Opinion ID: 705
Heading Depth: 2
Heading Rank: 2

Heading: FSIA's Commercial Activity Exception

Text: FSIA's commercial activity exceptionthe only FSIA exception that Anglo-Iberia invokesabrogates sovereign immunity in cases in which the action is based upon [1] a commercial activity carried on in the United States by the foreign state; or upon [2] an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon [3] 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. 28 U.S.C. § 1605(a)(2). A commercial activity is defined under the FSIA as either a regular course of commercial conduct or a particular commercial transaction or act. 28 U.S.C. § 1603(d). The commercial character of a defendant's conduct, transaction, or act is determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose. Id. Because Anglo-Iberia does not argue that the first clause of the commercial activity exception applies, cf. Anglo-Iberia, 2008 WL 190364, at  n. 6 (rejecting Anglo-Iberia's arguments under the first clause of the exception), the issue for this appeal is whether Anglo-Iberia has shown that Jamsostek and Indonesia are subject to federal court jurisdiction under either the second or third clauses of the commercial activity exception. As an initial matter, we note that under both the second and third clauses of the commercial activity exception, Anglo-Iberia must show that its negligent supervision claim is grounded upon an act in connection with the commercial activity of Jamsostek and Indonesia elsewhere. See 28 U.S.C. § 1605(a)(2). [3] Thus, should Anglo-Iberia fail to establish that its claim is connected to Jamsostek and Indonesia's commercial activity, if any, in Indonesia, Anglo-Iberia's claim necessarily fails. Because we conclude that Anglo-Iberia's negligent supervision claim is not based upon an act in connection with a commercial activity of [Jamsostek and Indonesia] elsewhere, 28 U.S.C. § 1605(a)(2), we reject Anglo-Iberia's contention that it has sustained its burden under the FSIA of going forward with evidence showing that immunity should not be granted. See Robinson, 269 F.3d at 141. We reach this conclusion because Anglo-Iberia has not demonstrated that Jamsostek and Indonesia were involved in commercial activity for purposes of the FSIA. In Republic of Argentina v. Weltover, 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), the Supreme Court explained that a foreign state engages in commercial activity when a foreign government acts, not as a regulator of a market, but in the manner of a private player within it, and thus, that sovereign immunity does not bar a suit based upon a foreign state's participation in the marketplace in the manner of a private citizen or corporation. 504 U.S. at 614, 112 S.Ct. 2160. The Supreme Court reiterated this principle in Saudi Arabia v. Nelson, 507 U.S. 349, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993), wherein it explained that a state engages in commercial activity [under the FSIA] where it exercises only those powers that can also be exercised by private citizens, as distinct from those powers peculiar to sovereigns. Put differently, a foreign state engages in commercial activity for purposes of [the FSIA] only where it acts in the manner of a private player within the market. 507 U.S. at 360, 113 S.Ct. 1471 (internal quotation marks omitted); see also Hanil Bank v. PT. Bank Negara Indonesia (Persero), 148 F.3d 127, 131 (2d Cir.1998). Thus, to determine the nature of a sovereign's act, we ask not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives but rather whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in `trade and traffic or commerce.' Weltover, 504 U.S. at 614, 112 S.Ct. 2160; see also Nelson, 507 U.S. at 360-61, 113 S.Ct. 1471. We begin this inquiry by examining the act of the foreign sovereign that serves as the basis for the plaintiff's claim. See Garb v. Republic of Poland, 440 F.3d 579, 586 (2d Cir.2006) (identifying this as a threshold step in assessing [a party's] reliance on the `commercial activity' exception). Here, the basis of Anglo-Iberia's claim is Jamostek's alleged negligent supervision of Sartono and other employees in connection with Jamsostek's provision of health insurance in Indonesia. [4] We thus look to whether the actions Jamsostek performs with respect to its role as Indonesia's default health insurer are the type of actions by which a private party engages in trade and traffic or commerce. Anglo-Iberia argues that it properly invoked the commercial activity exception because Jamsostek competes with private insurers in providing health insurance to Indonesians and acts akin to a private insurer in its hiring, training, employment, and supervision of employees to perform non-discretionary duties such as locating health care providers, processing and verifying health insurance claims, collecting health insurance premiums, and preparing reports. [5] However, in arguing that Jamsostek behaves like a private insurer, Anglo-Iberia mischaracterizes the nature of the acts Jamsostek performs in its capacity as the default health insurer, under Indonesia's national social security program, which ... Jamsostek operates and administers. Anglo-Iberia, 2008 WL 190364, at . As the district court correctly found, Jamsostek does not sell insurance to workers or to employers in any traditional sense and does not otherwise compete in the marketplace like a private insurer. Id. at . Rather, as the default health insurer under Indonesia's national social security program, Jamsostek provides a general `floor' for health insurance for all workers in Indonesia and ensures that Indonesian employers with at least ten employees comply with the governmental mandate that they provide, at a minimum, basic health insurance coverage to their workers. Id. [6] Thus, we agree with the district court that, for purposes of our analysis under Weltover, the nature of Jamsostek's hiring, supervision, and employment of Sartono and other employees is directly concerned with employment in the provision of a governmental program of health benefits through collection of employer contributions and payroll deductions and that such employment is by nature non-commercial. Id. at . Despite Anglo-Iberia's argument to the contrary, to hold otherwise and look only to the fact of employment for purposes of our commercial activity analysis would allow the exception to swallow the rule of presumptive sovereign immunity codified in the FSIA. See id. at  n. 10. Based on the record evidence, we easily conclude that Jamsostek's acts of providing basic health insurance to Indonesia's workforce and monitoring employers' compliance with the governmental mandate under the national social security program are carried out in its capacity as Indonesia's default health insurer. Jamsostek's insurance operations do not equate to those of an independent actor in the private marketplace of potential health insurers. Despite Anglo-Iberia's assertions to the contrary, Jamsostek's actions in connection with the administration of Indonesia's national health insurance program are sovereign in nature and do not suffice to bring it within the commercial activity exception to the FSIA. Compare Nelson, 507 U.S. at 361, 113 S.Ct. 1471 (holding that conduct peculiarly sovereign in nature does not satisfy the commercial activity exception), and Jungquist v. Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d 1020, 1030 (D.C.Cir.1997) (holding that officials' actions in administering a government health program were uniquely sovereign in nature despite relat[ing] in certain respects to commercial activity), with Weltover, 504 U.S. at 615, 112 S.Ct. 2160 (concluding that Argentina's issuance of government bonds to refinance its debt was commercial in nature because the bonds in almost all respects [are] garden-variety debt instruments ... [that] may be held by private parties ... [and] are negotiable and may be traded on the international market). Anglo-Iberia's argument under the commercial activity exception also fails for a second reason: Jamsostek's alleged negligence was not in connection with its health insurance activities in Indonesia. Even assuming arguendo and contrary to fact that the nature of Jamsostek's insurance activities were commercial and not sovereign, Anglo-Iberia has not shown a sufficient nexus between Jamsostek's alleged negligent supervision and its alleged commercial activity for purposes of abrogating Jamsostek's presumptive sovereign immunity under the FSIA. We have made clear that [t]he statutory term `in connection,' as used in the FSIA, is a term of art, and we interpret it narrowly. Garb, 440 F.3d at 587. As such, acts are `in connection' with ... commercial activity so long as there is a `substantive connection' or a `causal link' between them and the commercial activity. Id. (internal quotation marks and alterations omitted); see also Drexel Burnham Lambert Group Inc. v. Comm. of Receivers for A.W. Galadari, 12 F.3d 317, 330 (2d Cir.1993) (declining to read § 1605(a)(2)'s connection language to include tangential commercial activities to which the `acts' forming the basis of the claim have only an attenuated connection). Here, we cannot conclude that Jamsostek's alleged negligent supervision of Sartono and his colleagues was in connection with its provision of basic health insurance in Indonesia. The commercial reinsurance scheme that is said to have injured Anglo-Iberia was Sartono's alone and wholly unrelated to any negligent supervision by Jamsostek with respect to its insurance activities in Indonesia. Indeed, during the relevant time period, Sartono was relieved of his regular employment responsibilities, was unauthorized to conduct any commercial reinsurance activities, and was prohibited from conducting Jamsostek business in Monaco, the United States, or elsewhere abroad. See Anglo-Iberia, 2008 WL 190364, at  (adopting earlier district court findings). In addition, whatever assistance Sartono's Jamsostek-based colleagues rendered to Sartono was provided solely at the direction of Sartono, primarily occurred off-premises, did not involve Jamsostek's business accounts, and was plainly unrelated to Jamsostek's administration of Indonesia's social security program. In essence, Anglo-Iberia faults Jamsostek for failing to stop Sartono from enlisting the help of a few of his Jamsostek colleagues, some of whom claimed to be acting unwittingly, in establishing a fraudulent side business. The record, however, demonstrates nothing more than the barest connection between Anglo-Iberia's alleged injuries by Sartono and Jamsostek's alleged negligent supervision of Sartono and others with respect to its social insurance activities in Indonesia. Compare Weltover, 504 U.S. at 614-15, 112 S.Ct. 2160 (concluding that Argentina's act of unilaterally extending its payment obligations was in connection with its commercial activity of issuing bonds), with O'Bryan v. Holy See, 556 F.3d 361, 380 (6th Cir.2009) (holding commercial activity exception inapplicable to plaintiff's claims of negligent supervision because the gravamen of plaintiff's claims did not truly sound[ ] in commercial activity), cert. denied, ___ U.S. ___, 130 S.Ct. 361, 175 L.Ed.2d 27 (2009), and Stena Rederi AB v. Comision de Contratos del Comite Ejecutivo General, 923 F.2d 380, 386 (5th Cir.1991) (Not only must there be a jurisdictional nexus between the United States and the commercial acts of the foreign sovereign, there must be a connection between the plaintiff's cause of action and the commercial acts of the foreign sovereign.). Thus, even if we were to concludecontrary to factthat Jamsostek's administration of Indonesia's national health insurance program and its employment of Sartono and his colleagues were commercial in nature, Jamsostek's alleged negligent supervision of these employees is not sufficiently connected to its insurance operations in Indonesia to satisfy the in connection with requirement of FSIA's commercial activity exception. To conclude otherwise under the facts of this case would be to abrogate a foreign sovereign's immunity solely on the basis of an employment relationship and would allow Anglo-Iberia to recast what is effectively a fraud claim, lacking any significant nexus to Jamsostek's insurance activities in Indonesia, as a negligent supervision claim sufficient to bring Jamsostek within FSIA's commercial activity exception. See Nelson, 507 U.S. at 363, 113 S.Ct. 1471. We therefore conclude that Anglo-Iberia has failed to demonstrate that Jamsostek is subject to jurisdiction under FSIA's commercial activity exception. We similarly conclude that Anglo-Iberia has failed to demonstrate that Indonesia is subject to jurisdiction under the FSIA because Anglo-Iberia's claim against Indonesia rests on the success of its allegations against Jamsostek and because Anglo-Iberia has not overcome the presumption that Jamsostek is a juridical entit[y] distinct and independent from Indonesia. First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 627-29, 632, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983). Having concluded that Anglo-Iberia's negligent supervision claim fails to satisfy the commercial activity exception set forth under 28 U.S.C. § 1605(a)(2), we do not reach Anglo-Iberia's remaining arguments on appeal or Jamsostek and Indonesia's arguments on cross-appeal. [7]