Opinion ID: 543051
Heading Depth: 3
Heading Rank: 1

Heading: The Legal Standard Under FSIA

Text: 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.