(a)(1) 3 —because BCRA is Argentina’s “alter ego.” Second, the District Court held that BCRA’s use of its account with the Federal Reserve Bank of New York (“FRBNY”) constituted “commercial activity” in the United States, which waived BCRA’s sovereign immunity under 28 U.S.C. § 1605(a)(2).

Because neither of these statutory exceptions applies to this case, the District Court erred in denying BCRA’s motion to dismiss for lack of subject matter jurisdiction. Accordingly, we REVERSE the District Court’s order of September 26, 2013, and we REMAND the cause with instructions to dismiss the TAC with prejudice.
Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Bouquet of Defenses against Arbitral Award

Numerous defenses against the recognition of a foreign arbitral award did not help the government of Belize in the matter BCB Holdings Inc. v. Government of Belize before the United States District Court for the District of Columbia. However, the decision is quite educational. In the case seeking promised tax benefits, Belize had argued:

Namely, the Settlement Deed containing the arbitration clause is invalid; enforcement would violate the revenue rule; the Award is against U.S. public policy; the New York Convention does not apply to the dispute between the parties; the Court lacks subject-matter jurisdiction because Belize is entitled to foreign sovereign immunity; the Court lacks personal jurisdiction; the petition is time barred; the doctrines of res judicata, collateral estoppel, or international comity preclude enforcement of the Award; and there is a more convenient alternative forum … In addition, the GOB urges the Court to dismiss the complaint to recognize the U.K. Judgment because it was improperly joined with this confirmation action, the Court lacks subject matter and personal jurisdiction, res judicata and international comity must be applied, the foreign judgment is against public policy, and it conflicts with the final CCJ judgment. Id. 5,6.
In its 24-page opinion of June 24, 2015, the court discussed the defenses which the foreign government launched after failing to participate in the arbitration, enacting laws purporting to subject those enforcing such awards to criminal penalties and seeking anti-arbitration injunctions.

The court granted the petition to confirm the foreign award, convert the monetary relief in the arbitration award into U.S. dollars, and award prejudgment interest. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.