Expropriation Exception to the FSIA
On December 7, 2016, the United States District Court for the District of Columbia found in favor of the defendants in Schubarth v. Federal Republic of Germany & BVVG, citing a lack of subject-matter jurisdiction under the Foreign Sovereign Immunities Act. In its memorandum opinion, the Court stated that the plaintiff had not pled facts establishing the requirements of the expropriation exception to the FSIA Immunity and set forth its analysis to the expropriation exception, 28 U.S.C. § 1605(a)(3).
In 1991, the plaintiff applied to a German state agency for restitution of inherited property that had been expropriated by the East German government in 1945. Although the plaintiff had received an award for the estate from the agency, she considered it to be only a fraction of the estate's worth. She then claimed entitlement under the German-American 1956 Treaty of Friendship, Commerce and Navigation to the full, fair market value of the property as of the date of expropriation. However, without reference to the Treaty, the award of € 35,279 was finalized by the state agency in November 2014.
Following the finalization of the award, the plaintiff sued the Federal Republic of Germany and BVVG Bodenverwertungs- und -verwaltungs GmbH, its state-owned entity responsible for expropriated properties located in East Germany. The plaintiff asserted that Germany and BVVG had failed their obligations under the FCN Treaty by refusing her the full compensation of her estate.
In order to proceed with the suit, the plaintiff needed to prove jurisdictional grounds via the FSIA's expropriation exception, 28 U.S.C. § 1605(a)(3), which applies to a case
in which rights in property taken in violation of international law are in issue and [either] that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or  that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in commercial activity in the United States. Id. at 3-4To prove that BVVG was engaged in U.S. commercial activity, which is defined by the FSIA as either a regular course of commercial conduct or a particular commercial transaction or act, the plaintiff alleged that the existence of BVVG's predecessor's office in New York in the early 1990s and BVVG's online marketing efforts were indicators thereof. However, these allegations did not meet the substantial contact requirement of clause  of 28 U.S.C. § 1605(a)(3), as they did not plausibly show any direct commercial activity linked to the United States; the offices that existed two decades prior to the filing of the initial complaint did not reveal any present-day commercial engagement, and the online marketing efforts in the English language appealed to the international community generally, not specifically to the United States. Thus, the Court concluded that the FSIA's expropriation exception to immunity is unavailable and that it does not have subject matter jurisdiction over the plaintiff's claims. The Court thereby dismissed the case. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.
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Immunity of Minister of Defense in U.S. Courts
On October 13, 2016 the United States District Court for the Central District of California ruled in favor of former Israeli Minister of Defense Ehud Barak in the matter Doğan v. Barak. Plaintiffs Ahmet and Himet Doğan, both Turkish nationals, filed suit against Mr. Barak on behalf of their son Furkan Doğan, who was killed during the Marmara Raid by Israeli Defense Force personnel in May 2010. In an effort to halt the Gaza Freedom Flotilla's attempt to run a blockade of Gaza, IDF officials raided the vessel and killed nine people including Furkan Doğan.
The Doğan party allege that Barak's direct authorization of the use of force on the day of the raid was in violation of the Alien Tort Claims Act, 28 U.S.C. § 1350, the Torture Victims Protection Act, 28 U.S.C. § 1350, and the Anti-Terrorism Act 18 U.S.C. § 2333. Plaintiffs believe that the killing of their son constitutes torture and extra-judicial killing in violation of federal and international law. Because it was Mr. Barak who ordered the dispatch of IDF troops to halt the flotilla raid, plaintiffs argue that Israel's former Minister of Defense is personally responsible for the death of their son. With the support of the United States government, Mr. Barak moved to dismiss the accusations and filed a suggestion of immunity.
Despite the claims of the Doğan party, Judge Otis D. Wright II upheld the U.S. and Israeli recommendation of immunity and dismissed the plaintiff complaints. Relying on precedent surrounding the separation of powers, the Court explains that under the doctrine of foreign official immunity and in the event that the State Department makes a suggestion of immunity, courts consistently defer to the executive and often dismiss the case because of the Executive's dominant role in the area of foreign policy. Under precedent, a party may move to dismiss an action for a lack of subject matter jurisdiction. Moreover, Judge Wright affirms that Barak's actions are irrefutably official public acts via the state of Israel that entitle him to immunity. -- Rachel Weinstein, Legal Assistant, Berliner Corcoran & Rowe LLP Washington, D.C.
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Implied State Waiver of Immunity
The defendant state in Stati v. Republic of Kazakhstan, a D.C. case to enforce a Swedish arbitral award under the Energy Charter Treaty, argued that it did not consent to arbitration by implication under the Foreign Sovereign Immunities Act. It took the position that the Treaty's cooling-off period had not been observed. Therefore, the United States District Court for the District of Columbia would need to respect its sovereign immunity and lack subject-matter jurisdiction.
Among numerous elements of the Federal Arbitration Act, which codifies the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of Jun3 10, 1958, and the FSIA, the court analyzed the waiver by implication element in 28 USC § 1605(a)(1). On August 5, 2016, it issed a 22-page opinion in which it found sufficient bases under the FAA and the FSIA to exercize its jurisdiction. In the end, it suspended the matter because of an ongoing petition to set aside the award in the Svea Court of Appeal. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.
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Embassies and Banking: No End to Concerns
As many administrators at embassies and consulates know, banks are de-risking -- eliminating risk they perceive in international transactions. The prestige of servicing mission accounts is outweighted, many bankers believe, by the risk of mostly corruption-related exposures, known as Politically Exposed Persons. A Washington, DC, bank that was known as the go-to bank for embassies had to plead guilty for its representation of two country accounts.
The work my partner Bruce Zagaris, an international financial compliance expert, has been performing for various ambassadors and countries relates to de-risking. Today, the World Bank is having a special meeting with small countries because United States, Canadian and European banks are closing many of their correspondent banks with indigenous banks in the Caribbean.
Simultaneously, French banks are considering de-risking some of their U.S. correspondent accounts because of the disproportionate fines and convictions resulting from sanctions violations.
Hence, banks and missions are faced with a very fluid situation, and most banks are shedding risks, in part because on May 6, 2016, FinCEN issued new Customer Due Diligence final rules and in Sept. 2015 the Yates memo requires prosecutors and corporations to focus on criminal liability of executives. In addition, national and international politics move towards more criminal liability for banks and their executives, as also reflected in stump speeches of the leading Presidential candidates, or movies, such as Money Monster. Therefore, banks are having to develop more rigorous anti-money-laundering due diligence and, when they do, simultaneously re-evaluate the risk of new and current clients. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.
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Central Bank Funds Subject to Collection in U.S. Courts
The United States Supreme Court ruled on April 20, 2016 that the American legislative body has the constitutional authority to change the law in the midst of post-litigation proceedings to ensure that a winning party can collect from a foreign nation's central bank even if the law did not permit such collection during the litigation. The decision in Bank Markazi v. Peterson is read as permitting Congress to pick a winner:
Article III of the Constitution establishes an independent Judiciary with the province and duty … to say what the law is in particular cases and controversies. Marbury v. Madison, 1 Cranch 137, 177. Necessarily, that endowment of authority blocks Congress from requir[ing] federal courts to exercise the judicial power in a manner that Article III forbids. Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218. Although Article III bars Congress from telling a court how to apply pre-existing law to particular circumstances, Robertson v. Seattle Audubon Soc., 503 U.S. 429, 438–439, Congress may amend a law and make the amended prescription retroactively applicable in pending cases, Landgraf v. USI Film Products, 511 U.S. 244, 267–268; United States v. Schooner Peggy, 1 Cranch 103, 110.The Iran Threat Reduction and Syria Human Rights Act of 2012 "makes a designated set of assets available to satisfy the judgments underlying a consolidated enforcement proceeding which the statute identifies by the District Court’s docket number. 22 U.S.C. §8772," the court explained when it considered the new statute constitutional. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.
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Exceptions to the Foreign Sovereign Immunities Act
On March 14, 2016, the United States District Court for the District of Columbia granted in part and denied in part the defendants' Renewed Motion to Dismiss in the matter of De Csepel v. Republic of Hungary. The Court found that it did indeed have subject matter jurisdiction under the expropriation exception to the Foreign Sovereign Immunities Act, but that the claim of jurisdiction under the statute's commercial activity exception does not apply.
The case involves forty-four paintings that were to be inherited by the heirs of the Baron Mór Lipót Herzog, a Hungarian Jew and the original collector and owner of the Herzog Collection. During World War II, much of the collection was seized by the Hungarian government and its Nazi collaborators. The defendants - in particular, Hungarian museums - are currently in possession of forty of these paintings, falling into four categories: (1) art acquired by defendants after the Holocaust; (2) art confiscated during the Holocaust that was never returned to plaintiffs; (3) art confiscated during the Holocaust that was returned to plaintiffs, and then subsequently seized back by criminal forfeiture; and finally, (4) art confiscated during the Holocaust that was returned to plaintiffs, and then subsequently deposited with the museums by the 1950 bailment agreement. Thus, plaintiffs allege that defendants breached post-WWII bailment agreements when defendants refused to return the pieces to the plaintiffs in 2008.
In turn, defendants filed their third motion to dismiss in 2015, claiming that neither the FSIA's commercial activity exception nor its expropriation exception applies to plaintiffs' claim. After examination, the Court found that it has subject matter jurisdiction under the expropriation exception to the FSIA, but that plaintiffs cannot show a factual basis for their claim of jurisdiction under the statute's commercial activity exception.
The commercial activity exception may be applied in situations where the action is based upon commercial activity within the United States, performed in the United States in connection with commercial activity of the foreign state elsewhere, or outside the United States in connection with commercial activity elsewhere that causes a direct effect on the United States. Using the 1950 bailment agreements as evidence, the Court found that the evidence presented by the plaintiff to demonstrate commercial activities that affected the United States in some way is not enough for the commercial activity exception to apply. The Court had initially ruled on an earlier Motion to Dismiss that the bailment agreements inferred a direct effect on the United States; however, the Court now writes: The 1950 bailment agreement contained no hints regarding Hungary's future obligations. But if there was an unspoken understanding at all regarding performance, it is decidedly implausible that it obligated Hungary to return art to the United States. Given legal restrictions on exporting art from the country and the pattern of conduct between Hungary and the Herzog family… there is no basis to conclude that the either party understood the bailment as implying such a performance requirement. In this case, an inference was not enough to prove an effect.
Meanwhile, the expropriation exception of the FSIA applies in any case where rights in property taken in violation of international law are in issue. Citing the recent decision in Simon v. Hungary, the Court concluded, among other things, that because the forty-two paintings that were seized during World War II were taken in violation of international law due to the genocidal nature of the Holocaust, the Court does have subject-matter jurisdiction over the case. In reference to the eventual return of the artwork years after the conclusion of WWII, the Court states: It is puzzling to suggest that artwork confiscated during the Holocaust as part of a campaign of genocide loses its status as property taken in violation of international law because it is eventually released to its owner after years of deprivation. Therefore, while the expropriation exception to the FSIA does apply, the commercial activity exception simply does not. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.
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Some do, others don't: Workers Comp
Self-insurance, statutory workers compensation, foreign sovereign immunity and the widely recognized principle of internal organization of missions conspire to create the setting of an interesting case in Massachusetts: Ted Folkman, Case to Watch: Merlini v. Consulate General of Canada. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.
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Non-Suit in Development Assistance
Unsurprisingly, the United States District Court for the District of Columbia dismissed a lawsuit against an international organization under the International Organizations Immunities Act, the counterpart to the Foreign Sovereign Immunities Act for states, when Indians sought compensation for various damages allegedly resulting from the development assistance granted for a power station in their region. On March 24, 2016, the court filed a 13-page opinion in Budha Ismail Jam v. International Finance Corporation, which outlines the basic concepts of the immunities protecting an arm of the World Bank in Washington, DC. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.
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Forum Non Conveniens and the Foreign Sovereign Immunities Act
On January 22, 2016, the United States Court of Appeals for the Second Circuit in New York upheld the decision of the lower court in the matter of Bahgat v. Arab Republic of Egypt. The plaintiffs -- Dr. Ahmed Baghat, his three children, and his company, Global One Limited -- as well as the defendants -- the Arab Republic of Egypt and the National Bank of Egypt -- are all Egyptian parties. Therefore, in the initial judgment of the United States District Court for the Southern District of New York, the district court dismissed the suit brought by the plaintiffs on the grounds that the defendants were protected by the Foreign Sovereign Immunities Act. An alternative ruling concluded that the suit should be dismissed under the doctrine of forum non conveniens.
A forum non conveniens ruling is made when a case is better suited to be heard in a different court, or forum. The court of appeals affirmed the forum non conveniens decision and concluded that the case should be heard in an Egyptian forum.
The appellate court's decision to affirm the judgment was based upon several factors. To begin, a district court's decision to dismiss a case under forum non conveniens is made using a three-step analysis:
At step one, a court determines the degree of deference properly accorded the plaintiff's choice of forum. At step two, it considers whether the alternative forum proposed by the defendants is adequate to adjudicate the parties' dispute. Finally, at step three, a court balances the private and public interests implicated in the choice of forum.
Thus, owing to the fastidiousness of the aforementioned three-step analysis, the court of appeals gives substantial deference to a district court's decision to dismiss a case for forum non conveniens. The court writes, [w]e will only reverse if the trial court has 'clearly abused its discretion.'
In this matter, the court compared potential abuses of discretion to the three-step analysis described above. Because the majority of the plaintiffs currently reside in Egypt, the political unrest in Europe had no potential damaging effects on the dispute, and because all the relevant information regarding the case is located in Egypt and would thus require substantial knowledge of Egyptian law, the court of appeals determined that the suit is, indeed, better suited for an Egyptian forum rather than a United States court. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.
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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.
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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.
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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.
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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.
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