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Washington, DC, USA      

No Solace Found in Sovereign Immunity

On December 23, 2014, the United States Court of Appeals for the Second Circuit in New York City dumped an ice bucket over Argentina's renewed sovereign immunity claims against efforts to explore its assets in response to various post-judgment discovery actions. In NML Capital, Ltd. v. Republic of Argentina, the court upheld the lower court but closed with this advice on the management of the process:

Although we affirm the district court's order in all respects, we stress that Argentina--like all foreign sovereigns--is entitled to a degree of grace and comity. Cf. Republic of Austria v. Altmann, 541 U.S. 677, 689 (2004). These considerations are of particular weight when it comes to a foreign sovereign’s diplomatic and military affairs. Accordingly, we urge the district court to closely consider Argentina’s sovereign interests in managing discovery, and to prioritize discovery of those documents that are unlikely to prove invasive of sovereign dignity.
Despite the adverse outcome for Argentina, the reasoning of the appellate court provides a useful introduction into the various immunity issues arising in the post-judgment discovery process. Argentina had raised objections based on the Foreign Sovereign Immunities Act as well the two Vienna conventions on diplomatic and consular immunity of 1961 and 1963 and on international law. The court addressed these claims from several perspectives, including information held by third parties affiliated with, or independent of, Argentina, military assets and inviolable documents. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

IOIA Immunity Parallel to FSIA

Just as sovereign states enjoy immunity through the Foreign Sovereign Immunities Act, so do certain international organizations of which the United States is a member. Under the International Organizations Immunity Act, codified in 22 U.S.C. §288, immunity and privileges are provided to public international organizations in which the U.S. participates under a treaty or an Act of Congress. In addition to other exceptions to the FSIA, if a sovereign state expressly waives its immunity in contracts or other in another manner, a district court can establish jurisdiction. An international organization's waiver of immunity would also warrant jurisdiction in a U.S. court.

Relying upon this exception, the plaintiff in Nyambal v. International Monetary Fund filed suit against the IMF for assault and false imprisonment after an incident at the IMF's Bank-Fund Staff Credit Union. The plaintiff had been recently terminated after alleging corruption within the IMF.

In its decision of November 25, 2014, the U.S. Court of Appeals for the District of Columbia Circuit reversed the district court's granting of jurisdictional discovery. The granting of discovery against an immune defendant allowed the Court collateral review of the case. Despite the plaintiff’s request for the Court to revisit and narrow the scope of the IOIA immunity in Atkinson v. Inter-American Development Bank, the Court refused, citing Atkinson's explicit ruling that international organizations share the same immunity as foreign sovereigns, unless it is waived.

In its amended complaint, the plaintiff relied upon a subclause of the IMF's Articles of Agreement with the Credit Union, claiming that it purportedly waived the IMF's immunity. The Court begged to differ, noting that discovery in a case with an immune party can be called only when specific facts require verification; the IMF's discovery production of the Articles of Agreement demonstrated the explicit non-waiver of immunity -- and the inapplicability of the subclause.

The Court also rejected the plaintiff's alternative argument that the contract between the IMF and its Credit Union created a framework for the IMF to waive its immunity. Just as with the FSIA, an examination of IMF's immunity must not only demonstrate an explicit and express waiver, but the plaintiff must allege specific facts as to the waiver of immunity -- none of which were fulfilled in this case. -- Camila Ryder, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

TVPA, ATS and Comity: No Case in the U.S.

An attack by the Columbian air force on a village led to a complaint in California, pitting villagers against two U.S. companies, but the United States Court of Appeals for the Ninth Circuit in San Francisco rejected the case with an 88-page long set of opinions. In Mujica v. Airscan Inc., it examined claims under the Torture Victims Protection Act, the Alien Tort Statute and comity under Californian law. On November 12, 2014, the court published its decision and a dissenting opinion.

The TVPA claim fails under Mohamad v. Palestinian Authority because the defendants are corporations. The ATS claim fails under Kiobel v. Royal Dutch Petroleum Co.. Finally, the State Department's statement of interest sways the comity decision against proceedings in the United States. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Then corrupt, now clean: Damages?

According to the U.S. Court of Appeals for the Second Circuit, a sovereign entity cannot separate itself from its past government or leaders, even if the government committed illegal acts or violated international law.

In its decision on September 18, 2014, the Court affirmed the district court ruling in Republic of Iraq v. ABB AG that Iraq was equally at fault as the defendants in the alleged conspiracy to corrupt a United Nations humanitarian program created during the Hussein Regime.

Iraq had sought recovery from various business entities under the Racketeer Influenced and Corrupt Organizations Act, 18 USC §1961, the Foreign Corrupt Practices Act, 15 USC §78, and also state common law. The Court determined that RICO was inapplicable to extraterritorial actions, and that the FCPA does not provide private parties right of action.

Iraq's complaint stated that Hussein and Iraqi ministry officials orchestrated the exploitation of funds from the UN Oil-for-Food Program that were meant to provide humanitarian aid to the Iraqi people. It posited that certain corporations conspired with the Regime, while others were coerced by Hussein. Despite Iraq's argument that the Hussein-led government was illegitimate and that its actions were detrimental to the Iraqi people, the Court determined that the actions of a government are representative of its sovereign entity. Although the district court suggested the obvious distinctions between state and government, a sovereign cannot skirt responsibility for the acts committed by past, albeit corrupt, governmental leaders.

For a prior report on the case in German, see Kochinke, Erst korrupt, dann so sauber: Irak, Schadensersatz für vormals bestechlichen Staat?, German American Law Journal--US-Recht auf Deutsch, Sept. 19, 2014. -- Camila Ryder, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

Enforcement Non-Immunity Under FSIA

Fresh off the United States Supreme Court decision in Republic of Argentina v. NML Capital, Ltd., see No Discovery Immunity Under FSIA, the United States Court of Appeals for the Second Circuit in New York City held on September 9, 2014 that a foreign sovereign state's assets around the world are not immune from discovery, even if a majority of the assets in question are considered outside of the commercial activity exception to the Foreign Sovereign Immunities Act, Export-Import Bank of the Republic of China v. Grenada.

In the Southern District Court of New York, Export-Import Bank had sought a $21 million judgment in defaulted loans made to Grenada, based on Grenada's waiver of immunity in loan documents between the two entities. Any property of Grenada used for commercial activity within the U.S. is no longer immune from attachment, according to FSIA. Yet even a sovereign state's waiver of immunity does not always result in a favorable judgment for the other party.

The Second Circuit affirmed the District Court's decision that the two sets of funds in question were immune. Following Argentina v. NML, though, the FSIA does not afford Grenada immunity from discovery of its assets. The Court questions a subset of funds that passed through the International Air Transport Association, which has operations in the United States. Export-Import Bank can now further its efforts in the district court to determine whether any Grenadian property face attachment. If funds are used at any point within the U.S., Export-Import Bank could possibly execute a judgment in their favor.

While both Argentina and Grenada waived immunity in their respective contracts, Argentina took legislative action to avoid payment to particular creditors, while Grenada has defaulted on payments to many of their bondholders. The Second Circuit's ruling allows the District Court jurisdiction to search all foreign assets of Grenada -- an act that could affect foreign relations with the United States. While the Supreme Court's opinion in Argentina suggested that possibility, Justice Antonin Scalia pointed to other foreign statutes that could hinder a lower court's granting of discovery. -- Camila Ryder, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

German State Immune in Art Dispute

In Art Law: S.D.N.Y on Picasso’s Madame Soler and Bavaria's Sovereign Immunity -- Update, the German Dispute Resolution Journal explained and discussed, in English, a June 27, 2014 ruling in the United States District Court for the Southern District of New York. The July 28, 2014 contribution by Michael Schulz of Frankfurt University provides links and analysis, in particular of the immunity of the Free State of Bavaria under the Foreign Sovereign Immunities Act. The facts in Schoeps v. Freistaat Bayern are distinguishable from arts cases involving expropriation because the defendant state purchased the art at issue and did not expropriate it. -- Clemens Kochinke, partner, Berliner, Corcoran & Rowe LLP, Washington, DC.

No Discovery Immunity Under FSIA

Foreign nations enjoy some immunities under the Foreign Sovereign Immunities Act but there are limitations. On June 16, 2014, the Supreme Court of the United States in Washington clarified that discovery immunity for global assets of a foreign state does not exist in the context of the execution of a judgment against the state: Republic of Argentina v. NML Capital, Ltd..

The case involved bonds which by their nature are contracts and, in this case, included immunity waivers which permitted the bondholder to litigate. While the FSIA provides immunity of a foreign state's assets in the United States, discovery may be had in American courts to identify assets held globally into which execution may be permitted under foreign rules, the court held.

The issue for lawyers advising foreign sovereign immunities in contract matters, then, becomes one of drafting the jurisdictional, choice of law as well a mediation and arbitration provisions to limit discovery in ways that are compatible with the new decision. -- Clemens Kochinke, partner, Berliner, Corcoran & Rowe LLP, Washington, DC.

International Comity, Immunity and Forum Non Conveniens

Three hot topics of international private law in relation to U.S. litigation against a foreign government lead to a useful decision in the matter GDG Acquisitions LLC v. Government of Belize decided by the United States Court of Appeals for the Eleventh Circuit on April 22, 2014.

The dispute involves lease payments owed by the defendant government under an agreement that provided for litigation in Florida. The defendant claimed immunity but lost because of a waiver in the agreement. Its motion for dismissal on forum non convenience grounds succeeded in the district court, but failed on appeal because the lower court had not considered the precedent set by the U.S. Supreme Court in Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Texas on December 3, 2013: If the parties agree on a forum, their decision becomes an important factor in balancing the competing interests.

The decision mostly relies on a probably influential discussion by the court of the principle of international comity. The court explores both prospective international comity, and retrospective international comity which applies to past conduct, for example a decision rendered by a foreign court submitted for enforcement to a court in the United States. The applicable principle in this case is prospective international comity, which is rare.

Examples are the German foundation cases involving mass reparations, as in Ungaro-Benages v. Dresdner Bank AG, 379 F.3d 1227, 1238 (11th Cir. 2004), and the Indian Bhopal mass disaster cases. In both scenarios, the foreign nations had established overwhelming interests in the resolution of these matters under their legal systems and had taken appropriate action to implement such policies.

The mere interest of a foreign government to have simple lease payments adjudicated in its own courts do not rise to a similar level, the Atlanta court determined. -- Clemens Kochinke, partner, Berliner, Corcoran & Rowe LLP, Washington, DC.

Strict Standards for Service of Process

In its April 11, 2014 dismissal of a complaint against an embassy, the United States District Court for the District of Columbia reiterates the requirement of strict adherence to the service of process rules for service on an embassy under section 1608(a) of the Foreign Sovereign Immunities Act. The matter Barot v. Embassy of Zambia is an instructive example of the application of the law and the futility of almost correct attempts made in good faith to effectuate service. -- Clemens Kochinke, partner, Berliner, Corcoran & Rowe LLP, Washington, DC.

Treating Treaties Like Contracts

An arbitration clause in a bilateral investment treaty is to be read, according to the Supreme Court of the United States in the matter BG Group plc v. Republic of Argentina, decided on March 5, 2014, like a contract for purposes of determining that a dispute belongs to the arbitral tribunal. Argentina had challenged arbitral jurisdiction under the treaty between the United States and herself on the basis that the arbitration clause required a domestic proceeding before the courts in that country.

The arbitration tribunal agreed that the condition existed, but also that Argentina had precluded an meaningful review by changing its laws. The Supreme Court held that this determination was properly within the domain of the tribunal as a threshold matter.

The tribunal's conclusion that Argentina's actions made it absurd and unreasonable to read [the treaty] to require an investor in BG Group's position to bring its grievance in a domestic court deserves deference, the court reasoned in its 45-page ruling. Its treatment of treaties builds on that developed and continually strenghthened in recent years for domestic contracts. -- Clemens Kochinke, partner, Berliner, Corcoran & Rowe LLP, Washington, DC.