United States: United States Supreme Court Limits Exception To Immunity For Government-Owned Entities

The United States Supreme Court recently issued a decision in OBB Personeverkehr AG v. Sachs, 136 S. Ct. 390 (Dec. 1, 2015) which significantly limited the basis upon which a commercial entity owned by a foreign government can be sued in the United States under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1601 et seq. (the "FSIA"). This decision may significantly impact certain suits brought in the US against state-owned air carriers.

Background on the FSIA

The FSIA applies in both state and federal courts in all litigation against foreign states and governments, including their "agencies and instrumentalities." The basis for the court's jurisdiction to hear cases against those entities is found in the FSIA, which also provides in those cases rules for service and damages available and extinguishes the right to a jury trial.

The purpose of the FSIA is set forth in 28 U.S.C. § 1602, which provides:

The Congress finds that the determination by United States courts of the claims of foreign states to immunity from the jurisdiction of such courts would serve the interests of justice and would protect the rights of both foreign states and litigants in United States courts. Under international law, states are not immune from the jurisdiction of foreign courts insofar as their commercial activities are concerned, and their commercial property may be levied upon for the satisfaction of judgments rendered against them in connection with their commercial activities. Claims of foreign states to immunity should henceforth be decided by courts of the United States and of the States in conformity with the principles set forth in this chapter.

The term "foreign state" is defined in the FSIA to include (1) a political subdivision of a foreign state or (2) an agency or instrumentality of a foreign state (28 U.S.C. § 1603). Foreign-owned airlines are "instrumentalities of a foreign state" to the extent that "a majority of [the airline's] shares or other ownership interest is owned by a foreign state or political subdivision thereof." (28 U.S.C. § 1603). However, if the airline is not owned directly by the foreign government, but rather is owned by a holding company that is owned by the foreign government, the airline will be deemed to have a "tiered" ownership structure and will not be immune from suit under the FSIA.

"Tiering" occurs when a foreign sovereign owns a majority interest in a holding company or other intermediary entity, which in turn owns a majority interest in the entity claiming sovereign immunity. In Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), the Supreme Court resolved a split in the lower courts and held that entities which are indirectly owned by a sovereign government are not agencies or instrumentalities of that government.

As a general matter, pursuant to the FSIA, instrumentalities are immune from suit unless one of the statute's specific exceptions to that immunity applies. If none of the exceptions apply, the instrumentality is immune from suit and the action must be dismissed. If an exception does apply and the instrumentality may be sued in the US, the FSIA governs the handling of the proceedings.

Foreign air carriers are required to waive sovereign immunity in certain contexts in order to receive authority to fly to and from the US. Where the waiver has not been triggered, an exception to FSIA-immunity that frequently applies to foreign-owned airlines relates to the "commercial activity" of the airline, which is defined as "either a regular course of commercial conduct or a particular commercial transaction or act." (28 U.S.C. § 1603(d)).

The "commercial activity" exception in 28 U.S.C. § 1605(a)(2) provides that:

A foreign state is not immune if the action brought against that state is based upon [emphasis added]:

(2) ... 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;

The US Supreme Court addressed the "commercial activity" exception in OBB Personeverkehr AG v. Sachs.

OBB Personeverkehr AG v. Sachs

Petitioner OBB Personenverkehr AG ("OBB") operated a railway that carries nearly 235 million passengers each year within Austria and to and from points throughout Europe. OBB was wholly-owned by the government of Austria. OBB—along with 29 other railways throughout Europe— was a member of the Eurail Group, which was responsible for the marketing and management of the Eurail pass program. Eurail pass holders are entitled to unlimited passage throughout the network. Passengers were able to purchase passes directly from the Eurail Group and indirectly through travel agents around the world.

Respondent Carol Sachs, a resident of Berkeley, California, purchased a Eurail pass over the Internet from The Rail Pass Experts, a Massachusetts-based travel agent. The following month, Sachs arrived at a train station in Innsbruck, Austria, where she intended to use her Eurail pass to ride an OBB train to Prague. As she attempted to board the train, Respondent fell from the platform onto the tracks. Her legs were crushed by OBB's moving train resulting in the amputation of both of her legs.

Respondent sued OBB in federal court asserting five causes of action: (1) negligence; (2) strict liability for design defects in the train and platform; (3) strict liability for failure to warn of those design defects; (4) breach of an implied warranty of merchantability for providing a train and platform unsafe for their intended uses; and (5) breach of an implied warranty of fitness for providing a train and platform unfit for their intended uses. OBB claimed sovereign immunity under the FSIA. The parties agreed OBB was a "foreign state", but disputed the application of the "commercial activity" exception. Specifically, OBB argued that the commercial activity exception to immunity did not apply because the suit was not "based upon" the sale of the rail pass for purposes of the 28 U.S.C. § 1605(a)(2).

In order to determine whether the action is "based upon" the commercial activity of the foreign state/ instrumentality, a court must first "identify[ ] the particular conduct on which the [plaintiff's] action is 'based.'" (OBB, at 394, quoting, Saudi Arabia v. Nelson, 507 U.S. 349, 356, 113 S.Ct. 1471, 1471, 123 L.Ed.2d 47 (1993)). The Nelson Court instructed that courts should look at those elements, which, if proven, would entitle a plaintiff to relief when determining what a particular claim is "based upon."

The Ninth Circuit adopted a "one-element" test, which would require courts to look at each of the elements of all of the causes of action asserted to determine if the commercial activity made up any one element of the claim. The Ninth Circuit held that if it did, the action was "based upon" that activity.

The Supreme Court rejected this approach, holding that an action is "based upon" the "particular conduct" that constitutes the "gravamen" of the suit. Courts must "zero in on the core" of the suit to determine upon what the suit is based.

Under this analysis, the conduct constituting the gravamen of Respondent's suit plainly occurred outside the US. In fact, "all of her claims turn on the same tragic episode in Austria, allegedly caused by wrongful conduct and dangerous conditions in Austria, which led to injuries suffered in Austria." Respondent argued that her claims were not limited to negligent conduct or unsafe conditions in Austria, but rather involved at least some wrongful action in the United States, specifically, that OBB should have alerted her to the dangerous conditions at the Innsbruck train station when it sold the Eurail pass to her in the United States.

The Court rejected Respondent's attempt to sidestep the FSIA's application through artful pleading. The Court held that "[h]owever Sachs frames her suit, the incident in Innsbruck remains at its foundation." Therefore, the commercial activity exception did not apply and OBB was immune from suit.

Conclusion and implications for airlines

Under the Supreme Court's holding in OBB, foreign government-owned airlines may be immune from suit in the US for their activities occurring outside the US that do not involve flights to or from the US particularly where the conduct central to the plaintiff's claims occurs outside the US.

United States Supreme Court Limits Exception To Immunity For Government-Owned Entities

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.