Opinion ID: 3064471
Heading Depth: 4
Heading Rank: 1

Heading: The Bancec standard

Text: In arguing that the actions of the corporations are not attributable to Holy See for purposes of determining jurisdiction, the Holy See relies on First Nat. City Bank v. Banco Para el Comercio Exterior de Cuba (“Bancec”), 462 U.S. 611 (1983). In Bancec, the Supreme Court considered whether an instrumentality created by a foreign state could be held liable for 6 We note that the question we address here is distinct from the question whether the Archdiocese, the Chicago Bishop, and the Order are themselves immune from suit under the FSIA. An “agency or instrumentality” of a foreign state, as defined by the FSIA, is immune from suit because it is itself a “foreign state” within the meaning of the Act. § 1603(a), (b). On the allegation of the complaint, however, the Archdiocese, the Chicago Bishop, and the Order are not “agencies or instrumentalities” of a foreign state within the meaning of the FSIA, because they are all citizens of the United States. See § 1603(b) (an agency or instrumentality of a foreign state means, among other things, an entity “which is neither a citizen of a State of the United States . . . nor created under the laws of any third country”). They are therefore not immune from suit. 2564 DOE v. HOLY SEE the actions of the foreign state itself, a question the reverse of ours. Bancec was “the Cuban Government’s exclusive agent in foreign trade,” and the “government supplied all of [Bancec]’s capital and owned all of its stock.” Id. at 614. Soon after Bancec sought to collect on a letter of credit that had been issued in its favor by Citibank, the Cuban government seized and nationalized all of Citibank’s assets in Cuba. Id. So, when Bancec filed an action in U.S. federal court to recover on the letter of credit, Citibank counterclaimed, seeking a setoff for the value of its expropriated Cuban branches. Id. at 614-15. In the meantime, Bancec was dissolved, and Bancec filed a stipulation “stating that . . . its claim had been transferred to the Ministry of Foreign Trade” of Cuba. Id. at 615-16. Jurisdiction in Bancec existed under FSIA’s counterclaim provision, 28 U.S.C. § 1607(c).7 Id. at 620-21. Because jurisdiction was not at issue, the question for the Supreme Court was one of liability: whether Bancec could be held liable for the act of expropriation committed by the Cuban government. Id. at 617. [7] The Supreme Court began by noting that, although Bancec was an “agency or instrumentality” of Cuba within the meaning of FSIA § 1603(b), this status was relevant only to jurisdiction; it did not control the question of Bancec’s liability for Cuba’s actions. The FSIA “was not intended to affect the substantive law determining the liability of a foreign state or instrumentality.” Id. at 620. Instead, liability was to be assessed according to corporate law principles “common to both international law and federal common law.” Id. at 623. 7 “In any action brought by a foreign state [or its agency or instrumentality] . . . in a court of the United States or of a State, the foreign state shall not be accorded immunity with respect to any counterclaim . . . to the extent that the counterclaim does not seek relief exceeding in amount or differing in kind from that sought by the foreign state.” 28 U.S.C. § 1607(c). DOE v. HOLY SEE 2565 Surveying international and federal law on the status of corporations, the Supreme Court recognized a presumption of “separate juridical [status]” for the instrumentalities of foreign states. Id. at 624, 624-28. [8] That presumption can be overcome, the Court explained, in two instances: when “a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created,” or when recognizing the separate status of a corporation “would work fraud or injustice.” Id. at 629. The Court then held the latter standard dispositive of Bancec’s case: The Cuban government could not have sued in its own name in a U.S. court “without waiving its sovereign immunity and answering for [its] seizure of Citibank’s assets.” Id. at 633. Instead, Cuba had transferred its assets to separate entities, and Bancec then sought to avoid liability for the seizure. “[T]he Cuban government . . . [and] not any third parties that may have relied on Bancec’s separate juridical identity” would be the real beneficiary if Bancec was not held liable for the Cuban government’s actions. Id. at 631-32. Given this circumstance, the Court concluded that to “adhere blindly to the corporate form” would work such an “injustice” that the presumption of separate juridical status had been overcome. Id. at 632. Holding Bancec liable for the Cuban government’s actions, the Court held that Citibank was entitled to offset the value of its seized assets from the amount it owed to Bancec. Id. at 634. [9] The Supreme Court in Bancec did not have the opportunity to consider whether the actions of a corporation may be attributed to the sovereign — the reverse of the Bancec scenario — for purposes of determining whether jurisdiction over that sovereign exists. This Circuit has not previously addressed that question either.8 At least two other circuits, 8 We have, however, applied the Bancec presumption of separate juridical status at the merits phase of FSIA litigation. See Flatow v. Islamic Republic of Iran, 308 F.3d 1065 (9th Cir. 2002) (applying Bancec in a case in which an individual who had obtained a judgment against Iran attempted to enforce it against the Bank Saderat Iran). 2566 DOE v. HOLY SEE however, faced with such a scenario, have applied Bancec’s substantive corporate law principles in determining whether jurisdiction exists under the FSIA. In Transamerica Leasing v. La Republica de Venezuela, 200 F.3d 843 (D.C. Cir. 2000), a plaintiff sued Venezuela, alleging that Venezuela was liable for the commercial acts of a government instrumentality, CAVN. Id. at 846. To determine whether Venezuela was amenable to suit under the commercial activity exception, the court turned to the Bancec test and asked whether (1) Venezuela and CAVN had a principalagent relationship, or (2) recognizing CAVN as a separate entity would work an injustice. Id. at 848. Although it acknowledged that “Bancec recognized these as exceptions to the rule that a foreign sovereign is not liable for the acts of an instrumentality of the state,” the D.C. Circuit held that “they serve also as exceptions to the rule that a foreign sovereign is not amenable to suit based on the acts of such an instrumentality.” Id. (emphasis added). See also ForemostMcKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 446 (D.C. Cir. 1990) (“The presumption of juridical separateness of entities also applies to jurisdictional issues.”). The Fifth Circuit adopted the same principle in Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 533-36 (5th Cir. 1992), refusing to attribute the actions of a private labor union to the Mexican state-owned oil company for purposes of determining FSIA jurisdiction. [10] We join the D.C. Circuit and the Fifth Circuit in extending Bancec’s analysis to the question whether the actions of a corporation may render a foreign sovereign amenable to suit. A foreign state can only “act[ ] through its agents,” be they corporations or individual people. Phaneuf v. Republic of Indonesia, 106 F.3d 302, 307-08 (9th Cir. 1997) (“Because a foreign state acts through its agents, an agent’s deed . . . constitutes activity ‘of the foreign state.’ ”); see also Gilson v. Republic of Ireland, 682 F.2d 1022, 1026 n.16 (D.C. Cir. 1982) (noting that “the activities of an agent may be attriDOE v. HOLY SEE 2567 buted to the principal for jurisdictional purposes”). Therefore, in applying the jurisdictional provisions of the FSIA, courts will routinely have to decide whether a particular individual or corporation is an agent of a foreign state. [11] Bancec provides a workable standard for deciding this question. Applying Bancec’s presumption in favor of separate juridical status for foreign state instrumentalities at the jurisdiction phase, not just at the liability phase, is consistent with the FSIA’s broad policy goals. In Bancec, the Court discussed at length the comity considerations at play when entertaining suits against foreign government instrumentalities in U.S. courts. 462 U.S. at 626; see also Republic of Austria v. Altmann, 541 U.S. 677, 688 (2004). As at the merits phase, failing to recognize the presumption of separate juridical status at the jurisdictional phase could “result in substantial uncertainty over whether an instrumentality’s assets would be diverted to satisfy a claim against the sovereign,” and might frustrate “the efforts of sovereign nations to structure their governmental activities in a manner deemed necessary to promote economic development and efficient administration.” Bancec, 462 U.S. at 626. Applying Bancec’s presumption — as well as the standard for overcoming that presumption — at the outset of a suit as well as at the merits phase makes good sense. With these considerations in mind, we conclude that it is appropriate to use the Bancec standard to determine whether Doe’s allegations are sufficient to permit jurisdiction over the Holy See based on acts committed by its affiliated domestic corporations. b. Applying the Bancec standard to Doe’s complaint [12] Applying the rule of Bancec to the allegations in Doe’s complaint, we conclude that Doe has not alleged sufficient facts to overcome the “presumption of separate juridical status,” for reasons similar to those dispositive in the converse 2568 DOE v. HOLY SEE situation in Flatow v. Islamic Republic of Iran, 308 F.3d 1065 (9th Cir. 2002). In Flatow, we applied Bancec to the relationship between the Iranian government and the Bank Saderat Iran (“BSI”). BSI was created by the Iranian government and fully owned by it. Id. at 1072-73. Its actions were regulated by Iran’s General Assembly of Banks and High Council of Banks, which reviewed BSI’s annual statements and “perfor- m[ed] broad policymaking functions.” Id. at 1073. Flatow held these facts insufficient to overcome the presumption of separate juridical status, because the government’s “involvement [did not] rise to a [sufficiently] high[ ] level,” and in particular, did not involve “day-to-day” control. Id. (citing McKesson Corp v. Islamic Republic of Iran, 52 F.3d 346, 351-52 (D.C. Cir. 1995) (holding the presumption of separateness overcome where Iran controlled routine business decisions, such as declaring and paying dividends and honoring contracts). Doe’s complaint does not allege day-to-day, routine involvement of the Holy See in the affairs of the Archdiocese, the Order, and the Bishop. Instead, it alleges that the Holy See “creates, divides[,] and re-aligns dioceses, archdioceses and ecclesiastical provinces” and “gives final approval to the creation, division or suppression of provinces of religious orders.” Doe also alleges that the Holy See “promulgates and enforces the laws and regulations regarding the education, training[,] and standards of conduct and discipline for its members and those who serve in the governmental, administrative, judicial, educational[,] and pastoral workings of the Catholic [C]hurch world-wide.” These factual allegations — that the Holy See participated in creating the corporations and continues to promulgate laws and regulations that apply to them — are quite similar to the facts in Flatow, and are, as in Flatow, insufficient to overcome the presumption of separate juridical status. Doe does directly allege in his complaint that the corporations are “agents” of the Holy See. In this context, however, DOE v. HOLY SEE 2569 the term “agent” is not self-explanatory. “Agent” can have more than one legal meaning: the standard for determining that a natural person is the agent of another differs from the standard for attribution of the actions of a corporation to another entity. See, e.g., Rough & Ready Lumber Co. v. Blue Sky Forest Products, 105 Or. App. 227, 231 (1991) (an agency relationship between two natural persons “results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”) (quoting Restatement (Second) of Agency § 1 (1958)). The Bancec standard is in fact most similar to the “alter ego” or “piercing the corporate veil” standards applied in many state courts to determine whether the actions of a corporation are attributable to its owners. See, e.g., Amfac Foods, Inc. v. Int’l Sys. & Controls Corp., 294 Or. 94, 107-08 (1982) (holding that to demonstrate alter ego status, plaintiff must show control of the subsidiary and that “the plaintiff’s inability to collect from the corporation resulted from some form of improper conduct” on part of parent corporation). Even reading the complaint generously to Doe, as we must, we cannot infer from the use of the word “agent” that Doe is alleging the type of day-to-day control that Bancec and Flatow require to overcome the presumption of separate juridical status. The district court apparently found jurisdiction proper by relying on the second, equitable prong of Bancec, noting that “foreign states cannot avoid their obligations to third parties by engaging in abuses of the corporate form.” Doe, 434 F. Supp. 2d at 936. But Doe has not alleged that the Holy See has inappropriately used the separate status of the corporations to its own benefit, as in Bancec, or that the Holy See created the corporations for the purpose of evading liability for its own wrongs. Rather, in ruling for Doe on this point, the district court seemed to be influenced by the complaint’s allegations of wrongful acts perpetrated directly by the Holy See. See Doe, 434 F. Supp. 2d at 937. The existence of such direct wrongful acts cannot determine whether the distinct wrongful 2570 DOE v. HOLY SEE acts of the affiliated corporations should also be attributed to the Holy See. [13] Doe’s vicarious liability claim for the actions of the Archdiocese, Chicago Bishop, and Order is based entirely on an allegation that the actions of the domestic corporations are attributable to the Holy See. Doe has therefore not alleged sufficient facts to demonstrate that any exception to sovereign immunity applies to that cause of action. We therefore conclude that the district court lacked jurisdiction over the Holy See for the tortious acts allegedly committed by the Archdiocese, the Chicago Bishop, and the Order. 2. Actions Performed by the Holy See Itself As to Doe’s other causes of action, the Holy See contends that Doe has failed to allege any facts in support of his claims based on the actions of the Holy See itself, rather than of its domestic corporations. We do not agree. Doe has made several allegations regarding actions taken by the Holy See itself — namely, its negligent retention and supervision of Ronan and its failure to warn Doe of Ronan’s dangerousness. Doe has also alleged respondeat superior liability against the Holy See for Ronan’s actions as an alleged employee of the Holy See. We turn now to those allegations, considering whether they are sufficient to support jurisdiction over the Holy See. We will now examine whether the district court could exercise jurisdiction over the Holy See for these causes of action under the FSIA’s tortious act exception. D. Tortious Act Exception The district court held that all of Doe’s claims, except the one for fraud, come within the exception to immunity for a “tortious act or omission of [a] foreign state or of any official or employee of that foreign state while acting within the scope DOE v. HOLY SEE 2571 of his or her employment.” § 1605(a)(2); Doe, 434 F. Supp. 2d at 950. We agree in part. Doe’s respondeat superior claim based on Ronan’s actions comes within the tortious act exception. Doe has clearly alleged that Ronan was an employee of the Holy See, acting within the scope of his employment, when he molested Doe. We conclude, however, that Doe’s claims against the Holy See for negligent retention and supervision and failure to warn cannot be brought under the tort exception because they are barred by the FSIA’s exclusion for discretionary functions, § 1605(a)(5)(A). 1. Respondeat superior for Father Ronan’s tortious acts a. The meaning of “employee” In his complaint, Doe alleges that the Holy See “employed priests, including one Father Andrew Ronan” and that Ronan was under the “direct supervision and control” of the Holy See. The Holy See was further “responsible for the work and discipline [of] . . . priests.” According to the complaint, the Holy See on at least one occasion was responsible for controlling where Ronan performed his functions: the Holy See “placed Ronan in [the] Archdiocese at St. Albert’s Church in Portland, Oregon.” The Holy See maintains that Doe has not alleged sufficient facts to demonstrate that Ronan was an “employee” of the Holy See for purposes of the tortious act exception, because the word “employee” is a legal conclusion we are not required to accept as true. We are highly skeptical of the notion that, under notice pleading, use of the word “employee” in a complaint is insufficient to establish an allegation of an employment relationship. True, in addition to being a word used in everyday speech, “employee” does have a common law legal definition. See, e.g., Schaff v. Ray’s Land & Sea Food Co., 45 P.3d 936, 939 (Or. 2002) (defining “employee” for purposes 2572 DOE v. HOLY SEE of Oregon law). But then, of course, so do the words “person,” “corporation,” “citizen,” and “molest,” also used in this complaint — and, undoubtedly, in many other complaints filed each year in federal courts — without further definition. Were we to require that every such word used in a complaint be broken down into its constituent factual predicates, we would undermine the purpose of notice pleading — that is, “to focus litigation on the merits of a claim” rather than on procedural requirements. Galbraith v. County of Santa Clara, 307 F.3d 1119, 1125 (9th Cir. 2002). Thus, while we do not accept Doe’s legal conclusions as true, we also do not engage in “a hypertechnical reading of the complaint inconsistent with the generous notice pleading standard.” Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1168 (9th Cir. 2002). Although there is undoubtedly a line beyond which the legal definition of a commonly used term is so complex or contentious that failure to allege each element of the definition would prevent a defendant from understanding the factual basis for the claim, use of the word “employee” falls well short of that line.