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FSIA Expropriation: Commingled Funds

In Ambar v. Federal Republic of Germany, The United States District Court for the District of Columbia Circuit analyzes two important elements in the expropriation exception to immunity under the Foreign Sovereign Immunities Act. First, it needs to determine the relevant citizenship of an expropriated building owner in order to assess whether the expropriation by the Nazi government violated international law.

On March 15, 2022, the court found that the expropriation following the annexation of Austria, of which the owner was a citizen, to Germany, was international in nature. The defendant argued that the expropriation was domestic rather than international due to the Reich issuing German citzenship to Austrians following the annnexation and, therefore, was not in violation of international law under the FSIA. Both parties presented decent arguments, the court held when examining the complex factual setting, but the plaintiff heirs of the expropriated owner had the stronger ones.

Secondly, these heirs had also alleged that Germany commingled the proceeds of the expropriation with its general funds which were then used for commercial purposes within the United States. Their argument won the day by sufficiently establishing the required United States nexus that enables the court to deny Germany's motion for dismissal on the grounds of sovereign immunity. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Exceptions to Sovereign Immunity

After nearly a decade of litigation, the United States Court of Appeals for District of Columbia explains in Wye Oak Technology, Inc. v. Republic of Iraq why its sister court in Richmond, Virginia, wrongly denied the defendant foreign state its immunity defense under the Foreign Sovereign Immunities Act in 28 USC 1602 et seq. That court had rejected the commercial activities exception which the DC Circuit analyzed in the context of a post-trial judgement.

The defendant state had defended itself in the trial before the United States District Court for the District of Columbia. The DC Circuit held that the participation in the trial did not cause the defendant state to lose any immunity claim by an implicit waiver. The Court disagrees with the sister court on the second clause of the commercial activities exception.

Examining the law of the case doctrine, it determines that it is not bound by the Fourth Circuit's assessment. In its opinion, it explores other exceptions to sovereign immunity and concludes that the third exception in 28 USC 1605(a)(2) may apply "if the action is 'based upon … an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States'". It returns that issue to the District Court for its evualation or development of its case record and a ruling. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Exceptions to Sovereign Immunity

After nearly a decade of litigation, the United States Court of Appeals for District of Columbia explains in Wye Oak Technology, Inc. v. Republic of Iraq why its sister court in Richmond, Virginia, wrongly denied the defendant foreign state its immunity defense under the Foreign Sovereign Immunities Act in 28 USC 1602 et seq. That court had rejected the commercial activities exception which the DC Circuit analyzed in the context of a post-trial judgment.

The defendant state had defended itself in the trial before the United States District Court for the District of Columbia. The DC Circuit held that the participation in the trial did not cause the defendant state to lose any immunity claim by an implicit waiver. The Court disagrees with the sister court on the second clause of the commercial activities exception.

Examining the law of the case doctrine, it determines that it is not bound by the Fourth Circuit's assessment. In its opinion, it explores other exceptions to sovereign immunity and concludes that the third exception in 28 USC 1605(a)(2) may apply "if the action is 'based upon … an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States'". It returns that issue to the District Court for its evualation or development of its case record and a ruling. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Foreign Nation Sanctioned $1.5 Million for Contempt

Failures to properly participate in litigation are routinely subject to sanctions, but they are not the norm in matters involving sovereigns. In Micula v. Government of Romania, the United States District Court for the District of Columbia granted the plaintiff's motion for sanctions. However, it limited the award to $1.5 million, half of the sanctions accrued, giving credit to the defendant nation's partial efforts at compliance.

The plaintiff had earned an arbitral award against the state as well as its confirmation in the federal court. The sanctioned actions occurred in the enforcement stage, during which the state refused to fully participate. The decision of November 8, 2021 explains the reasoning. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

IOIA Protects Inter-American Development Bank

On April 5, 2021, the United States District Court for the District of Columbia ruled in the matter of Noah J. Rosenkrantz v. Inter-American Development Bank that the defendant is protected under the International Organization Immunities Act and, therefore, the United States Federal court system has no jurisdiction in this case.

The plaintiffs assert that IADB is subject to jurisdiction in the United States because it had entered into a contract with the plaintiffs and, therefore, the relationship falls under the commercial activity exception in the Foreign Sovereign Immunities Act, which also governs International Organizations after the ruling in Jam v. Int’l Fin. Corp., 139 S. Ct. 759, 768 (2019). The IADB counters that complaint is based upon the Office of Institutional Integrity. Therefore, the commercial relationship between the plaintiff and the defendant does not control and the case does not fall under the commercial activity exception. IADB has sanction-like powers in the community of international organizations; it acts as a regulator of their market and not a participant. For this reason, the IADB cannot fall under the commercial activity exception because their role in the market is not commercial in nature.

The plaintiffs also assert that under the waiver exception of FSIA, the IADB implicitly waived its immunity when entering into the contract. The court decided that because there would be a significant disadvantage to the IADB waiving its immunity in this case that Article XI Section 3 should not be construed to waive the Bank’s immunity in this case.

Thus, the court confirms that IADB is protected by the IOIA and the FSIA. As none of the exceptions to these acts apply in this case, the court lacks subject-matter jurisdiction and the IADB’s motion to dismiss is granted. — Emma Byrne, Legal Assistant at Berliner Corcoran & Rowe LLP, Washington, DC.

Taking France.com neither commercial nor expropriating

The United States Court of Appeals for the Fourth Circuit corrected a lower court that believed the immunity issue arising from the Foreign Sovereign Immunities Act should be addressed only after discovery. The case, France.com, Inc. v. The French Republic , involves the domain name FRANCE.COM that the American plaintiff registered and sought to enforce against an infringer in a French court. France intervened, and the court and court of appeals awarded the domain name to France.

The plaintiff sued France in the United States and asserted both commercial activity by France in using the domain promotionally, and expropriation. The decision of March 25, 2021 clarifies that the lower court should have addressed the FSIA promptly. It states that a seizure, if a judgment can be called that, is not a commercial activity but a sovereign act. As to an expropriation, the FSIA requires a violation of international law which is not the case here. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Embassy May Lose Its Building

In TIG Insurance Co. v. Republic of Argentina, the United States Court Appeals for the District of Columbia Circuit ruled on July 30, 2020, that the lower court must look at the totality of circumstances when assessing whether real estate owned by a foreign state is immune from jurisdiction and execution. The plaintiff sought to execute a judgment into such a property in Washington, DC, arguing that it was used commer­ci­al­ly when the embassy put it up for sale. The embassy countered that it was not com­mer­cially used because (1) it held embassy files, and (2) it was removed from the mar­ket before the court ruled on the registration of the judgment in Wa­sh­ing­ton and issued a writ of execution.

The appellate court found that the lower court based its dismissale of the plaintiff's motion on too narrow grounds. It explains the factors in the analysis of the ex­cep­ti­ons of a state from foreign sovereign immunity under the Foreign Sovereign Im­mu­nities Act which range from jurisdictional immunity to execution immunity. After considering the standards proposed by the parties, it sent the case back to the Uni­ted States District Court for the District of Columbia, ordering an assessment of the totality of circumstances. Ultimately, the embassy may lose its property to the creditor. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

FSIA Effect of Joining European Union

In Micula v. Government of Romania, the United States Court of Appeals for the Di­strict of Columbia looked at the arbitration exception in the Foreign Sovereign Im­munities Act in the context of an arbitration agreement signed by an E.U. member state. The member now be­longs to the E.U. but did not when it signed. The E.U. Com­mission joined the matter as an amicus to state that the court lacked jurisdiction over the foreign sovereign under the FSIA. On May 20, 2020, the court held:

A U.S. court lacks jurisdiction over a foreign sovereign unless an exception to so­ve­reign immunity applies. 28 U.S.C. §§1330(a); 1604. As Romania now ag­re­es, the district court properly invoked the exception for actions to enforce ar­bitration awards. Id. § 1605(a)(6). The European Commission questions whe­ther Ro­mania's agreement to arbitrate was nullified by its ascension to the Euro­pe­an Union. But as the district court carefully explained, Romania did not join the EU until after the underlying events here, so the arbitration agree­ment applied. See Micula v. Gov't of Rom., 404 F. Supp. 3d265, 276-80(D.D.C. 2019).
The United States District Court for the District of Columbia had granted a petition of the plaintiff and three affiliated corporations to confirm an arbitration award against the Government of Romania. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

State's Promissory Notes Under the FSIA

Commercial Activity with direct effect is the central argument of the plaintiff in Friedman v. Abu Dhabi who sued a foreign government and a guarantor bank for lobby fees earned 32 years ago. He thought the payment promise made by promissory notes delivered to his U.S. home for work performed in the United States were fraudulent, as the foreign sovereign had argued. Only in 2019 did he learn that he might be able to collect on them.

On May 14, 2020, the United States District Court for the District of Columbia discussed the applicable exceptions under the Foreign Sovereign Immunities Act which would permit it to exercise jurisdiction over the otherwise immune foreign sovereign. It determined the issuance of the promissory notes to constitute commercial activity that private issuers would similarly engage in, even if the underlying work causing the obligation involved lobbying for sovereign interests.

The notes did not cause any direct effect in the United States, however, mostly because they were payable anywhere, without performance required in the United States. Neither the dollar denomination nor the payment demand in the United States would matter, the court concluded. The court also found that an equitable remedy might have been available to the plaintiff but he waited far too long beyond the three-year state of the limitations period. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Ammunition in Employment Disputes Over FSIA

On October 23, 2019, the United States Court of Appeals for the First Circuit in Boston provided plaintiffs and defendants with more ammunication in disputes over employment terms governing local hires at consulates and, possibly, embassies, with its interpretation of the Foreign Sovereign Immunities Act in the matter Merlini v. Canada. In the latest release, a minority opinion argues that the FSIA must be construed by its text, not merely the legislative history. As such, the opinion finds certain restraints of foreign missions incompatible with the FSIA, congressional intent as well as the interests of U.S. missions abroad:

The majority's conclusion that Canada's administration of its own statutory workers' compensation scheme here is not protected by its sovereign immunity leads to the conclusion that our government's similar actions as to employees, foreign or American, of its consulates and embassies will not be granted immunity. … By denying Canada's choice to implement a federal workers' compensation scheme the respect and deference it is entitled to, the consequences of the opinion will likely be that FECA--Congress's choice of comprehensive workers' compensation--will not be given that deference.
-- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.