2015 International Law Update, Volume 21, Number 2 (April - May - June)

2015 International Law Update, Volume 21, Number 2 (April - May - June)

Legal Analyses published by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com. 

ARBITRATION/MARITIME LAW

Fifth Circuit reverses district court determination that small arbitral award by Philippine arbitration panel in favor of injured seaman violated public policy of the United States; remands for district court to enforce the arbitral award

This case arose out of work-related injuries that Lito Martinez Asignacion (Asignacion), a citizen and resident of the Philippines, sustained while working on a vessel owned by Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG (Rickmers), a German Corporation.

Asignacion had signed a contract to work aboard the vessel M/V RICKMERS DAILAN owned by Rickmers which sailed under the flag of the Marshall Islands. Under Philippine law, foreign employers can hire Filipino workers through the Philippine Overseas Employment Administration (POEA), which is an arm of the Philippine government. Asignacion’s contract incorporated the “Standard Terms and Conditions Governing the Employment of Filipino Seafarers On Board Ocean Going Vessels” (Standard Terms), required by POEA. These terms include several provisions related to dispute resolution, such as:

Section 29—providing that in case of claims and disputes arising from the employment, the parties shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators;

Section 31—providing that any unresolved dispute, claim or grievance arising out of or in connection with the contract shall be governed by the laws of the Republic of the Philippines, international conventions, treaties, and covenants to which the Philippines is a signatory; and

Section 20 (B)—providing that when a seaman suffers work-related injuries, the employer must provide the full cost of medical treatment until the seaman is declared fit to work or his level of disability is declared after repatriation to the Philippines; that if the seaman is permanently disabled, he is entitled to disability benefits; and that the contract covers “all claims arising from or in the course of the seafarer’s employment, including but not limited to damages arising from the contract, tort, fault or negligence under the laws of the Philippines or any other country.”

Asignacion suffered burns when a cascade tank aboard the vessel overflowed. The vessel was at that moment docked in the Port of New Orleans, Louisiana. Asignacion received treatment at a burn unit in Baton Rouge, and was thereafter repatriated to the Philippines, where he continued to receive medical attention. Asignacion sued Rickmers in Louisiana state court to recover for his bodily injuries. The court found that Asignacion sustained severe burns to 35% of his body, suffered problems with his body-heat control mechanism, and experienced skin ulcerations and sexual dysfunction. When Rickmers filed an exception seeking to enforce the arbitration clause of Asignacion’s contract, the state court granted the exception, stayed litigation, and ordered arbitration in the Philippines.

The arbitration commenced before a Philippine panel convened under the auspices of the Philippine Department of Labor and Employment. The panel found that Section 31 of the Standard Terms prevented the panel from applying any law besides Philippine law. Furthermore, the panel accepted Rickmers’s physician’s finding that Asignacion had a Grade 14 disability—the lowest grade of compensable disability under the Standard Terms—which entitled Asignacion to a lump sum of $1,870.

Asignacion filed a motion in Louisiana state court, asking that Rickmers show cause as to why the Philippine arbitral award should not be set aside for violating United States public policy. Rickmers removed the suit to federal court and brought a second action in the district court seeking to enforce the arbitral award.

The district court determined that the only defense Asignacion invoked was Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3. (“Convention”), which allows a signatory country to refuse enforcement if “recognition or enforcement of the award would be contrary to the public policy of that country.” The district court then applied the traditional choice-of-law analysis for maritime injury cases, the Lauritzen—Rhoditis test. See Lauritzen v. Larsen, 345 U.S. 571 (1953),and Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306 (1970). The law of the vessel’s flag—in this case the Marshall Islands—should apply absent a valid choice-of-law clause.

Furthermore, the court found that the Marshall Islands adopted the general maritime law of the United States, and held that enforcing the arbitral award would violate the United States public policy protecting seamen. The public-policy violation, according to the court, arose not from the arbitrator’s failure to apply United States law, but rather because applying Philippine law effectively denied Asignacion the opportunity to pursue the remedies to which he was entitled as a seaman, such as maintenance and cure, negligence and unseaworthiness. The district court also held that the prospective-waiver doctrine, which invalidates certain combined choice-of-law and choice-of-forum provisions, applied to Asignacion’s contract, and entered an order refusing to enforce the Philippine arbitral award. Rickmers appealed.

The United States Court of Appeals for the Fifth Circuit reverses the district court’s decision and remands for the district court to enforce the award.

The issue is whether an arbitral award can be set aside pursuant to Article V(2)(b) of the Convention’s public policy exception when it effectively denies a seamen the right to pursue his general maritime remedies.

The Court finds that both forums in this case, the United States and the Philippines, are signatories of the Convention. As the court noted, “[t]he Convention applies when an arbitral award has been made in one signatory state and recognition or enforcement is sought in another signatory state.” The Court adds that “[a]n award’s enforcement is governed by the Convention, as implemented at 9 U.S.C. § 201 et seq., if the award arises out of a commercial dispute and at least one party is not a United States citizen.” [Slip op. 4] The Court concludes that the award issued as a result of the arbitration between Asignacion and Rickmers is governed by the Convention.

“A party to an award governed by the Convention may bring an action to enforce the award in a United States court that has jurisdiction. The court ‘shall confirm’ the award unless a ground to refuse enforcement or recognition specified in the Convention applies. The Convention permits a signatory to refuse to recognize or enforce an award if ‘recognition or enforcement of the award would be contrary to the public policy of that country.’”

“Arbitral awards falling under the Convention are enforced under the Federal Arbitration Act (FAA). An ‘emphatic federal policy’ favors arbitral dispute resolution. The Supreme Court has noted that this policy ‘applies with special force in the field of international commerce.’ The FAA permits courts to ‘vacate an arbitrator’s decision ‘only in very unusual circumstances.’’ A district court’s review of an award is ‘extraordinarily narrow.’ Similarly, a court reviewing an award under the Convention cannot refuse to enforce the award solely on the ground that the arbitrator may have made a mistake of law or fact. The party opposing enforcement of the award on one of the grounds specified in the Convention has the burden of proof.” [Slip op. 4] (footnotes omitted)

The Court does not depart from the already settled standards related to the public policy defense.

“We have held that the Convention’s ‘public policy defense is to be ‘construed narrowly to be applied only where enforcement would violate the forum state’s most basic notions of morality and justice.’ In the context of domestic arbitral awards, the Supreme Court has recognized a public-policy defense only when an arbitrator’s contract interpretation violates ‘‘some explicit public policy’ that is ‘well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests.’ The Eleventh Circuit has held that the ‘explicit public policy’ requirement applies with the same force to international awards falling under the Convention.” [Slip op. 4]

Asignacion’s public-policy defense was primarily based on the adequacy of remedies under Philippine law. Moreover, Asignacion’s counsel urged that United States public policy requires that foreign arbitral panels give seamen an adequate choice-of-law determination; and that the arbitrators’ exclusive reliance on the choice-of-law provision in Asignacion’s contract did not constitute a fair choice-of law determination.

“To the extent that Asignacion’s defense turns on the Philippine arbitrators’ exclusive reliance on the contract’s choice-of-law provision, courts are unable to correct this sort of unexceptional legal error (if one was in fact made) when reviewing an arbitral award. Applying Philippine law to a Filipino seaman in Philippine arbitration, by itself, is not cause for setting aside the award, even if American choice-of-law principles would lead to the application of another nation’s law.” [Slip op. 5]

“[T]he United States has a public policy strongly favoring arbitration, which ‘applies with special force in the field of international commerce.’ On the other hand, the United States has an ‘explicit public policy that is well defined and dominant’ with respect to seamen: maritime law provides ‘special solicitude to seamen.’ Seamen have long been treated as ‘wards of admiralty,’ and the causes of action and the remedies available to seamen reflect this special status. In addition to the foundational policies favoring arbitration and protecting seamen, other policies concerning international dispute resolution weigh in our decision.” [Slip op. 5]

“The Supreme Court has rejected the ‘concept that all disputes must be resolved under our laws and in our courts,’ even when remedies under foreign law do not comport with American standards of justice. The Supreme Court has stated: ‘To determine that American standards of fairness . . . must [apply] demeans the standards of justice elsewhere in the world, and unnecessarily exalts the primacy of United States law over the laws of other countries.’ Similarly, in Romero v. International Terminal Operating Co. [358 U.S. 354 (1989)], which addressed the application of choice-of-law principles to a seaman’s claim, the Court stated:”

“‘To impose on ships the duty of shifting from one standard of compensation to another as the vessel passes the boundaries of territorial waters would be not only an onerous but also an unduly speculative burden, disruptive of international commerce and without basis in the expressed policies of this country. The amount and type of recovery which a foreign seaman may receive from his foreign employer while sailing on a foreign ship should not depend on the wholly fortuitous circumstance of the place of injury.’”

“Therefore, even with regard to foreign seamen, United States public policy does not necessarily disfavor lesser or different remedies under foreign law.”

“The importance of the POEA Standard Terms to the Philippine economy also weighs in favor of enforcement. As the Ninth Circuit has noted, ‘[a]rbitration of all claims by Filipino overseas seafarers is an integral part of the POEA’s mandate to promote and monitor the overseas employment of Filipinos and safeguard their interests.’ Asignacion points out, correctly, that the Convention directs a court to consider the public policy of the country in which it sits, not the public policy of the arbitral forum. But, while Philippine public policy does not apply of its own force, our analysis of a foreign arbitral award is colored by ‘concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes . . . even assuming that a contrary result would be forthcoming in a domestic context.’” [Slip op. 5-6]

As Asignacion maintained that in particularly egregious circumstances, a United States court may apply domestic choice-of-law and forum-selection laws as a means of implementing the Convention’s public-policy defense and refusing to enforce and award, the Court refers to the Lauritzen v. Larsen case and states:

“[…] The Court enumerated a seven-factor test to determine choice of law but also commented that ‘[e]xcept as forbidden by some public policy, the tendency of the law is to apply in contract matters the law which the parties intended to apply.’ The Court then cautioned that ‘a different result would follow if the contract attempted to avoid applicable law,’ such as applying foreign law to a United States flagged ship. […]”

“Lauritzen’s rule — that contractual choice-of-law provisions for foreign seamen are generally enforceable — favors Rickmers. However, the reach of the exception — which condemns a choice-of-law provision that attempts to ‘avoid applicable law’ — is less clear. On one hand, Rickmers did little, if anything, to avoid applicable law through its contract with Asignacion. Rickmers had no say in the choice-of-law provision, POEA’s Standard Terms mandated Philippine law. On the other hand, the Philippine government has arguably attempted to avoid the application of foreign law to its seamen. But it is far from certain that the Lauritzen Court condemned such choice-of-law clauses mandated by a foreign sovereign rather than a party to the contract.” [Slip op. 6-7]

The Court rejects Rickmers’s argument that the previous several cases decided by the Court, which ordered that a Filipino seamen’s claims be resolved in Philippine arbitration or under Philippine law, establish that applying Philippine law to Asigancion’s claims does not violate public policy.

“Our decision in Calix-Chacon v. Global International Marine, Inc. [493 F.3d 507 (5th Cir. 2007)] addressed the question of reduced remedies in foreign law. In Calix-Chacon, a Honduran seaman signed a contract providing that Honduran law would apply and specifying a Honduran forum. He brought a claim in an American court for maintenance and cure, and the district court held the forum-selection clause unenforceable on public-policy grounds because both general maritime law and the Shipowner’s Liability Convention of 1936 (Shipowner’s Convention) ‘express[ed] a strong public policy’ against abridging maintenance and cure liability in contract. On appeal, we concluded that under our precedents, the Shipowner’s Convention did not require us to invalidate a foreign forum-selection clause when foreign law imposed a lower standard of care. We vacated the district court’s decision because it relied on the Shipowner’s Convention and remanded for further analysis of the public-policy question under the general maritime law.”

“In Calix-Chacon, we expressly refrained from addressing the general maritime law’s weight in the public-policy analysis. Nonetheless, our conclusion that the Shipowner’s Convention did not, as a matter of policy, prevail over a reduced standard of care in Honduran law, suggests we should be reluctant to conclude that lesser remedies make an award unenforceable on policy grounds.” [Slip op. 7]

Asignacion argued that Aggarao v. MOL Ship Management Co. [Civ. No. CCB-09-3106, 2014 WL 3894079 (D. Md. Aug. 7, 2014)] is on all fours with his claims. In Aggarao, the Maryland district court refused to enforce a Filipino seamen’s arbitral award because it found that Aggarao’s limited remedies under the POEA contract violated public policy. The Court disagrees with the argument.

“Unlike in Aggarao, the arbitrators found that Asignacion had a Grade 14 disability — the lowest compensable grade — and the district court made no findings related to the adequacy of the award vis-à-vis Asignacion’s lasting injuries or unmet medical expenses. Rather, the district court only determined that the arbitration and award ‘effective[ly] deni[ed]’ Asignacion the right to pursue his general maritime remedies. But that finding is insufficient to support the conclusion that the public policy of the United States requires refusing to enforce the award.”

“Asignacion’s arbitral award does not represent the sum total of Rickmers’s obligation to Asignacion under the POEA Standard Terms contract. Section 20(B) required Rickmers to pay Asignacion’s medical costs until he was repatriated to the Philippines and his disability level was established. There is no dispute that Rickmers met its obligations under Section 20(B). At oral argument, Asignacion’s counsel represents that he has incurred medical expenses after Rickmers’s Section 20(B) obligation terminated. But our careful review of the record has found no evidence that the Philippine arbitral award was inadequate relative to Asignacion’s unmet medical needs, let alone so inadequate as to violate this nation’s ‘most basic notions of morality and justice.’ We conclude that the district court erred in determining that Asignacion’s award violated the public policy of the United States.” [Slip op. 8]

The Court agrees with Rickmers that the district court erred by relying on the prospective-waiver doctrine to refuse to recognize the Philippine arbitral award.

“In Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc. [473 U.S. 614, 619-21 (1985)], the Supreme Court addressed a district court’s enforcement of an agreement to arbitrate, which forced an auto dealer to arbitrate its antitrust claims under the Sherman Act, 15 U.S.C. § 1 et seq., in Japan. The Court commented, in dictum, that ‘in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.’ Similarly, in Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer [515 U.S. 528, 540-41 (1995)], the Court, again in dictum, suggested that Mitsubishi’s prospective-waiver doctrine might apply to contracts under the Carriage of Goods by Sea Act, 46 U.S.C. app. § 1300 et seq. In both cases, the Court declined to apply the doctrine, in part, because it would be premature to do so; each case addressed the enforceability of an agreement to arbitrate, as opposed to awards in which the arbitrators actually failed to address causes of action under American statutes.”

“The present case is at the award-enforcement stage, unlike Mitsubishi and Vimar, and the district court applied the prospective-waiver doctrine. The district court noted that the antitrust laws in Mitsubishi and COGSA in Vimar applied to ‘business disputes between sophisticated parties.’ Because seamen are afforded special protections under United States law, unlike sophisticated parties, the district court concluded that the prospective-waiver doctrine prevented the enforcement of the Philippine arbitral award.”

“However, the prospective-waiver doctrine is limited to statutory rights and remedies. From Mitsubishi onwards, the Supreme Court has referred only to ‘statutory’ rights and remedies when discussing the doctrine. The Court recently continued that phrasing in American Express Co. v. Italian Colors Restaurant, where the Court refused to apply the doctrine to a waiver of class arbitration. The Supreme Court has not extended the prospective-waiver doctrine beyond statutory rights and remedies. The district court therefore erred when it relied on the doctrine to afford Asignacion an opportunity to pursue his claims under the general maritime law. Additionally, to apply that doctrine in every case in which a seaman agreed to a choice-of-law provision that would result in lesser remedies than those available under laws of the United States would be at odds with the rationale of the Supreme Court’s reasoning in Romero v. International Terminal Operating Co., discussed above.” [Slip op. 8-9] (Footnotes omitted)

The Court reverses the order of the district court, and remands for the district court to enforce the arbitral award.

Citation: Asignacion v. Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG, 783 F.3d 1010 (5th Cir. 2015).

DISCOVERY

In patent dispute between a Japanese and a Korean company, Federal Circuit concludes that when a court is requested to modify a protective order to allow the production of confidential materials in a foreign proceeding, it should consider the Intel factors in connection with 28 U.S.C. § 1782

In 2012, Nippon Steel & Sumitomo Metal Corporation (“Nippon Steel”) (based in Japan) filed a patent infringement action in New Jersey against POSCO (based in Korea) and POSCO America Corporation (jointly “POSCO”). During the litigation, the district court entered a protective order limiting the use of confidential materials solely for the prosecution or defense of that action.

Following this order, POSCO produced several million pages of documents containing confidential information. Nippon Steel also sued POSCO in Japan alleging trade secret misappropriation. For that case, Nippon Steel sought to amend the U.S. district court’s protective order to allow Japanese counsel to have access to POSCO’s confidential materials produced in the U.S. action. A Special Master in the U.S. district court action issued a Letter Opinion allowing production of those documents in the Japanese action so long as the materials were maintained confidential under Pansy v. Borough of Stroudsburg, 23 F.3d 772 (3d Cir. 1994). Under this standard, a “party seeking to modify the order of confidentiality must come forward with a reason to modify the order . . . the court should then balance the interests, including the reliance by the original parties to the order, to determine whether good cause still exists for the order.” Pansy, 23 F.3d at 790. Over POSCO’s objection, the district court entered an order affirming the Special Master’s decision. POSCO sought a writ of mandamus in the Federal Circuit.

The U.S. Court of Appeals for the Federal Circuit grants POSCO’s petition. The key issue here is the role of 28 U.S.C. § 1782(a) in the context of the request to modify a protective order. The Court considers this issue against the background of the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), and district court decisions addressing § 1782.

 “The district court of the district in which a person resides or is found may order him to . . . produce a document or other thing for use in a proceeding in a foreign or international tribunal . . . upon the application of any interested person . . . [and unless otherwise specified] the document or other thing [will be] produced[] in accordance with the Federal Rules of Civil Procedure. 28 U.S.C. § 1782(a).” [Slip op. 3-4]

“In Intel, the Supreme Court considered the framework under § 1782 for assessing whether to authorize discovery for use in foreign proceedings. It recognized that ‘comity and parity concerns may be important as touchstones for a district court’s exercise of discretion in particular cases,’ 542 U.S. at 261, 542 and set forth specific factors as ‘guides for the exercise of district-court discretion,’ id. at 263 n.15, in deciding whether to provide evidence for use in foreign proceedings. See id. at 264 (‘[A] district court is not required to grant a § 1782(a) discovery application simply because it has the authority to do so.’); id. at 262 (referring to ‘[c]oncerns about maintaining parity among adversaries in litigation’). As the Seventh Circuit has noted, ‘[t]he section 1782 screen—the judicial inquiry that the statute requires—is designed for preventing abuses of the right to conduct discovery in a federal district court for use in a foreign court.’ Heraeus Kulzer, GmbH v. Biomet, Inc., 633 F.3d 591, 597 (7th Cir. 2011).”

“We agree that § 1782 may not directly govern requests to modify a protective order to make material available in a foreign proceeding—as opposed to direct requests for evidentiary material for use in foreign proceedings pursuant to § 1782. And even as to the latter situation § 1782 is not exclusive since, as the government points out, there are various treaties and alternative mechanisms for securing materials for use in foreign proceedings. But here these other mechanisms appear to be unavailable, and we think that § 1782 still has a role to play when a party seeks to modify a protective order to use previously discovered documents in a foreign proceeding. Other circuit courts have not specifically addressed this issue after Intel.”

“The government argues that ‘district courts have consistently held that section 1782 does not control the disclosure or use of evidence in domestic litigation.’ U.S. Amicus Br. at 11. But while the cases state that § 1782 is not controlling, two of the district court opinions cited by the government apply the Intel factors.” [Slip op. 4-5]

The Court then looks at how the district courts addressed this issue.

“In INVISTA North America S.à.r.l. v. M & H USA Corp., No. 11-1007-SLR-CJB, 2013 WL 1867345 (D. Del. Mar. 28, 2013), although the district court found that the Intel factors were not applicable ‘to the question of whether such documents can be reviewed by an opposing side’s foreign attorneys, but not be used in a foreign legal proceeding,’ … the court applied the Intel factors in assessing whether to modify a protective order to allow the plaintiff to use documents in a foreign proceeding, see id. at *3-5. […]” [Slip op. 5]

In Intel, the Supreme Court set forth four factors a court should consider when deciding to allow production of evidence in a foreign proceeding: (1) whether “the person from whom discovery is sought is a participant in the foreign proceeding”; (2) “the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance”; (3) “whether the § 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions or other or other policies of a foreign country or of the United States”; and (4) whether the request is otherwise “unduly intrusive or burdensome. . . .” Intel, 542 U.S. at 264-65 (citations omitted). Although the Federal Circuit acknowledges that § 1782 and Intel may not directly govern requests to modify a protective order to make materials available in a foreign proceeding, it notes that at least three district courts have considered § 1782 and the Intel factors relevant to this issue. A district court should give proper consideration to the Intel factors when deciding this type of case. In this instance, the Federal Circuit finds that POSCO did not voluntarily produce these materials, but that the district court modified the protective order after the confidential materials were already produced subject to the original protective order.

The Federal Circuit concludes that when a court is requested to modify a protective order to allow the production of confidential materials in a foreign proceeding, it should consider the Intel factors announced by the U.S. Supreme Court in connection with 28 U.S.C. § 1782.

The Court thus grants POSCO’s petition; vacates the order granting the motion to modify the protective order to allow for use of discovery in foreign proceedings; and directs the district court to conduct further proceedings consistent with this Order.

In his concurring opinion, HUGHES, Circuit Judge, states:

“While the majority concedes that a §1782 action is not the exclusive means by which a party can obtain documents for use in foreign proceedings, it nevertheless concludes that ‘the considerations articulated under § 1782’ and case law applying it must be considered when determining whether to modify a protective order to permit the use of confidential documents in foreign proceedings. But § 1782 does not and was never intended to apply to situations where the party is already in possession of the documents it seeks to use in the foreign proceeding. And forcing such a requirement on the district court runs afoul of the Third Circuit’s well-settled test for modifying protective orders.” [Slip op. 6-7]

“I am not persuaded that courts must consider § 1782 outside of the context of an action for the production of documents brought under § 1782. The Supreme Court may have broadened the scope of a § 1782 inquiry in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), but it did not speak to how a party already in possession of documents properly obtained through the usual course of discovery may use those documents. […]” [Slip op. 7]

“The plain language of § 1782(a) speaks only to requests for an order to produce documents or testimony, not to voluntary dissemination of legally obtained documents. Section 1782(a) describes ‘order[ing] [a person] to give his testimony or statement or to produce a document.’ § 1782(a); see also id. (‘The order may prescribe the practice and procedure . . . for taking the testimony or statement or producing the document or other thing.’); id. (‘To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or other thing produced, in accordance with the Federal Rules of Civil Procedure.’); id. (‘A person may not be compelled to give his testimony or statement or to produce a document or other thing in violation of any legally applicable privilege.’). Moreover, while § 1782(a) focuses on compelling testimony or document production, § 1782(b) focuses on the voluntary production of documents, expressly providing that § 1782(a) ‘does not preclude a person . . . from voluntarily . . . producing a document or other thing, for use in a proceeding in a foreign or international tribunal before any person and in any manner acceptable to him.’ § 1782(b).” [Slip op. 7]

“The legislative history confirms that § 1782 was enacted—and further refined—to create a cause of action for enforcing letters rogatory or other international requests for documents or testimony found in the United States. See Intel Corp., 542 U.S. at 247-49 (recounting legislative history of § 1782). But it was not intended to reach the voluntary production of documents. For example, the Senate Report accompanying Congress’s 1964 revitalization of § 1782 makes clear that Congress was only concerned with the district court’s power to compel discovery in response to foreign requests: ‘Subsection (a) of proposed revised section 1782 makes clear that U.S. judicial assistance may be sought not only to compel testimony and statements but also to require the production of documents and other tangible evidence.’ S. Rep. No. 88-1580 (1964), reprinted in 1964 U.S.C.C.A.N. 3782, 3788 (emphasis added); Act of Oct. 3, Pub. L. No. 88-619, § 9, 78 Stat. 997; see also 1964 U.S.C.C.A.N at 3789 (‘A request for judicial assistance under the proposed revision may either be contained in a letter rogatory or other request or be made in a direct application by an interested person. . . .’).” [Slip op. 7-8]

“[…]. In In re Jenoptik AG, 109 F.3d 721 (Fed. Cir. 1997), we recognized that the protective-order inquiry is fundamentally different from the § 1782 inquiry. There, while interpreting Ninth Circuit law, we emphasized that the protective-order inquiry is focused on the confidential nature of the documents subject to the protective order, not on their use in a foreign proceeding. Id. at 723. […]Thus, we categorically held in Jenoptik—without reference or citation to any regional circuit law—that ‘[c]ase law interpreting the requirements of section 1782 is not relevant to a determination whether a protective order may be modified to permit the release of [evidence], already discovered, to another court.’ Id. at 723.” [Slip op. 8-9]

“In sum, I am not persuaded that § 1782 must be applied outside of the narrow context of an action for the production of evidence for use abroad. To the extent we are not bound by our holding in Jenoptik, I find its reasoning persuasive in light of the plain language and clear legislative history of § 1782.” [Slip op. 9-10]

According to Judge HUGHES, the majority’s holding that § 1782 and the Intel factors apply to the protective-order inquiry runs counter to Third Circuit precedent.

“Requiring a court to resort to the Intel factors when it has reason to believe the documents will be used in a foreign proceeding also contradicts Third Circuit precedent. The Third Circuit has laid out a flexible two-part test for determining whether a protective order can be modified. First, ‘[t]he party seeking to modify the order of confidentiality must come forward with a reason to modify the order.’ Pansy v. Borough of Stroudsburg, 23 F.3d 772, 790 (3d Cir. 1994). ‘[O]nce that is done, the court should then balance the interests, including the reliance by the original parties to the order, to determine whether good cause still exists for the order.’ Id. In addition to reliance, the relevant factors include whether disclosure will violate any privacy interest, the information is sought for a legitimate purpose, and sharing the information will promote fairness and efficiency. Id. at 787-91. In Pansy, the Third Circuit stressed the flexibility of the test, noting that the factors discussed are ‘unavoidably vague and are of course not exhaustive,’ while explaining that ‘such a balancing test is necessary to provide the district courts the flexibility needed to justly and properly consider the factors in each case.’ Id. at 789.” [Slip op. 10]

“While § 1782 was not designed for such cases, I nevertheless agree with the majority that modifying protective orders to permit the use of previously discovered material in foreign proceedings—like all domestic court orders potentially impinging on a foreign court’s sovereignty— may raise some of the same comity concerns identified by the Supreme Court in Intel. But this is not unique to the protective-order inquiry: any time a court imposes restrictions on a foreign court, it should be aware of such concerns. Indeed, the Third Circuit has recognized that ‘[c]omity is essentially a version of the golden rule: a ‘concept of doing to others as you would have them do to you.’ Republic of Philippines v. Westinghouse Elec. Corp., 43 F.3d 65, 75 (3d Cir. 1994) (quoting Lafontant v. Aristide, 844 F. Supp. 128, 132 (S.D.N.Y. 1994)). ‘Thus, it may be permissible to prescribe and enforce rules of law in a foreign country, but unreasonable to do so in a particular manner because of the intrusiveness of a particular type of [order].’ Id.” [Slip op. 10-11]

Citation: In re: Posco, Posco America Corp., No. 2015-112 (Federal Cir. July 22, 2015).

DISCOVERY

Where patent dispute is pending at European and Japanese patent offices, Ninth Circuit permits the gathering of evidence in the U.S. for those proceedings pursuant to § 1782

FibroGen, Inc. (FibroGen), a biotechnology company based in San Francisco, California, owns several foreign patents regarding chemical compounds useful for treating anemias. Akebia Therapeutics, Inc. (Akebia), a biopharmaceutical company that develops products using similar chemical compounds as FibroGen, initiated proceedings against certain FibroGen patents before both the European Patent Office and the Japanese Patent Office, disputing the validity of those patents. Neither Office has established procedures through which Akebia may seek discovery of potentially relevant information located in the United States for use in those foreign proceedings.

Upon application to the U.S. District Court for the Northern District of California, Akebia obtained an order under 28 U.S.C. § 1782 permitting it to serve FibroGen with document requests and deposition subpoenas to gather evidence for use in the foreign patent oppositions. FibroGen appeals.

The U.S. Court of Appeals for the Ninth Circuit affirms the use of 28 U.S.C. § 1782 for conducting domestic discovery in aid of foreign opposition proceedings at the European and Japanese patent offices.

The issues here are: (1) whether Akebia is considered an “interested person” within the meaning of § 1782, (2) whether the European and Japanese Patent Offices are considered “tribunals” for purposes of § 1782, (3) whether the scope of discovery permissible under § 1782 is limited by certain later-enacted provisions of the Leahy-Smith America Invents Act (“AIA”), and lastly (4) whether the district court abused its discretion by failing to consider certain factors in its decision to order discovery.

The Court addresses each of these questions in turn. Section 1782 permits any “interested person” to file an application in a United Stated district court requesting that the court order another person to produce testimony or documents for use “in a proceeding in a foreign or international tribunal.” Relying at every step on the U.S. Supreme Court decision Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), which construed § 1782, the Ninth Circuit upholds the district court’s discovery order. It holds that Akebia was indeed an “interested person” because, as a competitor seeking to invalidate FibroGen’s patents, Akebia had “a reasonable interest in obtaining judicial assistance” within the meaning of the statute.

“An ‘interested person’ seeking to invoke the discovery mechanism set forth under § 1782 may include ‘not only litigants before foreign or international tribunals, but also foreign and international officials as well as any other person whether he be designated by foreign law or international convention or merely possess a reasonable interest in obtaining [judicial] assistance.’’ Intel, 542 U.S. at 25657 (quoting Hans Smit, International Litigation, Under the United States Code, 65 Colum. L. Rev. 1015, 1027 (1965)).” [Slip op. 2]

“Because Akebia seeks to invoke the power of a federal court, it also must demonstrate that it has standing to do so under Article III. See Vivid Entm’t, LLC v. Fielding, 774 F.3d 566, 573 (9th Cir. 2014) (noting that ‘any person invoking the power of a federal court must demonstrate standing to do so’ (quoting Hollingsworth v. Perry, 133 S. Ct. 2652, 2661 (2013))). FibroGen contends that Akebia lacks standing because it cannot show an individualized, legally protected interest. But Akebia has an interest in receiving the information that it seeks, and it has a statutory right, as an ‘interested person’ under § 1782, to receive that information. It has demonstrated an ‘injury in fact,’ caused by FibroGen’s failure to disclose, which suffices to satisfy Article III. …” [Slip op. 3]

FibroGen’s second argument pertains to the meaning of the word “tribunal” as it is used in § 1782. FibroGen argued that the proceedings in the European and Japanese Patent Offices are not court proceedings and “do not resemble civil trials.” Therefore, such entities cannot be considered “tribunals” within the meaning of § 1782 applies. However, according to the Ninth Circuit, § 1782 applies to administrative proceedings, such foreign patent proceedings.

“A ‘proceeding in a foreign or international tribunal’ within the meaning of § 1782 ‘is not confined to proceedings before conventional courts,’ but extends also to ‘administrative and quasi-judicial proceedings.’’ Intel, 542 U.S. at 249 (quoting S. Rep. No. 1580, at 7 (1964)). Both of the foreign patent offices here conduct quasi-judicial proceedings. Those proceedings take place within the agency but carry many of the hallmarks of traditional judicial proceedings: serving as first-instance decision-makers tasked with resolving patent validity disputes, id. at 257, collecting and reviewing evidence in order to resolve those disputes, and permitting their decisions to be appealed and become subject to further review. Just as in Intel, we see ‘no warrant [for this court] to exclude’ the foreign proceedings here from the ambit of § 1782. Id. at 258; see also id. (‘The term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.’ (alterations omitted) …” [Slip op. 3]

Next, FibroGen’s argued that the scope of § 1782 should be construed together with the provisions of the later-enacted Leahy-Smith America Invents Act (AIA), which amended the Lanham Act to provide for, among other things, post-grant review proceedings in the U.S. Patent & Trademark Office (“USPTO”). The Court rejects FibroGen’s argument that Congressional institution of post-grant review processes in the AIA repealed, by implication, any application of § 1782 to foreign patent office proceedings. Again citing to Supreme Court authority, the Ninth Circuit finds no “irreconcilable” conflict between the two laws that would justify a repeal by implication.

“FibroGen overstates the tension, if any, that exists between § 1782 and the AIA. Section 1782 applies to any ‘proceeding in a foreign or international tribunal,’ including a criminal proceeding. It does not exclude patent proceedings, and it makes no mention of proceedings in United States courts. As noted above, the statute has two broad purposes: (1) to assist participants in international litigation, and (2) to encourage foreign countries to provide similar assistance to litigation in the United States. Intel, 542 U.S. at 252. Neither of those purposes affects domestic proceedings in the USPTO.” [Slip op. 4]

“The AIA, by contrast, is far more limited. It revised existing ‘inter partes review’ proceedings and created an entirely new administrative proceeding titled ‘post-grant review,’ available for certain patent claims upon a certain threshold showing of merit. See AIA, 125 Stat. at 299, 306. Although it limits discovery with respect to the former, it permits discovery of any ‘evidence directly related to factual assertions advanced by either party’ in a post-grant review proceeding. 125 Stat. at 308. The AIA applies only to proceedings conducted in the United States, making no mention of foreign proceedings.” [Slip op. 4]

“We see no apparent conflict, and certainly not an ‘irreconcilable’ one, between § 1782 and the AIA. … We therefore hesitate to read into the AIA any intent to impliedly repeal, or limit the scope of, an unrelated statutory provision. … The district court properly applied § 1782 to the foreign patent office proceedings underlying this case.” [Slip op. 4]

The Court also rejects FibroGen’s argument that the district court gave “short shrift” to the non-exclusive factors set out by the Supreme Court in its Intel opinion.

“The district court was not required to address explicitly every factor or argument, nor was it required to issue a written order. See United States v. Sealed 1, 235 F.3d 1200, 1206 (9th Cir. 2000) (noting the broad discretion afforded the district courts under § 1782 and the lack of specific guidance with which to exercise that discretion).” [Slip op. 5]

“In summary, the district court permissibly granted Akebia’s application for discovery in aid of a foreign proceeding. Both the European Patent Office and the Japanese Patent Office are ‘tribunals’ within the meaning of 28 U.S.C. § 1782, and Akebia, as the party challenging the validity of the foreign patents, is an ‘interested person’ that is allowed to seek judicial assistance.” [Slip op. 5]

The Court affirms the district court’s decision to grant Akebia’s application for discovery in aid of a foreign proceeding.

Citation: Akebia Therapeutics, Inc. v. FibroGen, Inc., 15-15274 (9th Cir. July 16, 2015).

EXTRADITION

In case of extradition of drug trafficker from Colombia, Second Circuit finds that Defendant who received 648 month prison sentence lacks standing to enforce sentencing agreement between Colombian and U.S. officials that provided Defendant would not be imprisoned for life

Since the early 1990s, Yesid Rios Suarez (“Suarez”) operated a large-scale drug trafficking organization out of Colombia and Venezuela. In September 2010, while in Venezuela, he was convicted in absentia in Colombia of drug manufacturing and trafficking. One year later Suarez was extradited from Venezuela to Colombia. Suarez was also charged in the United States with conspiracy to manufacture and import five kilograms or more of cocaine into the United States in violation of 21 U.S.C. § 963. In November 2011, the United States transmitted a formal request to Colombia for the arrest and extradition of Suarez to face charges.

In October 2012, the Colombian Ministry of Justice issued a resolution ordering Suarez’s extradition. In order for the extradition to take place, the United States government had to provide assurances that Suarez would face prosecution only for conduct occurring after December 17, 1997; would receive various due process protections; and would not be “subjected to forced disappearance, torture or cruel, inhuman or degrading treatment or punishment or exile, life imprisonment or confiscation,” JA 373. In March 2013, the United States, in a Diplomatic Note to the Colombian government, provided those assurances and promised that “[a]lthough the maximum statutory penalty for the charge for which extradition was approved is life imprisonment, the Government of the United States assures the Government of Colombia that a sentence of life imprisonment will not be sought or imposed …” Gov’t Add. 1. In May 2013, Suarez was extradited to the United States.

Suarez pled guilty to the conspiracy count and was sentenced to 648 months imprisonment and a $1 million fine. At sentencing, the district court “acknowledge[d] [that this] is effectively a life sentence”, however, the court ruled that it did not violate the terms of the extradition agreement because the sentence was a term of years not a sentence of life imprisonment. Suarez appealed.

The United States Court of Appeals for the Second Circuit affirms district court’s judgment.

The issue here is whether a defendant has standing to challenge his sentence on the grounds that it violates the terms of the treaty or decree authorizing his extradition.

At the time of the appeal Suarez was 46 years old. Suarez challenged his 54-year sentence because it is contrary to the United States government assurance that “a sentence of life imprisonment will not be sought or imposed” because the sentence exceeds his life expectancy.

“‘A district court’s interpretation of an extradition agreement . . . involve[s] questions of law, and [is] therefore review[ed] . . . de novo.’ United States v. Baez, 349 F.3d 90, 92 (2d Cir. 2003).”

“‘Based on international comity, the principle of specialty generally requires a country seeking extradition to adhere to any limitations placed on prosecution by the surrendering country.’ Id. Although the rule of specialty is typically applied in cases where the defendant is tried for a crime not enumerated in the applicable extradition treaty or agreement, it also ‘has application in the sentencing context.’ United States v. Cuevas, 496 F.3d 256, 262 (2d Cir. 2007). Because ‘the cauldron of circumstances in which extradition agreements are born implicate the foreign relations of the United States . . ., a district court delicately must balance its discretionary sentencing decision with the principles of international comity in which the rule of specialty sounds.’ Baez, 349 F.3d at 93.”

“However, this Court has never ‘conclusively decided whether a defendant has standing to challenge his sentence on the ground that it violates the terms of the treaty or decree authorizing his extradition,’ or whether the right to object is held solely by the extraditing nation. … Rather, we have rejected those challenges on the merits without deciding the standing issue. See, e.g., United States v. Fusco, 560 Fed. App’x 43, 45 n.1 (2d Cir. 2014), cert denied. 135 S. Ct. 730 (2014) (‘We need not resolve whether Fusco has prudential standing to challenge his prosecution and sentencing on the grounds that they violate the terms of the Extradition Treaty or the rule of specialty, because his argument plainly fails on the merits.’); …” [Slip op. 2-3]

The Court then analyzes the doctrine of standing, differentiating between constitutional and prudential standing:

“‘The doctrine of standing asks whether a litigant is entitled to have a federal court resolve his grievance. This inquiry involves ‘both constitutional limitations on federal-court jurisdiction and prudential limits on its exercise.’ Kowalski v. Tesmer, 543 U.S. 125, 128 (2004) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). Unlike constitutional standing, which focuses on whether a litigant sustained a cognizable injury-in-fact, ‘[t]he ‘prudential standing rule. . . bars litigants from asserting the rights or legal interests of others in order to obtain relief from injury to themselves.’’ Rajamin v. Deutsche Bank Nat. Trust Co., 757 F.3d 79, 86 (2d Cir. 2014) (quoting Warth, 422 U.S. at 509). ‘When both limitations [potentially] present themselves, we may assume Article III standing and address ‘the alternative threshold question’ of whether a party has prudential standing.’ Hillside Metro Assoc., LLC v. JP Morgan Chase Bank, Nat. Ass’n, 747 F.3d 44, 48 (2d Cir. 2014) …. ‘In other words, we may consider third-party prudential standing even before Article III standing.’ Id. (internal quotation marks omitted).”

“Because the prudential standing rule requires that an individual ‘assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties,’ Rajamin, 757 F.3d at 86 …, we must first determine who has legal rights or interests under the orders and Diplomatic Note that achieved Suarez’s extradition. Although the United States and Colombia have had a formal extradition treaty since 1982, extradition is commonly negotiated on a case-by-case basis through diplomatic channels because of amendments to the constitution of Colombia that expressly prohibit the extradition of Colombian nationals except for a limited scope of offenses. See U.S. Department of State, Third Report on International Extradition Submitted to Congress Pursuant to Section 3203 of the Emergency Supplemental Act, 2000, as enacted in the Military Construction Appropriations Act, 2001, Public Law 106246 Related to Plan Colombia, http://www.state.gov/s/l/16164.htm. For purposes of our analysis here, extradition documents such as Diplomatic Notes implicate the same international legal rights as treaties because ‘a violation of [an] extradition agreement may be an affront to the surrendering sovereign.’ Baez, 349 F.3d at 92 …” [Slip op. 3-4]

“Generally speaking, ‘absent protest or objection by the offended sovereign, [a defendant] has no standing to raise the violation of international law as an issue.’ United States v. Reed, 639 F.2d 896, 902 (2d Cir. 1981). That is because international agreements, including treaties, ‘do not create privately enforceable rights in the absence of express language to the contrary,’ Mora v. New York, 524 F.3d 183, 201 (2d Cir. 2008), or some other indication ‘that the intent of the treaty drafters was to confer rights that could be vindicated in the manner sought by the affected individuals,’ id. at 203.” [Slip op. 4]

“‘As a matter of international law, the principle of specialty has been viewed as a privilege of the asylum state, designed to protect its dignity and interests, rather than a right accruing to the accused.’ Shapiro v. Ferrandina, 478 F.2d 894, 906 (2d Cir. 1973). ‘[T]he object of the rule was to prevent the United States from violating international obligations.’ Fiocconi, 462 F.3d at 480. These concerns apply equally whether a criminal defendant objects based on the rule of specialty or based on the interpretation of an extradition treaty or Diplomatic Note. Because ‘[t]he provisions in question are designed to protect the sovereignty of states, . . . it is plainly the offended states which must in the first instance determine whether a violation of sovereignty occurred, or requires redress.’ United States ex rel. Lujan v. Gengler, 510 F.2d 62, 67 (2d Cir. 1975).” [Slip op. 4]

Thus, the Court holds that “[a]ny individual right that Suarez may have under the terms of his extradition is ‘only derivative through the state[].’ Id. (internal quotation marks omitted). Thus, Suarez would only have prudential standing to raise the claim that his sentence violated the terms of his extradition if the Government of Colombia first makes an official protest. […]” [Slip op. 4]

The Court thus affirms the judgment of the district court.

KEARSE, Circuit Judge, concurs in the judgment, on the grounds that the diplomatic agreement that led to Suarez’s extradition should be read in accordance with the language to which the United States and Colombia agreed.

“’Based on international comity, the principle of speciality [sic] generally requires a country seeking extradition to adhere to any limitations placed on prosecution by the surrendering country.’ United States v. Baez, 349 F.3d 90, 92 (2d Cir. 2003). In Baez, we considered a challenge to the sentence of life imprisonment imposed on a defendant who had been extradited to the United States from Colombia pursuant to an agreement recorded in a diplomatic note in which the United States agreed, inter alia, that it would not seek a sentence of life imprisonment and that if the United States court were ‘nevertheless [to] impose a sentence of life imprisonment,’ the United States’s ‘executive authority will take appropriate action to formally request that the court commute such sentence to a term of years.’ Id. (quoting Diplomatic Note No. 1206 …). Following the defendant’s conviction, the district court imposed a sentence of life imprisonment. Thereafter, ‘[a]s contemplated by Diplomatic Note No. 1206, the United States, through the U.S. Attorney for the Southern District of New York, requested that the District Court sentence [the defendant] to a term of years.’ 349 F.3d at 9293. We held that the government thereby ‘fulfilled the commitment it made in Diplomatic Note No. 1206.’ Id. at 93. …”

“In United States v. Lopez-Imitalo, 305 F. App’x 818 (2d Cir. 2009), we considered a challenge to a 40 year prison term imposed on a 58-year-old defendant (see the defendant’s brief on appeal, 2007 WL 6370252), who had been extradited to the United States from Colombia pursuant to an agreement in which, as in the agreement in Baez, the United States promised it would not seek a sentence of life imprisonment. We rejected the defendant’s ‘argument that the Government breached the agreement by seeking a sentence of 60 years, which he assert[ed wa]s the functional equivalent of life imprisonment’; and we stated that there was no violation of the extradition agreement ‘[e]ven if the district court’s sentence of 40 years were deemed to be a sentence of `life imprisonment.’ 305 F. App’x at 819. We stated that ‘[o]ur decision in . . . Baez . . . compels the conclusion that the rule of specialty [sic] was not violated. . . .’ Id.”

“Had the respective governments intended the Diplomatic Note to be an assurance that the U.S. government would not request a determinate sentence exceeding [the defendant’s] expected lifespan, they could have drafted the note to say that. Id.” [Slip op. 5-6]

Citation: U.S. v. Suarez, 791 F.3d 363 (2nd Cir. 2015).

SOVEREIGN IMMUNITY

Eleventh Circuit affirms dismissal of complaint filed by Venezuelan entrepreneur for alleged expropriations that occurred in Venezuela; Act of State Doctrine, in conjunction with the FSIA, precludes U.S. courts from reviewing Plaintiff’s expropriation claims

Nelson J. Mezerhane, a successful Venezuelan entrepreneur who ran a number of businesses in that country, filed a seventeen-count complaint against República Bolivariana de Venezuela (“Venezuela”), Superintendencia de las Instituciones Del Sector Bancario (“SUDEBAN”), and Fondo de Protección Social De Los Depósitos Bancarios (“FOGADE”), as well as a number of additional Venezuelan agencies and instrumentalities (“defendants”), alleging that the defendants engaged in a pattern of persecution against him that included numerous violations of human rights law, expropriation of his property in violation of international law, and other tortious acts.

Mezerhane alleged that during Hugo Chavez’s term as president of Venezuela, the government targeted him to gain control over his media companies. When he refused, President Chavez retaliated against him, first by attacking him in public speeches, and later by expropriating his and his family’s assets through illegitimate judicial proceedings, which caused Mezerhane to suffer damages in excess of $1 billion.

In 2005, Mezerhane learned that the Venezuelan government accused him of playing a role in the murder of a Venezuelan prosecutor. He voluntarily surrendered to Venezuelan authorities, was arrested and incarcerated for 37 days. Upon being released on bail in December 2005, Mezerhane filed an action with the Inter-American Commission on Human Rights for false imprisonment and human rights abuses.

Mezerhane claimed that he was de facto stateless because, as he stated, he was stripped of “all indicia of citizenship,” including the rights to travel in and outside of Venezuela, “to live in a non-incarcerated state in Venezuela,” to “earn a livelihood,” and to acquire, sell, and convey property, seeking asylum in the United States.

In his complaint, Mezerhane describes Venezuela as a “foreign state” for purposes of the Foreign Sovereign Immunities Act (FSIA), and SUDEBAN and FOGADE as “agenc[ies] or instrumentalit[ies] of a foreign state” under 28 U.S.C. § 1603(b). He asserts that the district court has personal jurisdiction over SUDEBAN and FOGADE based on their commercial activities in the United States.

Venezuela and SUDEBAN jointly moved to dismiss Mezerhane’s Complaint, claiming sovereign immunity under the FSIA, 28 U.S.C. §§ 1602-11, while FOGADE filed a separate motion to dismiss on the same ground.

The district court issued an opinion granting the motions to dismiss because it lacked subject matter jurisdiction over Mezerhane’s claims. Defendants are entitled to immunity under the FSIA and the claims are barred by the Act of State Doctrine. Mezerhane appealed.

The United States Court of Appeal for the Eleventh Circuit affirms the district court’s decision.

The issue here is whether expropriations that violate binding international human rights treaties and norms of customary international law constitute takings in violation of international law under the FSIA, 28 U.S.C. § 1605(a)(3), and the Second Hickenlooper Amendment, 22 U.S.C. § 2370(e)(2).

The Court reviews de novo district court’s conclusion that a defendant is entitled to sovereign immunity under the FSIA, and the applicability of the Act of State Doctrine to Mezerhane’s claims against Venezuela.

“Mezerhane asserted federal jurisdiction over Venezuela, and its instrumentalities SUDEBAN and FOGADE, through the FSIA, §§ 1602-11. The FSIA is ‘the sole basis for obtaining jurisdiction over a foreign state in our courts.’ Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989). The Act provides that ‘a foreign state is immune from the jurisdiction of the United States unless an FSIA statutory exemption is applicable.’ Calzadilla v. Banco Latino Internacional, 413 F.3d 1285, 1286 (11th Cir. 2005) …; accord 28 U.S.C. § 1604. Accordingly, if no statutory exception applies, the district court lacks subject matter jurisdiction. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 489 (1983); S & Davis Int’l, Inc. v. The Republic of Yemen, 218 F.3d 1292, 1300 (11th Cir. 2000).” [Slip op. 3-4]

Relying on 28 U.S.C. § 1605(a)(3), which provides that immunity does not apply in any case “in which rights in property taken in violation of international law are in issue”, Mezerhane argued that defendants should be denied immunity because this case does fall within an exception to the FSIA’s general grant of immunity. Furthermore, he cites four treaties for his argument that the alleged expropriations violated treaty-based “human rights law” and thus international law under 28 U.S.C. § 1605(a)(3):

 Mezerhane argued that Article 21 of the American Convention on Human Rights, which provides that “[n]o one shall be deprived of his property except upon payment of just compensation”, prohibits the takings of his property. Organization of American States, American Convention on Human Rights, Nov. 22, 1969, O.A.S.T.S. No. 36, 1144 U.N.T.S. 123, art. 21. However, the Court states that “Mezerhane conceded at argument […] that the American Convention is not self-executing. In fact, although the United States signed the American Convention in 1969, the Senate never ratified it. See Flores v. S. Peru Copper Corp., 414 F.3d 233, 258 (2d Cir. 2003) (‘[T]he United States has declined to ratify the American Convention for more than three decades. . . .’).” [Slip op. 4]

In support of his argument that the takings violated international law, Mezerhane cites Article 13 of the U.N. Convention Relating to the Status of Refugees, July 28, 1951, 189 U.N.T.S. 150. The Court rejects this argument. “Even if Mezerhane were a refugee, the Convention governs the conduct of his host country, the United States, not of the country fled, Venezuela. Mezerhane has made no allegation of mistreatment by the United States.” [Slip op. 4]

Mezerhane cites the Treaty of Peace, Friendship, Navigation and Commerce to argue that it entitles him to the same treatment in court as a U.S. citizen would receive. But this treaty requires that the two countries not violate the rights of each other’s citizens, and does not address Venezuela’s actions against its own citizens. Treaty of Peace, Friendship, Navigation and Commerce, U.S.-Venezuela, Jan. 20, 1836, 8 Stat. 466, art.13.

“To date, the Eleventh Circuit has never held that the exception to sovereign immunity set out in 28 U.S.C. § 1605(a)(3) is triggered by human rights treaty-based allegations, and we decline to do so here. If successful, Mezerhane’s argument would significantly extend the FSIA exception and open the courts of this country to suits involving takings abroad by foreign governments that have little or no nexus to the United States.” [Slip op. 5]

“The Fifth Circuit previously ruled on the scope of 28 U.S.C. § 1605(a)(3) in de Sanchez. 770 F.2d at 1395. The court held that no violation of international law occurred where Nicaragua placed a stop-payment order on a check payable to a Nicaraguan citizen because the order affected only a foreign country’s own national. Id. In doing so, the Fifth Circuit applied a longstanding rule that closes the doors of American courts to international-law claims based on a foreign country’s domestic taking of property. See United States v. Belmont, 301 U.S. 324, 332 (1937) (‘What another country has done in the way of taking over property of its nationals, and especially of its corporations, is not a matter for judicial consideration here.’). De Sanchez reaffirmed the vitality of this so-called domestic takings rule: ‘[w]ith a few limited exceptions, international law delineates minimum standards for the protection only of aliens; it does not purport to interfere with the relations between a nation and its own citizens.’ de Sanchez, 770 F.2d at 1395.” [Slip op. 5]

“More recently, in FOGADE v. ENB Revocable Trust, our own court cited de Sanchez with approval in noting that ‘[a]s a rule, when a foreign nation confiscates the property of its own nationals, it does not implicate principles of international law.’ 263 F.3d 1274, 1294 (11th Cir. 2001). At their core, such claims simply are not international. See id; accord Beg v. Islamic Republic of Pakistan, 353 F.3d 1323, 1328 n.3 (11th Cir. 2003) (stating that ‘[i]nternational law prohibits expropriation of alien property without compensation, but does not prohibit governments from expropriating property from their own nationals without compensation’).”

“Although de Sanchez did not address the specific treaties mentioned by Mezerhane, the Fifth Circuit did discuss how the ‘violation of international law’ exception in the FSIA pertains to human rights law:”

“‘The international human rights movement is premised on the belief that international law sets a minimum standard not only for the treatment of aliens but also for the treatment of human beings generally. Nevertheless, the standards of human rights that have been generally accepted—and hence incorporated into the law of nations— are still limited. They encompass only such basic rights as the right not to be murdered, tortured, or otherwise subjected to cruel, inhuman or degrading punishment; the right not to be a slave; and the right not to be arbitrarily detained. At present, the taking by a state of its national’s property does not contravene the international law of minimum human rights.’”

“Id. at 1397 (citations omitted). Thus, de Sanchez adopted a limited view of the rights protected under the 28 U.S.C. § 1605(a)(3) exception to FSIA immunity and refused to apply the exception to a foreign state’s taking of the property of one of its own nationals.” [Slip op. 5-6]

The Court also rejects Mezerhane’s argument that in the thirty years since de Sanchez, international human rights law has developed such that international takings now fall within the exception to sovereign immunity found in 28 U.S.C. § 1605(a)(3):

“[…] [T]he trend in recent Supreme Court cases, if anything, tends to undercut his argument: it signals the Supreme Court’s reluctance to allow international law claims based on occurrences between foreign citizens on foreign soil to proceed in U.S. courts. Allowing Mezerhane’s claim to proceed would move in the contrary direction; it would broadly expand the availability of U.S. courts to resolve cases arising from events taking place exclusively on foreign soil and with a nexus to the United States that is at best marginal.”

“In Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), the Supreme Court emphasized that ‘[i]t is one thing for American courts to enforce constitutional limits on our own State and Federal Governments’ power, but quite another to consider suits under rules that would go so far as to claim a limit on the power of foreign governments over their own citizens, and to hold that a foreign government or its agent has transgressed those limits.’ 542 U.S. at 727 (citing Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964)); see also Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, 1664 (2013) (‘Indeed, the danger of unwarranted judicial interference in the conduct of foreign policy is magnified in the context of the [Alien Tort Statute], because the question is not what Congress has done but instead what courts may do.’).” [Slip op. 6]

The Court concludes that “[i]n any event, under the domestic takings rule, Mezerhane’s allegations of takings do not constitute a ‘violation of international law’ for purposes of the FSIA exception in 28 U.S.C. § 1605(a)(3) and thus Venezuela, SUDEBAN, and FOGADE are entitled to sovereign immunity from suit under the FSIA.” [Slip op. 6]

Mezerhane also argued that he has effectively been stripped of his citizenship and that he was de facto stateless. He cited to the 1954 Convention Relating to the Status of Stateless Persons and relied on cases arising from Nazi Germany’s treatment of Holocaust victims to argue that Venezuela’s actions are international in character and thus subject to international law.

“Even if we were to accept that Mezerhane was de facto stateless, the FSIA exception to sovereign immunity found in § 1605(a)(3) does not apply to his claims because his claims do not implicate multiple states—they relate entirely to Venezuela. We note with approval the Fifth Circuit’s statement in de Sanchez that ‘[i]njuries to individuals have been cognizable only where they implicate two or more different nations: if one state injures the national of another state, then this can give rise to a violation of international law since the individual’s injury is viewed as an injury to his state.’ 770 F.2d. at 1396.”

“Attempting to sidestep the single-nation problem in this case, Mezerhane cites cases in the aftermath of Nazi Germany to argue that courts have allowed suits to proceed under § 1605(a)(3) where Jewish Holocaust victims brought claims against their countries. These cases are distinguishable, however, because they all involved the taking of property in the context of genocide. For example, in the Holocaust claim case of Abelesz v. Magyar Nemzeti Bank, the Seventh Circuit acknowledged that ‘[the rule] that a so-called ‘domestic taking’ cannot violate international law, has been recognized and applied in many decisions in U.S. courts’ and noted that ‘[i]f we were dealing with claims of only expropriation of property, as was true in almost all of the cited cases, we would agree and would apply the domestic takings [rule] here.’ 692 F.3d 661, 674 (7th Cir. 2012). That court, however, concluded that, because plaintiffs alleged that the expropriation of property was ‘an integral part of the genocidal plan to depopulate Hungary of its Jews,’ id. at 675, the taking violated international norms against genocide, and thus violated international law, id. at 676. Similarly, in de Csepel v. Republic of Hungary, the D.C. district court noted the ‘extraordinary facts’ of the case as it described the conditions to which Jews were subjected in Hungary, including ‘forced labor inside and outside Hungary, and ultimately genocide.’ 808 F. Supp. 2d 113, 12930 (D.D.C. 2011), rev’d in part on other grounds, 714 F.3d 591 (D.C. Cir. 2013).” [Slip op. 7]

The Court concludes that the cases on which Mezerhane relies arose in the unique context of a mass genocide perpetrated by Nazi Germany, and do not apply to Mezerhane’s claims which involve no such allegations. Therefore, these cases do not provide a ground to exempt Mezerhane’s case from the domestic takings rule.

The Court then turns to the Act of State Doctrine, as applied to this case:

“Even if defendants were not entitled to sovereign immunity under the FSIA, the act of state doctrine also bars Mezerhane’s suit. The act of state doctrine, ‘is a judicially-created rule of decision that `precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.’ Glen, 450 F.3d at 1253 (quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 401 (1964)). Adopted for reasons of comity, it forbids U.S. courts from adjudicating the acts of a foreign sovereign in its own territory. See Underhill v. Hernandez, 168 U.S. 250, 252 (1897). ‘Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.’ Id.

“Mezerhane argues that the Second Hickenlooper Amendment exempts his takings case from the act of state doctrine. Enacted to overrule, in part, the Sabbatino decision, Fogade, 263 F.3d at 1293, the Amendment states in relevant part that:”

“‘no court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other right to property is asserted by any party . . . based upon (or traced through) a confiscation or other taking . . . by an act of that state in violation of the principles of international law. . . .’”

“22 U.S.C. § 2370(e)(2) (emphasis added). Interpreting the Second Hickenlooper Amendment in FOGADE, we held that the Amendment overruled Sabbatino only to the extent that the latter held that the act of state doctrine would apply even when a foreign state had violated international law. 263 F.3d at 1293. Yet, as noted supra, FOGADE concluded that a foreign nation’s confiscation of the property of one of its own nationals does not, as a rule, constitute a violation of international law, id. at 1294, and therefore ‘the Second Hickenlooper Amendment does not preclude application of the act of state doctrine.’ 263 F.3d at 1295. The same is true here.”

“Mezerhane argues that the confiscation of his property violated international treaties and therefore ‘violat[ed . . .] principles of international law’ for purposes of the Second Hickenlooper Amendment. 22 U.S.C. § 2370(e)(2). However, to apply the act of state doctrine consistently with the FSIA—a reading supported by the similarity of the language in 28 U.S.C. § 1605(a)(3) and 28 U.S.C. § 2370—a ‘violation of the principles of international law’ must be interpreted in the same way in both provisions. In Part II of this opinion, we concluded that a violation of a treaty is not a violation of international law for FSIA purposes and we reach the same conclusion for the act of state doctrine.” [Slip op. 8]

“In conclusion, notwithstanding the Second Hickenlooper Amendment, because in this case a foreign plaintiff is protesting a taking by a foreign sovereign that took place outside of the United States, the act of state doctrine bars a U.S. court from questioning the sovereign’s act. Therefore, both that doctrine and the inapplicability of the statutory exception to sovereign immunity found in 28 U.S.C. § 1605(a)(3) preclude our review of plaintiff’s claim that the government of Venezuela wrongfully expropriated his property.” [Slip op. 9]

The Court affirms the district court’s dismissal of Mezerhane’s complaint.

Citation: Mezerhane v. Republica Bolivariana de Venezuela, 785 F.3d 545 (11th Cir. 2015).

SOVEREIGN IMMUNITY

In alleged expropriation of U.S. assets by Venezuela, D.C. Circuit holds that Venezuela can be sued in the U.S. if the expropriation was motivated by discriminatory animus; discriminatory takings violate international law

For more than 50 years, Helmerich & Payne International Drilling Co. (H&PIDC), an Oklahoma-based company, operated an oil-drilling business in Venezuela through a series of subsidiaries. Helmerich & Payne de Venezuela (H&P-V), H&PIDC’s subsidiary incorporated under Venezuelan law, provided drilling services for the Venezuelan government. In the mid-70s Venezuela nationalized its oil industry. Today, Venezuela controls exploration, production, and exportation of oil through two state-owned corporations: Petróleos de Venezuela, S.A. (PDVSA), and PDVSA Petróleo, known collectively as PDVSA. In 2007, ten contracts were executed between H&P-V and PDVSA for use of H&P-V’s drilling rigs. These rigs were capable of reaching depths of more than four miles and were originally purchased by H&P-IDC and then transferred to its subsidiary H&P-V.

Soon after signing the contracts, PDVSA fell behind in its payments. PDVSA never denied its contractual debt, but no payments were made. After overdue receivables topped $100 million, H&P-V announced in January 2009 that it would not renew the contracts absent “an improvement in receivable collections.” By November 2009, H&P-V had fulfilled all of its contractual obligations. As the payment from PDVSA was still pending, H&P-V disassembled its drilling rigs, and stacked the equipment in its yards.

In June 2010, PDVSA employees, assisted by armed soldiers of the Venezuelan National Guard, blockaded H&P-V’s premises in Western and Eastern Venezuela, acknowledging that it erected the blockade to prevent H&P-V from removing its rigs and other assets from its premises, and to force H&P-V to negotiate new contract terms immediately.

Upon a series of press releases by PDVSA which are now central to H&P-V’s expropriation claim, the Venezuelan National Assembly issued an official “Bill of Agreement” declaring H&P-V’s property to be “of public benefit and good” and recommending that then-President Hugo Chavez promulgate a Decree of Expropriation. President Chavez’s decree emphasized that “the availability of drilling equipment [such as H&P-V’s] is very low both in the country and at world level, and the lack thereof would affect [Venezuela’s national oil drilling] Plan.” It directed PDVSA to take “forcible” possession of H&P-V drilling rigs and other property. PDVSA issued a press release that stated that H&P-V’s rigs “are specialized drills we need for more complex sites” and “will be very useful.”

During a political rally at H&P-V’s Eastern site, Rafael Ramirez, Venezuela’s Minister of Energy and Petroleum and PDVSA’s President, referred to H&P-V as an “American company” with “foreign gentlemen investors” and Venezuelan workers who would now “become part of [PDVSA’s] payroll.”

PDVSA filed two eminent domain actions in Venezuelan courts for H&P-V’s compensation of expropriated property. H&P-V has yet to receive service of process in the first proceeding, while the second one has been stayed indefinitely. H&P-V and its American parent, H&PIDC, filed a two-count complaint under the Foreign Sovereign Immunities Act (“FSIA”) in the United States District Court for the District of Columbia. The first count was brought against PDVSA and Venezuela, alleged a taking of property in violation of international law, and asserted jurisdiction under FSIA’s expropriation exception. The second count, brought only against PDVSA, alleged breach of the ten drilling contracts and asserted jurisdiction under the FSIA’s commercial activity exception.

Venezuela and PDVSA moved to dismiss H&P-V’s complaint. As the grounds for dismissal they stated that neither FSIA exception applies and that the act-of-state doctrine, under which American courts “will not question the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders,” Republic of Austria v. Altmann, 541 U.S. 677, 700 (2004), bars the suit altogether. The parties then filed a joint stipulation in which they agreed to brief four threshold issues: (1) whether, for purposes of determining if a “taking in violation of international law” has occurred under the FSIA’s expropriation exception, H&PV is a national of Venezuela under international law; (2) whether H&PIDC has standing to assert a taking in violation of international law on the basis of Venezuela’s expropriation of H&PV’s property; (3) whether plaintiffs’ expropriation claims are barred by the act-of-state doctrine, including whether this defense may be adjudicated prior to resolution of Venezuela’s challenges to the court’s subject matter jurisdiction; and (4) whether, for purposes of determining the applicability of the FSIA’s commercial activity exception, plaintiffs have sufficiently alleged a “direct effect” in the United States within the meaning of that provision.

The district court resolved the first question in Venezuela’s favor and the other three in H&P-V’s favor. Both sides appealed.

The United States Court of Appeals for the District of Columbia Circuit affirms the district court’s denial of Venezuela’s motion to dismiss H&PIDC’s expropriation claim, and reverses and remandes for further proceedings in respect to the other three issues.

“The FSIA ‘establishes a comprehensive framework for determining whether a court in this country, state or federal, may exercise jurisdiction over a foreign state.’ Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). The Act provides that ‘a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States,’ 28 U.S.C. § 1604 (emphasis added), unless one of several exceptions applies, id. §§ 1605-07.” [Slip op. 5]

Because H&P-V and H&PIDC invoke the expropriation exception for their takings claim, while H&P-V invokes the commercial activity exception for its breach of contract claim, the Court addresses each of these exceptions in turn.

The expropriation exception, “[…] contained in FSIA section 1605(a)(3), denies foreign sovereign immunity ‘in any case . . . in which rights in property taken in violation of international law are in issue.’ 28 U.S.C. § 1605(a)(3). [….].” Venezuela argued that the exception is inapplicable here because: as a Venezuelan national, H&P-V may not claim a taking in violation of international law; and because under generally applicable corporate law principles, H&PIDC has no “rights in property” belonging to its subsidiary and thus lacks standing. [Slip op. 5]

“In deciding a motion to dismiss for lack of jurisdiction, we are mindful of the distinction between jurisdiction—a court’s constitutional or statutory power to decide a case—and ultimate success on the merits. As the Supreme Court has explained, ‘[j]urisdiction . . . is not defeated … by the possibility that the averments [in a complaint] might fail to state a cause of action on which petitioners could actually recover.’ Bell v. Hood, 327 U.S. 678, 682 (1946). What plaintiffs must allege to survive a jurisdictional challenge, then, ‘is obviously far less demanding than what would be required for the plaintiff’s case to survive a summary judgment motion’ or a trial on the merits. Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934, 940 (D.C. Cir. 2008). In an FSIA case, we will grant a motion to dismiss on the grounds that the plaintiff has failed to plead a ‘taking in violation of international law’ or has no ‘rights in property . . . in issue’ only if the claims are ‘wholly insubstantial or frivolous.’ Id. at 943. A claim fails to meet this exceptionally low bar if prior judicial decisions ‘inescapably render the claim[] frivolous’ and ‘completely devoid of merit.’ Hagans v. Lavine, 415 U.S. 528, 538, 543 (1974). ‘[P]revious decisions that merely render claims of doubtful or questionable merit do not render them insubstantial’ for jurisdictional purposes. Id. at 538. Applying this standard to the present case, and viewing the complaint ‘in the light most favorable to the plaintiff,’ Sachs v. Bose, 201 F.2d 210, 210 (D.C. Cir. 1952), we first consider whether H&PV has asserted a non-frivolous international expropriation claim and then ask whether H&PIDC has ‘put its rights in property in issue in a non-frivolous way,’ Chabad, 528 F.3d at 941.”

“As to the first inquiry, the parties begin on common ground. All agree that for purposes of international law, ‘a corporation has the nationality of the state under the laws of which the corporation is organized,’ Restatement (Third) of Foreign Relations Law § 213 (1987), and that generally, a foreign sovereign’s expropriation of its own national’s property does not violate international law, United States v. Belmont, 301 U.S. 324, 332 (1937). The Supreme Court has summarized the latter principle, known as the ‘domestic takings rule,’ this way: ‘What another country has done in the way of taking over property of its nationals, and especially of its corporations, is not a matter for judicial consideration here. Such nationals must look to their own government for any redress to which they may be entitled.’ Id.”

“According to Venezuela, the domestic takings rule ends this case because H&PV, as a Venezuelan national, may not seek redress in an American court for wrongs suffered in its home country. This argument has a good deal of appeal. Having freely chosen to incorporate under Venezuelan law, H&PV operated in that country for many years and reaped the benefits of its choice, including several extremely lucrative contracts with the Venezuelan government. Given this, and especially given that H&PV expressly agreed that these contracts would be governed by Venezuelan law in Venezuelan courts, one might conclude that H&PV should live with the consequences of its bargain.” [Slip op. 6-7]

H&P-V argued that Venezuela had unreasonably discriminated against it on the basis of its sole shareholder’s nationality, thus implicating an exception to the domestic takings rule. In support of its argument, H&P-V cited Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845, 861 (2d Cir. 1962), in which the Second Circuit determined that the Cuban government’s expropriation of Cuban corporation property, whose 90% shares were owned by Americans and the official expropriation decree “clearly indicated that the property was seized because [the corporation] was owned and controlled by Americans.” Id., qualified as a taking in violation of international law.

“This, the Second Circuit held, justified disregarding the domestic takings rule: ‘When a foreign state treats a corporation in a particular way because of the nationality of its shareholders, it would be inconsistent for [the court] in passing on the validity of that treatment to look only to the nationality of the corporate fiction.’ Id. (internal quotation marks omitted). Although the Supreme Court vacated this decision on other grounds, the Second Circuit later reiterated ‘with emphasis’ its decision to disregard the domestic takings rule in the face of Cuba’s anti-American discrimination. Banco Nacional de Cuba v. Farr, 383 F.2d 166, 185 (2d Cir. 1967).” [Slip op. 7]

H&P-V also relied on the Restatement of Foreign Relations Law, which recognizes discriminatory takings as a violation of international law. Specifically, on section 712 which suggests that “a program of taking that singles out aliens generally, or aliens of a particular nationality, or particular aliens, would violate international law.” Restatement (Third) of Foreign Relations Law § 712 cmt. f. (1987).

“‘Discrimination,’ the Restatement continues, ‘implies unreasonable distinction,’ and so ‘[t]akings that invidiously single out property of persons of a particular nationality would be [discriminatory],’ whereas ‘classifications, even if based on nationality, that are rationally related to the state’s security or economic policies might not be [discriminatory]’ and thus not in violation of international law. Id. (emphasis added). The reporter’s notes to section 712 cite Sabbatino as an example of a discriminatory taking, explaining that Cuba’s express ‘purpose was to retaliate against United States nationals for acts of their Government, and was directed against United States nationals exclusively.’ Id. § 712 reporter’s note 5.” [Slip op. 7]

H&P-V insisted that its complaint, which emphasizes the Venezuelan government’s well-known anti-American sentiment, as well as PDVSA’s statements decrying the “American empire,” successfully pleads a discriminatory takings claim, while Venezuela urged the Court not to “be the first to revive the overturned Second Circuit precedent” because “there is no internationally recognized exception—based on ‘discrimination’ or otherwise—to the domestic takings rule.” Defs.’ Cross Br. 28, 30.

“Dated and uncited as it may be, however, Sabbatino remains good law. See Farr, 383 F.2d at 166 (affirming Sabbatino’s discriminatory takings rationale ‘with emphasis’). Although ‘we are not bound by the decisions of other circuits,’ Dissent at 3 (emphasis added), we may ‘of course . . . find the reasons given for such [decisions] persuasive,’ Northwest Forest Resource Council v. Dombeck, 107 F.3d 897, 900 (D.C. Cir. 1997) … —especially where, as here, our circuit has yet to consider the issue. Moreover, neither Venezuela nor the dissent cites any decision from any circuit that so completely forecloses H&PV’s discriminatory takings theory as to ‘inescapably render the claim[] frivolous’ and ‘completely devoid of merit.’ Hagans, 415 U.S. at 538 (emphases added). Given this, and given the Restatement’s recognition of discriminatory takings claims, we believe that H&PV has satisfied this Circuit’s forgiving standard for surviving a motion to dismiss in an FSIA case.”

“[…] Venezuela’s claims that even if international law recognizes discriminatory takings, “plaintiffs have failed to plead facts to support it” because “the motivation for the expropriation was Venezuela’s need for H&PV’s uniquely powerful rigs.” Defs.’ Br. 31. […]Based on these statements, it may well be, as the Restatement puts it, that the taking was ‘rationally related to [Venezuela’s] security or economic policies.’ Restatement (Third) of Foreign Relations Law § 712 cmt. f (1987).”

“Other statements, however, went well beyond Venezuela’s economic and security needs and could be viewed as demonstrating ‘unreasonable distinction’ based on nationality. Id. PDVSA’s press release referred to the ‘American empire,’ Compl. ¶ 108, and a National Assembly member warned that opponents of the expropriation were supporting America’s mission of “war[] . . . through the large military industry[] of the Empire and its allies, id. ¶ 105. At this stage of the litigation, where we view the complaint ‘in the light most favorable to the plaintiff,’ Sachs, 201 F.2d at 210, these statements are sufficient to plead a ‘non-frivolous’ discriminatory takings claim, Chabad, 528 F.3d at 941.” [Slip op. 8]

The Court then analyzes Venezuela’s argument that H&PIDC may not invoke the FSIA’s expropriation exception because it has no rights in H&P-V’s property. As Venezuela reasoned, the expropriation exception applies only to plaintiffs having “rights in property” taken in violation of international law.

“In support of this argument, Venezuela relies almost entirely on Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), an FSIA case in which the Supreme Court held that ‘[a] corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary.’ Id. at 475. This, according to Venezuela, means that ‘in enacting the FSIA, Congress specifically intended that basic corporate law concepts inform the interpretation of the statute,’ Defs.’ Opening Br. 23, and thus ‘rights in property’ must mean corporate ownership.” [Slip op. 9]

“By contrast, FSIA section 1605(a)(3), the expropriation exception, speaks only of ‘rights in property’ generally, not ownership in shares. The Supreme Court’s analysis of another FSIA exception is instructive. In Permanent Mission of India to the United Nations v. City of New York, the Court examined the FSIA’s abrogation of sovereign immunity in cases involving ‘rights in immovable property situated in the United States.’ 551 U.S. 193, 197 (2007) (quoting 28 U.S.C. § 1605(a)(4)). An instrumentality of the Indian government argued that the FSIA ‘limits the reach of the exception to actions contesting ownership or possession.’ Id. Seeing no such limitation in the statute’s text, the Court concluded that ‘the exception focuses more broadly on ‘rights in’ property.’ Id. at 198.” [Slip op. 9-10]

“So too here. The expropriation exception requires only that ‘rights in property . . . are in issue,’ § 1605(a)(3), and we have recognized that corporate ownership aside, shareholders may have rights in corporate property. In Ramirez de Arellano v. Weinberger, for example, we considered whether an American citizen, the sole shareholder of three Honduran corporations, had a ‘cognizable property interest’ in land owned by the Honduran corporations and seized by the United States government. 745 F.2d 1500, 1517 (D.C. Cir. 1984), cert. granted, judgment vacated on other grounds, 471 U.S. 1113 (1985). Whether Ramirez had property rights in the land, we held, ‘does not turn on whether certain rights which may belong only to the Honduran corporation may be asserted `derivatively’ by the sole United States shareholders.’ Id. at 1516. Instead, property rights depend upon whether the shareholders have ‘rights of their own, which exist by virtue of their exclusive beneficial ownership, control, and possession of the properties and businesses allegedly seized.’ Id. We thus concluded that notwithstanding corporate ownership, Ramirez had property rights in the Honduran property that he ‘personally controlled and managed . . . for over 20 years.’ Id. at 1520. ‘The corporate ownership of land and property,’ we held, ‘does not deprive the sole beneficial owners—United States citizens—of a property interest.’ Id. at 1518; …” [Slip op. 10]

The Court then addresses the Dissenter:

“Our dissenting colleague questions the precedential value of Ramirez because it was vacated by the Supreme Court on other grounds. Dissent at 45. But we have held that ‘[w]hen the Supreme Court vacates a judgment of this court without addressing the merits of a particular holding in the panel opinion, that holding `continue[s] to have precedential weight, and in the absence of contrary authority, we do not disturb’ it.’ United States v. Adewani, 467 F.3d 1340, 1342 (D.C. Cir. 2006) (quoting Action Alliance of Senior Citizens of Greater Philadelphia v. Sullivan, 930 F.2d 77, 83 (D.C. Cir. 1991)). Because the Supreme Court did not address Ramirez’s holding that the shareholders had property rights in their corporation’s assets, but instead vacated and remanded in light of the U.S. military’s subsequent withdrawal of all personnel and facilities from the plaintiffs’ land, De Arellano v. Weinberger, 788 F.2d 762, 764 (D.C. Cir. 1986) (en banc) (per curiam); see Weinberger v. Ramirez de Arellano, 471 U.S. 1113 (1985), that holding continues to have ‘precedential weight,’ Adewani, 467 F.3d at 1342.” [Slip op. 10]

“Ramirez is especially persuasive in this case because H&PIDC, like the American citizen in Ramirez, was the foreign subsidiary’s sole shareholder. Moreover, H&PIDC provided the rigs central to this dispute, Compl. ¶¶ 9, 12932, and as a result of the expropriation, has suffered a total loss of control over its subsidiary, which has ceased operating as an ongoing enterprise because all of its assets were taken, Compl. ¶¶ 75, 8182. Under these circumstances, H&PIDC has ‘put its rights in property in issue in a non-frivolous way.’ Chabad, 528 F.3d at 941. No more is required to survive a motion to dismiss under the FSIA. …” [Slip op. 11]

The Court then analyzes H&P-V’s argument that the FSIA’s commercial activity exception extends to its breach of contract claim against PDVSA, and states:

“This exception, contained in section 1605(a)(2), nullifies foreign sovereign immunity in any case”

“‘in which the action is based upon 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.’”

“28 U.S.C. § 1605(a)(2)(emphases added). Because this case involves a contract executed and performed outside the United States, our analysis focuses on the exception’s third clause— specifically, whether Venezuela’s breach of the drilling contracts ‘cause[d] a direct effect in the United States.’ Id. A direct effect ‘is one which has no intervening element, but, rather, flows in a straight line without deviation or interruption.’ Princz v. Federal Republic of Germany, 26 F.3d 1166, 1172 (D.C. Cir. 1994). H&PV alleges three such effects.”

“First, relying on our decision in Cruise Connections Charter Management v. Canada, 600 F.3d 661 (D.C. Cir. 2010), H&PV argues that its contracts with third-party vendors in the United States, made pursuant to the drilling contracts, constitute a direct effect. In Cruise Connections, we found a ‘direct effect’ where the Royal Canadian Mounted Police (RCMP) cancelled a contract with a U.S. corporation to provide cruise ships during the 2010 Winter Olympics. Id. at 662. H&PV argues that just as in Cruise Connections, where the RCMP contract “required . . . subcontract[s] with two U.S. based cruise lines,” id., its agreements with PDVSA required contracts with U.S. based companies for various drilling rig parts. PDVSA responds that even if H&PV subcontracted with U.S. vendors, nothing in the drilling contracts obligated them to do so.”

“We need not resolve this dispute, however, because even assuming that the drilling contracts required subcontracts with American companies, those contracts had no direct effect in the United States. […] H&PV concedes that none of the third-party contracts was breached. Compl. ¶¶ 126128, 135. As a result, no losses, and therefore no ‘direct effect,’ occurred in the United States.” [Slip op. 11-12]

“Relying on the Supreme Court’s decision in Republic of Argentina v. Weltover, 504 U.S. 607 (1992), H&PV claims a second effect in the United States: that PDVSA made payments to Helmerich & Payne’s Oklahoma bank account. In Weltover, Argentina had issued bonds providing for payment through a currency transfer on the London, Frankfurt, Zurich, or New York markets at the discretion of the creditor. Id. at 60910. Two Panamanian bondholders demanded payment in New York, and when Argentina failed to pay, brought suit in the United States, claiming jurisdiction under the commercial activity exception. Id. at 610. The Court had ‘little difficulty’ finding a direct effect because, as a result of Argentina’s failure to meet its payment obligations, a contractually required payment into an American bank was not made. Id. at 61819. Relying on Weltover, H&PV emphasizes that both the eastern and western contracts permitted PDVSA to pay a portion of invoiced amounts in U.S. dollars into an American bank—indeed, PDVSA ultimately paid $65 million this way. Compl. ¶ 44. As in Weltover, then, PDVSA’s breach meant that money ‘that was supposed to have been delivered to [an American] bank for deposit was not forthcoming.’ 504 U.S. at 619. But as PDVSA points out, the contracts gave H&PV no power to demand payment in the United States. Rather, under both the eastern and western contracts, PDVSA could choose to deposit payments in bolivars in Venezuelan banks whenever, in its ‘exclusive discretion’ and ‘judgment,’ it ‘deem[ed] it discretionally convenient.’ Compl. ¶¶ 78, 85, 82.” [Slip op. 13]

“This case presents facts akin to those we examined in Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1144 (D.C. Cir. 1994), in which an Iraqi bank failed to pay on letters of credit, and the payee claimed that the bank’s prior payments from its accounts in the United States constituted a direct effect. We rejected this contention because pursuant to the letters of credit, Iraq ‘might well have paid . . . from funds in United States banks but it might just as well have done so from accounts located outside of the United States.’ Id. at 114647. Such unlimited discretion, we concluded, meant that unlike in Weltover, no money was `supposed’ to have been paid’ in the United States. Id. at 1146 (quoting Weltover, 504 U.S. at 608). In other words, where, as here, the alleged effect depends solely on a foreign government’s discretion, we cannot say that it ‘flows in a straight line without deviation or interruption.’ Princz, 26 F.3d at 1172.” [Slip op. 13-14]

“Finally, relying on McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346 (D.C. Cir. 1995), H&PV contends that PDVSA’s breach halted a flow of commerce between Venezuela and the United States, thus causing a direct effect. McKesson, an American corporation, alleged that the Iranian government had illegally divested it of its investment in a dairy located in Iran. Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 441 (D.C. Cir. 1990). In doing so, we concluded, Iran halted a ‘constant flow of capital, management personnel, engineering data, machinery, equipment, materials and packaging, between the United States and Iran to support the operation of [the dairy],’ thereby causing a direct effect. Id. at 451. H&PV insists that the same is true here. We think not. Iran’s actions in ‘freezing-out American corporations in their ownership of [the dairy]’ had the direct and immediate effect of halting a flow of resources and capital between the United States and Iran. Id. By contrast, any interruptions in commerce between the United States and PDVSA flowed immediately not from PDVSA’s breach of contract, but rather from Helmerich & Payne’s decision to cease business in Venezuela. And, given that the contracts were for set periods of time ranging from five months to one year, there was no guarantee of future business between Helmerich & Payne and PDVSA beyond those contracts.” [Slip op. 14]

The Court affirms the district court’s denial of Venezuela’s motion to dismiss H&PIDC’s expropriation claim. In all other respects, the Court reverses and remands for further proceedings consistent with this opinion.

SENTELLE, Senior Circuit Judge, dissents in part and concurs in part:

“[…] [D]espite my general agreement with the majority’s exposition of the facts underlying the claim for expropriation, I dissent from the conclusion that those facts bring this case within the expropriation exception set forth in 28 U.S.C. § 1605(a)(3).” [Slip op. 15]

“Unlike the majority, I believe that Venezuela’s position is well taken. When appellees chose to incorporate under Venezuelan law, they bargained for treatment under Venezuelan law. To extend our examination of Venezuelan law to adjudicate its fairness appears to me to violate Venezuela’s sovereignty, the value protected by the FSIA.”

“The majority supports its extended examination with the decision in Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845, 861 (2d Cir. 1962). While that case may stand for the proposition that the courts of the United States can examine the fairness of a foreign sovereign’s expropriation, I cannot join the majority’s conclusion that ‘Sabbatino remains good law.’ Maj. Op. at 12. Perhaps Sabbatino is good law in the Second Circuit, but we are not bound by the decisions of other circuits, and I do not conclude that Sabbatino has ever been or remains good law in the District of Columbia Circuit. I would, therefore, conclude that Venezuela’s reliance on the domestic takings rule is well taken and should compel the dismissal of Helmerich & Payne’s expropriation claim for want of jurisdiction.”

“I would further note that I differ with the majority’s apparent belief that Venezuela’s reliance upon Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), is misplaced. See Maj. Op. at 14. The majority asserts that ‘[c]ontrary to Venezuela’s assertion, . . . Dole Food does not represent a wholesale incorporation of corporate law into the FSIA.’ Id. While this may be literally accurate, it is at least equally accurate that neither Dole Food nor any other case constitutes a wholesale rejection of corporate law. As both the majority’s opinion and mine have recognized, shareholders ordinarily have no standing to assert claims on behalf of a corporation for its property.” [Slip op. 16]

“Neither do I find compelling the majority’s reliance on two cases from this circuit: Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934, 940 (D.C. Cir. 2008), and Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1517 (D.C. Cir. 1984), cert. granted, judgment vacated on other grounds, 471 U.S. 1113 (1985). Chabad is authority, at most, for the proposition that ‘[i]n an FSIA case, we will grant a motion to dismiss on the grounds that the plaintiff has failed to plead a `taking in violation of international law’ or has no `rights in property . . . in issue’ only if the claims are `wholly insubstantial or frivolous.’” Maj. Op. at 9 (quoting Chabad, 528 F.3d at 942) (emphasis in original). As the plaintiff here has, by reason of the domestic takings rule, failed to plead a ‘taking in violation of international law,’ Chabad supports rather than undermines Venezuela’s motion for dismissal. 528 F.3d at 943 (emphasis added). Ramirez warrants no separate discussion.” [Slip op. 16-17]

“I would note first that the judgment in Ramirez was vacated by the Supreme Court. Weinberger v. Ramirez de Arellano, 471 U.S. 1113 (1985). […] For what it’s worth, I question whether the language quoted from Adewani and Action Alliance in fact states a holding of this court to the effect that we are bound by the reasoning of vacated opinions. Rather, each instance paraphrases language of Justice Powell quoted in a parenthetical following the quoted language from Action Alliance. Action Alliance parenthetically quoted Justice Powell as stating:”

“‘Although a decision vacating a judgment necessarily prevents the opinion of the lower court from being the law of the case, . . . the expressions of the court below on the merits, if not reversed, will continue to have precedential weight and, until contrary authority is decided, are likely to be viewed as persuasive authority if not the governing law’”

“County of Los Angeles v. Davis, 440 U.S. 625, 646 n.10 (Powell, J., dissenting) (quoted in Action Alliance, 930 F.2d at 8384). In other words, the prior reasoning of the court in vacated opinions may be persuasive, even powerfully persuasive, but I question whether it is binding precedent.” [Slip op. 17]

Citation: Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela, 784 F.3d 804 (D.C. Cir. 2015).

SOVEREIGN IMMUNITY

In action to enforce arbitral award against Belize, District of Columbia Circuit rejects Belize’s claims of immunity because transactions at issue were essentially the sale of real estate and thus commercial in nature; New York Convention’s definition of “commercial” is not the same as the FSIA’s definition

In 2005, Belize Telemedia Limited (“Telemedia”), Belize’s largest private telecommunications company, and the Government of Belize (“Belize”), acting under the direction of then-Prime Minister Said Musa, entered into an agreement styled “The Accommodation Agreement” to purchase properties from Belize which the country desired to sell in order to better accommodate the Government’s communication needs. According to this agreement, Telemedia was to obtain relief from tax and regulatory burdens otherwise applicable to the company, and receive other significant benefits. The parties also agreed on the following arbitration clause:

Any dispute arising out of or in connection with this Agreement including any question regarding its existence, validity or termination, which cannot be resolved amicably between the parties shall be referred to and finally resolved by arbitration under the London Court of International Arbitration (LCIA) Rules which Rules are deemed to be incorporated by reference under this Section.

In 2008, the Prime Minister Dean Barrow took office. The Prime Minister Barrow renounced the Accommodation Agreement, asserting that it was repugnant to the laws of Belize and therefore invalid. When Belize ceased to honor its contractual obligations, Telemedia submitted the dispute to arbitration before the LCIA in London. Belize refused to participate in the arbitration proceedings, contending that the arbitration clause was invalid and that the arbitrators lacked jurisdiction. On March 18, 2009, the arbitral tribunal ruled that the Accommodation Agreement was valid and binding on Belize; that the tribunal had jurisdiction over Telemedia’s claims; and that Belize had breached the Accommodation Agreement. The tribunal granted Telemedia declaratory relief, and awarded over 38 million Belize dollars in damages. Telemedia assigned the monetary portion of this award to Belize Social Development Limited (“BSDL”).

In November 2009, pursuant to section 207 of the Federal Arbitration Act (“FAA”), BSDL brought suit in the District Court for the District of Columbia to confirm the arbitral award. Belize moved to stay confirmation of the award pending resolution of related litigation in Belize, which the district court granted. BSDL then appealed.

The United States Court of Appeals for the District of Columbia Circuit reversed, noting that under the FAA, the stay order was not in conformity with federal law and international commitments. The Court remanded and instructed the district court to review and grant BSDL’s petition to confirm the Final Award absent a finding that an enumerated exception to enforcement applied. On remand, Belize argued that the Prime Minister at the time of the entry of the agreement lacked authority to enter either the contract or the arbitration agreement, and that the district court lacked subject matter jurisdiction over the dispute claiming its sovereign immunity under the Foreign Sovereign Immunities Act (“FSIA”). Because Belize had not provided support for its claim with respect to the arbitration agreement, the district court held that jurisdiction was proper under the arbitration exception to the FSIA, and granted BSDL’s petition to confirm the award. Belize appealed.

The United States Court of Appeals for the District of Columbia Circuit affirms the judgment of the District Court. The key issue here is whether and under what circumstances the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(6), arbitration exception applies to a case in which the action was brought to confirm an award made pursuant to an agreement to arbitrate.

“The Foreign Sovereign Immunities Act is ‘the sole basis for obtaining jurisdiction over a foreign state in the courts of [the United States].’ Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989). Its terms are absolute: Unless an enumerated exception applies, courts of this country lack jurisdiction over claims against a foreign nation. Saudi Arabia v. Nelson, 507 US. 349, 355 (1993). BSDL claims the arbitration exception applies to this case.” [Slip op. 3]

“The arbitration exception provides: ‘A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is brought, either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration under the laws of the United States, or to confirm an award made pursuant to such an agreement to arbitrate, if . . . the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.’ 28 U.S.C. § 1605(a)(6).”

“Where a plaintiff has asserted jurisdiction under the FSIA and the defendant foreign state has asserted ‘the jurisdictional defense of immunity,’ the defendant state ‘bears the burden of proving that the plaintiff’s allegations do not bring its case within a statutory exception to immunity.’ Phoenix Consulting Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000). […]” [Slip op. 3-4]

Belize argued that the arbitration exception does not apply. First, it argued that the arbitration exception to sovereign immunity does not apply because there was no “agreement made by the foreign state.” 28 U.S.C. § 1605(a)(6). Belize deducted that the Prime Minister lacked authority to bind the sovereign in an unconstitutional agreement; and that the Accommodation Agreement violated the Constitution and laws of Belize. Therefore, the Prime Minister lacked authority to bind Belize in the Accommodation Agreement and execute it on behalf of Belize. Belize concluded that the agreement was void ab initio, and that every provision in the agreement, including the arbitration provision, was void.

The Court does not agree with this argument.

“The language of the FSIA arbitration exception makes clear that the agreement to arbitrate is severable from the underlying contract. The exception only requires a valid ‘agreement . . . to submit to arbitration,’ 28 U.S.C. § 1605(a)(6). It also distinguishes between the underlying ‘legal relationship’ and the agreement to arbitrate disputes arising from that relationship. Id. As we have previously noted, the agreement to arbitrate is ‘separate from the obligations the parties owe to each other under the remainder of the contract.’ Marra v. Papandreou, 216 F.3d 1119, 1123, 1125 (D.C. Cir. 2000). It is, for all intents and purposes, ‘a distinct contract in and of itself.’ Id.; see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 40304 (1967) (distinguishing between the agreement to arbitrate and the underlying contract). In order to succeed in its claim that there was no ‘agreement made by the foreign state . . . to submit to arbitration,’ 28 U.S.C. § 1605(a)(6), Belize must show that the Prime Minister lacked authority to enter into the arbitration agreement. This Belize has failed to do.” [Slip op. 4]

“More briefly put, this case turns on the proposition that Belize entered two agreements: the Accommodation Agreement and the Agreement to Submit to Arbitration, albeit the two were entered simultaneously. The argument of Belize that the Accommodation Agreement was beyond the authority of the Prime Minister might provide a defense if we were considering this controversy de novo on its merits. However, in order to bring that argument before us, Belize must first establish that the arbitration provision of the contract is void, so that we would not be bound to honor the arbitral tribunal’s determinations. We cannot determine the merits of the defense if the arbitration clause applies. Since Belize has not negated the clause, we do not reach the merits defense.” [Slip op. 5]

Second, Belize argued that the arbitration exception does not apply because the award is not “governed by a treaty or other international agreement . . . calling for the recognition and enforcement of arbitral awards.” 28 U.S.C. § 1605(a)(6). Belize contended that the New York Convention does not govern the award because the treaty requests that the award arise from a commercial transaction while this award arose from a governmental transaction.

“The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) is a multilateral treaty providing for ‘the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.’ Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’), art. I(1), 21 U.S.T. 2517 (1970). For most signatories, the New York Convention applies to all private arbitral agreements, regardless of the subject matter. Restatement (Third) of Foreign Relations Law § 487 cmt. f (1987). The United States, however, made a declaration, authorized by Article I(3) of the Convention, that the Convention would be applicable ‘only to differences arising out of legal relationships whether contractual or not, which are considered commercial under the national law of the State making such declaration.’ New York Convention, 21 U.S.T. 2517. The United States implemented the Convention in the Federal Arbitration Act, 9 U.S.C. § 201 et seq. See id. at § 202 (applying the Convention to an award that arises ‘out of a legal relationship, whether contractual or not, which is considered as commercial’).”

“The New York Convention, as codified in the FAA, does not define the term ‘commercial.’ ‘When a statute uses [a term of art], Congress intended it to have its established meaning.’ McDermott Int’l, Inc. v. Wilander, 498 U.S. 337, 342 (1991). In the context of international arbitration, ‘commercial’ refers to ‘matters or relationships, whether contractual or not, that arise out of or in connection with commerce.’ Restatement (Third) of U.S. Law of Int’l Comm. Arbitration § 11 (2012); see Restatement (Third) of Foreign Relations Law § 487 cmt. f (1987) (‘That a government is a party to a transaction does not destroy its commercial character; indeed, the fact that an agreement to arbitrate is in the contract between a government and a private person may confirm its commercial character. . . .’). As the Comment to the Restatement on International Commercial Arbitration explains, ‘A matter or relationship may be commercial even though it does not arise out of or relate to a contract, so long as it has a connection with commerce, whether or not that commerce has a nexus with the United States.’ Restatement (Third) of U.S. Law of Int’l Comm. Arbitration § 11 cmt. e; see Island Territory of Curacao v. Solitron Devices, Inc., 356 F. Supp. 1, 13 (S.D.N.Y. 1973) (‘[I]t seems clear that the full scope of ‘commerce’ and ‘foreign commerce,’ as those terms have been broadly interpreted, is available for arbitral agreements and awards.’ (quoting Leonard V. Quigley, Convention on Foreign Arbitral Awards, 58 A.B.A. J. 821, 823 (1972))). Using the Restatement’s definition of ‘commercial,’ the New York Convention applies to the Accommodation Agreement.”

“The text of the FAA’s codification of the New York Convention is consistent with this conclusion. While the New York Convention, as codified in the FAA, does not expressly define ‘commercial,’ it does expressly encompass any ‘transaction, contract, or agreement described in’ 9 U.S.C. § 2. 9 U.S.C. § 202. Section 2 in turn includes contracts ‘evidencing a transaction involving commerce,’ 9 U.S.C. § 2 — a term the Supreme Court has interpreted ‘as the functional equivalent of the more familiar term `affecting commerce’ — words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power,’ Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). The Accommodation Agreement falls within that term’s broad compass.”

“The Agreement involves the sale of real property in exchange for certain accommodations, a transaction with a connection to commerce. See Holzer v. Mondadori, No. 12 Civ. 5234, 2013 WL 1104269, at *5 (S.D.N.Y. Mar. 14, 2013) (noting that the sale of property is commercial under the New York Convention). The provision of telecommunication services has an even more obvious connection to commerce. Indeed, in today’s technological age, telecommunication services are often a ‘crucial segment of the economy.’ AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 397 (1999). The taxes Belize levies against a company also have a connection with commerce, see Commonwealth Edison Co. v. Montana, 453 U.S. 609, 61415 (1981) (noting the impact taxes have on commerce), as do the duties Belize charges (or forgoes charging). We thus conclude that the Accommodation Agreement is commercial and is governed by the New York Convention.” [Slip op. 5-7]

Furthermore, Belize argued that the court should adopt the definition of “commercial” as articulated by the Supreme Court in Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992). In examining the scope of the FSIA’s “commercial activity” exception, 28 U.S.C. § 1605(a)(2), the Supreme Court held in this case that a foreign state engages in commercial activities when it acts in the manner of a private player within the market; and reasoned that the FSIA “largely codifies the so-called ‘restrictive’ theory of foreign sovereign immunity”; that the word “commercial” was a “term of art”; and that Congress therefore intended the word to have “the meaning generally attached to that term under the restrictive theory at the time the statute was enacted,” i.e., distinguishing between “state sovereign acts, on the one hand, and state commercial and private acts, on the other.” Weltover, 504 U.S. at 614.

“Belize’s reliance on Weltover is misplaced. Unlike with the FSIA, Congress was not codifying the restrictive theory of foreign sovereign immunity when it ratified and implemented the New York Convention. Rather, the treaty concerns international arbitration. We thus recognize that: (1) the Convention’s purpose was to ‘encourage the recognition and enforcement of commercial arbitration agreements in international contracts,’ TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 933 (D.C. Cir. 2007); (2) the word ‘commercial’ is a ‘term of art’; and (3) in implementing the Convention, Congress intended that word to have the meaning generally attached to that term in the international commercial arbitration context. As we discussed above, ‘commercial’ in the context of international arbitration refers to matters which have a connection to commerce. Belize’s argument to the contrary will not sell.” [Slip op. 7]

The Court affirms the District Court’s decision.

Citation: Belize Social Development Ltd. v. Government of Belize, No. 14-7002 (D.C. Cir. 2015).

SOVEREIGN IMMUNITY

D.C. Circuit dismisses complaint against Iran for lack of subject-matter jurisdiction; Foreign Sovereign Immunity Act’s terrorism exception, 28 U.S.C. § 1605A, does not apply to acts by a foreign country against its own citizens

In 2009, plaintiffs, three Iranian émigré siblings and the estate of their deceased brother, brought an action to recover for their injuries sustained from imprisonment, torture, and extrajudicial killing they allegedly suffered at the hands of the Islamic Republic of Iran. As defendants, they named the Islamic Republic of Iran, the Army of the Guardians of the Islamic Revolution (the Revolutionary Guard), and two Iranian leaders, Ayatollah Sayid Ali Hoseyni Khamenei and Mahmoud Ahmadinejad.

During the 1990s, plaintiff Manouchehr Mohammadi and his late brother, Akbar Mohammadi, became leaders in the Iranian pro-democracy movement. The brothers also participated in the 1999 student protest. This resulted in their arrest by the Iranian officials and confinement in Evin prison in Tehran. In the prison, the brothers allegedly suffered brutal physical and psychological abuse and torture. Allegedly, their sisters, Nasrin Mohammadi and Simin Taylor, also suffered severe mistreatment at the hands of the Iranian regime. Akbar died in prison in 2006, while the three surviving siblings had settled in the United States. Furthermore, the plaintiffs alleged that Iranian agents continued to harass them in the United States, threatening them over the phone with murder, refusing to let their parents leave Iran, hacking their computers, and circulating doctored photographs of Nasrin depicted in an immodest light.

The defendants never appeared in court to contest the allegations against them. Plaintiffs filed a motion for entry of default and a default judgment. The district court granted the motion for entry of default; scheduled an evidentiary hearing to establish damages; and directed plaintiffs to submit briefing addressing the basis for the court’s subject-matter jurisdiction.

The district court dismissed plaintiffs’ complaint for lack of subject-matter jurisdiction, and held that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602 et seq., afforded Iran and the Revolutionary Guard immunity from the court’s jurisdiction. Plaintiffs relied on the FSIA’s terrorism exception, 28 U.S.C. § 1605A, but the court rejected their claim because “[t]hat exception abrogates immunity if, among other things, the complaint seeks damages for ‘torture’ or ‘extrajudicial killing’ and the victim was a ‘national of the United States’ at the time of those acts. 28 U.S.C. § 1605A(a).” [Slip op. 2] The district court also held that “plaintiffs failed to qualify as United States ‘nationals’ at the time of the relevant acts in Iran, and that any acts postdating plaintiffs’ relocation to the United States failed to constitute ‘torture’ within the meaning of the statute”. Mohammadi v. Islamic Republic of Iran, 947 F. Supp. 2d at 68 (D.D.C. 2013). Furthermore, the court held that the claims against Kahmenei and Ahmadinejad would be treated as claims against Iran itself and thus would likewise be dismissed based on foreign sovereign immunity. The district court denied plaintiffs’ motion for default judgment.

In response to district court’s denial, plaintiffs filed a motion for reconsideration and an accompanying motion for leave to file a fourth amended complaint, which the district court denied. The plaintiffs appealed.

The United States Court of Appeals for the District of Columbia Circuit affirms the district court’s decision.

The key issue here is whether the Foreign Sovereign Immunity Act’s terrorism exception, 28 U.S.C. § 1605A, applies to acts by a foreign country taken against its own citizens.

Reviewing the matter de novo, the Court agrees with the district court’s conclusion that the terrorism exception to FSIA, 28 U.S.C. §§ 1602, is inapplicable in this case.

“The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602 et seq., affords the ‘sole basis for obtaining jurisdiction over a foreign state’ in United States courts. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989). While the FSIA establishes a general rule granting foreign sovereigns immunity from the jurisdiction of United States courts, 28 U.S.C. § 1604, that grant of immunity is subject to a number of exceptions, see id. §§ 16051607. In their third amended complaint, plaintiffs asserted subject-matter jurisdiction based solely on the FSIA’s terrorism exception, 28 U.S.C. § 1605A.” [Slip op. 3]

“The terrorism exception abrogates immunity in cases in which a plaintiff seeks damages for personal injury or death caused by ‘torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act,’ if ‘engaged in by an official, employee, or agent’ of a foreign country. 28 U.S.C. § 1605A(a) (1). The exception further requires that (i) the foreign country was designated a ‘state sponsor of terrorism at the time [of] the act,’ (ii) the ‘claimant or the victim was’ a ‘national of the United States’ at that time, and (iii) the ‘claimant has afforded the foreign state a reasonable opportunity to arbitrate the claim.’ Id. § 1605A(a)(2).” [Slip op. 3]

“Because Iran has been designated a state sponsor of terrorism since 1984, plaintiffs satisfy the first of those conditions. See Heiser v. Islamic Republic of Iran, 735 F.3d 934, 937 (D.C. Cir. 2013); Roeder v. Islamic Republic of Iran, 646 F.3d 56, 58 n.1 (D.C. Cir. 2011). Plaintiffs, however, fail to satisfy the second condition with regard to the torture and extrajudicial killing allegedly committed against them while in Iran, because none of them was a ‘national of the United States’ at the time of those acts.” [Slip op. 3]

“The terrorism exception assigns the term ‘national of the United States’ the ‘meaning given that term in section 101(a) (22) of the Immigration and Nationality Act’ (INA), 8 U.S.C. § 1101(a)(22). 28 U.S.C. § 1605A(h)(5). The referenced provision of the INA, in turn, generally describes ‘national of the United States’ to mean either a ‘citizen of the United States’ or a ‘person who, though not a citizen of the United States, owes permanent allegiance to the United States.’ 8 U.S.C. § 1101(a)(22).” [Slip op. 4]

Although none of the plaintiffs was a United States citizen between 1999 and 2006, when the central alleged acts of torture and extrajudicial killing occurred in Iran, they argued that they qualified as United States nationals during that time because Manouchehr, Akbar, and Nasrin had personally pledged permanent allegiance to the United States and disclaimed their loyalty to Iran following the “first signs of persecution” in Iran, and that Nasrin exhibited her allegiance by applying for and attaining United States permanent resident status before Akbar’s death in 2006. The Court rejects this argument.

“Plaintiffs’ argument is foreclosed by our precedent. We have held that ‘manifestations of ‘permanent allegiance’ do not, by themselves, render a person a U.S. national.’ Lin v. United States, 561 F.3d 502, 508 (D.C. Cir. 2009). That is because the ‘phrase ‘owes permanent allegiance’’ in 8 U.S.C. § 1101(a)(22) is ‘a term of art that denotes a legal status for which individuals have never been able to qualify by demonstrating permanent allegiance, as that phrase is colloquially understood.’ Marquez-Almanzar v. INS, 418 F.3d 210, 218 (2d Cir. 2005); see Lin, 561 F.3d at 508 (relying on Marquez-Almanzar). The reference in 8 U.S.C. § 1101(a)(22) to a United States national as a person who ‘owes permanent allegiance to the United States’ is descriptive of someone who has attained the status of United States nationality through other statutory provisions; it does not itself set forth an independent basis by which to obtain that status. The language, that is, ‘describes, rather than confers, U.S. nationality.’ Marquez-Almanzar, 418 F.3d at 218; see Lin, 561 F.3d at 508. The conferral of United States nationality must come from elsewhere.” [Slip op. 4]

“The sole such statutory provision that presently confers United States nationality upon noncitizens is 8 U.S.C. § 1408. See Lin, 561 F.3d at 508; Marquez-Almanzar, 418 F.3d at 219. Plaintiffs make no claim that they qualify as United States nationals under that provision, much less that they did so at the time of the alleged torture and extrajudicial killing in Iran. Section 1408 describes four categories of persons who ‘shall be nationals, but not citizens, of the United States at birth.’ 8 U.S.C. § 1408. Those categories generally consist of persons born in, or possessing a specified personal or parental connection with, an ‘outlying possession of the United States,’ id. § 1408(1)(4), presently defined as American Samoa and Swains Island, id. § 1101(a)(29). See Lin, 561 F.3d at 508; see also Hashmi v. Mukasey, 533 F.3d 700, 703 n.1 (8th Cir. 2008) (noting that the category of those who owe ‘permanent allegiance to the United States . . . [is] apparently limited to residents of American Samoa and Swains Island’).” [Slip op. 4-5]

“The courts of appeals to consider the issue thus have overwhelmingly concluded that the status of non-citizen United States nationality is limited to those persons described in 8 U.S.C. § 1408, and that, apart from that provision, an effort to demonstrate ‘permanent allegiance to the United States’ does not render a person a United States national. See United States v. Sierra-Ledesma, 645 F.3d 1213, 122426 (10th Cir. 2011); Abou-Haidar v. Gonzales, 437 F.3d 206, 207 (1st Cir. 2006); Omolo v. Gonzales, 452 F.3d 404, 409 (5th Cir. 2006); Sebastian-Soler v. U.S. Att’y Gen., 409 F.3d 1280, 128587 (11th Cir. 2005); Marquez-Almanzar, 418 F.3d at 21819; Perdomo-Padilla v. Ashcroft, 333 F.3d 964, 972 (9th Cir. 2003); Salim v. Ashcroft, 350 F.3d 307, 30910 (3d Cir. 2003) (per curiam). While one court of appeals has indicated otherwise, see United States v. Morin, 80 F.3d 124, 126 (4th Cir. 1996), we specifically ‘join[ed] the majority’ approach in Lin, 561 F.3d at 508. (And the continuing practical force of the Fourth Circuit’s decision in Morin within that circuit appears unclear. See Fernandez v. Keisler, 502 F.3d 337, 348 (4th Cir. 2007).) Plaintiffs likewise err in relying on certain district court decisions attributing United States nationality to non-citizens based on unique circumstances indicating a ‘permanent allegiance to the United States.’ See Peterson v. Islamic Republic of Iran, 515 F. Supp. 2d 25, 39 n.4 (D.D.C. 2007); Asemani v. Islamic Republic of Iran, 266 F. Supp. 2d 24, 26 (D.D.C. 2003). Those decisions predate ours in Lin.” [Slip op. 5]

Plaintiff also contended that since 2006, two of the plaintiffs became “nationals” within the meaning of 8 U.S.C. § 1101(a)(22). Therefore they could establish jurisdiction under the terrorism exception with respect to events occurring after Nasrin and Simin became United States citizens.

“[…] That argument could have merit, however, only if, after Nasrin became a citizen in 2009, the Iranian regime engaged in conduct against plaintiffs constituting ‘torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act.” See 28 U.S.C. § 1605A(a) (1), (a)(2). According to plaintiffs, the Iranian regime continued to ‘torture’ them in the United States by making threatening phone calls, hacking certain of plaintiffs’ online accounts, and disseminating doctored, sexually explicit photographs of Nasrin. We conclude that those alleged acts, while certainly harassing and objectionable, fail to amount to ‘torture’ within the meaning of the terrorism exception.”

“The terrorism exception defines ‘torture’ by reference to the definition of that term contained in the Torture Victim Protection Act (TVPA), 106 Stat. 73, note following 28 U.S.C. § 1350. See 28 U.S.C. § 1605A(h)(7). The TVPA, in turn, defines torture as ‘any act, directed against an individual in the offender’s custody or physical control, by which severe pain or suffering . . . is intentionally inflicted on that individual.’ 28 U.S.C. § 1350 (note). It is doubtful that plaintiffs could be considered to have been in the Iranian regime’s ‘custody or physical control’ after their relocation to the United States.”

“Even assuming otherwise, the challenged acts postdating plaintiffs’ settlement in the United States fail to satisfy the statute’s severity requirement. Plaintiffs’ allegations did not involve physical acts against them. And the nonphysical acts alleged—viz., threatening phone calls made from Iran, hacking of Facebook and email accounts, and circulation of explicit photographs—fall short of anything previously held to constitute ‘torture’ within the meaning of the TVPA. See Simpson v. Socialist People’s Libyan Arab Jamahiriya, 326 F.3d 230, 234 (D.C. Cir. 2003).” [Slip op. 5-6]

The Court then addresses to the “hostage taking” argument within the meaning of the FSIA’s terrorism exception because the Iranian regime refuses to permit plaintiffs’ parents to leave Iran:

“In any event, a prohibition on international travel of the kind alleged by plaintiffs would not constitute ‘hostage taking.’ The statute’s definition of ‘hostage taking’ incorporates the definition from Article 1 of the International Convention Against the Taking of Hostages, see 28 U.S.C. § 1605A(h)(2), and that definition applies to a person who ‘seizes or detains and threatens to kill, to injure or to continue to detain another person,’ Simpson, 326 F.3d at 234 (internal quotation marks omitted). Even if plaintiffs’ parents are barred from traveling abroad from Iran, there is no allegation that they have been ‘seized or detained’ within Iran under any ordinary understanding of those terms. Courts thus have found ‘hostage taking’ in cases involving physical capture and confinement, not restrictions on international travel. See, e.g., Simpson v. Socialist People’s Libyan Arab Jamahiriya, 470 F.3d 356, 358 (D.C. Cir. 2006); Anderson v. Islamic Republic of Iran, 90 F. Supp. 2d 107, 109111, 113 (D.D.C. 2000).” [Slip op. 6-7]

The Court concludes:

“Because plaintiffs fail to satisfy the statutory requirements of the terrorism exception, Iran, as a ‘foreign state,’ is ‘immune from the jurisdiction’ of federal courts. See 28 U.S.C. § 1604. The district court concluded that it also lacked jurisdiction over the Revolutionary Guard because the FSIA defines ‘foreign state’ to include ‘a political subdivision of a foreign state or an agency or instrumentality of a foreign state,’ id. § 1603(a). Plaintiffs have forfeited any challenge to that conclusion by failing to contest it on appeal. See, e.g., World Wide Minerals, Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1160 (D.C. Cir. 2002). Plaintiffs also raise no challenge to the district court’s determination that foreign sovereign immunity extended to the individual defendants, Khamenei and Ahmadinejad. Immunity under the FSIA therefore applies to all defendants.”

“In a final effort to establish subject-matter jurisdiction, plaintiffs invoke the Alien Tort Statute, 28 U.S.C. § 1350. The Alien Tort Statute, however, does not confer any waiver of foreign sovereign immunity. See Amerada Hess, 488 U.S. at 43839; Enahoro v. Abubakar, 408 F.3d 877, 883 (7th Cir. 2005); Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 713 n.13 (9th Cir. 1992). The Alien Tort Statute affords jurisdiction for suits against private defendants, not against foreign sovereigns. The FSIA provides the ‘sole basis for obtaining jurisdiction over a foreign state.’ Amerada Hess, 488 U.S. at 439. […]” [Slip op. 7]

The Court affirms the district court’s dismissal of plaintiffs’ third amended complaint for lack of subject-matter jurisdiction.

Citation: Mohammadi v. Islamic Republic of Iran, 782 F.3d 9 (D.C. Cir. 2015).