Removal, Jurisdiction and the Commercial Activity Exception: Sovereign Immunity and Interpreting the

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Removal, Jurisdiction and the Commercial Activity
Exception Sovereign Immunity and Interpreting
the FSIA

• Eric Sutton, Bob Salera, Pranay Vaddi

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Problem 8.1 Facts

• Red Star Chinese SOE
• Travel Desks Intl Co. US company, organized
  and existing under CA law, principal place of
  business in CA
• Red Start ordered desks from Travel Desks
• Goods delivered FAS Free Alongside Ship
• Red Stars check bounced and has not paid

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Absolute ImmunityThe Schooner Exchange v.
McFaddon

• Originally owned by McFaddon
• Ship seized by France while in Spain
• Converted into armed public vessel
• Vessel entered US port because of weather
• McFaddon sued the French government in the US
  courts on the grounds of wrongful seizure

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Absolute ImmunityThe Schooner Exchange v.
McFaddon

• Jurisdiction within territorial bounds is
  exclusive and absolute
• Each nation is a distinct sovereign, possessing
  equal rights and equal independence
• Sovereigns consent to relaxation of territorial
  jurisdiction in particular circumstances

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Absolute Immunity Schooner Exchange

• Accepted circumstances of waiver
• Persons of the sovereign
• Foreign ministers
• Passage of troops
• Implied license for national ships of war

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Relative Immunity Tate Letter

• Addressed the conflict between absolute and
  relative immunity
• Listed the approach to sovereignty by various
  nations
• Concluded that the rest of the world accepted
  some form of relative immunity

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Relative Immunity Tate Letter

• Relative immunity defined the immunity of the
  sovereign is recognized with regard to sovereign
  or public acts (jure imperii) of a state, but
  not with respect to private acts (jure
  gestionis)
• Points of agreement where immunity will not be
  claimed nor granted
• In actions with respect to real property
  (diplomatic and perhaps consular property
  excepted)
• With respect to the disposition of property of a
  deceased person even though a foreign sovereign
  is the benefficiary

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Relative Immunity Tate Letter

• Rationale
• Capitalist, non-state-owned trading incentives
  and the increasing practice of governments in
  commercial activities
• Granting sovereign immunity to other governments
  in domestic courts where the US government does
  not even retain immunity for itself
• Trendtex Trading Corp. v. Central Bank of
  Nigeria, 1977 2 W.L.R. 356, 386 (C.A.)
  applying universal doctrine of sovereign immunity
  to commercial activity will disserve the comity
  of nations

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Foreign Sovereign Immunities Act (FSIA)

• Grounds for federal court jurisdiction over
  foreign states
• Waiver
• Commercial activity
• Property taken in violation of international law
• U.S. property acquired by succession or gift or
  immovable
• Tortious act or omission
• Arbitration
• Terrorist acts
• Maritime liens and ship mortgages
• Counterclaims

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Foreign Sovereign Immunities Act (FSIA)

• Provides the exclusive basis for both personal
  and subject matter jurisdiction over a foreign
  state
• Immunity is not merely a defense, it goes to
  jurisdiction itself

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Jurisdiction and Exclusivity of FSIA

• Argentine Republic v. Amerada Hess Shipping Corp.
• Text and structure of FSIA demonstrate Congress
  intent that FSIA be the sole basis for obtaining
  jurisdiction over a foreign state.
• FSIA must be applied by the district courts in
  every action against a foreign sovereign, since
  subject-matter jurisdiction depends on the
  existence of one of the exceptions to foreign
  sovereign immunity.
• Immunity is granted in cases involving alleged
  violations of international law that do not come
  within one of FSIAs exceptions.

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Commercial Activity Exception

• Republic of Argentina v. Weltover, Inc.
• Whether government bonds constitutes commercial
  activity under the FSIA
• How to define commercial?
• 1603(d) first sentence commerciality does not
  depend on act or practice
• 1603(d) second sentence nature, not purpose, of
  transaction determines commerciality

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Clauses addressing the commercial activity
exception

• Commercial activity in the US
• 1605(a)(2), clause 1
• Nature of the claim must bear a nexus to the
  commercial activity carried on in the US. See
  Comment, p. 583.
• Commercial activity outside the US
• 1605(a)(2), clause 2
• An act performed in the US connected to regular
  commercial activity carried on outside the US
• 1605(a)(2), clause 3
• Applies where injury in the US is substantial and
  foreseeable result of defendants actions outside
  the US

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Service of Process

• Change of facts
• Suit is filed in state court in CA
• San Francisco v. Red Star and Instrumentality
• Process (summons and complaint) by publication
• RS and I file motion to dismiss
• Absence of personal jurisdiction for improper
  service of process
• Lack of personal and subject matter jurisdiction
  based upon sovereign immunity
• Alternatively, motion to remove to federal court
• Assert in motion that desks were purchased for
  new Chinese ministry for dissident students that
  requires them to perform bureaucratic office work

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Service of Process

• FSIA provides method for service of process in
  1608
• Note Service of process which is technically
  improper may be sufficient where defendant had
  actual notice of lawsuit. Magness v. Russian
  Federation.

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Removal, Use of a Jury, Punitive Damages, Venue
and Default and Execution of Judgments

• Simply, foreign states have authority for
  unconditional removal from state to Federal court
  at their own discretion. 1441(d).
• This applies even when the foreign state is one
  of multiple defendants
• Any property may be subject to execution, not
  just that connected to dispute. 1610(a).
• Only applies where execution immunity is waived,
  or judgment concerns specified actions under
  1605(a)(2), (3), (5) or (b).

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Commercial Activity in Review

• Could a private actor in the market place engage
  in the activity at issue? See 1603(d), (e).
• Is action based upon
• (1) commercial activity within the US
• (2) act performed in the US connected to
  commercial activity outside US
• (3) act performed outside the US connected to
  commercial activity outside the US, but with
  direct effect in the US

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Service of Process Review

• Does service comply with requirements in 1608,
• Or, does defendant have actual notice of lawsuit?

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Removal, Execution of Judgments Review

• Has agency waived execution immunity?
• Or, does judgment concern
• Commercial activity - 1605(a)(2)
• Right in property in violation of international
  law are at issue with commerical activity
  1605(a)(3)
• Damages occur in US caused by omission within
  scope of foreign states duty 1605(a)(5)
• Maritime lien based on commercial activity
  1605(b)

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Conclusions and Checklist

• Red Star is an instrumentality of a foreign state
  under 1603(a) and 1603(b)(1)
• The nature of the conduct is the sale of goods,
  and therefore constitutes a commercial activity
  under 1603(d). Red Stars purpose to use the
  property for governmental means is disregarded
  under the same provision,
• Activity violates 1605(a)(2) action based upon
  a commercial activity carried on in the United
  States by the foreign state
• The case could also be brought on the grounds of
  1605(b) and (c) as a maritime lien, provided
  that notice is proper