Supreme Court vacated judgment of court of appeals and remanded case for further proceedings consistent with its opinion that non-frivolous argument is not sufficient for expropriation exception to apply, which matter must be decided as close to outset as possible

Since the mid-1970’s a wholly owned Venezuela-incorporated subsidiary (Subsidiary) of an American company (Parent) supplied oil rigs to oil development entities that were part of the Venezuelan Government. In 2011 the American Parent company and its Venezuelan Subsidiary brought a lawsuit in federal court against those foreign government entities claiming that the Venezuelan Government had unlawfully expropriated the Subsidiary’s oil rigs by nationalizing them and sought compensation. Venezuela moved to dismiss the case on the ground that its sovereign immunity deprived the District Court of jurisdiction.

A wholly owned Venezuelan subsidiary (Subsidiary) of an American company (Parent) has long supplied oil rigs to oil development entities that were part of the Venezuelan Government. The American Parent and its Venezuelan Subsidiary (plaintiffs) filed suit in federal court against those entities, claiming that Venezuela had unlawfully expropriated the Subsidiary’s rigs by nationalizing them. Venezuela moved to dismiss the case on the ground that its sovereign immunity deprived the District Court of jurisdiction. The District Court agreed as to the Subsidiary, dismissing its claim on jurisdictional grounds. But it rejected the claim that the Parent had no rights in the Subsidiary’s property. The District of Columbia Circuit reversed in part and affirmed in part, finding that both claims fell within the exception. With respect to the Subsidiary’s claim, it concluded that a sovereign’s taking of its own nationals’ property would violate international law if the expropriation unreasonably discriminated based on a company’s shareholders’ nationality. With respect to the Parent’s claim, it held that the exception applied because the Parent had raised its rights in a non-frivolous way.

Venezuela filed a petition for certiorari asking Supreme Court to decide whether the Court of Appeals had applied the correct standard in deciding that the companies had met the expropriation exception’s requirements.

The Supreme Court, in vacating the judgment, concluded that the non frivolous-argument standard is not consistent with the statute. Where, as here, the facts are not in dispute, those facts bring the case within the scope of the expropriation exception only if they do show (and not just arguably show) a taking of property in violation of international law. Simply making a non-frivolous argument to that effect is not sufficient. It is further held that a court should decide the foreign sovereign’s immunity defense “at the threshold” of the action.

“Foreign sovereign immunity is jurisdictional in this case because explicit statutory language makes it so. See § 1604 (“[A] foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided” by the FSIA’s exceptions); § 1605(a) (“A foreign state shall not be immune from the jurisdiction” of federal and state courts if the exception at issue here is satisfied).”

“To be sure, there are fair arguments to be made that a sovereign’s taking of its own nationals’ property sometimes amounts to an expropriation that violates international law, and the expropriation exception provides that the general principle of immunity for these otherwise public acts should give way. But such arguments are about whether such an expropriation does violate international law. To find jurisdiction only where a taking does violate international law is thus consistent with basic international law and the related statutory objectives and principles that we have mentioned. But to find jurisdiction where a taking does not violate international law (e.g., where there is a non frivolous but ultimately incorrect argument that the taking violates international law) is inconsistent with those objectives. And it is difficult to understand why Congress would have wanted that result.”

“We can understand why the Circuit has departed from its non frivolous-argument standard in these latter cases. For, unless it did so, how could a foreign nation ever obtain a decision on the merits of the non frivolous argument that a plaintiff has advanced? But what in the statutory provision suggests that sometimes courts should, but sometimes they should not, simply look to the existence of a non frivolous argument when they decide whether the requirements of the expropriation exception are satisfied? It is difficult, if not impossible, to reconcile this bifurcated approach with the statute’s language. It receives little, if any, support from the statute’s history or purpose. And, it creates added complexity, making it more difficult for judges and lawyers, domestic and foreign, to understand the intricacies of the law.”

Consequently, the judgment of the Court of Appeals was vacated, and the case was remanded for further proceedings.

CITATION: Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co. (S. Ct. 2017), No. 15-423.

**** Mike Meier is an experienced business consultant. Fluent in German and Spanish, French and Japanese. Juris Doctor (1993) & Master of Laws with distinction (1997), Georgetown University; Master's Degree in Political Science (1988), University of Berlin (Germany), Yale Law School. - Attorney Website at https://mikemeierattorney.com/ - Attorney Profile at: https://solomonlawguild.com/mike-meier# - Attorney News at: https://attorneygazette.com/mike-meier%2C-consultant#