ASIL Insights

ADDENDUM by Carlos Manuel Vázquez
May 2003

In its current Term, the Supreme Court will address aspects of the Foreign Sovereign Immunities Act for the first time since its decision in Saudi Arabia v. Nelson a decade earlier. [1]   Although the issues in Dole Food Company v. Patrickson appear technical, they are not without practical significance, and one of them raises profound questions about the nature of foreign sovereign immunity.

The Dole case was filed in the Hawaii courts by banana workers from Costa Rica, Ecuador, Guatemala and Panama seeking damages for injuries they attributed to the pesticide DBCP.  They sued the Dole Food Company and other major fruit and chemical companies, alleging causes of action under state law.  The defendants impleaded two Israeli chemical companies, which in turn removed the case to federal court, arguing that  the suit against them could have been brought in federal court under 28 U.S.C. § 1330, a provision of the FSIA that confers original jurisdiction over any suit brought against a foreign state in which the state is not entitled to immunity.  The Israeli companies argued that they were "foreign states" for purposes of that section because a majority of their shares were owned by the state of Israel at the time of the events on which the lawsuit against them was based.  The district court denied the plaintiffs' motion to remand the case to the state courts, and it dismissed the case on forum non conveniens grounds. 

The plaintiffs appealed, and the Ninth Circuit reversed in an opinion by Judge Kozinski. [2]   With respect to the FSIA, the court first expressed doubt about the Israeli companies' claim to be treated as foreign states just because the Israeli government owned their shares at the time of the relevant events.  It noted that section 1330 is framed in the present tense, suggesting that the defendant must be a foreign state at the time the lawsuit is brought.  The Court found it unnecessary to decide that issue, however, because, in its view, the companies did not qualify as foreign states for a distinct reason.  Although the FSIA defines a foreign state as including a company a majority of whose shares are owned by a foreign state, the Court held that the term does not encompass a company a majority of whose shares are owned by a company a majority of whose shares are owned by a foreign state (known for these purposes as a "tiered subsidiary" [3] ).  

When the Israeli companies filed a petition for certiorari, the Court invited the United States to present its views.  The Solicitor General's brief took the position that the Ninth Circuit reached the correct result on the tiering question, but it recommended that the Court grant the petition because the Ninth Circuit's holding conflicted directly with that of the Fifth Circuit in Delgado v. Shell Oil Company [4] and the Seventh Circuit in In re Air Crash Disaster Near Roselawn. [5]   The Solicitor General also recommended that the Court review the "timing" question that the Ninth Circuit had reserved.  Although there was not a conflict among the Circuits on that question, the Solicitor General's brief took issue with the so-far-unanimous view of the courts of appeals that an entity is entitled to foreign state status if it was a foreign state at the time of the acts giving rise to the dispute, even if it was no longer a foreign state at the time the lawsuit was commenced.  The Supreme Court granted certiorari on the following two issues: (1) "Whether a corporation is an 'agency or instrumentality' if a foreign state owns a majority of the shares of a corporate enterprise that in turn owns a majority of the shares of the corporation" and (2) "Whether a corporation is an 'agency or instrumentality' if a foreign state owned a majority of the shares of the corporation at the time of the events giving rise to litigation, but the foreign state does not own a majority of those shares at the time that a plaintiff commences a suit against the corporation." 

The Ninth Circuit's holding on the tiering question appears to conflict with the plain text of the FSIA.   Section 1603(a) defines "foreign state" as including a foreign state instrumentality and political subdivision of a foreign state.  Section 1603(b) then defines a "foreign state instrumentality" as a company a majority or more of whose shares are owned by a foreign state or political subdivision and meets certain other requirements.  Read literally, this means that a company a majority of whose shares are owned by the government of Israel and meets the other requirements (let's call it Company A) is a "foreign state instrumentality" by virtue of section 1603(b) and hence also a "foreign state" by virtue of section 1603(a).  If Company A owns a majority of the shares of Company B, then Company B would qualify a foreign state instrumentality as that term is defined in section 1603(b) because a majority of its shares are owned by a "foreign state" as that term is defined in section 1603(a).  

The Ninth Circuit and the Solicitor General interpret the term "foreign state" in section 1603(b) as encompassing only the sovereign state itself, notwithstanding the broader definition in section 1603(a).  There is some textual support for this interpretation.  Recall that the term "foreign state" is defined in section 1603(a) as including both instrumentalities and political subdivisions of a foreign state.  Section 1603(b) then defines instrumentalities as including corporations a majority or more of whose shares are owned by a foreign state or a political subdivision of a foreign state.  If the term "foreign state" in section 1603(b) were read to mean "foreign state" as the term is defined in section 1603(a), then the reference to "political subdivisions" in section 1603(b) would be redundant.  On the other hand, there is an additional textual obstacle to reading the term "foreign state" in section 1603(b) as something other than the term "foreign state" as defined in section 1603(a).  The latter section specifically addresses the scope of its application, and it specifies that the term "foreign state" is used in the FSIA as it is defined in section 1603(a) "except as used in section 1608 of this title" (which concerns service of process).  Thus, according to the express terms of 1603(a), that section's definition applies to the term "foreign state" as used in section 1603(b). 

There are strong policy arguments for reading section 1603(b)(2) as the Ninth Circuit did and as the Solicitor General proposes.  The strongest is that other nations generally do not afford protection to subsidiaries of companies owned by foreign states.  Considerations of reciprocity would thus appear to counsel against affording such protection to the subsidiaries of companies owned by foreign states.  The issue for the Court is whether, in the light of the FSIA's text, this result can be accomplished through judicial interpretation or instead requires an amendment of the statute. 

If the Court disagrees with the Ninth Circuit on the tiering issue, it may address the timing question as well.  Although it did not rule on the issue, the Ninth Circuit expressed tentative disagreement with the way the issue has been resolved by the other courts of appeals that have addressed it.  In the view of the Ninth Circuit, the fact that section 1330 is written in the present tense indicates that the FSIA confers federal jurisdiction if the defendant is a foreign state at the time the lawsuit is brought.  That is surely correct, but it does not mean, as the court appeared to assume, that jurisdiction is lacking if the defendant was a foreign state at the time of the events on which the suit is based but not at the time the lawsuit was commenced.  It is possible that jurisdiction exists as well if the defendant was a foreign state at the time of the events on which the suit is based. 

Under the FSIA, the existence of sovereign immunity turns on the nature of the acts of the defendant on which the suit is based.  This suggests that sovereign immunity is an immunity from liability as well as an immunity from federal court jurisdiction.  This is confirmed by section 1608 of the Act, which establishes that a foreign state's liability turns on the absence of an entitlement to sovereign immunity under section 1604 of the Act.  It is also supported by the Supreme Court's decision in The Western Maid, [6] concerning the analogous immunity of the United States.  In the latter case, relied upon by the Sixth Circuit in holding that the FSIA applies to defendants who were foreign states at the time of the relevant events, [7] the Supreme Court, per Justice Holmes, held that no liability attached when a ship operated by the government collided with another vessel, even though the ship was no longer operated by the government at the time of the lawsuit. 

It is possible that the defendant's status as a foreign state at the time of the relevant events should determine its immunity from liability, but only its status as a foreign state at the time the lawsuit is commenced its entitlement to remove the suit to federal court.  The complexity of the issue, however, may warrant deferring its resolution until after the lower court has had a chance to consider it.