Opinion ID: 756431
Heading Depth: 2
Heading Rank: 2

Heading: Jurisdictional Discovery Against Sovereigns

Text: 18 The FSIA provides the sole basis for obtaining jurisdiction over foreign states and their instrumentalities in the United States. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). Foreign states are immune from jurisdiction in United States courts unless one of the FSIA's exceptions to immunity applies. See 28 U.S.C. §§ 1604-07. Rafidain was found to fall within the commercial activity exception, which provides that sovereigns will not be immune from jurisdiction in any case 19 in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or 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[.] 20 28 U.S.C. § 1605(a)(2). 21 First City admits that no act or activity of CBI, qua CBI, was carried on or performed either in the United States or elsewhere with a direct effect in the United States. However, First City contends that CBI is nonetheless subject to the commercial activity exception because Rafidain is CBI's alter ego, and CBI oversees Rafidain's commercial banking activities in the United States. 22 The Supreme Court first applied the alter ego doctrine in the context of the FSIA in First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (Bancec ). In Bancec, the Court explained that foreign entities are presumed to be separate; however, that presumption may be overcome in two situations: (1) when a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, and (2) when treating the entities separately would work fraud or injustice. Id. at 629, 103 S.Ct. 2591 (quotation marks omitted). 23 It is undisputed that CBI is an agency of Iraq. Therefore, CBI is immune from suit by First City unless First City can set forth facts showing that CBI's alleged control over Rafidain is sufficient to attribute Rafidain's acts or activities to CBI under the alter ego theory. First City requested additional discovery against CBI and Rafidain to prove that CBI extensively controls Rafidain. Although the district court permitted some discovery against CBI and Rafidain, First City contends that the district court erroneously denied additional discovery and failed to rule on its motion to compel before granting CBI's motion to dismiss. First City maintains that without conducting additional discovery, it was unprepared to oppose CBI's motion. 24 In determining whether First City should be allowed additional discovery, the district court properly considered the comity concerns implicated by allowing jurisdictional discovery from a foreign sovereign. Such considerations require a delicate balancing between permitting discovery to substantiate exceptions to statutory foreign sovereign immunity and protecting a sovereign's or sovereign agency's legitimate claim to immunity from discovery. Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (5th Cir.1992). In Arriba, the Fifth Circuit recommended that discovery should be ordered circumspectly and only to verify allegations of specific facts crucial to an immunity determination. Id. 25 Applying a similarly circumspect approach, we have explained that generally a plaintiff may be allowed limited discovery with respect to the jurisdictional issue; but until she has shown a reasonable basis for assuming jurisdiction, she is not entitled to any other discovery. Filus v. Lot Polish Airlines, 907 F.2d 1328, 1332 (2d Cir.1990). CBI argues that First City received all of the jurisdictional discovery required by Filus and still has failed to present a reasonable basis for the district court to assume jurisdiction over it. CBI therefore contends that any further discovery would violate the principles of comity underlying the FSIA. By contrast, First City maintains that a foreign sovereign should not be allowed to provide minimal, incomplete responses to jurisdictional discovery and then hide behind the FSIA to shield itself from jurisdiction in the United States. 26 Although the district court had in mind the appropriate considerations in addressing the question of discovery from a foreign sovereign, we believe that it abused its discretion by focusing exclusively on CBI's immunity and failing to recognize that these comity concerns do not apply to Rafidain. The court already had subject matter jurisdiction over Rafidain. The district court had refused to vacate the default judgment against Rafidain and had found the bank to be squarely within the commercial activity exception to sovereign immunity. The record indicates that Rafidain provided incomplete responses to First City's document requests and interrogatories. First City's motion to compel sought information from Rafidain that could have revealed whether there was merit to its allegation that CBI extensively controls Rafidain. Because Rafidain is a party to this suit, has been found to fit within the FSIA's commercial activity exception and because First City has a judgment against Rafidain, allowing First City to seek further discovery from Rafidain would not intrude upon the sovereign immunity, if any, of Rafidain. The district court should have permitted full discovery against Rafidain, which would have allowed First City a fair opportunity to conduct jurisdictional discovery without further impinging on CBI's immunity. Following discovery from Rafidain, the district court would then have been in a better position to assess whether discovery from CBI on the alter ego question was sufficiently likely to be productive as to warrant compelling additional jurisdictional discovery. See Filus, 907 F.2d at 1332. We believe that the court's failure to take such a course, when coupled with the dismissal of the complaint, was an abuse of discretion. 27 Accordingly, the district court's order granting CBI's motion to dismiss is vacated. On remand, the district court is instructed to permit First City to conduct full discovery against Rafidain. After such discovery, the district court should then determine (1) whether there is an adequate factual record on which to rule whether CBI was Rafidain's alter ego, or (2) whether further discovery against CBI on the jurisdictional question is warranted.