United States: Foreign Sovereign Immunity Act (FSIA) - The World In U.S. Courts: Summer-Fall 2018

Last Updated: December 6 2018
Article by   Orrick

FSIA "Commercial Activity" Exception Applies to Transportation of Submarine Loaned to Australian National Museum at Nominal Cost

Anderson Trucking Service, Inc. v. Eagle Underwriting Group, Inc., US District Court for the District of Connecticut, August 23, 2018

A submarine owned by a US marine research facility and to be loaned to the Australian National Maritime Museum was damaged by fire while en route to Australia on one of Anderson's trucks. Anderson sought a declaratory judgment that it was not liable, and the defendants sought to dismiss the complaint on various grounds. As relevant here, the museum, a non-profit corporation that is an "agency or part" of the Commonwealth of Australia, argued that the FSIA prevented the suit from going forward.

The Court explained that a defendant like the museum that is considered a "foreign state" under the FSIA may not be sued in US courts unless one of the statute's exceptions applies. At issue was the "commercial activity" exception, which first requires that the conduct giving rise to the claim be among "the type of actions by which a private party engages" in trade or commerce. The Court found that the museum's actions in arranging for transport easily satisfied the test. It rejected the museum's argument that its conduct in borrowing the submarine for nominal cost to display at a national museum was not commercial on grounds that the nature of the actions, not their purpose, was relevant to the determination under the FSIA.

The Court next determined whether the commercial conduct satisfied the additional requirements that the conduct was the "basis" or "foundation" for the claim and that it either was carried out in the US or carried out elsewhere with "direct effects" felt in the US. The Court concluded that it had insufficient information about the museum's relationship to Anderson as shown in the relevant insurance, transport contracts, and bills of lading to make the determination. Although acknowledging that discovery against a sovereign to determine applicability of an FSIA exception should be ordered only sparingly, the Court found that Anderson had shown a "reasonable basis for asserting jurisdiction" and allowed the discovery to proceed.

"Commercial Activity" Exception to FSIA Applicable to Claims that Sovereign Wealth Fund "Hacked" Computers of Former Business Partner

Azima v. Rak Investment Authority, US District Court for the District of Columbia, April 13, 2018

Briefly (and simplifying somewhat a complex set of facts), the plaintiff Farhad Azima was an American citizen and resident who was employed for many years by the investment authority of Ras Al Khaimah, one of the UAE emirates (the investment authority is known as "RAKIA"). Azima and RAKIA engaged in several joint ventures and in 2015 and 2016 Azima played some role in trying to resolve a dispute between RAKIA and its former CEO. In March 2016 a business dispute between RAKIA and Azima was settled, with the settlement agreement also reciting as a basis for payment Azima's "informal" service in RAKIA's dispute with its former CEO. RAKIA's relationship with Azima was also then breaking down, however, and RAKIA terminated their relationship in July 2016. During this period, "multiple websites" appeared on the Internet disparaging Azima and containing documents and photographs that Azima alleged had been illegally stolen from his personal and professional computers through "hacking" orchestrated by RAKIA in 2015-2016. That hacking also allegedly resulted in Azima's computers losing data and being infected by malware. Azima then brought federal and state-law claims against RAKIA based on the alleged hacking in federal court in Washington, D.C.

As relevant here, the Court first considered RAKIA's motion to dismiss the complaint under the FSIA, a federal statute which, with some important exceptions, generally provides an immunity from suit in the US for activities of an arm of a non-US sovereign. The parties did not dispute the applicability of the FSIA to RAKIA as a general matter but contested whether the statute's "commercial activity" exception would prevent dismissal. The FSIA exceptions are famously complex, and as relevant here one would apply (and allow the suit to proceed) if Azima's claim was based upon an act performed by RAKIA (i) in the US, in connection with commercial activity in another country, or (ii) outside the US, in connection with ex-US commercial activity, where the act "causes a direct effect" in the US. Virtually every part of those alternative tests has been the subject of extensive judicial discussion and interpretation.

The Court found that both parts of the test were satisfied. It determined that "commercial activity" existed between RAKIA and Azima through their direct business dealings and as well as Azima's service in connection with RAKIA's dispute with its former CEO. And it found that the hacking and commercial disparagement allegedly conducted by RAKIA was "in connection with" this commercial activity, in the sense of allegedly being part of an effort by RAKIA to gain a commercial advantage over Azima in business negotiations, to compromise Azima in his role as a go-between in RAKIA's negotiations with its former CEO, and at one point to negotiate a settlement of claims of fraud against Azima. The requirement that ex-US activity cause a "direct effect" in the US was found satisfied through a conclusion that Azima's computers were in the US when they were hacked and in some cases damaged through the loading of malware on them. Because it found each of the "commercial activity" exceptions to FSIA immunity satisfied, the Court did not need to determine whether the alleged hacking occurred within or outside the US.

The Court next rejected RAKIA's argument that the case should be dismissed under the doctrine of forum non conveniens because it more appropriately should be litigated in the UK. It faulted RAKIA for not providing a factual predicate for satisfying the doctrine's requirements, including a requirement that the UK be an "adequate" alternative forum. And its own review suggested that UK law would not cover the computer-related conduct allegedly giving rise to Azima's injuries. Similarly, the Court rejected RAKIA's argument that its settlement agreement with Azima—which included a forum selection clause providing for disputes to be litigated under English law in the UK—either covered the present dispute or would satisfy the requirements of the forum non conveniens doctrine that the alternative proposed forum be "adequate."

[Editor's note: The Azima case also appears in the Personal Jurisdiction/Forum non Conveniens section of this report.]

FSIA Precludes Enforcement of Arbitral Award Against Property Held by the Government of India Outside the US

Hardy Exploration & Production (India), Inc. v. Government of India, US District Court for the District of Columbia, June 7, 2018

Hardy acquired an interest in a joint venture between the Government of India and private companies for the development of oil and gas reserves off the coast of India. A dispute arose, and an arbitration panel in India awarded Hardy damages, interest, and specific performance relating to the company's continuing exploration of the Indian territory. After much maneuvering and delay, Hardy filed an action in federal court in Washington, D.C. seeking an order confirming the arbitral award so that it could be enforced judicially against the Government of India.

After first deciding that it would not stay the case because of the pendency of related litigation outside the US, the Court stated that its ability to decline to enforce an arbitral award was limited—as relevant here, precluded only where enforcement would violate the US's "most basic notions of morality and justice, as defined by its laws and legal precedents." To determine whether this condition was met, the Court consulted the Foreign Sovereign Immunity Act ("FSIA"), which reflected a strong US policy against interfering with the sovereign acts of other nations. The relevant provisions of the FSIA permit the execution of arbitral awards against the property of non-US sovereigns under certain conditions. But they do not expressly apply to property held by the sovereigns outside the US, and the Court found US policy therefore was to refrain from interfering with governmental actions in such circumstances. It concluded that ordering the Government of India to permit Hardy to continue exploration in Indian waters would thus run contrary to the articulated policy of the US, and it declined Hardy's effort to enforce specific performance. The Court likewise rejected Hardy's request for interest on the award, finding the interest to be "inextricably intertwined" with the rejected request for specific performance and that the interest, if ordered, would operate impermissibly to "coerce" India into allowing Hardy to continue operations.

[Editor's note: The Hardy Exploration case also appears in the Arbitration section of this report.]

FSIA Commercial Activity Exception Inapplicable Because Plaintiff's Interest in Repayment of US Loans Was Indirect, and Plaintiff Otherwise Failed to Demonstrate Seizure of Bank was a Violation of International Law Rather than a "Regulatory Action"

Official Stanford Investors Committee v. Bank of Antigua, US District Court for the Northern District of Texas, August 17, 2018

This action was brought by OSIC, the receiver tasked with recovering money lost by individuals victimized by an enormous fraud orchestrated by Robert Stanford and related entities. OSIC alleged that Antigua and Antiguan entities seized the assets of Bank of Antigua, an institution owned by Stanford, to keep them out of the hands of law enforcement agencies and the courts. OSIC argued those assets should be available to the receivership estate. The defendants argued that the Court lacked subject matter jurisdiction over the suit under the FSIA. The parties agreed that the defendants were "foreign states" under the FSIA but disagreed about applicability of the FSIA's "commercial activity" and expropriation exceptions.

OSIC argued that the third clause of the commercial activity exception applied, authorizing jurisdiction where a claim is based on extraterritorial activities that cause a "direct effect" in the US. The Court explained that a "direct" effect of an act is one that "follows as an immediate consequence" "with no intervening element." While the effect need not be either "substantial" or "foreseeable," it cannot be "purely trivial." The Court recognized that the exception's requirements may often be met where a US plaintiff claims a right to have been paid in the US, or where a contract to be performed in the US was breached. In this case, by contrast, the alleged loss occurred as a result of the bank's inability to repay loans extended to it by Stanford. Because the plaintiffs were not directly owed money but were merely investors in entities that would have had more money if the loans had been repaid, the Court concluded that their loss was not sufficiently "direct" to satisfy the exception.

The Court then addressed the expropriation exception, which it described as having three elements that a plaintiff must satisfy: "that (1) rights in property are in issue, (2) the property was taken in violation of international law, and (3) one of the two nexus requirements [with the US] is satisfied." While OSIC argued that the second prong of this test was satisfied, the Court noted that the plaintiff had not identified a "particular international law" that had been violated. The Court further found that the defendants had shown that the seizure was merely a routine "regulatory activity."

With no FSIA exception applicable, the Court dismissed the case.

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.

Authors
Events from this Firm
19 Dec 2018, Webinar, New York, United States

Intellectual Property partner Rich Martinelli will join The Knowledge Group’s live webcast, “Artificial Intelligence: A Discussion of Intellectual Property Trends and Issues in 2019.”

16 Jan 2019, Other, New York, United States

Intellectual Property partner Paul Fakler will moderate the “The Future of Music Mechanical Licensing” panel at the Copyright and Technology 2019 Conference.

16 Jan 2019, Webinar, New York, United States

LIBOR is the most widely used reference rate in the financial markets and it may be discontinued after 2021. For U.S. dollar-denominated contracts, it is expected to be replaced with SOFR (Secured Overnight Funding Rate).

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions