Opinion ID: 543051
Heading Depth: 2
Heading Rank: 4

Heading: Attributing Acts to the Sovereign

Text: 28 Before proceeding to consider the various exceptions to sovereign immunity at issue in this case, we must first address Iran's attribution argument. In this suit, Foremost seeks to hold the foreign sovereign of Iran responsible for the actions of Pak Dairy and/or the entities holding the majority of Pak Dairy shares. Iran claims that the District Court erred in attributing to Iran the actions of the Board of Directors of Pak Dairy, even for purposes of jurisdiction. The District Court made few findings of its own regarding the degree of control exerted by Iran over Pak Dairy or over the shareholder-entities that Foremost alleges are government controlled, although Foremost tendered extensive affidavits in support of its position, see, e.g., Affidavit of Leonard M. Patterson, Jr., reprinted in Brief for Appellees addendum at 1-16; Affidavit of Frank Fisher, reprinted in Brief for Appellees addendum at 17-36. Instead, the District Court concluded that the Claims Tribunal had decided in Foremost's favor an issue sufficiently related to permit reliance on the Claims Tribunal's finding, ... at least at this stage in the proceedings. Foremost III, slip op. at 6, reprinted in App. 8. 29 While we agree with the District Court that the issue is whether the government of Iran exercised the necessary degree of control over the other defendants to create a principal/agent relationship and thus permit this court to deem Iran responsible for their actions, id., we conclude that the question of attribution under FSIA is not, as the District Court concluded, the same question, or at least a very similar question,, id., to the one decided in Foremost's favor by the Claims Tribunal. Thus, we must remand to the District Court so that it may make further factual determinations in light of the more rigorous attribution standard required by FSIA. The Claims Tribunal's findings, without more, are not sufficient to answer the question posed by Iran's motion to dismiss for want of jurisdiction under FSIA.
30 FSIA applies to instrumentalities and agencies of the foreign sovereign, as well as to the state itself. See 28 U.S.C. Sec. 1603(a), (b). 13 But instrumentalities and agencies are accorded a presumption of independent status. See First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 626-27, 103 S.Ct. 2591, 2599-2600, 77 L.Ed.2d 46 (1983) (Bancec ). In Bancec, the Supreme Court applied this presumption in the liability context, considering the question whether a claim of a foreign agency was subject to set-off for the debts of its parent government. The Bancec Court explained that the presumption of juridical separateness may be overcome where internationally recognized equitable principles mandate attribution in order to avoid injustice, id. at 633-34, 103 S.Ct. at 2603-04, and suggested that the presumption would be overcome where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created. Id. at 629, 103 S.Ct. at 2601. The House Report accompanying FSIA set forth the reasons for separating the liabilities of one state instrumentality from those of another or from those of the state. The House Report explained that [t]here are compelling reasons for the presumption of separateness in 28 U.S.C. Sec. 1610(b): 31 If U.S. law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different U.S. corporations or between a U.S. corporation and its independent subsidiary. 32 H.REP. NO. 1487, 94th Cong., 2d Sess. 29-30 (1976), U.S.Code Cong. & Admin.News 1976, pp. 6628 6629; Bancec, 462 U.S. at 628, 103 S.Ct. at 2600 (quoting same passage). 33 The presumption of the juridical separateness of entities also applies to jurisdictional issues. See, e.g., Gilson v. Republic of Ireland, 682 F.2d 1022, 1029-30 (D.C.Cir.1982); Hester Int'l Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 176 (5th Cir.1989). As noted in the Restatement, [w]hen a state instrumentality is not immune ..., for instance because the claim arises out of a commercial activity, the claim is ordinarily to be brought only against the instrumentality. 1 RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES Sec. 452 comment c (1987) (emphasis added). In Gilson, as here, the plaintiff brought an action against a foreign state, the Republic of Ireland and instrumentalities thereof, for a variety of alleged commercial misdeeds. See 682 F.2d at 1024. This court acknowledged that  'the activities of an agent may be attributed to the principal for jurisdictional purposes.'  Id. at 1026 n. 16 (quoting East Europe Domestic Int'l Sales Corp. v. Terra, 467 F.Supp. 383, 390 (S.D.N.Y.), aff'd mem., 610 F.2d 806 (2d Cir.1979)); see also id. at 1029-30. But the Gilson court concluded that the subject matter jurisdiction determination could not be made absent factual determinations regarding whether an agency relationship existed among the various defendants. See id. at 1026 n. 16, 1029. In other words, absent an agency relationship, the court lacks subject matter jurisdiction over the foreign state for the acts of its instrumentality. See Hester Int'l Corp., 879 F.2d at 176, 181; see also Gilson, 682 F.2d at 1026 n. 16, 1029-30. Hence, in the instant case, the District Court must determine whether the facts as alleged by Foremost--subject, of course, to challenge by Iran--show sufficient control by Iran over Pak Dairy to create a relationship of principal to agent. 34 It is further clear that the plaintiff bears the burden of asserting facts sufficient to withstand a motion to dismiss regarding the agency relationship. See Baglab Ltd. v. Johnson Matthey Bankers Ltd., 665 F.Supp. 289, 296-97 (S.D.N.Y.1987); cf. Hester, 879 F.2d at 176 (plaintiff bears the burden of proving the agency relationship at trial); Letelier v. Republic of Chile, 748 F.2d 790, 795 (2d Cir.1984) (Plaintiffs had the burden of proving that [the stateinstrumentality] was not entitled to separate recognition), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985). Thus, we cannot agree with Foremost that the findings of the Claims Tribunal alone are sufficient to address Iran's motion to dismiss for want of agency between Pak Dairy and Iran. The legal standards employed by the Claims Tribunal to determine liability under the Algiers Accords are not coterminous with the standards applicable to determine a claim of attribution under FSIA. 35 Under the Algiers Accords, Iran agreed by international compact to assume responsibility for compensating United States nationals not only for claims against Iran itself but also for claims against any political subdivision of Iran, and any agency, instrumentality, or entity controlled by the Government of Iran or any political subdivision thereof. See Algiers Accords, supra note 6, at art. VII p 3. The Claims Tribunal held that [t]he two main indicators of government control of a corporation are the identity of its shareholders and the composition and behavior of its board of directors. See Foremost Tehran, Inc. v. Iran, 10 Iran-United States Trib.Rep. at 241-42, reprinted in App. 66. Because it was found that government controlled entities held a majority of the shares in Pak Dairy and that these entities also held a majority of the seats on the board of directors, the Claims Tribunal concluded that Pak Dairy was a corporation controlled by the government of Iran. 14 36 Thus, under the Algiers Accords, because of majority shareholding and majority control of the board of directors, Pak Dairy was seen as a government agency or instrumentality for which Iran had agreed to assume responsibility. We recognize that the same factors that influenced the Claims Tribunal to find liability under the Algiers Accords are relevant to determining whether an entity is an agency or instrumentality under section 1603(a) of FSIA. But these factors are not conclusive with respect to a claim of attribution under FSIA, i.e., where a plaintiff seeks to overcome the presumption that a foreign state and agencies and instrumentalities thereof are separate juridical identities under FSIA. See Hester, 879 F.2d at 177 n. 5. 37 Majority shareholding and majority control of a board of directors, without more, are not sufficient to establish a relationship of principal to agent under FSIA. See, e.g., Bancec, 462 U.S. at 614, 620-21, 623, 103 S.Ct. at 2593, 2596-97, 2598 (looking to principles of international law and federal common law to determine when instrumentalities should not be treated as distinct from the sovereign--though the government owned all the stock and appointed delegates from governmental ministries to all the positions on the Governing Board); Hester, 879 F.2d at 181. (The two factors of 100% ownership and appointment of the Board of Directors cannot by themselves force a court to disregard the separateness of the judicial entities.); Hercaire Int'l, Inc. v. Argentina, 821 F.2d 559, 565 (11th Cir.1987) (concluding that 100% stock ownership alone is insufficient to overcome the presumption of separate juridical existence and that there was no showing that the foreign sovereign exercised such extensive control ... as to warrant a finding of principal and agent, nor could the court perceive any 'fraud or injustice' which results from insulating [the instrumentality's] property from attachment in aid of execution of the judgment against the foreign state); Baglab Ltd., 665 F.Supp. at 297 (instrumentality immune from suit where plaintiff failed to substantiate its contentions that the instrumentality either made the specific loan decision of a bank it acquired or exercised general control over the day-to-day activities of [the codefendant bank] such that [the codefendant bank] might be considered its agent). The Claims Tribunal's findings simply do not answer the question with respect to attribution that is posed by this case. 38 Moreover, here, Iran's alleged control over Pak Dairy was exercised through entities on Pak Dairy's Board, which were in turn allegedly controlled by Iran. Thus, the alleged principal/agent relationship is not a direct one and, hence, the showing required to support a claim of attribution is far from straightforward. It cannot be presumed that the interests of a foreign state and its agencies or instrumentalities always are the same. Nor can it be assumed that an official from a state entity who serves on the board of directors of another such entity always will act to serve or promote the interests of the sovereign. Thus, the question concerning an alleged agent/principal relationship between the foreign state and an agency or instrumentality thereof does not involve a meaningless inquiry. The District Court will be required to address this issue on remand.
39 The District Court found on the face of Foremost's complaint allegations which, although conclusory, would amount to the degree of control necessary to attribute the actions of the co-defendants to the Government of Iran. Foremost III, slip op. at 6 n. 8, reprinted in App. 8 n. 8. Where such conclusory allegations are challenged by the sovereign, the plaintiff must provide further proof of government involvement in order to overcome the presumption of juridical separateness. Determination of who is and is not an agent of whom will be in great part factual, Gilson, 682 F.2d at 1029, and the fact-finding should be explicit, id. at 1026. In the instant case, the fact-findings were not sufficiently explicit. 40 In Gilson, this court determined that dismissal of the action for lack of subject matter and personal jurisdiction was premature in light of the dearth of fact-finding done by the district court thus far, id., and the court remanded for further development of the facts. Here, we conclude that the District Court's denial of Iran's motion to dismiss was premature in light of the dearth of fact-finding and we remand for further development of the facts as to the relationship between Iran and Pak Dairy. 41 Where, as with foreign sovereigns, immunity involves protection from suit, not merely a defense to liability, more than the usual is required of trial courts in making pretrial factual and legal determinations. In such circumstances, it is particularly important that the court satisfy itself of its authority to hear the case, Prakash v. American University, 727 F.2d 1174, 1179 (D.C.Cir.1984), before trial. [P]ostponing the determination of subject matter jurisdiction until some point during or after trial would frustrate the significance and benefit of entitlement to immunity from suit. Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 451 (6th Cir.1988). Thus, [i]n many cases a resolution of the substantive immunity law issues will be required in order to reach a decision on subject matter jurisdiction.... [A] court may have to interpret the substantive principles embodied in Secs. 1605-1607 before deciding whether to take jurisdiction. Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 790-91 n. 4 (2d Cir.1980), cert. denied, 449 U.S. 1080, 101 S.Ct. 863, 66 L.Ed.2d 804 (1981); see also First Fidelity Bank v. Government of Antigua & Barbuda, 877 F.2d 189, 195 (2d Cir.1989) (quoting same passage). 42 [S]ince entitlement of a party to immunity from suit is such a critical preliminary determination, the parties have the responsibility, and must be afforded a fair opportunity, to define issues of fact and law, and to submit evidence necessary to the resolution of the issues. Gould, 853 F.2d at 451. Thus, to address a motion to dismiss under Rule 12(b)(1) where the suit involves a foreign sovereign and the court's jurisdiction over the sovereign is contested, the district court must do more than just look to the pleadings to ascertain whether to grant the motion to dismiss. The district court has considerable latitude in devising the procedures it will follow to ferret out the facts pertinent to jurisdiction. Prakash, 727 F.2d at 1179. Further fact-finding is clearly needed in the instant case; but in making the necessary preliminary determinations the District Court should closely control and limit the discovery and fact-finding so as to avoid frustrat[ing] the significance and benefit of ... immunity from suit. Gould, 853 F.2d at 451. 43