Foreign sovereign immunity incertitude

On May 1, the U.S. Supreme Court issued its decision in Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co., 2017 DJDAR 4061, a closely watched case against a foreign government that raised questions about the scope of the Foreign Sovereign Immunities Act (FSIA). Venezuela won the case. But it may regret the effect the court's decision has on this specialized area of litigation.

First, some background. The FSIA is a federal statute that grants courts authority, in certain situations, to assert jurisdiction over foreign governments and their agencies. These situations are supposed to be the exceptions to the rule. Indeed, until the 1950s, American courts almost never heard cases involving foreign governments (or, at least, friendly ones). That changed after World War II and, in 1976, Congress codified the new theory, a "restrictive" view of foreign sovereign immunity that grants governments immunity for their "public" acts but not for their "private" or commercial acts.

FSIA litigation has increased dramatically since then. The process is supposed to be simple. A foreign defendant must show that it is the government itself or an agency or instrumentality of the government. If so, it is presumptively immune from suit. Then the burden shifts to the plaintiff to show that an exception applies. These exceptions are set out in the FSIA. Helmerich focused on the "expropriation" exception. It states that "[a] foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ... (3) in which rights in property taken in violation of international law are in issue and that property ... is owned or operated by an agency or instrumentality of the foreign state ... engaged in a commercial activity in the United States." 28 U.S.C. Section 1605(a)(3).

Helmerich focused on the phrase "taken in violation of international law." Applying normal pleading rules, the U.S. Court of Appeals for the D.C. Circuit had found that a plaintiff could satisfy this requirement by making a non-frivolous argument that property had been taken in violation of international law. The Supreme Court rejected that finding, though, and held that a plaintiff must show, definitively, that property was taken in violation of international law to establish subject matter jurisdiction in an FSIA takings case.

The first part of that test - was property taken - should not be difficult to apply. But the second part is more troubling because, although the Supreme Court said courts must decide this at the outset of the case, it did not say what it means for a taking to violate international law, and the case law is not clear. For example, some courts have said that a taking violates international law if "(1) it was not for a public purpose, (2) it was discriminatory, or (3) no just compensation was provided for the property taken." de Csepel v. Republic of Hungary, 808 F. Supp. 2d 113, 128 (D.D.C. 2011), aff'd in part, 714 F.3d 591 (D.C. Cir. 2013).

Those are not easy questions to answer. They involve fact-intensive balancing and policy decisions that cannot be answered in the abstract and that could differ between cases. Who is to say, after all, whether a taking was "discriminatory"? What type of discrimination qualifies? Any disparate treatment? How should a court determine if a taking was done for a public or non-public purpose? Who decides whether compensation was just? Do American interpretations of "just" compensation apply in this context, to actions taken overseas?

More importantly, these questions almost certainly cannot be answered without discovery. And because these questions are often dispositive, they will lead to unpredictability, lengthy litigation and an almost inevitable appeal. That's exactly what the FSIA was designed to prevent.

The Helmerich decision would make sense for the other FSIA exceptions. For example, the commercial activity exception requires that the challenged actions be "the type of actions by which a private party engages in trade and traffic or commerce," Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992), and there must be "a sufficient nexus between the plaintiff's asserted cause of action and the foreign state's commercial activity." Embassy of the Arab Republic of Egypt v. Lasheen, 603 F.3d 1166, 1170 (9th Cir. 2010). Those issues can be decided at the outset of the case, with little (if any) discovery. The analysis can be guided by decisions in other cases. And judges typically do not have to bother with the underlying merits. The same is true for other exceptions.

The expropriation exception is different. Tying the jurisdictional question to the merits may increase the burden on foreign governments and expose them to costly discovery and lengthy litigation - plus, after all that, an almost inevitable appeal.

The Supreme Court apparently thinks otherwise. It said its decision provided a "more workable standard" than the D.C. Circuit's, which it called "a standard limited only by the bounds of a lawyer's (nonfrivolous) imagination." That is a good principle to follow, of course, and one that I have urged the court to use in other cases. But this one decision may lead to worse ones, something the court will eventually have to rethink and correct, much like it did with the rules governing qualified immunity (the loathed Saucier v. Katz).

There is something to be said for the old rules. For example, there is a good reason for accepting the well-pleaded allegations of a complaint as true at the beginning of a case. Many plaintiffs do not have the ability or resources to conduct pre-lawsuit investigations. Liberal pleading rules level the playing field for those parties. They also provide clarity to defendants. Unlike with other pleading issues, a defendant can challenge a complaint under the FSIA either based on the face of the complaint, accepting the allegations as true, or based on extrinsic evidence. Many defendants will choose the former because it reduces the possibility of jurisdictional discovery, saving costs and streamlining litigation. Rule 11 also prohibits plaintiffs' lawyers from making frivolous jurisdictional arguments and from ignoring bad evidence.

Thus, foreign governments may have won the battle in Helmerich. But they could have opened the door to even more litigation, and greater risks, in the long run. The world is more connected than ever. Foreign governments and their agencies are as active as ever in the global economy. They should expect more FSIA litigation in American courts and they should be ready for plaintiffs to use Helmerich against them.