Amicus Curiae Brief — Blenheim Capital Holdings Ltd., et al., Petitioners v. Lockheed Martin Corporation, et al.

No. 22-886

In the Supreme Court of the United States

BLENHEIM CAPITAL HOLDINGS LTD., ET AL.,

PETITIONERS

v.

LOCKHEED MARTIN CORPORATION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

RICHARD C. VISEK

Acting Legal Adviser

Department of State

Washington, D.C. 20520

ELIZABETH B. PRELOGAR

Solicitor General

Counsel of Record

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

NICOLE FRAZER REAVES

Assistant to the Solicitor

General

SHARON SWINGLE

SIMON C. BREWER

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the court of appeals correctly held that petitioners’ claims do not fall within the “commercial activity” exception, 28 U.S.C. 1605(a)(2), to foreign sovereign immunity in the Foreign Sovereign Immunities

Act of 1976, 28 U.S.C. 1330, 1602 et seq.

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 1

Discussion:

A. The court of appeals correctly concluded that the

FMS and offset transactions in this case were

sovereign, not commercial, activity ................................. 9

B. Further review is not warranted ................................... 17

Conclusion ................................................................................... 23

TABLE OF AUTHORITIES

Cases:

Argentine Republic v. Amerada Hess Shipping

Corp., 488 U.S. 428 (1989) .................................................... 1

Black v. Cutter Labs., 351 U.S. 292 (1956) .......................... 17

Camreta v. Greene, 563 U.S. 692 (2011) .............................. 17

Cicippio v. Islamic Republic of Iran,

30 F.3d 164 (D.C. Cir. 1994), cert. denied,

513 U.S. 1078 (1995)............................................................ 11

Heroth v. Kingdom of Saudi Arabia,

331 Fed. Appx. 1 (D.C. Cir. 2009) ..................................... 18

Jam v. International Fin. Corp., 586 U.S. 199 (2019) ....... 22

Joseph v. Office of Consulate Gen. of Nigeria, 830

F.2d 1018 (9th Cir. 1987), cert. denied, 485 U.S. 905

(1988) .................................................................................... 14

McDonnell Douglas Corp. v. Islamic Republic of

Iran:

591 F. Supp. 293 (E.D. Mo. 1984), aff ’d,

758 F.2d 341, cert. denied, 474 U.S. 948 (1985) ...... 18

758 F.2d 341 (8th Cir.), cert. denied,

474 U.S. 948 (1985) .................................................... 18

(III)

IV

Cases—Continued:

Page

Ministry of Defense & Support for Armed Forces

of Islamic Republic of Iran v. Cubic Defense

Systems, Inc., 385 F.3d 1206 (9th Cir. 2004),

vacated on other grounds, 546 U.S. 450 (2006) ................ 19

OBB Personenverkehr AG v. Sachs,

577 U.S. 27 (2015) ............................................................... 22

Practical Concepts, Inc. v. Republic of Bolivia,

811 F.2d 1543 (D.C. Cir. 1987) ........................................... 14

Republic of Argentina v. Weltover, Inc.,

504 U.S. 607 (1992)....................................... 2, 3, 8, 10-12, 14

Rush-Presbyterian-St. Luke’s Med. Ctr. v. Hellenic

Republic, 877 F.2d 574 (7th Cir.), cert. denied,

493 U.S. 937 (1989).............................................................. 13

Samco Global Arms, Inc. v. Arita,

395 F.3d 1212 (11th Cir. 2005) ........................................... 19

Saudi Arabia v. Nelson, 507 U.S. 349 (1993) ....... 3, 8, 10, 22

Secretary of State for Defence v. Trimble Navigation

Ltd., 484 F.3d 700 (4th Cir. 2007) .................................... 3, 4

UNC Lear Services, Inc. v. Kingdom of Saudi

Arabia, 581 F.3d 210 (5th Cir. 2009), cert. denied,

559 U.S. 971 (2010).............................................................. 19

Verlinden B. V. v. Central Bank of Nigeria,

461 U.S. 480 (1983).............................................................. 12

Virtual Def. & Dev. Int’l, Inc. v. Republic of

Moldova, 133 F. Supp. 2d 1 (D.D.C. 1999) ....................... 20

Treaties, statutes, and regulations:

European Convention on State Immunity,

May 16, 1972, E.T.S. No. 74 ............................................... 12

Art. 4(2)(a) ........................................................................ 12

Art. 7(2) ............................................................................ 12

V

Treaties, statutes, and regulations—Continued:

Page

United Nations Convention on Jurisdictional

Immunities of States and Their Property,

G.A. Res. 59/38, U.N. Doc. A/RES/59/38

(Dec. 2, 2004) ....................................................................... 12

Art. 7(2) ............................................................................ 12

Art. 10(2)(a) ...................................................................... 12

Arms Export Control Act, 22 U.S.C. 2751 et seq. ................ 3

22 U.S.C. 2751 .................................................................... 3

22 U.S.C. 2753 .................................................................... 3

22 U.S.C. 2753(a)(1) ..................................................... 3, 11

22 U.S.C. 2753(a)(2) ........................................................... 4

22 U.S.C. 2753(a)(4) ........................................................... 4

22 U.S.C. 2753(d) ......................................................... 4, 11

22 U.S.C. 2761 ................................................................ 3, 4

22 U.S.C. 2762 ................................................................ 3, 4

22 U.S.C. 2776(b) ......................................................... 4, 11

22 U.S.C. 2778(a) ............................................................... 4

Defense Production Act Amendments of 1992,

Pub. L. No. 102-558, § 123, 106 Stat. 4206-4207 ................ 4

Foreign Sovereign Immunities Act of 1976,

28 U.S.C. 1330, 1602 et seq. .................................................. 1

28 U.S.C. 1603(a) ............................................................... 1

28 U.S.C. 1603(d) ......................................................... 2, 10

28 U.S.C. 1604 .................................................................... 1

28 U.S.C. 1605(a)(2) ........................................... 2, 7, 10, 22

28 U.S.C. 1606 .................................................................... 2

22 C.F.R. 120.1 ......................................................................... 4

48 C.F.R.:

Section 202.101 .................................................................. 4

Section 225.7303-2(a)(3)(i) ............................................ 4, 5

Section 225.7303-2(a)(3)(iii) ........................................ 5, 15

VI

Regulations—Continued:

Page

Section 225.7303-2(a)(3)(iv) .............................................. 5

Section 225.7306 ................................................................ 5

Section 252.215-7014(a)(2) .............................................. 21

Miscellaneous:

Defense Federal Acquisition Regulation

Supplement: Offset Costs (DFARS Case

2015-D028), 83 Fed. Reg. 30,825 (June 29, 2018) .............. 5

Defense Security Cooperation Agency, Dep’t of Def.,

5105.38-M, Security Assistance Management

Manual (2012), https://samm.dsca.mil/listing/chapters ................................................................................ 3-5, 15

Defense Security Cooperation Univ., Def. Security

Cooperation Agency, Dep’t of Def., Security

Cooperation Management (42d ed. 2022),

https://perma.cc/2DTH-QQX3....................................... 5, 15

International Court of Justice, Germany v. Italy,

Reports of Judgments, Advisory Opinions, and

Orders: Jurisdictional Immunities of the State

(Feb. 3, 2012) ....................................................................... 12

In the Supreme Court of the United States

No. 22-886

BLENHEIM CAPITAL HOLDINGS LTD., ET AL.,

PETITIONERS

v.

LOCKHEED MARTIN CORPORATION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the petition for a writ of certiorari should be denied.

STATEMENT

1. a. The Foreign Sovereign Immunities Act of 1976

(FSIA), 28 U.S.C. 1330, 1602 et seq., “provides the sole

basis for obtaining jurisdiction over a foreign state

in the courts of this country.” Argentine Republic v.

Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989).

The FSIA provides that “a foreign state”—which includes a subdivision, agency, or instrumentality of a foreign state—“shall be immune” from the jurisdiction of

United States courts, unless the suit falls within one of

the FSIA’s limited exceptions. 28 U.S.C. 1604; see 28

(1)

2

U.S.C. 1603(a). If one of those exceptions applies, the

foreign state generally “shall be liable in the same manner and to the same extent as a private individual under

like circumstances.” 28 U.S.C. 1606.

This case involves the FSIA’s commercial-activity

exception to immunity from suit. As relevant here, that

exception provides that a “foreign state shall not be immune from the jurisdiction of ” United States courts

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 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). The FSIA defines “commercial activity” as “either a regular course of commercial conduct or a particular commercial transaction or act,” and

specifies that an activity’s “commercial character” is

“determined by reference to the nature of the course of

conduct or particular transaction or act, rather than by

reference to its purpose.” 28 U.S.C. 1603(d). This

Court has noted that although that definition “leaves

the critical term ‘commercial’ largely undefined,” the

statute is “not written on a clean slate”; rather it “(and

the commercial exception in particular) largely codifies

the so-called ‘restrictive’ theory of foreign sovereign

immunity.” Republic of Argentina v. Weltover, Inc.,

504 U.S. 607, 612 (1992). Based on that restrictive theory, the Court has “conclude[d] that when a foreign government acts, not as regulator of a market, but in the

manner of a private player within it, the foreign sovereign’s actions are ‘commercial’ within the meaning of

3

the FSIA.” Id. at 614; see Saudi Arabia v. Nelson, 507

U.S. 349, 359-361 (1993).

b. i. The Arms Export Control Act, 22 U.S.C. 2751

et seq., allows foreign states to purchase United States

defense articles and services. See 22 U.S.C. 2751, 2753,

2761, 2762. There are two main programs under the

Act: (1) the Foreign Military Sales (FMS) program,

which allows foreign states to purchase articles and services from the U.S. government, and (2) the Direct

Commercial Sales (DCS) program, which allows foreign

states to purchase articles and services from United

States contractors. See Defense Security Cooperation

Agency, Dep’t of Def., 5105.38-M, Security Assistance

Management Manual (SAMM) § C.4 (2012), https://

samm.dsca.mil/listing/chapters; see also Secretary of

State for Defence v. Trimble Navigation Ltd., 484 F.3d

700, 703 (4th Cir. 2007). Foreign states generally may

use either program to acquire defense articles, although

some highly regulated articles may be purchased only

through the FMS program. See SAMM §§ C.4.3.4C.4.3.6. The government designates FMS-only articles

based on numerous criteria, including the “geopolitical

situation and security relationships” and the need

for “enhanced control to prevent proliferation” of

the relevant technology “to rogue states or terrorist

organizations.” Id. §§ C.4.3.5.4.1, C.4.3.5.4.3; see id.

§ C.4.3.5.3. FMS-only items include “Nuclear Weapons/

Nuclear Propulsion,” “Missiles,” and “Fighter Aircraft.”

Id. § C.4.3.5.2.

Under the FMS program, the government may sell

or lease defense articles to a foreign state if the President determines that doing so “will strengthen the security of the United States and promote world peace.”

22 U.S.C. 2753(a)(1); see SAMM § C.4.1. The foreign

4

state must meet several other criteria, such as generally

being eligible to purchase or lease defense articles and

agreeing not to transfer title or possession of the articles without the consent of the United States. 22 U.S.C.

2753(a)(2) and (4); see SAMM § C.4. The U.S. government and the foreign state ultimately agree to the terms

of the FMS transaction in a letter of offer and acceptance. See SAMM § C.5.4. The government may provide the agreed-upon defense articles out of its own

stock, or it may separately contract with a private company to provide the articles. See 22 U.S.C. 2761, 2762.

Congress may overrule certain high-value FMS transactions proposed by the President. See 22 U.S.C.

2753(d), 2776(b).

By contrast, the U.S. government is not a party to a

DCS transaction. See Trimble, 484 F.3d at 703. But the

Department of State must authorize a DCS transaction

through a license or other form of approval if it involves

defense articles or services. See 22 U.S.C. 2778(a) and

(b); 22 C.F.R. 120.1.

ii. In some FMS transactions, a private contractor

will agree to provide the foreign state with an “offset,”

which is a “benefit or obligation” that operates “as an

inducement or condition to purchase supplies or services pursuant to a foreign military sale.” 48 C.F.R.

202.101. The U.S. government is not a party to an offset

transaction. See 48 C.F.R. 225.7303-2(a)(3)(i). The

United States’ policy on whether FMS transactions

should include offsets is essentially neutral: The government may not encourage a contractor to enter into

an offset agreement, Defense Production Act Amendments of 1992, Pub. L. No. 102-558, § 123, 106 Stat.

4206-4207, and “the responsibility for negotiating offset

agreements and satisfying all related commitments

5

resides” solely with the contractor, SAMM § C.6.3.9; see

48 C.F.R. 225.7306. The government “assumes no obligation to satisfy or administer the offset agreement or

to bear any of the associated costs.” 48 C.F.R. 225.73032(a)(3)(iii); see SAMM § C.6.3.9.

Notwithstanding those features of an offset arrangement, the costs of any offset are built directly into the

FMS contract between the government and the foreign

state. See SAMM § C.6.3.9; Defense Security Cooperation Univ., Def. Security Cooperation Agency, Dep’t of

Def., Security Cooperation Management 9-21-9-22 (42d

ed. 2022) (Green Book), https://perma.cc/2DTH-QQX3.

Thus, although an offset “agreement[] [is] distinct and

independent of ” the FMS contract, 48 C.F.R. 225.73032(a)(3)(i), the offset becomes part of the overall FMS

transaction, and “[o]ffset costs” are “included” in “estimated prices quoted in the” letters of offer and acceptance, SAMM § 6.3.9.1.

At the relevant time for purposes of this case, a Department of Defense (DOD) contracting officer was required to determine that an offset’s costs were reasonable before allowing an FMS sale to include an offset.

Today, offsets “are deemed reasonable” “with no further analysis necessary on the part of the contracting

officer,” so long as the contractor submits appropriate

documentation of the offset agreement. 48 C.F.R.

225.7303-2(a)(3)(iv); see Defense Federal Acquisition

Regulation Supplement: Offset Costs (DFARS Case

2015-D028), 83 Fed. Reg. 30,825, 30,828 (June 29, 2018)

(explaining DOD’s rationale for no longer requiring a

reasonableness assessment).

2. Petitioners are Blenheim Capital, a company that

specializes in developing and structuring offset transactions, as well as its holding company, Blenheim Holdings.

6

Pet. App. 5, 28. This case involves an offset agreement

developed by petitioners. Id. at 5-6. Around 2011, the

Republic of Korea and its Defense Acquisition Program

Administration (collectively, South Korea), began pursuing the FMS purchase of 40 F-35 fighter jets. Id. at

1-2, 5-7. The F-35 is an advanced fighter jet manufactured by respondent Lockheed Martin for the U.S. government. Id. at 5. Because of the high cost of the 40

fighter jets—valued at around $7 billion—South Korea’s acquisition required an offset transaction. Id. at

5-6.

Petitioners brokered a transaction with the following

structure. Through the FMS program, South Korea

would purchase from the U.S. government 40 F-35

fighter jets that the government acquired from Lockheed. See Pet. App. 5-7. As an offset, South Korea

would receive an advanced military satellite, manufactured by Airbus, that was capable of integrating with

the jets; the satellite was worth approximately $3.1 billion. Id. at 6. As part of the letter of offer and acceptance, South Korea would make a $150 million payment for the satellite through the U.S. government. See

ibid. The government would disburse that payment to

Lockheed, which in turn would pay petitioners. Ibid.

The parties agreed to the offset transaction, and DOD

approved it (that is, a DOD contracting officer determined that the offset’s costs were reasonable). Id. at 56; see p. 5, supra.

That arrangement collapsed. The parties dispute

the reasons for the collapse, Pet. App. 3-4, but petitioners allege that Lockheed and “Airbus (and later on,

South Korea) conspired to ‘cut [petitioners] out’ of the

offset transaction,” id. at 7. The transaction was restructured, and South Korea acquired the F-35 fighter

7

jets and the military satellite—which Airbus provided

directly under a new offset agreement approved by

DOD as part of the FMS contract. Id. at 8.

3. Petitioners sued South Korea, Airbus, and Lockheed in the United States District Court for the Eastern

District of Virginia. See Pet. App. 27-28. As relevant

here, petitioners pleaded Virginia state-law claims alleging that South Korea, Airbus, and Lockheed tortiously interfered with petitioners’ contractual relationship with Lockheed. Id. at 4, 8. Petitioners invoked the

court’s subject-matter jurisdiction under the FSIA for

those claims. Id. at 8, 31.

Before petitioners served South Korea pursuant to

the Hague Service Convention, see Pet. App. 28, the district court dismissed the complaint, id. at 27-46. The

court held that it lacked subject-matter jurisdiction under the FSIA for two independent reasons. Id. at 3846. First, the court determined that the FMS transaction was not “commercial activity,” 28 U.S.C. 1605(a)(2),

because South Korea acted in a sovereign capacity when

it participated in that transaction with the U.S. government. Pet. App. 41-42, 45-46. Second, the court determined that petitioners’ claims were not “based upon”

any commercial activity, 28 U.S.C. 1605(a)(2), because

“[t]he ‘gravamen’ of [petitioners’] suit” is tortious interference with petitioners’ contractual agreement with

Lockheed—“not the commercial activity by South Korea.” Pet. App. 46; see id. at 42-45.

4. a. The court of appeals affirmed. Pet. App. 1-26.

The court first rejected petitioners’ argument that any

transaction involving “the purchase and sale of goods”

is commercial activity under the FSIA. Id. at 13. The

court explained that whether a particular purchase is

commercial activity depends on “ ‘whether the particular

8

actions that the foreign state performs’ are ‘the type of

actions by which a private party engages in trade or

commerce.’ ” Id. at 14 (quoting Weltover, 504 U.S. at

614). The court also emphasized that a foreign state

“engages in commercial activity . . . where it exercises

only those powers that can also be exercised by private

citizens, as distinct from those powers peculiar to sovereigns.” Id. at 15 (quoting Nelson, 507 U.S. at 360).

Applying that standard, the court of appeals found

that the FMS and offset transactions did not fall within

the FSIA’s commercial-activity exception. Pet. App.

15-19. The court noted that F-35 fighter jets could only

be acquired from the U.S. government through the

FMS program, and that only friendly foreign states

may participate in that program. Id. at 15-16. The court

also emphasized that “the sale of F-35s to South Korea

was conditioned on the U.S. government’s determination that the transaction would advance goals related to

foreign relations and national defense.” Id. at 18; see

id. at 16. Turning to the offset transaction, the court

explained that the military satellite that was the subject

of the offset contained “next-generation capabilities,”

“ ‘integrat[ed] with the F-35 fighter planes,’ ” and “satisf [ied] South Korea’s” “classified” “military specifications.” Id. at 6, 16, 18. The court further explained that

the offset was subject to approval by the U.S. government. Id. at 5-6, 19. Given those features of the FMS

and offset transactions, the court concluded that “the

activity at issue in this case was not the type that could

be pursued by private citizens or corporations.” Id. at

18.

In reaching that conclusion, the court of appeals rejected petitioners’ attempt to distinguish the offset from

the FMS sale. Pet. App. 18-19. The court explained that

9

petitioners’ “own characterization of the transaction” in

their complaint required the court to consider the two

transactions in tandem. Id. at 18. The court noted that

the complaint indicated that the offset “was a necessary

and integral part of the procurement by South Korea of

the F-35s.” Id. at 18-19. And the court observed that

“all monetary transactions” at issue—including those

for the offset—“flow[ed] through the Pentagon.” Id. at

19 (emphasis omitted). The court therefore concluded

that the offset transaction did not create jurisdiction

under the FSIA’s commercial-activity exception.

b. The court of appeals denied rehearing en banc.

Pet. App. 47-48.

DISCUSSION

This Court should deny the petition for a writ of certiorari. The court of appeals correctly held that both

the FMS transaction and the associated offset transaction constitute sovereign activity, and therefore that the

FSIA’s commercial-activity exception does not apply.

Contrary to petitioners’ assertions, that conclusion does

not conflict with any decision of this Court or of another

court of appeals. Indeed, the Fourth Circuit’s decision

below is the first court of appeals decision to address

the commercial-activity exception’s application to an

offset agreement. And this case would not be a suitable

vehicle for addressing that issue in any event.

A. The Court Of Appeals Correctly Concluded That The

FMS And Offset Transactions In This Case Were Sovereign, Not Commercial, Activity

1. a. The FSIA’s commercial-activity exception provides that a foreign state is not immune from federalcourt jurisdiction “in any case * * * in which the action

is based upon a commercial activity carried on in the

10

United States by the foreign state” 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). This Court has explained

that a foreign state’s act is “ ‘commercial’ ” when the foreign state acts “in the manner of a private player

within” a market—in other words, when “the particular

actions that the foreign state performs” “are the type of

actions by which a private party engages in ‘trade and

traffic or commerce.’ ” Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992) (citation omitted).

Because the FSIA’s definition of “commercial activity”

expressly provides that “the commercial character of an

act is to be determined by reference to its ‘nature’ rather than its ‘purpose,’ ” the inquiry turns on the “outward form of the conduct” rather than “the reason why

the foreign state engages in the activity.” Id. at 614, 617

(quoting 28 U.S.C. 1603(d)).

b. The court of appeals correctly articulated those

governing principles. The court explained that South

Korea could “engage[] in commercial activity” only by

exercising “those powers that can also be exercised by

private citizens, as distinct from those powers peculiar

to sovereigns.” Pet. App. 15 (quoting Saudi Arabia v.

Nelson, 507 U.S. 349, 360 (1993)) (emphasis omitted).

And the court asked “ ‘whether the particular actions’ ”

South Korea performed “are ‘the type of actions by

which a private party engages in trade or commerce.’ ”

Id. at 14 (quoting Weltover, 504 U.S. at 614).

The court of appeals likewise correctly applied those

principles in concluding that neither the FMS transaction nor the offset transaction in this case was commercial activity under the FSIA.

11

i. FMS transactions are not “the type of actions by

which a private party engages in ‘trade and traffic or

commerce.’ ” Weltover, 504 U.S. at 614 (citation and emphasis omitted). When the United States engages in an

FMS transaction, it sells defense articles or services to

a foreign state based on a letter of offer and acceptance

between one sovereign (the United States) and another

(a foreign state). See pp. 3-4, supra. Before entering

into an FMS transaction with a foreign state, the President must find that the agreement “will strengthen the

security of the United States and promote world peace.”

22 U.S.C. 2753(a)(1). Congress can override certain

FMS transactions. See 22 U.S.C. 2753(d), 2776(b). And

many defense articles can only be purchased by foreign

states through the FMS program, due to the security

and other United States interests such sales implicate.

Those features of FMS transactions confirm that

they involve conduct that is inherently sovereign. They

are not the type of actions by which a private party engages in commerce, see Weltover, 504 U.S. at 614;

rather, FMS transactions involve government-togovernment agreements serving the security of each

nation. And FMS transactions are not “directed or influenced by the market but rather by the President’s

and Congress’s judgment on national security concerns.” Pet. App. 17; see Cicippio v. Islamic Republic

of Iran, 30 F.3d 164, 168-169 (D.C. Cir. 1994) (“Governments negotiating with each other invariably take into

account non-marketplace considerations—most obviously political relations—and so they cannot be thought

to be behaving, in that setting, as businessmen.”), cert.

denied, 513 U.S. 1078 (1995).

Two international agreements based on the restrictive theory of foreign sovereign immunity confirm that

12

sovereigns are generally immune from suit when they

engage in sovereign-to-sovereign transactions. 1 This

Court has explained that the FSIA “(and the commercial exception in particular) largely codifies the so-called

‘restrictive’ theory of foreign sovereign immunity.”

Weltover, 504 U.S. at 612; see Verlinden B. V. v. Central

Bank of Nigeria, 461 U.S. 480, 488 (1983). Like the

FSIA, the United Nations Convention on Jurisdictional

Immunities of States and Their Property (United Nations Convention), G.A. Res. 59/38, U.N. Doc.

A/RES/59/38 (Dec. 2, 2004), was intended to codify the

restrictive theory of sovereign immunity. See International Court of Justice, Germany v. Italy, Reports of

Judgments, Advisory Opinions, and Orders: Jurisdictional Immunities of the State ¶ 59 (Feb. 3, 2012). That

Convention, which currently is not in effect, includes an

exception to jurisdictional immunity in relation to certain commercial transactions, but explicitly provides

that the exception “does not apply” to “commercial

transaction[s] between States.” United Nations Convention art. 10(2)(a). Similarly, the European Convention on State Immunity (European Convention), May

16, 1972, E.T.S. No. 74, also adopts a restrictive view of

immunity and provides that its commercial-activity exception “shall not apply if all the parties to the dispute

are States,” id. at art. 7(2); see Germany v. Italy ¶ 58.

The European Convention further provides for immunity “in the case of a contract concluded between States.”

European Convention art. 4(2)(a). Because FMS agreements are sovereign-to-sovereign, under the restrictive

theory of sovereign immunity a sovereign is not subject

to suit based on its involvement in such an agreement.

The United States is not a party to either agreement, so they are

relevant only to the extent they reflect customary international law.

1

13

The facts of this case highlight the inherently sovereign nature of FMS transactions. South Korea acquired

F-35 fighter jets that could be sold only through the

FMS program. Pet. App. 6, 15-16. As the court of appeals explained, “[e]ven the F-35s’ manufacturer” could

not sell them to South Korea; South Korea could

purchase them only from the U.S. government in a

sovereign-to-sovereign FMS transaction. Id. at 18 (emphasis omitted); cf. Rush-Presbyterian-St. Luke’s Med.

Ctr. v. Hellenic Republic, 877 F.2d 574, 578 (7th Cir.)

(“[C]ertain contracts, although generally of a type in

which a private person could enter, are by their nature

governmental, since only a sovereign entity deals in the

particular kind of goods or services.”), cert. denied, 493

U.S. 937 (1989). And “all aspects of the” FMS transaction were “approved and managed by the U.S. government.” Pet. App. 6-7. The court of appeals correctly

determined that the FMS transaction in this case was

inherently sovereign in nature—and therefore did not

trigger the FSIA’s commercial-activity exception.

ii. The court of appeals likewise correctly concluded

that the closely associated offset transaction involving a

military satellite did not constitute commercial activity.

The satellite was produced according to South Korea’s

classified military specifications and was tailored for integration with the F-35 fighter jets. Pet. App. 6, 18.

The U.S. government approved the offset. Id. at 5-6;

see p. 5, supra. Payments for the satellite were made

through DOD under the terms of the letter of offer and

acceptance between the United States and South Korea. See Pet. App. 19. And, as petitioners alleged,

the offset “was a necessary and integral part of

the procurement by South Korea of the F-35s.” Id. at

18-19. Given those features, South Korea exercised

14

uniquely sovereign powers by entering into the offset

agreement—and did not engage in commercial activity

under the FSIA.

2. Petitioners’ contrary arguments are misplaced.

a. Petitioners suggest (Pet. 27) that when cases involve “procurement or sale of goods pursuant to a contract,” the FSIA’s commercial-activity exception is satisfied. But as the court of appeals explained, petitioners’ proposed approach would unduly set the rule “at

too general a level, such that it would essentially encompass every purchase or sale of goods involving a foreign

sovereign.” Pet. App. 14. This Court has never suggested that all contracts for the sale of goods are commercial, as the courts of appeals routinely recognize.

See, e.g., ibid. (“[N]ot every purchase of goods by a sovereign is ‘commercial activity.’ ”); Practical Concepts,

Inc. v. Republic of Bolivia, 811 F.2d 1543, 1549 (D.C.

Cir. 1987) (“[A] contract between a foreign state and a

private party for the purchase of goods or services ‘may

presumptively be,’ but is not inevitably, ‘commercial activity.’ ”) (citation omitted); Joseph v. Office of Consulate Gen. of Nigeria, 830 F.2d 1018, 1024 (9th Cir.

1987) (similar), cert. denied, 485 U.S. 905 (1988). Indeed, petitioners’ approach would seem to sweep even

FMS transactions between two sovereigns within the

commercial-activity exception. But, as discussed, FMS

transactions clearly are not commercial in nature.

Petitioners’ emphasis (Pet. 1, 5, 16, 30) on this Court’s

statement in Weltover that “a contract to buy army

boots or even bullets is a ‘commercial’ activity[] because

private companies can similarly use sales contracts to

acquire goods” is therefore misguided. 504 U.S. at 614615. Private companies can, of course, purchase or sell

certain military goods in market transactions. But

15

private companies cannot engage in FMS-style transactions in which the United States sells highly sensitive

military equipment to a foreign state based on a presidential judgment about the foreign-policy and

national-security interests of the United States. And

unlike boots or bullets, F-35 fighter jets—the only

goods exchanged in the FMS transaction here and the

only reason for the related offset—are sold exclusively

by one sovereign (the United States) to other sovereigns. Thus, unlike Argentina in Weltover—which this

Court found acted as “a private player within” “a market” when it issued bonds, id. at 614—South Korea did

not act as a private player in a market when it purchased F-35s and engaged in the connected offset transaction.

b. Petitioners note (Pet. 34-35) that offset transactions are distinct from FMS transactions. Petitioners

are correct to the extent that the United States is not a

party to offset agreements and does not assume any

performance obligations for offsets. See 48 C.F.R.

225.7303-2(a)(3)(iii); SAMM § C.6.3.9; Green Book 9-219-22. But it does not follow that every offset transaction

therefore falls within the commercial-activity exception. And the offset here falls outside that exception.

As previously explained, see p. 5, supra, an offset’s

costs are built directly into the FMS contract between

the United States and the foreign state. DOD separately approved the military satellite offset here. And

the offset was closely tied to the underlying FMS transaction because the military satellite was equipped with

classified technology for “integration with the F-35

fighter planes.” Pet. App. 3; see id. at 18.

What is more, as the court of appeals correctly observed, petitioners’ “own characterization of the” offset

16

“transaction” in their complaint supports the conclusion

that the two transactions were closely related. Pet.

App. 18. The complaint indicates that the satellite acquisition “was a necessary and integral part of the procurement by South Korea of the F-35s.” Id. at 18-19;

see, e.g., Am. Compl. ¶ 28 (“[P]roviding a military satellite offset [was] part of the F-35 fighter plane acquisition.”); id. ¶ 34 (“South Korea’s acquisition of ” both the

“F-35 fighter planes and a military satellite” “occurred

through and were facilitated by [DOD] and its F-35

Joint Program Office.”); id. ¶ 45 (“South Korea’s regulations required that before South Korea could enter

into an FMS contract, the contractor had to receive approval from South Korea of the contractor’s plan to satisfy its offset obligations that would arise from the FMS

contract.”); id. ¶ 59 (“[T]he proposed military offset

project was a critical part of ” the bid to provide the F35 fighter jets.). And all the payments for the offset

“flow[ed] through the Pentagon.” Id. ¶ 46; see Pet. App.

19. Having made those allegations, petitioners cannot

now portray the offset as distinct from the underlying

FMS transaction for purposes of establishing jurisdiction under the FSIA.

c. Petitioners finally assert (Pet. 26) that the court

of appeals improperly “focused entirely on the sovereign purposes surrounding” the transactions. Read in

isolation, certain statements in the court’s opinion appear to reference the military purposes underlying

South Korea’s acquisitions. See Pet. App. 17 (“Activities such as creating and maintaining armed forces and

obtaining for them arms and other tools of war * * *

are peculiarly sovereign activities.”). But the court

articulated and applied the correct legal standard,

see p. 10, supra, emphasizing that “the nature” of the

17

conduct at issue—“rather than * * * its purpose”—was

determinative, Pet. App. 14 (citation and emphasis

omitted). And the court’s holding rested on its determination that an FMS transaction by its nature differs

from an ordinary commercial transaction—and that the

particular offset agreement here was bound up with the

FMS agreement and likewise was not a standard commercial transaction. In any event, to the extent any language in the decision below could be read more broadly

than its holding, this Court’s “resources are not well

spent superintending each word a lower court utters en

route to a final judgment.” Camreta v. Greene, 563 U.S.

692, 704 (2011); see Black v. Cutter Labs., 351 U.S. 292,

297 (1956) (“This Court” “reviews judgments, not statements in opinions.”).

B. Further Review Is Not Warranted

In addition to being correct, the court of appeals’ decision does not merit further review. Contrary to petitioners’ assertion (Pet. 14-17), the decision below does

not conflict with this Court’s decision in Weltover. See

pp. 10-15, supra. And there is no broad disagreement

among the courts of appeals over the proper interpretation of the commercial-activity exception. The decision

below is the first court of appeals decision to address

offsets to FMS agreements—so there is likewise no disagreement on that narrow issue. Moreover, the unique

facts of this case and the existence of an additional jurisdictional question make it an unsuitable vehicle for

this Court’s review.

1. There is no disagreement among the courts of

appeals regarding the proper treatment of FMS

agreements and associated offset agreements under

the FSIA’s commercial-activity exception. The D.C.

Circuit—the only other court of appeals to consider

18

whether sales of military goods or services through

the FMS program fall within the commercial-activity

exception—reached the same conclusion as the Fourth

Circuit below. The D.C. Circuit held that when Saudi

Arabia entered into an FMS agreement with the United

States for military training services—which were provided by a private contractor—the commercial-activity

exception was inapplicable to claims alleging failure to

provide adequate security and failure to warn. Heroth

v. Kingdom of Saudi Arabia, 331 Fed. Appx. 1, 2-3

(2009). And the decision below is the only court of appeals decision to address an offset associated with an

FMS transaction, so there is no disagreement on that

issue, either.

Petitioners nevertheless assert (Pet. 18-28) that the

decision below conflicts with decisions of other courts of

appeals. But the decisions petitioners identify did not

consider sales through the FMS program or offsets associated with FMS transactions. Rather, they involved

private parties’ sales of goods or services—which could

be sold in market transactions to foreign sovereigns.

In McDonnell Douglas Corp. v. Islamic Republic of

Iran, 758 F.2d 341, cert. denied, 474 U.S. 948 (1985), the

Eighth Circuit held that a foreign government’s purchase of military aircraft parts directly from the manufacturer fell within the commercial-activity exception.

Id. at 343, 349. Although the aircraft themselves had

been purchased through an FMS agreement, see

McDonnell Douglas Corp. v. Islamic Republic of Iran,

591 F. Supp. 293, 297 (E.D. Mo. 1984), aff ’d, 758 F.2d

341 (8th Cir. 1985), the case did not involve a dispute

about the FMS agreement, a related offset agreement,

or an agreement that was otherwise intertwined with

a sovereign-to-sovereign transaction. See McDonnell

19

Douglas Corp., 758 F.2d at 343 n.2 (contrasting the

direct commercial sale at issue with a separate FMS

agreement).

The same is true of UNC Lear Services, Inc. v. Kingdom of Saudi Arabia, 581 F.3d 210 (5th Cir. 2009), cert.

denied, 559 U.S. 971 (2010). There, the Fifth Circuit

held that a contract between a foreign government and

a private contractor for repair parts and services for

military aircraft triggered the commercial-activity exception. Id. at 212, 217. The court distinguished that

contract from a separate contract in which the private

contractor “provide[d] personnel” that “were integrated with the” foreign government’s air force, finding

that “the nature of ” the latter contract was “sovereign”

and therefore did not trigger the commercial-activity

exception. Id. at 216.

The Ninth Circuit’s decision in Ministry of Defense

& Support for Armed Forces of the Islamic Republic of

Iran v. Cubic Defense Systems, Inc., 385 F.3d 1206

(2004), vacated on other grounds, 546 U.S. 450 (2006)

(per curiam), likewise did not involve an FMS or offset

agreement—or anything similar to such agreements.

The court merely held that the sale of military equipment by a private company directly to a foreign government constituted commercial activity. Id. at 1211, 12191220.

And in Samco Global Arms, Inc. v. Arita, 395 F.3d

1212 (2005), the Eleventh Circuit held that a foreign

government’s alleged breach of a contract with a private

contractor “for the bailment of ” “weapons, munitions,

and explosives,” “with a purchase option,” fell within the

commercial-activity exception. Id. at 1215-1216. That

decision did not involve an FMS or other sovereign-to-

20

sovereign agreement—or a contract with an integral relationship to such an agreement.

There therefore is no conflict between those decisions and the court of appeals’ decision in this case. The

goods and services at issue in those decisions generally

could be acquired on the open market and were obtained by foreign governments in direct exchanges with

private contractors even if they had a military purpose.

In contrast, F-35 fighter jets cannot be acquired on the

open market because they are FMS-only articles—and

therefore South Korea obtained the jets in a sovereignto-sovereign agreement with the U.S. government. Pet.

App. 16-18.2 And, unlike the transactions in the decisions petitioners identify, the offset transaction in this

case was tied up with the sovereign-to-sovereign FMS

agreement: The government approved the offset agreement; the satellite was tailored to classified military

specifications and to integrate with the jets; and the offset “was a necessary and integral part of the procurement by South Korea of the F-35s.” Id. at 18-19; see id.

at 6.

There likewise is no disagreement among the courts

of appeals concerning the relevant principles for determining whether a foreign state’s purchase of military

goods is commercial activity under the FSIA. Consistent with other courts of appeals, the Fourth Circuit

in this case recognized that “not every purchase of

In contrast, if military jets were offered for sale on the open

market, resulting sales might constitute commercial activity under

the FSIA. See Virtual Def. & Dev. Int’l, Inc. v. Republic of Moldova, 133 F. Supp. 2d 1, 3-4 (D.D.C. 1999) (concluding that a foreign

state “acted as a private participant in the market,” and therefore

engaged in commercial activity, when it offered MiG-29 planes to

private parties and other governments).

2

21

goods by a sovereign is ‘commercial activity’ ” and decided the commercial-activity exception’s applicability

by reference to the “nature” of the course of conduct.

Pet. App. 14, 16 (citation and emphasis omitted).

2. This case also involves unique facts that would

make it a poor vehicle to address the application of the

FSIA’s commercial-activity exception to offsets. As

noted, the offset transaction in which South Korea purchased the miliary satellite was closely linked to the underlying sale of the FMS-only F-35 fighter jets; indeed,

the satellite was integrated with the jets. And DOD determined that the offset’s costs were reasonable and approved the offset before it could proceed.

Because DOD no longer assesses the reasonableness

of an offset’s costs or separately approves offset transactions, see p. 5, supra, this case would be a poor vehicle

to consider the commercial-activity exception’s applicability to offset transactions going forward. Moreover,

unlike the offset here, other offsets have minimal connection to the underlying FMS transaction or the

United States’ national-security interests. For example, a “contractor may agree to purchase certain manufactured products, agricultural commodities, raw materials, or services, or make an equity investment or grant

of equipment required by the FMS customer, or may

agree to build a school, road or other facility.” 48 C.F.R.

252.215-7014(a)(2). Such offset transactions may require a different analysis to determine whether they fall

within the FSIA’s commercial-activity exception. But

no court of appeals has yet addressed such an offset.

And this case’s distinct facts might prevent the Court

from fully considering the commercial-activity exception’s application to offset agreements with minimal

22

connection to the underlying FMS transaction or the

United States’ national-security interests.

3. Finally, this case would be a poor vehicle for addressing the scope of the FSIA’s commercial-activity

exception because petitioners’ claims may fail to meet

the FSIA’s “other requirements”—and therefore the

federal courts still may lack jurisdiction under the

FSIA regardless of the correct disposition of the question presented. Jam v. International Fin. Corp., 586

U.S. 199, 215 (2019). As relevant here, even if a foreign

state engages in commercial activity, the commercialactivity exception applies only if the suit “is based upon

a commercial activity carried on in the United States by

the foreign state” 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). This Court has held that “an action

is ‘based upon’ the ‘particular conduct’ that constitutes

the ‘gravamen’ of the suit.” OBB Personenverkehr AG

v. Sachs, 577 U.S. 27, 35 (2015).

The district court found that petitioners’ suit is not

“based upon” any commercial activity because “[t]he

‘gravamen’ of [petitioners’] suit is tortious interference

with [the] contract” between petitioners and Lockheed—

“not the commercial activity by South Korea.” Pet.

App. 46. In the court’s view, the FMS and offset transactions were not the actions that actually injured petitioners, and therefore the gravamen of the suit was not

South Korea’s purported commercial activity. See id.

at 42-46; cf. Nelson, 507 U.S. at 358 (distinguishing “activities [that] led to the conduct that eventually injured”

the plaintiffs from “the basis for the [plaintiffs’] suit”).

23

The court of appeals did not consider that alternative

holding by the district court. Although petitioners do

not ask this Court to resolve whether their suit is “based

upon” commercial activity, petitioners and Lockheed

vigorously dispute that issue. Br. in Opp. 24-25; Reply

Br. 10-11. Regardless of its appropriate resolution, the

presence of this additional jurisdictional issue might

complicate this Court’s consideration of whether South

Korea engaged in commercial activity.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

RICHARD C. VISEK

Acting Legal Adviser

Department of State

MAY 2024

ELIZABETH B. PRELOGAR

Solicitor General

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

NICOLE FRAZER REAVES

Assistant to the Solicitor

General

SHARON SWINGLE

SIMON C. BREWER

Attorneys