Source: https://lettersblogatory.com/2017/05/03/ira-ryk-lakhman-on-the-venezuela-v-helmerich-payne-case/
Timestamp: 2019-04-21 12:40:05+00:00

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Today new Letters Blogatory contributor Ira Ryk-Lakhman brings us a post on the Supreme Court’s recent decision in Venezuela v. Helmerich & Payne. Ira is a Ph.D. candidate and teaching fellow at University College London, and an associate with Tadmor Levy & Co. Welcome, Ira!
Yesterday, May 1, 2017, the US Supreme Court delivered the decision in Bolivarian Republic of Venezuela v. Helmerich & Payne International. The decision focused upon the threshold a party must establish for the purposes of the ‘expropriation exception’ under § 1605(a)(3) of the Foreign Sovereign Immunities Act (FSIA).
As previously reported, the dispute grows out of Venezuela’s nationalization of oil and gas infrastructure and property in 2010. The oil-drilling rigs of Helmerich & Payne de Venezuela, a Venezuelan corporation, which was wholly-owned by Helmerich & Payne International, a US corporation, were among the expropriated property (H&P-V and H&P, respectively). Both corporations filed a claim against Venezuela under the FSIA in the District Court for the District of Columbia.
Under the FSIA, foreign governments cannot be sued in US courts. However, the FSIA allows for some exceptions and denies foreign sovereign immunity “in any case … in which rights in property taken in violation of international law are in issue” (28 U.S.C. § 1605(a)(3)).
Whether, for purposes of determining the applicability of the FSIA’s commercial activity exception, plaintiffs have sufficiently alleged a “direct effect” in the United States within the meaning of that provision.
The District Court resolved the first question in Venezuela’s favor but sided with H&P and H&P-V on the other three. All four issues were appealed to the DC Circuit Court of Appeals.
On appeal, the parties mainly reiterated their arguments and focused on the applicability of the expropriation exception. Venezuela maintained that the expropriation exception is inapplicable here for two reasons. First, as a Venezuelan national, H&P-V may not claim a taking in violation of international law; and, second, that under generally applicable corporate law principles, H&P, a US parent company, has no ‘rights in property,’ which belong to its subsidiary, and thus it lacks standing. H&P and H&P-V argued, inter alia, that Venezuela has unreasonably discriminated against it on the basis of its sole shareholder’s (American) nationality, thus implicating an exception to the domestic takings rule; and, that ownership in shares meets the requirement of ‘rights in property,’ in the sense of the FSIA exception.
The Court of Appeals found that the expropriation exception applies. Under the Circuit’s standard for surviving a motion to dismiss in a FSIA case, jurisdictional dismissal is allowed only where the federal claim is wholly insubstantial and frivolous. Applying this standard, the DC Circuit held that H&P’s and H&P-V’s claim against Venezuela is neither ‘wholly insubstantial’ nor ‘frivolous,’ hence the claim may proceed.
Venezuela petitioned the US Supreme Court to review the decision of the Court of Appeals on several grounds.
Following the invitation of the Supreme Court, the Solicitor General recommended that the Court grants cert to hear only one aspect of Venezuela’s petition, since the courts of appeals were divided on that point, and allowing that conflict to persist might facilitate forum shopping. The Supreme Court adopted this recommendation and focused on the question whether a court lacks jurisdiction under § 1605(a)(3) only when the plaintiff’s claim that it has placed in issue “rights in property taken in violation of international law” is frivolous or completely devoid of merit.
Apart from the ‘statutory’ question, during the oral arguments the bench was troubled with two interrelated policy consideration. First, and following the brief of the Solicitor General (pp 21-22), the Court was concerned with the effect of its decision on the foreign relations of the US. More pointedly, the justices worried that setting the bar too low so as to allow US companies to easily bring expropriation-related claims against foreign states would lead to a reciprocal low bar in foreign courts, and thus allow companies to easily bring claims against the US.
At the same time, the Court was mindful that adopting a narrow reading of the exceptions to immunity and setting a high standard with respect to ‘rights in property’ and ‘violations of international law’ would necessitate an in-depth factual examination at the preliminary stage of jurisdiction, instead of reserving such factual determinations for the merits. Both concerns were addressed, and perhaps eased, in the recent decision.
Justice Stephen Breyer, who delivered the opinion of the Court (8-0; Justice Gorsuch did not participate), vacated the decision of the Court of Appeals and deemed the low standard of the nonfrivolous-argument inconsistent with the FSIA.
The question here concerns the phrase “case … in which rights in property taken in violation of international law are in issue.” Does this phrase mean that, to defeat sovereign immunity, a party need only make a “nonfrivolous” argument that the case falls within the scope of the exception?
[No] The relevant factual allegations must make out a legally valid claim that a certain kind of right is at issue (property rights) and that the relevant property was taken in a certain way (in violation of international law).
The Court’s decision rests on several justifications, namely, the language and structure of the Statute, the legislative history and the object and purpose of the FSIA, and policy considerations.
Therefore, to successfully invoke the expropriation exception, both the property right and its violation under international law ought to be established “as near to the outset of the case as is reasonably possible.” In this respect, the Court addressed one of its main concerns on the interrelationship between the preliminary stage and the merits.
Further, the Court “found nothing in the history of the statute that suggests Congress intended a radical departure from these basic principles” of restrictive immunity. “To the contrary,” the Court stressed that the views of the US State Department on sovereign immunity and the position of the US before international bodies (for instance, the UN General Assembly) support its narrow interpretation of the expropriation exception.
Finally, the Court supported its decision by reference to broader policy considerations. In this framework, the Court noted that its interpretation of the expropriation exception provides clarity, which “is doubly important here where foreign nations and foreign lawyers must understand our law.” This clear interpretation, according to the Court, simplifies the legal standard and thus saves judicial time and minimizes the duration of litigation.
Conversely, the “nonfrivolous-argument” interpretation would, in many cases, embroil the foreign sovereign in an American lawsuit for an increased period of time. It would substitute for a more workable standard (“violation of international law”) a standard limited only by the bounds of a lawyer’s (nonfrivolous) imagination. It would create increased complexity in respect to a jurisdictional matter where clarity is particularly important.
The Court then remanded the case to the lower courts “for further proceedings consistent with this opinion.” This means that to proceed with their claim against Venezuela, H&P and its subsidiary will now be required to demonstrate that they meet a significantly higher standard.
By setting out a more stringent standard this recent decision potentially reduces the prospects for successfully resorting to the expropriation exception under § 1605(a)(3). Thus arguably, the decision conforms to the Court’s aims and protects the general premise that the sovereign is immune from suit.
However, it remains to be seen whether the Court was right on the point of policy consideration and the treatment of US nationals abroad. Venezuela recently nationalized the property of several foreign investors, including US companies. Notable in this regard is the seizure of GM’s plant, an American multinational corporation headquartered in Detroit. The decision of the Supreme Court means that should GM (or other US entities) seek to sue Venezuela in US courts, they will be required to meet a new and higher standard, and will perhaps struggle to litigate in US courts.

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