Source: https://fsialaw.com/tag/commercial-activity-exception/
Timestamp: 2020-06-06 18:26:19
Document Index: 750439710

Matched Legal Cases: ['§ 1605', '§ 1605', '§ 1605', '§ 1605', '§ 1605', '§ 1603']

Last week, I examined the problems with the main attribution argument advanced by OBB in the Supreme Court. Now it is time to analyze the merits of one of the central commercial activity arguments proffered by Sachs.
The first clause of the commercial activity exception requires that a plaintiff’s action be “based upon a commercial activity carried on in the United States by the foreign state.” 28 U.S.C. § 1605(a)(2). As a result, to establish jurisdiction under section 1605(a)(2)’s first clause, Sachs must show that her action – which arises from a railway accident in Innsbruck, Austria – is based upon a commercial activity carried on in the United States by OBB.
Finally, Sachs’s argument lacks merit because OBB “carries on” its “overall commercial railway enterprise” in Austria – and not, as the first clause of the commercial activity exception requires, “in the United States.” 28 U.S.C. § 1605(a)(2). I understand that Sachs relies on section 1603(e), which defines a “commercial activity carried on in the United States by a foreign state” to mean “commercial activity carried on by such state and having substantial contact with the United States.” 28 U.S.C. § 1605(e). However, Sachs cannot have it both ways. If the commercial activity is deemed to be the ticket sale by the travel agency in Massachusetts (and that sale is attributable to OBB), then it may be true that the sale constitutes commercial activity carried on in the United States by OBB. See Sachs v. Republic of Austria, 737 F.3d 584, 598-99 (9th Cir. 2013) (en banc). Yet, for reasons I will explain in a subsequent post, Sachs’s lawsuit is not based upon the ticket sale. And even if a plaintiff were not precluded under FSIA precedent from relying on a foreign state’s general commercial activity, OBB’s operation of its “overall commercial railway enterprise” is carried on in Austria; OBB is Austria’s national railroad company, and it appears undisputed that OBB does not have offices, employees or bank accounts in the United States.
On its face, this analysis may seem hyper-technical and unfair to Sachs. The opposite is true. It is Sachs who is trying to fit a square peg into a round hole. Sachs’s claims, after all, arise from an alleged tortious act or omission occurring in Austria in connection with a commercial activity overseas. Sachs should therefore be asserting jurisdiction under the third clause of the commercial activity exception. Cf. 28 U.S.C. § 1605(a)(2) (third clause stating that a foreign state is not immune in any case 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”). Sachs is not doing so, presumably because she cannot demonstrate the requisite “direct effect in the United States” under existing law. See, e.g., Zernicek v. Brown & Root, Inc., 826 F.2d 415, 418 (5th Cir.1987) (“consequential damages [from personal injury tort abroad] are insufficient to constitute a ‘direct effect in the United States’ for purposes of abrogating sovereign immunity”). Sachs also cannot assert jurisdiction under the FSIA’s tort exception for her slip-and-fall case, because the alleged tortious conduct occurred overseas. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 441 (1989) (stating that the FSIA’s tort exception, 28 U.S.C. § 1605(a)(5), “covers only torts occurring within the territorial jurisdiction of the United States”). As a result, to get around the requirements of the FSIA’s other (and more applicable) exceptions to sovereign immunity, Sachs is forced to proceed under the first clause of the commercial activity exception. However, reliance on that clause does not work — at least not if Sachs’ argument is based on OBB’s general commercial activity of operating a national railway in Austria.
There is, in short, no statutory support for OBB’s approach. Nothing in the FSIA indicates that a court first needs to examine section 1603(b) to determine whether the defendant (like OBB) is an agency or instrumentality of a foreign state, and then re-examine section 1603(b) to determine whether the putative agent is an “agency or instrumentality” of the “agency or instrumentality.” No court has ever adopted that type of circular analysis under section 1603, and for good reason: it makes no sense.
(3) OBB’s agency or instrumentality argument fails for another reason: it would render far too many entities incapable of being deemed an “agent” of a foreign state, and thereby deeply undermine the FSIA’s commercial activity exception.
Consider the following scenario: through individual intermediaries, a foreign state creates a separate corporation in New York State. The foreign state exercises extensive day-to-day control over the corporation, which engages in a series of commercial transactions in the United States. After the corporation’s conduct leads to multi-million dollar losses for a number of United States citizens, the individuals damaged file suit against the corporation and the foreign state. Their main jurisdictional argument under the FSIA is that the corporation was an agent of the foreign state through the latter’s exercise of day-to-day control, and that the corporation’s conduct is attributable to the foreign state for jurisdictional purposes.
Under OBB’s (mis)interpretation of section 1603(b), the plaintiffs in this scenario could not proceed against the foreign state itself because the corporation does not meet the definition of an agency or instrumentality under the FSIA. The corporation was created in New York, not in the foreign state, and therefore could never (under OBB’s theory) be an agent of a foreign state. See 28 U.S.C. § 1603(b)(3) (stating that an “agency or instrumentality of a foreign state” means any entity which, inter alia, “is neither a citizen of a State of the United States as defined in section 1332(c) and (e) of this title, nor created under the laws of any third country”). The same would hold true if the foreign state created the entity under the law of a third country, such as the law of the Bahamas or Panama. In fact, OBB’s formulation would provide a blueprint to foreign states about how to engage in commercial activity in the United States without risking the possibility of litigation: if the foreign state engages in commercial activity through a corporation created under the law of the United States or a third country, it will never be held to engage in commercial activity in the United States — even if the foreign state exercises day-to-day control over the corporation created, and effectively engages in extensive commercial activity in the United States through the nominally separate corporation.