Respondents Brief — Dead Sea Bromine Co., Ltd. v. Patrickson
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Nos. 01-593, 01-594!
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IN THE OCT 3 2m
Supreme Court of the United States
‘ C K
DOLE FOOD COMPANY, ET AL..
A Petitioners,
GERARDO DENNIS PATRICKSON, ET AL..
Respondents.
DEAD SEA BROMINE Co., LTD., ET AL..
Petitioners,
V,
GERARDO DENNIS PATRICKSON, ET AL.,
Respondents.
ON WRITS OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
BRIEF OF RESPONDENTS
SCOTT RENDLER JONATHAN S. MASSEY
THE HENDLER LAW FIRM Counsel of Record
816 Congress Avenue JONATHAN S. MASSEY, P.C.
Suite 1100 3920 Northampton St., N.W.
Austin, Texas 78701 Washington, D.C. 20015
(512) 473-3672 (202) 686-0457
MICHAEL J. BRICKMAN
CHRISTIAN H. HARTLEY
RICHARDSON, PATRICK,
WESTBROOK & BRICKMAN
174 East Bay Strect
Charleston, S.C. 29402
(843) 727-6500
BATEMAN & SLADE, INC. BOSTON, MASSACHUSETTS
———
BEST AVAILABLE COPY
QUESTIONS PRESENTED
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.
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.
TABLE OF CONTENTS
QUES TIONG PREG EIED ooccccencectsueceuweenue i
TABLE OF AUTEOUIIE SEED «06 0ccc0ceea0seeenmeee iv
STATEMNE 2. cccccccceccesvee sees ee anna l
1. The Dead Sea Companies .....cccsccccccccccess l
2. The Instant LAOMOR .. oss iccceceseeukeeee 5
3. The District Court’s Decisiom .....ccscsscccccces 6
4. The Court of Appeals’ Decision ................. 7
SUMMARY OF ARGUMENT .....sccsccsessvecceses 8
ARGSUMEENT ...ccccccsccssceencueu ee eee 10
I. A CORPORATION IS NOT COVERED BY THE FSIA
IF A FOREIGN STATE OWNS A MAJORITY OF
THE SHARES OF THE CORPORATE
ENTERPRISE THAT IN TURN OWNS A
MAJORITY OF THE SHARES OF THE
CORPURATIOIN ..cccccvcencusees heen 10
A. The Text and Structure of the FSIA ............. 10
B. The State Did Not “Own” a Majority of Shares
in the Dead Sea Companies ..............+005. 14
C. The State Did Not Hold an “Other Ownership
Interest” in the Dead Sea Companies ............ 20
D. Petitioners’ Approach Would Frustrate The
Purposes of the Statute ......cccescccevccccees 25
Il. ACORPORATION IS NOT COVERED BY THE
FSIA IF THE FOREIGN STATE DOES NOT
OWN A MAJORITY OF SHARES AT THE TIME
THE PLAINTIFF COMMENCES SUIT ............ 4]
A. The Text and Structure of the FSIA ............. 4]
B. The Purposes of the Statute
eed 5 tous cucveccccccccecece. 49
iv
TABLE OF AUTHORITIES
Cases Page
American National Red Cross v. S.G.,
th eo nt eter endeebechesusséeet 38
Anderson v. Watt, 138 U.S. 694 (1891) ............045. 44
Banco Nacional de Cuba vy. Sabbatino,
EPCOT TT TTT TTI Ty 47
Bangor Punta Operations, Inc. v. Bangor &
Aroostoock R.R., 417 U.S. 703 (1974) .............. 19
Bank of Ky. v. Wister, 27 U.S. (2 Pet.) 318 (1829) .... 17,18
Bank of the United States v. Planters’ Bank of Georgia,
ee US, © Hn PO CUD ccc cccccccnssccccens 17
Barrett v. United States, 423 U.S. 212 (1976) ........... 43
Blanco v. United States, 775 F.2d 53 (2d Cir. 1985) ...... 48
Briscoe v. Bank of Ky., 36 U.S. (11 Pet.) 257 (1837) ..... 17
Burnet v. Clark, 287 U.S. 410 (1932) ............4.. 8, 16
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984)... 2... 2.6.60 0 eee 19
Circuit City Stores, Inc. v. Adams,
SP ae, HEED ns coecasadvencesséeecuucées 12, 21
Copperweld Corp. v. Independence Tube Corp.,
SP GRE, CUED cece vecccccencoosticccctonane 20
Corporacion Mexicana de Servicios Maritimos S.A.
de C.V. v. M/T Respect, 89 F.3d 650 (9th Cir. 1996) .... 7
Dewhurst v. Telenor Invest AS,
83 F. Supp.2d 577 (D. Md. 2000)............... 29,35
Dickerson v. New Banner Institute, Inc.,
Se, CED oo cc ccedendbucesdsepiovaddeus 42
Dollar v. Land, 154 F.2d 307 (D.C. Cir. 1946) .......... 18
Federal Ins. Co. v. Richard I. Rubin & Co.,
DS COG HOSED cdccctecccceseccacdene 12
First Nat'l City Bank v. Banco Para El Comercio
Exterior de Cuba, 462 U.S. 611 (1983) .... 18-19, 37, 41
Flink v. Paladini, 279 U.S. 59 (1929) .........6600005. 20
Cases (continued) Page
Franchise Tax Board of California vy. Alcan Aluminium Ltd.,
I ie ee ee ee 20
Gates v. Victor Fine Foods, 54 F.3d 1457 (9th Cir.),
cert. denied, 516 U.S. 869 (1995) ................4.. 7
Georgia v. City of Chattanooga, 264 U.S. 472 (1924) .... 18
Geveke & Co. Int'l v. Kompania Di Awa | Elektrisidat
Di Korsou, N.V., 482 F. Supp. 660 (S.D.N.Y. 1979) ... 31
Gill v. Reese, 53 Ohio App. 134, 4 N.E.2d 273
DL vit vedeeneneaaeenienecevseceeueds 18
Gwaltney of Smithfield, Ltd. v. Chesapeake Bay
Foundation, Inc. , 484 U.S. 49 (1987)... .....0....... 42
Hyatt Corp. v. Stanton, 945 F. Supp. 675
ED he ie as aetna oe pean eed 32, 33, 35
In re Ski Train Fire in Kaprun, Aus..,
198 F. Supp. 2d 420 (S.D.N.Y. 2002) ........... 12, 35
Ingalls Shipbuilding, Inc. v. Office of Workers
Compensation, 519 U.S. 248 (1997) ............... 42
Ingersoll-Rand Co. v. United States Fleet Corp.,
195 A.D. 838, 187 N.Y.S. 695 (N.Y. App. Div. 1921) . 18
Jerome v. Grubart, Inc. v. Great Lakes Dredge & Dock Co.,
Pe en Se won bdnenssccecenssnesecesens 23
Jet Line Serv., Inc. v. M/V MARSA EL HARIGA,
462 F. Supp. 1165 (D. Md. 1978) .................. 33
JP Morgan Chase Bank v. Traffic Stream (BV1)
Infrastructure, Lid., 122 S. Ct. 2054 (2002) ..-..... 24, 40
K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988) ...... 19
Keifer & Keifer v. Reconstruction Finance Corp.,
EE 6 66 ennedcasdescnesesnss 18, 38, 39
Lebron v. National R.R. Passenger Corp..
Pe a een <n svcckndueuhiessedesnaedne 39
Louisville, N.A. & C. Ry. Co. v. Louisville Trust Co.,
SD <i ccudnacdéuneeeuesedneeebant 44
vi
Cases (continued) Page
Metropolitan Sav. Bank & Trust Co. v. Farmers’
State Bank, 20 F.2d 775 (8th Cir. 1927) ............-- 18
Mexico v. Hoffman, 324 U.S. 30 (1945) .........4.. 34, 48
Morgan Guaranty Trust Co. v. Republic of Palau,
639 F.2d 706 (S.D.N.Y. 1986), vacated on other
grounds, 924 F.2d 1237 (2d Cir. 1991) ..........55: 46
Murray v. Wilson Distilling Co., 164 F. 1 (4th Cir. 1908). . 18
Nixon v. Fitzgerald, 457 U.S. 731 (1982) ..........055: 48
North Dakota v. Olson, 33 F.2d 848 (8th Cir. 1929) ...... 18
Ocasek v. Flintkote Co., 796 F. Supp. 362
ty & Berrrrrrr rrr ee 46
O'Connell Machinery Co. v. M.V. “Americana,”
566 F. Supp. 1381 (S.D.N.Y. 1983), aff'd,
734 F.2d 115 (2d Cir.), cert. denied,
4G US. 1GBG CIGBE) 2. ccc cccscccccccccccccees 31
Otte v. United States, 419 U.S. 43 (1974) ......0600045- 43
Price Waterhouse v. Hopkins, 490 U.S. 228 (1989) ...... 42
Reconstruction Fin. Corp. v. J.G. Menihan Corp.,
i) h 7 rrrrrrrrTir rT TT TTT ttt. 38
Republic of Argentina v. Weltover,
SOG UD. GBT CIGRE) 2. cc cccccescccccccccsscceees 25
Rutkowski v. Occidental Chem. Corp.,
1988 WL 107342 (N.D. Ill. Oct. 5, 1988) ........... 46
Scarborough v. United States, 431 U.S. 563 (1977) ...... 43
The Siren, 7 Wall. 152 (1869) ........2 02 cee eee e ees 48
Sloan Shipyards Corp. v. United States Shipping Bd.
Emergency Fleet Corp., 258 U.S. 549 (1922) ........ 18
S & S Mach. Co. v. Masinexportimport, 706 F.2d 411
(2d Cir.), cert. denied, 464 U.S. 850 (1983) .......... 33
Stafford v. Briggs, 444 U.S. 527 (1980) .....--.. esses. 43
Straub v. A.P. Green, 38 F.3d 448 (9" Cir. 1994) ........ 47
Sugarman v. Aeromexico, Inc., 626 F.2d 270
(90 Cle. 19GB) 0. ccc ccccccvccccccevensescceces 33
Vil
Cases (continued) Page
Trustees of Dartmouth College v. Woodward, 17 U.S.
I oi hee a BD 16
United States v. Bestfoods, 524 U.S. 51 (1998) ....... 16, 20
United States v. Ibarra, 502 U.S.1(1991) ............. 23
United States v. Strang, 254 U.S. 491 (1921) ........... 18
United States v. Wilson, 503 U.S. 329 (1992) ........... 42
Velidor v. L/P/G BENGHAZI, 653 F.2d 812 (3d Cir.
1981), cert. dismissed, 455 U.S. 929 (1982) ......... 3]
Verlinden B.V. v. Central Bank of Nig.,
I ei a a ad 25
West v. Multibanco Comermex, S.A., 807 F.2d 820
es IE SU na BN pen a ee 46
The Western Maid v. Thompson, 257 U.S. 419 (1922) .... 48
Wolf v. Banco Nacional de Mexico, S.A.,
739 F.2d 1458 (9 Cir. 1984) ........... ccc cee eee 46
W.S. Kirkpatrick & Co. v. Environmental Tectonics
a SE ED cnccsneececnvenseoesss 7
Statutory and Administrative Materials Page
PD avdcabectseeseeeeseucesseuuedeces 39
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Vill
Statutory and Administrative Materials Page
ee ED S.ond006cecnsweesenesseiseeces 15
Se EEE Sec ddcntccceecesséeeansenctes 15
RMD 6.6 gc ond o64h0000600606004650000808 15
Se as EEE cncestccessceecenseeceeseuss 15
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SD Gees SR EONUEEED 0 ccc cvecccocenccoesoesss 15
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es te ED n.64:6-060.6694 006860080000 0eR Ew OM 31, 45
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is et EE See er ceceeceeseusesconcaveetes 13, 45
DPE PEED cecccnveccsvscecesescesensess 16 .
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GE UA. FO GD FGS cc cccccccccccccccescvesecscees 48
BF ss Oh EUEEED Koc eek voesercvessevesedovessucss 16
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GF Pas Eh PEED 0 5-00 ccccnneeeéesecedoesesceestes 16
SF Gs OF FEE Se catavececaweseceresseenstencéwes 39
SP Ue SSSI ccc ccccscccceeeceeceoveseses 39
H.R. Rep. No. 94-1487 (1976),
reprinted in 1976 U.S.C.C.A.N.
Ge <subees 11, 19, 21, 23, 25, 28, 30, 32, 37, 40, 42, 44
ix
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FOREIGN SOVEREIGN IMMUNITIES ACT. HEARINGS
ON H.R. 11315 BEFORE THE SUBCOMM. ON ADMIN.
LAW AND GOVERNMENTAL RELATIONS OF THE
HOUSE COMM. ON THE JUDICIARY,
94th Cong. (1976) ........... ccc eee. 25-26, 28-29
a eee 16
International Materials Page
Cameroon Development Bank v. Rolber,
Judgment of Nov. 18, 1986, 79 I.L.R.532 ........... 28
Central Bank of Nigeria Cases, Decisions of the
Frankfurter Landgericht, dated Dec. 2, 1975
& Aug. 25, 1976, 1976 NJW 1044, 65 1.L.R. 131 ..... 27
Corporacion del Cobre, Judgment of Nov. 29, 1972.
ST os oe 28
Dhlellemes et Masurel S.A. v. Banque Centrale de la
Republique ae Turquie, Judgment of Dec. 4, 1963.
PUES vu Nee GUnebnhe ceetwabscabacecn: 27-28
National Iranian Oil Co. Legal Status Case,
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MNS Fo dnd Cbd bit ek de dirk howd en ncks 27
Swiss Isr. Trade Bank v. Government of Salta, [1972]
aS Ses on ee 27
Trendtex Trading Corp. v. Central Bank of Nig.,
oe ee
European Convention on State Immunity, May 16, 1972,
art. 27(2), Europ. T.S. No. 74, reprinted in 3 Europ.
Conv. & Agree. 39 (1972-74) ...............ccceee 27
United Kingdom State Immunity Act of 1978,
PE Seki chawidbe duddns ace keéeseceas 27
MATERIALS ON JURISDICTIONAL IMMUNITIES OF STATES
AND THEIR PROPERTY, U.N. Doc. ST/LEG/SER.B/20.
U.N. Sales No. E/F.81.V.10 (1982) ................ 27
Miscellaneous Page
ABA Working Group, Reforming the Foreign Sovereign
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TRANSNAT’L L. 489 (2002) ..............0005. 33, 35
Danny Abir, Foreign Sovereign Immunities Act:
The Right to a Jury Trial in Suits Against Foreign
Government-Owned Corporations,
52 STAN. SENT LL. USP CISSS) on ccc cccccccccccs 32
Philip I. Blumberg, The Increasing Recognition of
Enterprise Principles in Determining Parent and
Subsidiary Corporation Liabilities,
BORO, Ee, Fee. BPO CD 6 6 och ida dawsdccccess 14
Committee on Int’! Litigation, New York State Bar Assn..,
Foreign State Defendant's Right to Trial by Jury Under
the Foreign Sovereign Immunities Act,
Se Ps ees CU UUED 6b wen ccccvicccecccses 32
James D. Cox and Thomas Lee Hazen,
CORPORATIONS § 1.2 (2001) ........... 00. c cee euee 17
Joseph W. Dellapenna, Foreign State Immunity in
Europe, 5 N.Y. INTL L. REv. 51 (1992) ...... 26, 34-35
W. Fletcher, CYCLOPEDIA OF THE LAW OF PRIVATE
CORPORATIONS (rev. perm. ed. 1999) ........... 20, 24
Jane H. Griggs, Note, The Foreign Sovereign Immunities
Act: Do Tiered Corporate Subsidiaries Constitute
Foreign States?, 20 W. NEw ENG.
Be EERE eee Sn ge ee 26
iWouis Henkin, FOREIGN AFFAIRS AND THE UNITED
STATES CONSTITUTION (2d ed. 1996) ............... 47
Kimberly K. Hill, Note, Foreign Government-
Owned Corporations, the Foreign Sovereign
Immunities Act, and the Right to Jury Trial,
SDN: SEE kc kacaweus vabeeuaeeceenness 32
xi
Miscellaneous (continued) Page
William C. Hoffman, The Separate Entity Rule in
International Perspective: Should State Ownership
of Corporate Shares Confer Sovereign Status for
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SE Seauaet iva acura oe eas 25, 26, 31, 36
Calvert Magruder, A Note on Partnership Liability
of Stockholders in Defective Corporations,
SO URARY. L.. FBV. TOD CEGGAD ow cc ccescccccsccvececs 14
Clinton L. Narver, Putting the “Sovereign” Back in the
Foreign Sovereign Immunities Act: The Case for a
Time of Filing Test for Agency or Instrumentality
Status, 19 B.U. INTL L.J. 163 (2001) ............... 46
Public Papers of the Presidents,
Gerald R. Ford, 1976-77 (1979) ...............005. 29
Rebecca J. Simmons, Note, Nationalized and
Denationalized Commercial Enterprises under
the Foreign Sovereign Immunities Act,
90 CoLuM. L. REV. 2278 (1990) ...............00.. 4]
Charles A. Wright ef al., FEDERAL PRACTICE
i rr em 38
BRIEF OF RESPONDENTS
This case presents two questions concerning the scope of the
Foreign Sovereign Immunities Act (“F SIA”), 28 U.S.C. §§ 1330,
1332(a), 1391(f), 1441(d), 1602-11:
1. Whether a corporation qualifies as an “agency or
instrumentality,” for purposes of FSIA Section 1603(b)(2), if a
foreign state does not own any shares of the corporation in
question but instead owns a majority of the shares of a parent
company that in turn owns a majority of the shares of the
corporation.
2. Whether a corporation qualifies as 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 not at the time that a plaintiff commenced suit
against the corporation.
In this case, the Ninth Circuit, per Kozinski, J., properly held
that the FSIA’s ownership test applies only to the first tier of
direct corporate ownership by a foreign state. The Ninth Circuit
did not decide the second question presented, although it opined
that there is “a plausible basis for concluding that the FSIA dees
not come into play where a suit is brought against a private entity
that was a foreign state at the time of the alleged wrongdoing, but
is no longer.” Pet. App. 21a.' The Ninth Circuit was correct.
The proper construction of the FSIA indicates that a corporation
is not covered by the FSIA if the foreign state does not own a
majority of shares at the time the plaintiff commences suit.
STATEMENT
1. The Dead Sea Companies
This case presents a particularly attenuated claim to the
protections of the FSIA. Petitioners Dead Sea Bromine Co., Ltd.
' Unless otherwise indicated, citations are to the appendix in No. 01-594,
Dead Sea Bromine Co. v. Patrickson.
2
(“Dead Sea Bromine”) and Bromine Compounds Limited
(“BCL”) (together, the “Dead Sea Companies”) were never
owned directly by the Israeli government. Pet. App. 22a.
Rather, “at all relevant times, the chain of ownership included
intermediury corporations.” /d. at65a. Between 1968 and 1995,
the Companies were second-tier, third-tier, or fourth-tier
members of a corporate chain whose top parent company was
government-owned. /d. For example, from 1970 to 1975, the
State of Israel owned 99% of an entity named Dead Sea Works
which in turn owned 99.9% of Dead Sea Bromine. Jd. Dead Sea
Bromine owned 50% of BCL, and Dead Sea Works owned 25%
of BCL. Jd. After 1975, another entity was added to the chain
of ownership when the State of Israel conveyed its ownership of
Dead Sea Works to Israel Chemicals, Ltd., an Israeli corporatior:
owned by the State of Israel.
The Ninth Circuit found that “[aJny ownership interest of
Dead Sea and BCL claimed by the State of Israel was completely
indirect at all relevant times.” /d. Indeed, petitioners no longer
focus on the State of Israel’s alleged “ownership” interest in BCL
as a means of satisfying Section 1603(b)(2) of the FSIA. Dead
Sea Br. 7 n.4.
Moreover, any interest by the State of Israel has diminished
over time. In the early 1990s, the Dead Sea Companies were
privatized. Pet. App. 62a. Petitioners concede that — even under
their calculations of indirect ownership — since 1995 the State of
Israel “no longer holds a majority ownership interest in [Dead
Sea Bromine].” Dead Sea Br. 7.
The Dead Sea Companies are commercial mining enterprises
whose operations are far removed from the core concerns of the
FSIA. An expert on Israeli law testified in the district court that
Dead Sea Bromine “is not in any way an arm or an organ of the
State, nor is it a government department or authority. Bromine
is acommercial company for all intents and purposes.” JA 223.
“The Company is a separate legal entity which can sue or be
3
sued by the State.” JA 227. “The Company is obliged to act in
accordance with ordinary commercial considerations.” Jd
The expert concluded that Dead Sea Bromine is an ordinary
corporation which is in fact required by Israeli law to act “on an
ordinary business basis.” JA 224. “A government company is
not an organ of the State, it is a separate and distinguished legal
entity. Pursuant to Israeli law, it is managed in accordance with
commercial considerations, it does not enjoy the immunities
which the State enjoys and it is not subject to the duties and
restrictions that apply to the Government.” Jd. “I]t is a business
company, just as every ordinary commercial company, private or
public.” JA 225. “[T]he Government is not entitled to dictate to
Bromine other considerations for acting, and the Company is
obliged to act in accordance with business considerations, just as
any other commercial company.” JA 225. If the directors act in
the interests of the government rather than those of the company,
they breach their duties of trust and may be sued. JA 226. A
director “may not accept instructions from the Government as to
the manner in which he votes.” Jd. “The Company is not an
instrument or tool to be used by the State to attain any object
whatsoever, it is not an agency or an instrument of the State and
is not subordinate thereto.” JA 227.
According to the testimony of Mr. Noah Ehrlich, a Dead Sea
Bromine and BCL vice-president:
* Dead Sea was considered by the Israeli Government
Companies Authority to be a commercial “profit-oriented
company.” JA 263.
* The Dead Sea Companies are motivated by a desire to
increase their worldwide market share in developing new
products to give them “a marketing and economic
advantage.” JA 233.
* Dead Sea employees are not employees of the state of Israel
and are not paid by the state. JA 268.
4
* The Dead Sea Companies were obligated by law to act in
accordance with “the business considerations by which a non-
Government company is normally guided.” JA 258.
* The Dead Sea Companies do not claim immunity in
domestic lawsuits in Israel. JA 261.
* The Dead Sea Companies, not the government, are
responsible for satisfying any judgment from their own
assets. JA 261.
* The Dead Sea Companies have the ability to sue the
government of Israel. JA 267-68.
* The government does not determine the day-to-day
responsibilities or conduct of any Dead Sea employees. JA
268-69.
* The Companies engaged in day-to-day business activities,
devised specific customer service programs, determined their
product lines and product mix, purchased real estate, and
increased production capacity, all without governmental
approval. JA 234-35, 240, 252, 267.
* The government had no input in determining the price of the
Companies’ products. JA 252.
* The Dead Sea Companies applied for government R&D
grants, which the government sometimes rejected. JA 239.
Such grants were also given to non-government companies.
JA 251.
* The Dead Sea Companies made their own decisions as to
business insurance and routinely purchased it on the private
market. JA 245.
* Dead Sea Bromine’s human resource department set base
salaries, JA 248, and its corporate parent provided “a specific
wage discussion” as to wage increases and bonuses, after the
Government Companies Authority decided “a wage
5
negotiation by . . . sector.” JA 247,
* The government of Israel permitted the Dead Sea
Companies to keep profits outside the country “for a long
period of time” for the purpose of reinvesting in the business.
JA 245.
* Dead Sea Bromine’s vice president presented the
company’s annual budget to its corporate parent, Israel
Chemicals Ltd., for approval. JA 249.
* The government never disapproved the companies’
selection of legal advisers. JA 262-63.
Mr. Ehrlich also revealed that the Dead Sea Companies make
their litigation decisions, including waiving of “sovereign”
immunity, without consulting with, or even informing, the
government. JA 255-57. The companies have hired lawyers,
removed cases from state court, settled cases with plaintiffs,
entered into contribution and indemnity agreements with third
parties, and even waived sovereign immunity claims completely
~ all without advising, let alone securing the approval of, the
Israeli government. /d
2. The Instant Litigation
On October 3, 1997, plaintiffs commenced this action by
filing a complaint in the Circuit Court of the First Circuit of the
State of Hawaii. Pet. App. 57a. Plaintiffs are nine foreign
residents injured while working on banana plantations in Latin
America by a dangerous chemical that has been banned in the
U.S. but that the Dole Defendants” have continued to export and
use abroad. /d. at 4a. Plaintiffs were regularly exposed, without
their knowledge and without proper protective equipment, to
dibromochloropropane (DBCP), a pesticide that causes male
* The “Dole Defendants” includes the petitioners in No. 01-593. It does not
include the petitioners in No. 01-594.
6
sterility, testicular atrophy, testicular and other cancers,
miscarriages in women, mutation of sperm cells in men, damage
to the liver and kidneys, and injury to retinal and corneal tissue.
The National Cancer Institute (NCI) has described it as “one of
the most potent known carcinogens.” As early as 1958, an in-
house toxicology report at Dow Chemical Co. concluded that
DBCP was “readily absorbed through the skin and high in
toxicity in inhalation.” Dow’s data also showed that “liver, lung
and kidney effects might be expected” and that “testicular
atrophy may result from prolonged, repeated exposure.”
The Dole Defendants claim to have had business
relationships with the Dead Sea Companies and have asserted a
third-party claim against them. JA 11. Yet the Dead Sea
Companies have never provided any evidence of when or where
their DBCP was used (if ever), nor have they shown that any
plaintiff was exposed to their DBCP. In fact, the Dead Sea
Companies have denied causing harm to any of the plaintiffs. JA
56-65.
On October 31, 1997, the Dead Sea Companies filed their
Petition for Removal. [his Petition was allegedly premised on
a third-party complaint filed two hours earlier on the same day by
the Dole Defendants against the Dead Sea Companies. Pet. App.
58a. The removal petition was filed despite clear and
unambiguous disclaimers in plaintiffs’ complaint specifically
denying claims for exposure to DBCP made by the Dead Sea
Companies. JA 24, 39-40.
3. The District Court’s Decision
The district court denied the Dead Sea Companies’ assertion
of FSIA jurisdiction. In a memorandum opinion and order dated
September 9, 1998, the court held that the Dead Sea Companies
were not agencies or instrumentalities of Israel.
The court began by accepting petitioners’ view that the proper
time for ascertaining FSIA foreign state status is the time the
7
alleged wrongdoing occurred. Pet. App. 62a-64a. But the court
concluded that “Israel’s indirect ownership of Dead Sea and BCL
through several intermediary corporations does not qualify Dead
Sea and BCL as agencies or instrumentalities of a foreign state
pursuant to 28 U.S.C. § 1603(b)(2). Dead Sea and BCL are not
entities whose majority of shares or other ownership interest are
owned by a foreign state.” Jd. at 71a (following Gates v. Victor
Fine Foods, 54 F.3d 1457 (9th Cir.), cert. denied, 516 U.S. 869
(1995), and Corporacion Mexicana de Servicios Maritimos S.A.
de CV. v. M/T Respect, 89 F.3d 650 (9th Cir. 1996)).
The district court also held that the Dead Sea Companies
could not qualify as “organs” of a foreign state for purposes of
Section 1603(b)(2). The court found that “Dead Sea and BCL
are commercial mining operations concerned with production,
marketing, and profit.” Pet. App. 78a. They are “not treated as
agencies under Israeli law.” /d. “[T]he government’s control is
not derived from the need to play an active supervisory role over
a government created entity.” Jd The Dead Sea Companies
“were not created by the government to fulfill a government
mission.” /d. at 79a. Moreover, the district court noted that “the
entities are not staffed solely with government employees.” Jd.
at 78a.
Accordingly, the district court held that the Dead Sea
Companies could not qualify as “agencies or instrumentalities”
or “organs” under the FSIA and that removal under the FSIA was
improper. Because it reached this conclusion, the district court
had no occasion to reach plaintiffs’ alternative argument that the
Dead Sea Companies had been fraudulently joined. Pet. App.
79a n.5.
4. The Court of Appeals’ Decision
The Court of Appeals affirmed the district court’s holding
with respect to the Dead Sea Companies, in a unanimous opinion
authored by Judge Kozinski. The Ninth Circuit held that “the
Dead Sea Companies were never owned directly by the Israeli
8
government” and therefore could not “claim to be
instrumentalities through stock ownership.” Pet. App. 22a. “[A]
corporation wholly owned by an instrumentality of a foreign
government is not a foreign instrumentality under the FSIA.” Jd.
The Ninth Circuit also held that the Dead Sea Companies
were not “organs” of the Israeli government under Section
1603(b)(3). The court found that “the Dead Sea Companies were
not run by government appointees; their employees were not
treated as civil servants; nor were the Companies wholly owned
by the government of Israel.” Jd. at 25a-26a. “The Companies
could sue and be sued, and could in fact sue the government of
Israel (although official Israeli documents describe such disputes
as between ‘a government company and another government
body’).” /d. at 26a. “These factors support the district court’s
view of the Companies as independent commercial enterprises,
heavily regulated, but acting to maximize profits rather than
pursue public objectives.” Jd.
SUMMARY OF ARGUMENT
In no other country in the world would the Dead Sea
Companies be accorded the sovereign immunity they seek in this
Court. Not even the courts of Israel, their home country, would
treat them as immune from suit. Yet the Companies contend that
Congress has bestowed such immunity on them, despite the fact
that one of Congress’ central purposes in enacting the Foreign
Sovereign Immunities Act was to align U.S. law with
international practice.
I. The statutory text and structure demonstrate that a
corporation is not covered by the FSIA if a foreign state owns a
majority of the shares of the parent company rather than a
majority of the shares of the corporation itself. Section
1603(b)(2) should be interpreted against the fundamental
corporate law principle that “[a] corporation and its stockholders
are generally to be treated as separate entities.” Burnet v. Clark,
287 U.S. 410, 415 (1932). When ownership of a subsidiary
9
corporation is tiered through an intermediate corporation, legal
ownership of the subsidiary resides in the intermediate
corporation that possesses the subsidiary’s shares of stock. Many
federal statutes refer to “control,” “indirect” or beneficial forms
of ownership, or other broad means of corporate affiliation. The
FSIA does not. Because Congress used the phrase “owned by,”
rather than other statutory language, it is clear that Congress
intended to require direct ownership by a foreign state.
Petitioners’ alternate argument that the State of Israel held an
ill-defined “other ownership interest” in the Dead Sea
Companies is flawed. Section 1603(b)(2) does not refer in the
abstract to “majority ownership interests.” Rather, it refers to
“shares or other ownership interest.” The Ninth Circuit properly
concluded that the reference to “other ownership interest” should
not be interpreted “in such a way as to make the majority-
shareholder requirement superfluous” but instead should be
construed “simply to describe some other form of ownership not
called shares of stock.” Pet. App. 23a.
Petitioners’ approach would frustrate the purposes of the
FSIA. It would move the FSIA further away from its avowed
purpose of making United States law consistent with
international practice. It would also deprive U.S. citizens of
means of legal redress against foreign entities by dramatically
expanding the number of corporations which could qualify for
the benefits of the FSIA. Petitioners’ approach would create
traps for even the most wary plaintiffs, since even many
sophisticated litigants will be unaware that a foreign
corporation’s chain of ownership includes a foreign state or
political subdivision at the top. The FSIA imposes many
procedural burdens on U.S. plaintiffs, including loss of jury trial
rights, strict tests for personal jurisdiction, special service rules,
and limitations on execution of judgments. Extending these
procedural rules to a host of tiered corporate entities, as
petitioners seek, would run directly contrary to a central purpose
of the FSIA.
10
There is no reason to stretch the statute to protect the interests
of foreign states. If a foreign entity (whether corporate or not) is
genuinely involved in sovereign activities, it can seek to satisfy
a separate test for FSIA immunity, known as the “organ” test.
Here, the lower courts held that the Dead Sea Companies did not
meet that test, and petitioners do not seek review of the question.
II. A corporation is not covered by the FSIA if the foreign
state does not own a majority of shares at the time the plaintiff
commences suit. Congress used the present tense in drafting the
statute. It included special rules for service of process and
enforcement of judgments which plainly contemplate that the
entity in question would actually qualify as a foreign state or an
agency or instrumentality at the time of suit. The purposes of the
statute point to the same interpretation.
The court of appeals’ judgment should be affirmed.
ARGUMENT
I. ACORPORATION IS NOT COVERED BY THE FSIA
IF A FOREIGN STATE OWNS A MAJORITY OF THE
SHARES OF THE CORPORATE ENTERPRISE THAT
IN TURN OWNS A MAJORITY OF THE SHARES OF
THE CORPORATION.
A. The Text and Structure of the FSIA
The text and structure of the FSIA are dispositive in this case.
The definition of “foreign state” in the FSIA includes “agencies
or instrumentalities” of the foreign state. 28 U.S.C. § 1603(a).
An “agency or instrumentality” is defined as an entity:
(1) “which is a separate legal person, corporate or
otherwise,”
(2) “which is an organ of a foreign state or political
subdivision thereof, or a majority of whose shares or other
ownership interest is owned by a foreign state or political
subdivision thereof,” and
1]
(3) “which is neither a citizen of a State of the United
States . . . nor created under the laws of any third
country.”
28 U.S.C. § 1603(b)(1)-(3).
The FSIA thus draws clear distinctions among foreign states,
political subdivisions of foreign states, and agencies or
instrumentalities of foreign states and political subdivisions
thereof. As written, the Act provides potential immunity to
entities that either (a) are organs of a foreign state or political
subdivision thereof or (b) have a majority of shares owned by the
foreign state or political subdivision. It does not extend
immunity to entities that are owned by an agency or
instrumentality of a foreign state. The only shares of a
corporation that count toward the majority-ownershir
requirement of Section 1603(b)(2) are those shares held by the
foreign state itself or by its political subdivisions. Shares of a
corporation that are owned not by “a foreign state or political
subdivision thereof,” but instead by another corporation (which
is the case here), do not count — even if the parent corporation
happens to be an instrumentality of a foreign state or political
division thereof because a majority of its own shares are owned
by that foreign state or political subdivision.
The plain language of Section 1603(b)(2) requires this result
because it fails to list as relevant shares that are held merely by
agencies or instrumentalities of foreign states. Hence, in order
to qualify under the FSIA, a corporation must have a majority of
its shares owned by a foreign state or political subdivision — not
by another instrumentality. The House Report reflects this
understanding. It provides that “a majovity of the entity’s shares
or other ownership interest [must] be owned by a foreign state
(or by a foreign state’s political subdivision).” H.R. Rep. No.
94-1487, at 15 (1976), reprinted in 1976 U.S.C.C.A.N. 6614.
Several features of the statutory structure fortify this
12
conclusion. First, Section 1603(a) provides that a foreign state
“includes” an agency or instrumentality, not that an agency or
instrumentality is a foreign state, or that an agency or
instrumentality is defined as a foreign state. Section 1603(a)’s
“includes” language does not authorize the conclusion that a
corporation that happens to be an instrumentality of a foreign
state actually is a foreign state, so as to permit infinite “tiering”
under Section 1603(b)(2). See Jn re Ski Train Fire in Kaprun,
Aus., 198 F. Supp. 2d 420, 425 (S.D.N.Y. 2002) (“While section
1603(a) provides that the term foreign state ‘includes’ political
subdivisions, agencies and instrumentalities, it does not ‘equate’
foreign state with agency or instrumentality. It is a subtle
distinction, but also the only explanation that can be squared
with the remainder of section 1603.”).
Second, the meaning of the term “foreign state” in Section
1603(b)(2) is necessarily quite narrow because, by definition, it
can only mean an entity that is capable of having “a political
subdivision thereof.” If the term “foreign state” in Section
1603(b)(2) were construed as meaning, from the very beginning,
everything listed in Section 1603(a), then political subdivisions
would already be encompassed in the term and the reference to
political subdivisions in Section 1603(b)(2) would become
superfluous, in violation of well-accepted principles of statutory
construction. See Circuit City Stores, Inc. v. Adams, 532 U.S.
105, 113 (2001) (“‘Our cases express a deep reluctance to
interpret a statutory provision so as to render superfluous other
provisions in the same enactment.’”) (quoting Pennsylvania
Dept. of Public Welfare v. Davenport, 495 U.S. 552, 562
(1990)); see also Federal Ins. Co. v. Richard 1. Rubin & Co., 12
F.3d 1270, 1285 n.12 (3d Cir. 1993); Jn re Ski Train Fire, 198 F.
Supp. 2d. at 425.
Third, in the FSIA Congress drew careful distinctions among
foreign states, political subdivisions, and agencies or
instrumentalities of foreign states and political subdivisions.
13
Tellingly, Section 1603 is a definition section, in which each
term is separately explained for correct use in subsequent parts
of the statute. If Congress had intended that an agency or
instrumentality could be majority owned by another agency or
instrumentality, it clearly could have stated so in its definition of
agency or instrumentality. If it had wished to adopt petitioners’
view of the statute, Congress could have referred in Section
-1603(b)(2) to the shares held by “a foreign state or political
subdivision thereof, or an agency or instrumentality thereof.”
Indeed, Congress used the italicized language in 28 U.S.C.
§ 1606. Instead, Congress focused solely on the shares owned
by “a foreign state or political subdivision thereof” — the same
phrase that Congress employed in another provision of the Act
to single out only a foreign state itself and its political
subdivisions, and to exclude a foreign state’s agencies or
instrumentalities. See 28 U.S.C. § 1391(f)(4); see also 28 U.S.C.
§ 1608(a) (using similar reference to “foreign state or political
subdivision of a foreign state”).
The differential treatment of the three types of foreign entities
defined under the FSIA is hardly unique to Section 1603(b)(2).
In at least four sections of the Act besides Section 1603(b),
Congress decided to single out for special treatment the “foreign
state” itself, often along with its “political subdivision,” in the
process making clear that “agencies or instrumentalities of a
foreign state” constitute a different sort of entity, one that is
generally afforded less favorable treatment.’ Thus, in each of the
four places in which Congress used the phrase “foreign state or
political subdivision thereof,” it meant to exclude “agencies or
instrumentalities.”
The statutory text and structure thus foreclose petitioners’
* Specifically: the venue provisions, 28 U.S.C. § 1391(f)(3); liability for
punitive damages, § 1606; property located in the United States that is subject
to attachment in aid of execution, § 1610; and service of process, § 1608.
14
theory of “tiered” ownership.
B. The State Did Not “Own” a Majority of Shares in the
Dead Sea Companies
1. Petitioners argue that, in “ordinary speech,” a majority
shareholder is said to “own” the assets or subsidiaries of a
corporation. Dole Br. 16. They urge that “the corporate form
can be ignored” in this case (id. at 35) and chide the Solicitor
General for advancing a “technical” interpretation of the statute.
Id. at 33. But corporate law conceptions are technical.
Colloquialisms and newspaper reports (Dole Br. 17 n.5) are not
the proper bases for statutory interpretation in this area. The
starting premise of corporate law, in fact, is that formalities
matter.‘ Indeed, it is somewhat surprising that petitioners —
which are themselves business corporations — should be so eager
to have this Court disregard the “technicalities” of corporate
ownership. If the context were different — if this were case in
which a plaintiff sought to pierce the corporate veil, for example
— petitioners’ eagerness to disregard those formalities might well
disappear.
When ownership of a subsidiary corporation is tiered through
an intermediate corporation, legal ownership of the subsidiary
resides in the intermediate corporation that holds the subsidiary’s
shares of stock.* Because Congress used the phrase “owned by,”
rather “indirectly owned by,” “beneficially owned by,”
“controlled by,” or even “attributable to,” it is clear that
Congress intended to require direct ownership by a foreign state.
* See Calvert Magruder, A Note on Partnership Liability of Stockholders in
Defective Corporations, 40 HARV. L. REV. 733, 742 (1927) (“The attribution
of rights and obligations to a group as a unified juristic person is no doubt
only a dit of legal technique. But technique is not to be despised. . . .”).
* Philip I. Blumberg, The /ncreasing Recognition of Enterprise Principles
in Determining Parent and Subsidiary Corporation Liabilities, 28 CONN. L.
REV. 295, 299 (1996).
15
Congress knows how to write broadly when it wishes to. Many
other statutes refer sweepingly to direct or indirect ownership or
control, beneficial interests, and other forms of corporate
relationships.° The statutory examples cited by petitioners prove
* E.g., 5U.S.C. § 8477(a)(4)(G)ii) (holders of 50% “beneficial interest” in
corporation); 5 U.S.C. § 8477(a)(4)(G)(iii) (“owned directly or indirectly”);
5 U.S.C. § 8902a(c)(3) (“Any individual who directly or indirectly owns or
has a control interest in” entity); 7 U.S.C. § 1a(8) (“owned or controlled,
directly or indirectly”); 7 U.S.C. § 2 (“owned or controlled, directly or
indirectly”); 7 U.S.C. § 1308-3a(d) (“direct and indirect ownership interest”);
7 U.S.C. § 1635i(1 (A) (“a person that directly or indirectly owns, controls,
or holds with power to vote, 5 percent or more of the outstanding voting
securities”); 10 U.S.C. § 2327(b)(1) (“a foreign government owns or controls
(whether directly or indirectly) a significant interest in such firm or subsidiary
(or, in the case of a subsidiary, in the firm that owns the subsidiary)”); 11
U.S.C. § 101(2)(b) (“corporation 20 percent or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held with
power to vote, by the debior”); 12 U.S.C. § 84(c)(5) (“any corporation wholly
owned directly or indirectly by the United States”); 12 U.S.C. § 215c(d) (“to
acquire, directly or indirectly, ownership or control”); 12 U.S.C. §221a(b)(1),
(2) (corporation “of which a member bank, directly or indirectly, owns or
controls either a majority of the voting shares or more than 50 per centum of
the number of shares” or “of which control is held, directly or indirectly,
through stock ownership or in any other manner’); 12 U.S.C. § 371c(b)(3)
(“company or shareholder, directly or indirectly, or acting through one or
more other persons owns, controls, or has power to vote 25 per centum or
more of” stock); 12 U.S.C. § 1468(b)(2) (“any person who directly or
indirectly owns, controls, or has the power to vote more than 10 percent of”
stock); 12 U.S.C. § 1813(w)(4) (“The term ‘subsidiary’ (A) means any
company which is owned or controlled directly or indirectly by another
company”); 12 U.S.C. § 1828 (“hold, directfy or indirectly, stock or other
evidences of ownership”); 12 U.S.C. § 1841(g)(1) (“For the purposes of this
Act, shares owned or controlled by any subsidiary of a bank holding company
shall be deemed to be indirectly owned or controlled by such bank ho!ding
company”); 12 U.S.C. § 2602(7) (“a direct or beneficial ownership interest”);
12 U.S.C. § 3500.15(c)(4)(ii) (“Directly or indirectly or acting in concert with
others, or through one or more subsidiaries, owns, holds with power to vote,
or holds proxies representing”); 15 U.S.C. § 78p(a)(1) (“Every person who is
directly or indirectly the beneficial owner”); 15 U.S.C. § 79b(8)(A) (“voting
securities . .. which are directly or indirectly owned, controlled, or held with
16
the same point. See Dole Br. 36-37 n.16.” The FSIA is different
from these statutes. Petitioners’ interpretation of Section
1603(b)(2) would disregard its distinctive text.
Section 1603(b)(2) should be construed against the basic
corporate law principle that “[a] corporation and its stockholders
are generally to be treated as separate entities.” Burnet v. Clark,
287 U.S. 410, 415 (1932); see also Trustees of Dartmouth
College v. Woodward, 17 U.S. (4 Wheat.) 518, 636 (1819)
(Marshall, C.J.). Congress is presumed to legislate against this
“bedrock” and “venerable” principle. United States v. Bestfoods,
524 U.S. 51, 62 (1998). Under this rule, a foreign state does not
itself own a majority of shares in a subsidiary corporation merely
because the foreign state owns a majority of the shares of the
parent. Rather, it is the parent company that owns the shares of
stock in the subsidiary. The foreign state may own stock of the
parent, but it does not “own” the parent’s assets. A shareholder
has only an indirect interest in the assets of the corporation,
which interest is manifested in the right to share in profits
through dividends and in the distribution of corporate assets on
liquidation. “The corporation holds property, enters into
power to vote”); 18 U.S.C. § 1802(3) (“The term ‘newspaper owner’ means
any person who owns or controls directly, or indirectly through separate or
subsidiary corporations”); 22 U.S.C. § 1642e(c) (“indirect ownership interest
in a corporation”); 22 U.S.C. § 5605(b)(2)(F) (“any foreign air carrier owned
or controlled, directly or indirectly, by that government”); 30 U.S.C. §
184(h)(1) (“owned, or controlled, directly or indirectly, by means of stock or
otherwise”); 47 U.S.C. § 153(1) (Communications Act definition of “own” as
including equity interest of 10% of more, and of “affiliate” as including
anyone who “(directly or indirectly) owns or controls, is owned or controlled
by, or is under common control with”); 47 U.S.C. § 702(7) (“corporation, or
other entity which owns or controls, directly or indirectly”).
” SEC rules regarding consolidated financial statements (Dead Sea Br. 23
n.8) are not based on the same principle as Section 1603(b)(2). Instead,
“{t]here is a presumption that consolidated statements are more meaningful .
.. when one entity directly or indirectly has a controlling financial interest in
another entity.” 17 C.F.R. § 210.3A-02(a).
17
contracts, executes conveyances, and conducts litigation in a
legal capacity separate and distinct from its shareholders.”
James D. Cox and Thomas Lee Hazen, CORPORATIONS § 1.2
(2001).
Even in the immunity context, this Court has adhered to the
fundamental principle that a corporation has a legal personality
distinct from its shareholders. In Bank of the United States v.
Planters’ Bank of Georgia, 22 U.S. (9 Wheat.) 904 (1824), for
example, the State of Georgia was an incorporator and part
shareholder of the Planters’ Bank of Georgia. The bank
challenged the court’s jurisdiction on sovereign immunity
grounds. Chief Justice Marshall, writing for the Court, rejected
the plea, reasoning that the bank was a distinct legal entity:
A suit against the Planters’ Bank of Georgia, is no more
a Suit against the State of Georgia, than against any other
individual corporator. . . .
... As a member of a corporation, a government never
exercises its sovereignty. It acts merely as a corporator,
and exercises no other power in the management of the
affairs of the corporation, than are expressly given by the
incorporating act... .
... We think, then, that the Planters’ Bank of Georgia is
not exempted from being sued in the federal Courts, by
the circumstance that the State is a corporator.
Id. at 906-08. Five years later, the Court again rejected the
Eleventh Amendment immunity objection, stating categorically:
“this court is of the opinion that the question is no longer open
here.” Bank of Ky. v. Wister, 27 U.S. (2 Pet.) 318, 323 (1829).
Further, “a state, when it becomes a stockholder in a bank,
imparts none of its attributes of sovereignty to the institution;
this is equally the case, whether it own a whole or a part of the
stock of the bank.” Briscoe v. Bank of Ky., 36 U.S. (11 Pet.)
257, 325-26 (1837). This principle has served as a bright-line
18
test distinguishing corporate bodies from the state and federal
governments for purposes of Eleventh Amendment immunity,*
state sovereign immunity,’ and federal sovereign immunity.’
There is no reason to depart from this long-settled rule in
construing the FSIA. To the contrary, this Court has recognized,
in addressing tiered corporate structures created by foreign
governments, that “government instrumentalities established as
juridical entities distinct and independent from their sovereign
should normally be treated as such.” First Nat'l City Bank v.
Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 626-
27 (1983). “Separate legal personality has been described as ‘an
almost indispensable aspect of the public corporation.”” Jd. 625
(citation omitted). In fact, this Court explained that “[w]e find
* See Wister, 27 U.S. (2 Pet.) at 323 (defendant bank wholly owned by state
held separate entity and not immune); Metropolitan Sav. Bank & Trust Co. v.
Farmers’ State Bank, 20 F.2d 775, 780 (8th Cir. 1927) (federal jurisdiction
existed over bank temporarily under state control and supervision); Murray
v. Wilson Distilling Co., 164 F. 1, 20-21 (4th Cir. 1908) (state liquor
dispensary commission held separate legal entity and not immune).
* See Georgia v. City of Chattanooga, 264 U.S. 472, 479-80 (1924) (State
of Georgia not immune from eminent domain action in state courts of
Tennessee to condemn property Georgia owned and leased to private railroad
corporation); North Dakota v. Olson, 33 F.2d 848, 851 (8th Cir. 1929) (state
bank held separate legal entity not immune from federal taxation).
' See Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381, 389.
394 (1939) (regional agricultural credit corporation created under authorty
of federal Reconstruction Finance Corporation not immune despite absence
of express “sue-and-be-sued” clause in charter); see also Sloan Stipyards
Corp. v. United States Shipping Bd. Emergency Fleet Corp., 258 U.S. 549,
565-67 (1922) (U.S. Fleet Corporation not immune despite !00% federal
ownership of stock); United States v. Strang, 254 U.S. 491, 493 (1921)
(same); Dollar v. Land, 154 F.2d 307, 312 (D.C. Cir. 1946) (U.S. Maritime
Commission); /ngersoll-Rand Co. v. United States Fl-et Corp., 195 A.D. 838,
843, 187 N.Y.S. 695, 698-99 (N.Y. App. Div. 1921!) (Fleet Corporation not
immune in state court); Gill v. Reese, 53 Ohio App. 134, 139, 4 N.E.2d 273,
275 (Ct. App. 1936) (federal Home Owners Lan Corporation subject to state
court garnishment proceedings).
19
support for this conclusion in the legislative history of the
Foreign Sovereign Immunities Act.” /d at 627. “During its
deliberations, Congress clearly expressed its intention that duly
created instrumentalities of a foreign state are to be accorded a
presumption of independent status.” /d. This Court quoted the
FSIA House Report, which stated:
If U.S. law did not respect the separate juridical identities
of different agencies or instrumentalities, it might
encourage foreign jurisdictions to disregard the juridical
divisions between different U.S. corporations or between
a U.S. corporation and its independent subsidiary.
However, a court might find that property held by one
agency is really the property of another.
Id. at 628 (quoting H.R. Rep. No. 94-1487, at 29-30, 1976 U.S.
C.C.A.N. 6628-6629 (citation omitted)).
2. Petitioner cite a number of cases in which this Court has
pierced the corporate veil. Dole Br. 19-20, 35; Dead Sea Br. 21-
23. For example, petitioners rely on Bangor Punta Operations,
Inc. v. Bangor & Aroostoock R.R., 417 U.S. 703 (1974), where
this Court opined that “[a]lthough a corporation and its
shareholders are deemed separate entities for most purposes, the
corporate form may be disregarded in the interests of justice
where it is used to defeat an overriding public policy.” /d at
713. Petitioners also rely on K Mart Corp. v. Cartier, Inc., 486
U.S. 281 (1988), which applied Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984),
to uphold a Treasury regulation permitting the importation of
certain “gray market” goods whose trademarks are owned by a
U.S. subsidiary controlled by a foreign corporation, under a
statutory scheme restricting imports of trademarked products
whose trademark is “owned by” a United States company. See
id. at 298 (Brennan, J., concurring in part and dissenting in part)
(“it cannot be confidently discerned either which entity owns the
trademark or whether the goods in question are ‘of foreign
20
manufacture’”)."'
None of these cases stands for the proposition that corporate
separateness is meaningless or may be disregarded on a routine
basis. In fact, the cases show the opposite. See Bestfoods, 524
U.S. at 62 (affirming principle of corporate separateness but
explaining that there are exceptional occasions when the
principle will be “qualified or denied’) (internal quotation marks
and citation omitted); 1 Fletcher, CYCLOPEDIA OF THE LAW OF
PRIVATE CORPORATIONS § 31, at 518 (rev. perm. ed. 1999)
(“Under certain circumstances, to work justice, the corporate
entity and ownership may be disregarded and the shareholder or
shareholders regarded as owners; but this concedes the general
rules to be just as stated.”).
C. The State Did Not Hold an “Other Ownership
Interest” in the Dead Sea Companies
1. Petitioners alternatively contend that the Dead Sea
Companies qualify under Section 1603(b)(2) “because Israel had
a ‘majority . . . ownership interest’ in them by virtue of being the
majority shareholder in the ultimate parent.” Dole Br. 21; see
also Dead Sea Br. 25 (using same ellipsis). Petitioners’
"' Petitioners rely on Flink v. Paladini, 279 U.S. 59 (1929) (Dead Sea Br.
23; Dole Br. 16, 33), while omitting Justice Holmes’ caveat that a court
should not “ignore the distinction between a corporation and its members.”
/d. at 63. Petitioners also invoke Copperweld Corp. v. Independence Tube
Corp., 467 U.S. 752, 771 (1984) (Dead Sea Br. 23), which held but that a
parent and a wholly owned subsidiary cannot engage in a “conspiracy” within
the meaning of § | of the Sherman Act, 15 U.S.C. § 1, not because they are
a single corporate entity but because they “always have a ‘unity of purpose or
a common design’” for purposes of antitrust law. /d at 771 (citation omitted).
And petitioners cite Franchise Tax Board of California v. Alcan Aluminium
Lid., 493 U.S. 331 (1990) (Dead Sea Br. 22), which arose in the tax context
and involved issues of corporate control rather than ownership. See id. at 339
(“We therefore construe the Tax Injunction Act as barring a federal action by
a party who has under its direction and control an entity possessing a plain,
speedy, and efficient remedy for the controlling party’s claims.”).
21
argument is wrong, and their use of an ellipsis is telling.
Section 1603(b)(2) does not refer in the abstract to “majority
ownership interests.” Rather, it refers to “shares or other
ownership interest.” The Ninth Circuit properly concluded that
the reference to “other ownership interest” should not be
interpreted “in such a way as to make the majority-shareholder
requirement superfluous” but instead should be construed
“simply to describe some other form of ownership not called
shares of stock.” Pet. App. 23a. Given the foreign legal regimes
with which Congress was dealing in the context of the FSIA, it
was perfectly understandable for the legislature to make
provisions for kinds of equity-like ownership rights that were not
explicitly denominated as shares of stock. Petitioners’ amici
themselves stress “the vast array of forms of ownership that the
hundreds of different foreign governments with widely disparate
legal systems could potentially use.” Br. of Republic of Ireland
15-16. Congress was simply trying to reach stock and its
functional equivalents. See Circuit City Stores, Inc. v. Adams,
532 U.S. 105, 114-15 (2001) (ejusdem generis).
The State of Israel did not hold a majority shareholding
position in the Dead Sea Companies. Nor did it hold a form of
inchoate “property” in the Dead Sea Companies that could be
described as an “ownership interest.” All the State owned was
stock in the Dead Sea Works (until 1975) and Israeli Chemicals
Ltd. (after 1975), as well as a single share of Dead Sea Bromine.
The nature of Israel’s ownership interest is fully captured in the
'? Congress elaborated on the majority requirement, explaining that where
“entities are entirely owned by a foreign state, they would of course be
included within the definition.” H.R. Rep. No. 94-1487, at 15, reprinted in
1976 U.S.C.C.A.N. 6614. However, “where ownership is divided between a
foreign state and private interests, the entity will be deemed to be an agency
or instrumentality of a foreign state only if a majority of the ownership
interests (shares of stock or otherwise) is owned by a foreign state or by a
foreign state’s political subdivision.” /d.
22
Statutory term “shares,” and that ownership interest never
qualified as a majority shareholding interest for purposes of
Section 1603(b)(2).
Petitioners would interpret the phrase “other ownership
interest” to swallow up the reference to “shares” in Section
1603(b)(2). According to petitioners, the concept of an
“interest” is “a comprehensive term” that includes “any right,
claim, or privilege that an individual has toward real or personal
property.” Dole Br. 21 (internal citation omitted). “While it did
not directly hold title to DSB’s shares, the State of Israel clearly
had an interest in the Company that allowed the State to accrue
an advantage from its success and control its management and
affairs.” Dead Sea Br. 26. Such a broad reading of “other
ownership interest” — far from supplementing the reference to
“shares” — would negate that reference altogether. Moreover,
petitioners never identify any conceivable “interest” besides
stock that the state of Israel held in this case. Nor do they
explain how a “majority” interest could be calculated on the
basis of whatever fuzzy “right, claim, or privilege” the State of
Israel might be deemed to hold in Dead Sea Bromine. Congress
could have written Section 1603(b)(2) differently to capture all
forms of direct and indirect ownership and control. It did not.
The Dole petitioners would apparently transform the
ownership test of Section 1603(b)(2) into the question whether
a foreign state holds “effective control over a majority of a
corporation's board of directors.” Dole Br. 23 (emphasis added).
This construction is even further afield. It introduces the concept
of control of directors into a statute that by its text focuses on
ownership of stock. Petitioners’ interpretations would change
Section 1602(b)(2) into a very different statute that Congress did
not enact.
Petitioners’ amici would even go so far as to turn the inquiry
into a multi-factored balancing test. Br. of Republic of Ireland
22. Not only is this suggestion directly contrary to the text of
23
Section 1603(b)(2), but it is utterly inconsistent with the very
purpose of a jurisdictional test, which is ordinarily to create an
administrable, predictable, bright-line rule. See, e.g., Jerome v.
Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527,
549 (1995) (Thomas, J., joined by Scalia, J., concurring in the
judgment) (noting that a “clear, bright-line rule . . . ensures that
judges and litigants will not waste their resources in determining
the extent of federal subject-matter jurisdiction”); United States
v. Ibarra, 502 U.S. 1, 6 (1991) (approving “what should be a
bright-line jurisdictional inquiry”) (internal quotation omitted).
That principle is particularly salient in the context of the
FSIA. According to petitioners themselves, a central aim of the
statute was to promote predictability by removing courts and the
Department of State from case-by-case decisionmaking regarding
questions of immunity. See Dead Sea Br. 31-33; H.R. Rep. No.
94-1487, at 8, reprinted in 1976 U.S.C.C.A.N. 6607 (discussing
Tate Letter). Petitioners’ balancing, control, and other non-
textual tests would reintroduce the very problems the FSIA was
designed to eliminate.
2. The Dead Sea petitioners argue that the State of Israel
exercises “pervasive control and oversight” through the
Government Companies Law, more “than would a similarly
situated indirect shareholder under American law.” Dead Sea Br.
28, 30. The evidence showed, however, that the State of Israel
did not exert substantial control over the day-to-day operations
or even the business strategies of the Dead Sea Companies. See
pp. 2-5, supra. The district court found that the State of Israel’s
power stemmed from its ownership of the corporate parent, not
from any form of special control. See Pet. App. 78a (“The
control maintained by the government was derived mainly from
the government’s indirect ownership of the entities.”). The
Ninth Circuit found that the Companies were “independent
commercial enterprises.” /d at 26a (emphasis added). Indeed,
the Dole petitioners quote ‘n their brief (Dole Br. 23) the Ninth
Circuit’s finding that the State of Israel’s control “is not
24
considerably different from the control a majority shareholder
would enjoy under American corporate law.” Pet. App. 25a.
In any event, the meaning of the statute is a matter of U.S.
law, not Israeli law. JP Morgan Chase Bank v. Traffic Stream
(BVI) Infrastructure, Ltd., 122 §. Ct. 2054, 2060-61 (2002). The
Dead Sea Petitioners confuse ownership with control. Section
1603(b)(2) does not create a control test, but a majority
ownership test. Even the Dole petitioners acknowledge that the
question of “control” is “different and ‘more expansive’ than
ownership of a majority of shares or ownership interest.” Dole
Br. 36-37. “Congress did not want the FSIA’s majority
ownership requirement to cover the broader category of
control.” Id. at 37. The Dead Sea petitioners would rewrite
Section 1603(b)(2) into the kind of statutory “control” provision
which Congress has enacted in other contexts, see n. 6, supra,
but not in the FSIA.”
The Dead Sea petitioners’ argument is essentially an attempt
to smuggle the FSIA’s “organ” test into the entirely separate
“ownership” inquiry of Section 1603(b)(2). The “organ” test
asks “* whether the foreign sovereign supervised and/or exercised
control over the entity so as to circumscribe the entity’s ability
to act independently’” and “‘whether the entity advanced the
interests of the foreign sovereign.”” Pet. App. 71a (quoting Dead
Sea Companies’ own brief) (emphasis added). Both the district
court and the court of appeals held that the Dead Sea Companies
did not qualify for FSIA immunity under the “organ” test, id. at
24a-26a, 71a-79a, and neither set of petitioners sought certiorari
" Even if the state of Israel had “controlled” the Dead Sea Companies, that
would not satisfy the test of Section 1603(b)(2). Control by a majority
shareholder is an insufficient basis to disregard the corporate form. See | W.
Fletcher, CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS, § 41.10, at
615 (rev. perm. ed. 1990) (alter ego doctrine does not apply on basis of
“{mJere domination and control of the corporation by the sole or principal
shareholder”).
25
with respect to that issue. The Dead Sea Companies’ “control”
argument is relevant, if at all, only to the “organ” test, which is
not before this Court.
D. Petitioners’ Approach Would Frustrate The Purposes
of the Statute
“In 1976, Congress enacted the FSIA in order to achieve two
basic objectives. First, the Act was intended to provide fairness
to American plaintiffs, who previously had no established
procedural remedies against foreign states. Second, the Act was
intended to align the United States with international practice.”
William C. Hoffman, The Separate Entity Rule in International
Perspective: Should State Ownership of Corporate Shares
Confer Sovereign Status for Immunity Purposes?, 65 TUL. L.
Rev. 535, 537 (1991). Petitioners’ construction of the statute
would frustrate both purposes.
1. The FSIA expressly declares (28 U.S.C. § 1602) that its
purpose is to adopt the “restrictive theory” of immunity. In this
regard, the FSIA was intended to make United States law
consistent with international practice. The House Report states
that the FSIA “would codify the so-called ‘restrictive’ principle
of sovereign immunity, as presently recognized in international
law.” H.R. Rep. No. 94-1487, at 7, reprinted in 1976
U.S.C.C.A.N. 6605. There is “a wide acceptance of the so-called
restrictive theory of sovereign immunity; that is, that the
sovereign immunity of foreign states should be ‘restricted’ to
cases involving acts of a foreign state which are sovereign or
governmental in nature, as opposed to acts which are either
commercial in nature or those which private persons normally
perform.” H.R. Rep. No. 94-1487, at 14, reprinted in 1976
U.S.C.C.A.N. 6613. See also Republic of Argentina v. Weltover,
504 U.S. 607, 614 (1992); Verlinden B.V. v. Central Bank of
Nig., 461 U.S. 480, 487 (1983)."*
See also FOREIGN SOVEREIGN IMMUNITIES ACT, HEARINGS ON H.R. 11315
26
Petitioners’ approach would frustrate this purpose by
expanding immunity based solely on purported “ownership” far
beyond that afforded by any other country in the world. It would
move the FSIA away from its avowed purpose of aligning U.S.
law with international practice hy aggravating the difference
between U.S. law and the laws of other countries.
The prevailing international rule provides that foreign
state-owned entities with separste legal personalities generally
are not entitled to sovereign immunity based on direct foreign
ownership, let alone “tiered” corporate structures. “Nationalized
corporations and other state owned enterprises, even those
directly owned by a government, do not expect special immunity
protection anywhere in the western world, including the very
countries where the corporations were formed, except in United
States courts.”'* “No other country in the world has adopted
state ownership as a basis for conferring sovereign legal status on
commercial corporations. In fact, since 1976 most jurisdictions
that have enacted legislation codifying the restrictive theory have
expressly rejected the idea.” Three codifications of
BEFORE THE SUBCOMM. ON ADMIN. LAW AND GOVERNMENTAL RELATIONS OF
THE HOUSE COMM. ON THE JUDICIARY, 94th Cong. 33 (1976) (“1976
Hearings”) (testimony of Monroe Leigh, Legal Adviser, Department of State)
(responding negatively when asked whether any provisions in the FSIA were
significantly different than immunity treatment in other commercially
developed nations).
'* Jane H. Griggs, Note, The Foreign Sovereign Immunities Act: Do Tiered
Corporate Subsidiaries Constitute Foreign States’, 20 W. NEW ENG. L. REV.
387, 432 (2001).
'* William C. Hoffman, The Separate Entity Rule in International
Perspective: Should State Ownership of Corporate Shares Confer Sovereign
Status for Immunity Purposes’, 65 TUL. L. REV. 535, 565-66 (1991); see also
id. at $51-65, 565 n.149 (surveying Western Europe and showing that no other
country grants immunity based on tiered ownership); Joseph W. Dellapenna,
Foreign State Immunity in Europe, 5 N.Y. INT'L L. REV. 51, 54, 57, 59, 60
(1992) (providing overall study of European sovereign immunity traditions
and finding that England bases agency immunity on the existence of sovereign
27
international law — the United Kingdom’s State Immunity Act,’
the Council of Europe’s Furopean Convention on State
Immunity,"* and a proposal by the International Law Commission
of the United Nations’? — provide immunity based on
performance of a governmental purpose, not tiered ownership.
European decisions illustrate that the immunity claimed by the
Dead Sea Companies in this case would be without international
precedent.” The Dole petitioners acknowledge that “most
authority, France bases agency on the existence of a public nature, and
Germany does not extend immunity to governmental agencies at all).
' Section 14(2) of the United Kingdom State Immunity Act of 1978
provides: “A separate entity is immune from the jurisdiction of the courts of
the United Kingdom if, and only if — (a) the proceedings relate to anything
done by it in the exercise of sovereign authority; and (b) the circumstances are
such that a State . . . would have been so immune.” 17 I.L.M. at 1127.
Numerous jurisdictions have enacted identical provisions. See Pakistan State
Immunity Ordinance, 1981, § 15, reprinted in MATERIALS ON JURISDICTIONAL
IMMUNITIES OF STATES AND THEIR PROPERTY at 25, U.N. Doc.
ST/LEG/SER.B/20, U.N. Sales No. E/F.81.V.10 (1982) (hereafter “U.N.
MATERIALS”); Singapore State Immunity Act, 1979, § 16, reprinted in U.N.
MATERIALS at 33; South Africa Foreign Sovereign Immunity Act, 1981, § 2,
reprinted in U.N. MATERIALS at 35.
'* European Convention on State Immunity, May 16, 1972, art. 27(2),
Europ. T.S. No. 74, at 4, reprinted in 3 Europ. Conv. & Agree. 39 (1972-74).
'® Report of the Int'l] Law Comm'n on the Work of its Forty-Third Session,
U.N. GAOR Int’! Law Comm., 43d Sess., Supp. No. 10, U.N. Doc. A/46/10
(1991).
* See Trendtex Trading Corp. v. Central Bank of Nig., {1977} 1 Q.B. 529,
579 (Central Bank of Nigeria not immune); Swiss /sr. Trade Bank v
Government of Salta, [1972] | Lloyd's Rep. 497, 507 (foreign state-owned
bank not immune); Central Bank of Nigeria Cases, Decisions of the
Frankfurter Landgericht (municipal court of Frankfurt) dated Dec. 2, 1975 &
Aug. 25, 1976, 1976 NJW 1044, 65 1.L.R. 131, 134 (no immunity); National
lranian Oil Co. Legal Status Case, No. 5 W 24/80, 21 Oct. 1980, 1980
RIW/AWD 874, 65 I.L.R. 199 (Germany) (rejecting claim of sovereign
immunity by National Iranian Oil Co., even though its shares were owned by
Iran); Dhlellemes et Masurel S.A. v. Banque Centrale de la Republique de
28
foreign immunity laws outside the United States do not treat
government-owned corporations as ‘foreign states," Dole Br.
35, and their attempt to harmonize their position with these
foreign laws is untenable.”'
2. A second important congressional objective was to
overcome difficulties faced by American citizens in bringing
claims against foreign enterprises connected to foreign states.
Petitioners acknowledge that “the Act was explicitly designed to
‘facilitate . . . litigation against foreign states.”*” Dole Br. 47
(ellipsis and internal quotation in original). Congress was
acutely aware of the unfair situation that faced a United States
plaintiff who had a claim against a foreign enterprise, but had
little way of knowing how, when, or if that claim would be heard
in court. “American citizens are increasingly coming into
contact with foreign states and entities owned by foreign states.”
H.R. Rep. No. 94-1487, at 6, reprinted in 1976 U.S.C.C.A.N.
6605. “These interactions arise in a variety of circumstances,
and they call into question whether our citizens will have access
to the courts in order to resolve ordinary legal disputes.” Jd A
central aim of the FSIA was to “assure that American citizens
{were} not deprived of normal legal redress against foreign states
who engage in ordinary commercial transactions... .” 1976
Hearings at 24 (testimony of Monroe Leigh, Legal Adviser,
Turquie, Judgment of Dec. 4, 1963 (Belgium), 45 I.L.R. 85, 86-87 (denying
immunity claimed by Turkish Central Bank); Cameroon Development Bank
v. Rolber, Judgment of Nov. 18, 1986, 79 I.L.R.532 (France) (denying
immunity to bank owned by the state of Cameroon); Corporacion del Cobre,
Judgment of Nov. 29, 1972, 12 I.L.M. 187, 189 (1973); 65 1.L.R. 57, 59-60
(France) (Chilean Copper Corporation not immune).
*" The Dole petitioners insist that foreign laws “afford foreign-owned
companies essentially the same immunity that is available under the FSIA
because... they give immunity to entities performing sovereign acts.” Dole
Br. 35. The Dole petitioners confuse the “majority ownership” test of Section
1603(b)(2) with the “organ” test. It is the latter test that confers immunity
based on the performance of sovereign acts.
29
Department of State). When signing the FSIA into law,
President Gerald Ford made clear that the statute would facilitate
claims against foreign companies:
This statute will also make it easier for our citizens and
foreign governments to turn to the courts to resolve
ordinary legal disputes. In this respect, the Foreign
Sovereign Immunities Act carries forward a modern and
enlightened trend in international law. And it makes this
development in the law available to all American citizens.
Public Papers of the Presidents, Gerald R. Ford, 1976-77, Book
II] 2610 (1979).
Petitioners’ construction would frustrate this congressional
purpose in several ways. First, it would dramatically expand the
number of corporations which could qualify for the benefits of
the FSIA. Petitioners’ interpretation would provide potential
immunity for every subsidiary in a corporate chain, no matter
how far down the line, so long as it can be deemed to be
majority-owned by a foreign state through a process of
multiplying indirect shareholder stakes. Petitioners themselves
assert that the tiered ownership structure for which they seek
immunity is “widespread.” Dole Br. 25 (internal quotation
omitted). The number of entities qualifying for FSIA status will
thus be significantly increased, to the detriment of U.S. citizens
and of U.S. companies that must compete with these foreign
entities. See Dewhurst v. Telenor Invest AS, 83 F. Supp.2d 577,
594 (D. Md. 2000) (“[A]llowing tiering gives these subsidiary
corporations a competitive advantage over private companies.
These remote corporations receive the procedural protections of
the FSIA, as well as potential immunity from suit, that private
corporations do not receive.”).
Compounding the problem, petitioners would extend the
protections of the FSIA tc foreign corporations whose
entitlement to such benefits would be difficult to predict in
advance. Congress was aware that in many cases a United States
30
citizen may not even know that an entity with whom he or she is
dealing has ties to a foreign state, until after a claim is brought.”
If even foreign corporations that are directly owned by a foreign
government may have a “hidden identity,” the problem is
certainly much worse in the case of corporations whose
purported ownership by a foreign state is masked by several tiers
of intermediate corporations. Rarely does the name of a
corporation reflect that it is the subsidiary in a chain whose top
member is owned by a foreign state. Information about the
identity of shareholders of foreign corporations may not be
readily accessible, even to sophisticated litigants. This hidden
Status is a trap for unwary persons who contract or otherwise deal
with a foreign corporation on the assumption that the normal
rules of jurisdiction apply.
The surprise factor was a concern of the English Court of
Appeal in the landmark 1977 decision which resulted in the
judicial abrogation of the absolute doctrine of foreign sovereign
immunity in the United Kingdom. Lord Shaw stated:
Those who contémplate entering into transactions with
bodies which may be in a position to claim sovereign
immunity are entitled at least to the opportunity of
assessing any special risk which may arise. How can they
know that such a risk lurks in dealing with a body which
assumes a guise and bears a title appropriate to a
commercial or financial institution?”
2 “(The situation may arise] when an American property owner agrees to
sell and to a real estate investor that turns out to be a foreign government
entity ....” H.R. Rep. No. 94-1487, at 7, reprinted in 1976 U.S.C.C.A.N. at
6605. “In a modern world where foreign state enterprises are every day
participants in commercial activities, [the FSIA] is urgently needed
legislation.” /d
* Trendtex Trading Corp. v. Central Bank of Nig., [1977] 1 Q.B. 529, 574.
3]
The problem already arises in U.S. litigation. Even defense
counsel can be surprised to learn, well into the litigation process,
that their client is a “foreign state.”** Petitioners’ proposal would
worsen the problem.
Petitioners’ expansion of the FSIA would also abrogate
important rights and remedies which would otherwise be
available to plaintiffs in ordinary civil litigation. Designation of
an entity as a foreign state has critical procedural implications.
The FSIA eliminates personal jurisdiction principles of state
long-arm statutes and requires plaintiffs to satisfy more
restrictive FSIA provisions. Under the commercial activity
exception to the FSIA, 28 U.S.C. § 1605(a)(2), the claim must
arise from a commercial activity performed in the United States,
or from “an act performed in the United States in connection
with a commercial activity of the foreign state elsewhere,” or
from “an act outside the territory of the United States in
connection with a commercial activity of the foreign state
elsewhere [which] causes a direct effect in the United States.”
Under the FSIA standard, the commercial activity “bearing the
nexus [to the United States] must be the same activity that gives
rise to the claim.” Hoffman, 65 TUL. L. REv. at 576. “Thus,
there will be situations where United States courts will lack
jurisdiction over a matter as a result of classifying the
corporation as a foreign state — e.g., where a corporation does
business in the United States but the actual claim arises from
business transacted elsewhere and with no effect on the United
** See, e.g., O'Connell Machinery Co. v. M.V. “Americana,” 566 F. Supp.
1381, 1383 (S.D.N.Y. 1983), aff'd, 734 F.2d 115 (2d Cir.), cert. denied, 469
U.S. 1086 (1984) (fact that Italian Line was a shipping company “indirectly
owned” by Italian state enterprise disclosed to plaintiff several weeks after
complaint was filed); see also Velidor v. L/P/G BENGHAZI, 653 F.2d 812,
814-16 & n.3 (3d Cir. 1981), cert. dismissed, 455 U.S. 929 (1982).
** See Geveke & Co. Int'l v. Kompania Di Awa | Elektrisidat Di Korsou,
N.V., 482 F. Supp. 660, 661 n.4 (S.D.N.Y. 1979).
32
States.” Hyatt Corp. v. Stanton, 945 F. Supp. 675, 689
(S.D.N.Y. 1996).
Moreover, the FSIA prohibits jury trials, even where an
exception to immunity (such as the commercial activities
exception) is found to apply. See 28 U.S.C. § 1441(d). Thus,
petitioners’ broad interpretation of the statute would eliminate
the right to a jury trial in a wide range of cases.”* Section
1608(b) prescribes different rules. for service of process
depending on whether the defendant is a foreign state or an
agency or instrumentality of a foreign state. See 28 U.S.C.
1608(b). Section 1610(b) also imposes a host of restrictions on
a plaintiff's ability to attach or execute on the property of an
agency or instrumentality. And unless an exception is shown to
apply, the court lacks jurisdiction and must dismiss the case,
effectively immunizing a commercial entity from suit.
Significantly, the burden of production, although not of
persuasion, as to the applicability of an exception to sovereign
immunity shifts to the plaintiff once an entity is deemed a foreign
state. See H.R. Rep. No. 94-1487, at 17, reprinted in 1976 U.S.
C.C.A.N. 6616.
This Court should not lightly presume that Congress meant
** The automatic loss of the plaintiff's Seventh Amendment right to a jury
trial has been the subject of commentary urging that, in this respect, the FSIA
might be unconstitutional. See Danny Abir, Foreign Sovereign Immunities
Act: The Right to a Jury Trial in Suits Against Foreign Government-Owned
Corporations, 32 STAN. J INT'L L. 159, 171-72, 178 (1996) (arguing that, for
purposes of suits against foreign government-owned corporations, the FSIA’s
non-jury trial provision is unconstitutional because, at common law, jury trials
were permitted against entities such as the East India Company); Kimberly K.
Hill, Note. Foreign Government-Owned Corporations, the Foreign Sovereign
Immunities Act, and the Right to Jury Trial, 1982 DUKE L.J. 1071 (same);
Committee on Int’! Litigation, New York State Bar Assn., Foreign State
Defendant's Right to Trial by Jury Under the F oreign Sovereign Immunities
Act, 26 TEX. INT'L LJ. 71 (1991) (presenting an overview of the arguments
for and against jury trials under the FSIA).
33
to impose these substantial procedural burdens on U.S. plaintiffs.
See Hyatt Corp., 945 F. Supp. at 690 (“Given these factors — a)
the prevailing international rule and the earlier United States
cases presuming that corporations were not protected by
sovereign immunity; b) Congress's explicit reversal of this
presumption in the case of corporations owned by foreign states
or political subdivisions; c) the fact that a broad interpretation
would further extend foreign state status to corporations
extremely remote from sovereign control; and d) the important
consequences that flow from such a classification,” Congress
“would have been as explicit as it was in extending immunity to
corporations majority-owned by foreign states or their political
subdivisions” if it had intended to confer immunity based on
tiering).””
Petitioners’ proposal would also compound the complexities
of litigation. It would require parties and courts to trace
potentially tortuous chains of indirect corporate stockholdings.™
For example, the Dead Sea Companies are part of an extended,
worldwide group of related commercial entities, with affiliates
in such far-flung locations as the United Kingdom, the
Netherlands, Japan, South Africa, and Brazil. JA 230-31. Dead
Sea’s own designated witness was unable to recall all of Israel
” The ABA Working Group cited by petitioners (Dole Br. 46, Dead Sea Br.
34) in fact recognizes these potential problems. ABA Working Group,
Reforming the F oreign Sovereign Immunities Act, 40 COLUM. J. TRANSNAT’L
L. 489, 523 (2002) (“We nonetheless recognize the merit in some of the points
made by the courts refusing to accord the protections of the Act to tiered
entities.”). Although the Working Group favors presumptive immunity for
tiered entities, it recommends enactment of a congressional amendment - a
change in the statute as written.
** For disputes over foreign ownership and corporate status, see S & S Mach.
Co. v. Masinexportimport, 706 F.2d 411,415 (2d Cir.), cert. denied, 464 U.S.
850 (1983); Sugarman v. Aeromexico, Inc., 626 F.2d 270,271 (3d Cir. 1980);
Jet Line Serv., Inc. v. M/V MARSA EL HARIGA, 462 F. Supp. 1165, 1172 (D.
Md. 1978).
34
Chemicals’ affiliates “{b]ecause there are such a large number of
companies.” JA 231. Although petitioners deny that tracing
stock ownership would pose difficulties, tellingly the Dead Sea
petitioners do not press their immunity claim with respect to
BCL, “[flor the sake of simplicity.” Dead Sea Br. 7 n.4.
3. Petitioners insist that their theory is necessary to avoid
“friction” in international relations. That claim is dubious. The
Solicitor General, representing the United States, has not
endorsed it. The State of Israel has not appeared in this litigation
on behalf of the Dead Sea Companies. Only one nation — the
Republic of Ireland — has appeared as amicus, and its arguments
do not call the Ninth Circuit's judgment into question.”
Stretching the FSIA in the manner sought by petitioners will
itself be source of friction and embarrassment for the political
branches. See Mexico v. Hoffman, 324 U.S. 30, 36 (1945)
(“[R]ecognition by the courts of an immunity upon principles
which the political department of government has not sanctioned
may be equally embarrassing to it in securing the protection of
our national interests and their recognition by other nations.”).
Moreover, petitioners’ claim of “friction” is groundless
because no other country in the world affords the kind of
immunity sought by petitioners — least of all the State of Israel,
which does not grant the Dead Sea Companies immunity in its
own courts. See JA 261: see also Joseph W. Dellapenna,
** Ireland does not suggest that the insurance company on whose behalf it
appears would qualify for immunity in the courts of any other nation. Nor
does Ireland suggest that it even considered U_S. law in deciding how to take
over an insolvent insurance company in 1985. Indeed. Ireland admits that the
transaction could have been structured in a way that would have qualified for
FSIA immunity under the Ninth Circuit's view. See Ireland Br. 19 (“as a strict
legal matter the Minister could have held legal title to all but six of [the
insurer's} shares as the government typically does when it owns and operates
commercial ventures”). In any event, Ireland contends that the insurance
company qualifies for immunity under the FSIA as an “organ.” id at 10-11
n.9. and therefore will not be affected by the outcome of this case
35
Foreign State Immunity in Europe, 5 N.Y. INT'L L. REV. 51, 51
(1992) (arguing that one of the most telling factors is how a
particular entity is treated by its own government). It cannot
reasonably be argued that the United States — which has already
taken a more than generous step in extending immunity based
upon direct ownership — has an obligation to go even further and
bestow immunity based on tiered and indirect “ownership.”
It is not plausible to describe the judgment below as
“directing” foreign countries or “dictating” to them with regard
to how corporate entities are to be structured. Contra Ireland Br.
11. The FSIA provides a benefit in the form of immunity, which
foreign states are under no obligation to accept. The United
States is fully entitled to prescribe the conditions under which it
is offered.
Nor does the court of appeals’ judgment lead to “arbitrary
results.” Contra Dole Br. 26; Dead Sea Br. 35. It is certainly
reasonable to assume as a general rule that “a foreign state’s
sovereign interest in a lower tier corporation is far more likely to
be significantly less than in a corporation directly owned.”
Indeed, it is petitioners’ approach that would lead to arbitrary
results, by frustrating the purposes of the FSIA and extending
immunity to a potentially unlimited number of tiered subsidiaries
* ABA Working Group, Reforming the F oreign Sovereign Immunities Act,
40 COLUM. J. TRANSNAT'L L. 489, 524 (2002); see also In re Ski Train Fire,
198 F. Supp.2d at 426 (“‘in light of the attenuated relationship between
foreign states proper and many of their corporate subsidiaries,’ Congress did
not intend to grant immunity to corporations beyond the first tier of state
ownership”) (citation omitted); Dewhurst, 83 F. Supp.2d at 594 (“A
corporation directly owned by a foreign government is likely controlled by
that government, thereby invoking Congress's concerns about sovereign
immunity. Allowing tiering, however, would extend immunity to corporations
far down the chain of ownership, even if these subsidiaries are only remotely
controlled by the foreign government.”); Hyatt Corp., 945 F. Supp. at 689
(under petitioners’ view, “[mjany corporations with distant government
investment, even if far removed from sovereign control, would be covered”).
36
based on a process of multiplying indirect shareholder interests.
Further, any claim of “friction” would be untenable in light
of the immunity provided under Section 1603(b)(2) to an “organ”
of a foreign state or a political subdivision thereof. Although
petitioners al] but ignore this provision, it assures foreign states
that agencies or instrumentalities performing genuinely sovereign
functions will receive immunity the FSIA. The “organ” test
considers “whether the entity engaged in a public activity on
behalf of the foreign government.” Pet. App. 24a. “In making
this determination. courts examine the circumstances
surrounding the entity's creation, the purpose of its activities, its
independence from the government, the level of government
financial support, its employment policies, and its obligations
and privileges under state law.” Jd This test fully addresses the
legitimate concerns of foreign states. Tellingly, in this case, the
district court and Ninth Circuit both held that the Dead Sea
Companies could not qualify as “organs” of a foreign state, and
petitioners have not sought review of that holding in this Court.
4. Petitioners complain that the judgment below reinstates
the separate entity rule. which Congress did not enact in the
FSIA. Dole Br. 34; Dead Sea Br. 36-38. That argument is
incorrect. The “separate entity” rule was a facet of the absolute
immunity doctrine. See Hoffman, 65 TUL. L. REV. at 584 n.38
(“The separate entity rule developed only in jurisdictions
adhering to the doctrine of absolute immunity ratione personae
because the rule derives from the distinction, inherent only in the
absolute doctrine, between the sovereign’s personality and a
corporate personality distinct from the state.”). Because
Congress meant the FSIA to embody the restrictive theory of
immunity, rather than absolute immunity, Congress did not
intend to adopt the separate entity rule, either. But that hardly
shows that Congress meant to ignore the formalities of corporate
law or the distinctions among different corporate entities. Quite
the contrary: Section 1603(5)(1) requires an entity claiming
immunity to demonstrate that it is “a separate legal person.”
37
Congress thereby incorporated the concept of separate corporate
personalty into the FSIA’s definitional section. This Court has
held that the assets of the foreign-government-owned corporation
are to be treated as distinct from the foreign government itself.
See First Nat'l City Bank, 462 U.S. at 625-26, 627. This Court
reached that conclusion by applying principles of the FSIA.
5. Petitioners point to a statement in the FSIA’s legislative
history citing “*a mining enterprise’ as an example of an agency
or instrumentality under the FSIA. Dole Br. 29 (quoting H.R.
Rep. No. 94-1487 at 16). Petitioners misread the House Report,
which nowhere suggested that mining enterprises (and other
listed entities) will automatically satisfy the definition of
agencies and instrumentalities. The House Report merely stated
that these entities could be included, if they met the other
statutory requirements of an agency.
To the extent the FSIA’s legislative history is relevant, it
provides further reason to reject petitioners’ theory. If Congress
intended to depart so drastically from past practice and
customary international law as to also extend immunity
protection to tiered subsidiaries of foreign-government-owned
corporations, Congress would surely have discussed the issue
somewhere in the text or legislative history. Petitioners’
proposed statutory construction suffers from the mystery of the
dog that did not bark.
6. Petitioners draw an analogy to U.S. government-owned
corporations, arguing that “many portions of the FSIA are
‘designed to place foreign governments in parity with our own
federal government."” Dole Br. 31 (citation omitted).
Petitioners’ analogy, however, supports the Ninth Circuit’s
judgment. U.S. government-owned corporations have
traditionally been subject to suit in tort and contract. See n.10,
supra. Federally chartered corporations are regarded as separate
and distinct from the government. 6A Charles A. Wright ef ai.,
FEDERAL PRACTICE AND PROCEDURE § 1562 (1999). They do
38
not generally enjoy immunity from suit, even if a sue-and-be-
sued clause is not included in their charter. See Keifer & Keifer
v. Reconstruction Fin. Corp., 306 U.S. 381, 389 (1939) (“[TJhe
government does not become the conduit of its immunity in suits
against its agents or instrumentalities merely because they do its
work. . . . [T]his would not confer on such corporations legal
immunity even if the conventional to-sue-and-be-sued clause
were omitted.”); Reconstruction Fin. Corp. v. JG. Menihan
Corp., 312 U.S. 81, 85 (1941) (“there is no presumption that the
agent is clothed with sovereign immunity”).
Moreover, federally chartered corporations are not ordinarily
enutled to exemption from jury trials or other procedural
protections. Generally, the corporations are on “an equal footing
with private parties as to the usual incidents of suits.” JG.
Menihan Corp., 312 U.S. at 85-86. They are not automatically
entitled to remove suits against them to federal court, because
suits involving federal government-owned or chartered
corporations do not without more create federal question
jurisdiction. Under 28 U.S.C. § 1349, there is federal
jurisdiction of an action by or against a corporation only if the
United States owns more than half its capital stock. “There is no
jurisdiction of a suit by or against a federally-chartered
corporation, in which the United States does not own more than
half the stock, merely because of the federal charter. Federal
courts can hear this kind of case only if there is some other basis
of federal jurisdiction.” 13A Charles A. Wright ef a/., FEDERAL
PRACTICE AND PROCEDURE: JURISDICTION § 3571. Further, “a
congressional charter’s ‘sue and be sued’ provision may be read
to confer federal court jurisdiction if, but only if, it specifically
mentions the federal courts.” American National Red Cross v
S.G., 505 U.S. 247, 255 (1992).
Petitioners ignore these telling points. Instead, they focus on
the designation of certain subsidiaries of the Reconstruction
Finance Corporation as federal “agents or instrumentalities.”
Dole Br. 30-31. Keifer made clear, however, that this description
39
was not made for immunity purposes; the subsidiaries lacked any
such immunity. 306 U.S. at 389. The relevance of petitioners’
argument to the FSIA is therefore obscure. Some federally
chartered corporations are designated as “agencies,” while others
are not.*' But such designations occur outside the context of
immunity, under statutory schemes that bear little resemblance
to Section 1603(b)(2) of the FSIA. The Judicial Code. for
example, defines the term “agency” to include “any corporation
in which the United States has a proprietary interest.” 28 U.S.C.
$451. The Freedom ot Information Act includes a “Government
controlled corporation” as part of its definition of “agency.” 5
U.S.C. § 552(e). These markedly different definitions
underscore the distinctive text of the FSIA.
7. In the end, the Dole petitioners suggest that the FSIA is
not an “immunity” statute at all (despite its name), but primarily
a forum-selection statute that operates to channel litigation
involving foreign-government-owned cozporations into federal
court. Dole Br. 28. The Dole petitioners suggest, in effect, that
there is no harm in stretching the FSIA to include the Dead Sea
Companies because they will ultimately be held non-immune
under the commercial activities exception to the FSIA. Not
surprisingly, the Dead Sea petitioners take a different view.
*' Several important federally chartered corporations are expressly deemed
not to be federal agencies or instrumentalities. See 47 U.S.C. § 731 (Comsat):
id at § 396(b) (Corporation for Public Broadcasting not federal agency, even
though board appointed by President); 42 U.S.C. § 2996d(e)(1) (Legal
Services Corporation not federal agency, even though board appointed by
President). Petitioners rely on Lebron v. National R.R. Passenger Corp., §13
U.S. 374 (1995), where this Court held that Amtrak is an agency or
instrumentality of the United States for the purpose of individual rights
guaranteed against the government by the Constitution. But this Court did not
hold that Amtrak is an “agency or instrumentality” of the government for all
purposes. In fact, 49 U.S.C. § 24301(a)(3) provides that Amtrak “is not a
department, agency, or instrumentality of the United States Government.” In
Lebron, this Court opined that “the statutory disavowal of Amtrak's agency
status deprives Amtrak of sovereign immunity from suit.” 513 U.S. at $92.
40
They have insisted from the beginning of this litigation that they
“are immune to suit under the doctrine of sovereign immunity.”
JA 57.
Even if the disagreement among petitioners were not enough
to dispose of the Dole petitioners’ attempt to recast the nature of
the FSIA, their argument begs the question. The legislative
history they cite explains that the FSIA “provides a
comprehensive jurisdictional scheme in cases involving foreign
states. Such broad jurisdiction in the Federal courts should be
conducive to uniformity in decision... .” H.R. Rep. No.
94-1487, at 13, reprinted in 197€ U.S.C.C.A.N. 6611 (emphasis
added). Petitioners’ “uniformity” argument assumes that the
Dead Sea Companies qualify as “foreign states” within the
meaning of the House Report's discussion, but that of course is
the question presented by this case. Certainly, a tiered subsidiary
.s far removed from the traditional sovereign instrumentality that
likely was within the contemplation of the House Repor:.
There is no need to stretch the FSIA to provide automatic
access to a federal forum for a tiered subsidiary. A foreign
corporation can avail itself of alienage or diversity jurisdiction to
remove a case to federal court, under the system that the
Founders believed would fully address the interests of foreign
defendants. See /PMorgan Chase Bank v. Traffic Stream (BV1)
Infrastructure, 122 S. Ct. 2054, 2058 (2002). Petitioners are
wron? in suggesting that there is no harm in stretching the FSIA
to cover tiered subsidiaries. The procedural burdens that
petitioners seek to impose on plaintiffs are directly contrary to
Congress’ purposes in enacting the FSIA.“ And _ the
* For example, a key assumption of the student note upon which the Dole
petitioners rely (Dole Br. 28) is that foreign government-owned corporations
will lose their immunity because “people and organizations accustomed to
dealing with these enterprises generally obtain a waiver of immunity, bringing
the case within the exception provided by section 1605(a)(1).” Rebecca J.
Simmons, Note, Nationalized and Denationalized Commercial Enterprises
4)
“uniformity” championed by petitioners is illusory. They
propose to channel to federal court garden-variety tort and
contract claims involving not foreign sovereigns but entities that
the Dole petitioners at least predict will be held non-immune.
This system will not promote “uniformity.” The relevant tort and
contract claims asserted against these non-immune entities will
typically be governed by the laws of the several States. See First
Nat'l City Bank, 462 U.S. at 620-21 (FSIA does not displace
substantive law of liability). State laws are not “uniform.”
Further, state courts, rather than federal courts, are best
positioned to adjudicate the claims arising from state law. In
short, petitioners’ rule would violate both the text and purposes
of the FSIA.
Il. ACORPORATION IS NOT COVERED BY THE FSIA
IF THE FOREIGN STATE DOES NOT OWN A
MAJORITY OF SHARES AT THE TIME THE
PLAINTIFF COMMENCES SUIT.
A. The Text and Structure of the FSIA
The plain meaning of the use of the present tense language in
the FSIA requires that a court evaluate a foreign corporation’s
status as of the time the complaint is filed and the defendant
invokes the protection of the statute. The FSIA is not ambiguous.
The statute repeatedly uses present tense:
(b) An “agency or instrumentality of a foreign state”
means any entity--
(1) which is a separate legal person, corporate or
otherwise, and
(2) which is an organ of a foreign state or political
under the Foreign Sovereign Immunities Act, 90 COLUM. L. REV. 2278, 2282
(1990). But persons dealing with tiered subsidiaries will frequently fail to
obtain such waivers because they will have no reason to suspect that the
corporations might qualify for the FSIA.
42
subdivision thereof, or a majority of whose shares or other
ownership interest is owned by a foreign state or political
subdivision thereof, and
(3) which is neither a citizen of a State of the United
States as defined in section 1332(c) and (d) of this title,
nor created under the laws of any third country.
28 U.S.C. § 1603 (emphasis added). The language of the
section-by-section analysis in the House Report addressing
Section 1603 is also written in the present tense. See H.R. Rep.
No. 94-1487, at 15, reprinted in 1976 U.S.C.C.A.N. 6614. For
example, the Report explains that the Act “requires that the
entity be . . . an organ,” or that the shares or other ownership
interest “be owned by a foreign state (or by a foreign state’s
political subdivision).” /d (emphasis added).
This Court thas held that “Congress’ use of a verb tense is
significant in construing statutes.” United States v. Wilson, 503
U.S. 329, 333 (1992) (citations omitted) (deriving the meaning
of the statute from Congress’ use of “verbs in the past and
present perfect tenses”). See also Ingalls Shipbuilding, Inc. v.
Office of Workers Compensation, 519 U.S. 248, 255 (1997)
(“[T]he use of the present tense (i.e., “enters’) indicates that the
‘person entitled to compensation’ must be so entitled at the time
of settlement.”); Gwaltney of Smithfield, Ltd. v. Chesapeake Bay
Foundation, Inc., 484 U.S. 49, 63-64 n.4 (1987) (“The fact that
Congress consciously chose the past tense to describe the
Administrator’s new authority to assess civil penalties suggests
that Congress knows how to target past violations when it wants
to do so.”); Price Waterhouse v. Hopkins, 490 U.S. 228, 240
(1989) (plurality opinion) (noting “[t}he present, active tense of
the operative verbs of § 703(a)(1)"); Dickerson v. New Banner
Institute, Inc., 460 U.S. 103, 116 (1983) (“This use of the
respective tenses is significant”); Scarborough v. United States,
431 U.S. 563, 570 (1977) (“It is obvious that the tenses used
throughout Title 1V were chosen with care.””); Barrett v. United
43
States, 423 U.S. 212, 217 (1976) (“Congress knew the
significance and meaning of the language it employed. It used
the present perfect tense elsewhere in the same section ..., in
contrast to its use of the present tense (“who is’) in §§ 922(h)(1),
(2). and (3).”); Otte v. United States, 419 U.S. 43, 49-50 (1974)
(attaching significance to fact that statute ‘ ‘speaks. in the past
tense as well i's the present”).
In Stafford v. Briggs, 444 U.S. 527, 535-36 (1980), for
example, this Court construed the Mandamus and Venue Act of
1962, which provided for mandamus actions to compel an officer
or employee of the United States to perform a duty owed to the
plaintiff. This Court noted that the statute referred to an action
“in which a defendant is an officer or employee of the United
States or any agency thereof acting in his official capacity or
under color of legal authority ....” 28 U.S.C. § 1391(e)
(emphasis in original). This Court concluded that “[t]he
highlighted language, cast by Congress in the present tense, can
reasonably be read as describing the character of the defendant
at the time of the suit.” 444 U.S. at 535-36.
Congress’ unambiguous use of the present tense in the FSIA
must be given its plain meaning: to qualify as an agency or
instrumentality of a foreign state, a defendant must be majority-
owned by the foreign state at the time the complaint is filed and
the defendant seeks to invoke jurisdiction under the Act.
Petitioners contend that “the use of the word ‘is’ could speak to
a variety of situations,” Dead Sea Br. 42 (citation omitted) —
including, apparently, events in the 1960s and 1970s, when
petitioners allege the relevant events in this case occurred. Dole
Br. 8-9. Only the most tortured, unnatural reading of “is” — the
present tense of the verb “to be” — could lead to the interpretation
petitioners suggest.
Petitioners would rewrite § 1603(b)(2) to say:
any corporation which was, at the time of the acts upon
which the complaint is based, an organ of a foreign state
ae
... Or a majority of whose shares ... were owned, at the
time of the acts upon which the complaint is based, by a
foreign state or political subdivision thereof.
As the court of appeals opined, “[t]he statute does not say that it
applies to an entity that used to be a state, although Congress
could easily have said so.” Pet. App. 20a.
The court of appeals’ view is fortified by the comparable rule
of diversity jurisdiction. The diversity jurisdiction example is
particularly apt, because the House Report in fact cited the
diversity jurisdiction clause of Art. III, § 2, cl. 1 (coupled with
the necessary and proper clause of Art. I, § 8, cl. 3) as a
constitutional basis for the FSIA. See H.R. Rep. No. 94-1487, at
12, reprinted in 1976 U.S.C.C.A.N. 6611. The rule under the
diversity statute is clear: citizenship of the parties at the time of
trial is the basis for determining whether diversity jurisdiction is
available. See Anderson v. Watt, 138 U.S. 694, 702-03 (1891)
(“the inquiry is determined by the condition of the parties at the
commencement of the suit”); accord Louisville, N.A. & C. Ry.
Co. v. Louisville Trust Co., 174 U.S. 552, 556 (1899).
Petitioners cannot point to any language in Section
1603(b)(2) to support their interpretation. Instead, they contend
that Congress sometimes uses the present tense to refer to
“timeless” concepts. Dole Br. 40, 42. But majority ownership
Status is nota “timeless” matter. Ownership shares fluctuate, and
companies are nationalized or privatized. It is therefore highly
unlikely that Congress would have considered ownership as a
“timeless” concept or that it would have wanted to refer to “the
past, present, or future ‘all at the same time’” in some sort of
“indefinite” way. Dead Sea Br. 42 (citations omitted).
Petitioners also point to other provisions of the FSIA which
allegedly demonstrate that this Court is. free to disregard the
present tense of Section 1603(b)(2). But the cited provisions are
inapposite. For example, the Dole petitioners (Dole Br. 41-42)
refer to Section 1607(a)(7), which contains a host of past tense
45
verbs indicating that it clearly refers to past conduct. See 28
U.S.C. § 1607(a)(7) (“personal injury or death that was caused
by an act of torture”); id. at § 1607(A) (“if the foreign state was
not designated as a state sponsor of terrorism”); id. at §
1607(B)(i1) (“neither the claimant nor the victim was a national
of the United States”). Section 1603(b)(2) is entirely different.”
Remarkably, petitioners give short shrift to the most relevant
statutory provisions besides Section 1603(b)(2) — Section 1608,
which requires special service procedures for a foreign state, and
Section 1610, which imposes special rules for enforcing a
judgment. These provisions plainly contemplate that the entity
in question would actually qualify as a foreign state or an agency
or instrumentality af the time of suit. After all, a plaintiff can
commence a suit “against a foreign state,” or “against an agency
or instrumentality,” only if the defendant is such an entity at the
time of the suit. The court of appeals opined that, based on these
provisions, “[w]Je have no doubt that, in enacting the FSIA,
Congress had in mind suits brought against entities that are
currently foreign states.” Pet. App. 20a. Petitioners similarly
acknowledge that “Congress contemplated suits against sitting
foreign governments and the entities they continue to own or
operate at the time of suit” and that “the FSIA is primarily
concerned with suits against sitting governments and their
current agencies or instrumentalities.” Dole Br. 48. Petitioners’
attempt to claim protection for the Dead Sea Companies is
unavailing.”
* The Dole petitioners also cite Section 1605(a)(6), which refers to an
arbitration that “takes place or is intended to take place in the United States.”
That locution plainly encompasses arbitrations that have a/ready taken place;
otherwise, the reference to future arbitrations that are “intended to take place”
would be meaningless. No such textual basis exists in Section 1603(b)(2) for
applying anything other than the present tense.
* Petitioners contend that the practical effect of applying the service and
execution provisions to privatized entities would not be severe because one
of the FSIA’s service provisions for agencies and instrumentalities is no
46
B. The Purposes of the Statute.
It would be difficult to think of a more dramatic expression
by a government that its direct interest in a company has ended
than privatization. Yet petitioners insist that applying the FSIA
to divested foreign corporations is necessary to serve the statute’ s
purposes. They are wrong. See Clinton L. Narver, Putting the
“Sovereign” Back in the Foreign Sovereign Immunities Act: the
Case for a Time of Filing Test for Agency or Instrumentality
Status, 19 B.U.INT’LL.J. 163, 206 (2001) (“[T]he time of filing
test is superior to the alternative tests for agency or
instrumentality status for three reasons: first, the time of
wrongdoing test lacks a sound doctrinal foundation; second, only
the time of filing test properly adheres to the principal rationale
of foreign sovereign immunity, i.e., respect for foreign sovereign
status; and third, only the time of filing test avoids potential
constitutional problems arising from the FSIA’s deprivation of
the right to trial by jury in suits against changed-status foreign
corporations.”).**
Petitioners’ principal argument is that, without their rule, a
different from that used for domestic corporations and because “the execution
provisions strip agencies or instrumentalities of foreign governments of almost
all immunity from execution.” Dole Br. 48. The practical effect is beside the
point. The fact that Congress prescribed special rules for service of process
and execution shows that Congress intended that the entity in question would
actually be an agency or instrumentality at the time of suit.
** Any suggestion that the lower courts have uniformly resolved the question
in petitioners’ favor would be incorrect. Numerous courts have indicated that
the inquiry should be made at the time the claim is filed. See West v.
Multibanco Comermex, S.A., 807 F.2d 820, 823 (9" Cir. 1987); Wolfv. Banco
Nacional de Mexico, S.A., 739 F.2d 1458, 1460 (9" Cir. 1984); Ocasek v.
Flintkote Co., 796 F. Supp. 362, 365 (N.D. Ill. 1992) (dictum); Rutkowski v.
Occidental Chem. Corp., 1988 WL 107342 (N.D. Ill. Oct. 5, 1988); Morgan
Guaranty Trust Co. v. Republic of Palau, 639 F.2d 706 (S.D.N.Y. 1986),
vacated on other grounds, 924 F.2d 1237 (2d Cir. 1991); cf Straub v. A.P.
Green, 38 F.3d 448, 451 (9" Cir. 1994) (applying FSIA where corporation
was owned by foreign state at time of suit but not at time of harmful conduct).
47
court “will necessarily be called upon to pass judgment on the
foreign state’s actions at the time the cause of action arose.”
Dead Sea Br. 44. But that concern is already addressed by the
act of state doctrine, under which “a court in the United States
{may not] declare invalid the official act of a foreign sovereign
performed within its own territory.” W.S. Kirkpatrick & Co. v.
Environmental Tectonics Corp., 493 U.S. 400, 405 (1990). See
also Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423
(1964) (federal court could not pass on the legality of the Cuban
expropriation decree because doctrine forbids “passing on the
validity of foreign acts of state’’).
The act of state doctrine avoids any “embarrass[ment]” of
foreign governments, Dead Sea Br. 45 n.18, and other issues of
sensitive foreign relations. Petitioners’ implicit suggestion is
that the statute must be judicially rewritten to cover privatized
entities because of other potential foreign policy concerns — such
as the possibility that a foreign government might indemnify the
foreign corporation, Dole Br. 45, a risk not present here, JA 261.
But there simply is no rule that federalizes any case with a
foreign policy dimension. See Louis Henkin, FOREIGN AFFAIRS
AND THE UNITED STATES CONSTITUTION 151 (2d ed. 1996)
(“Congress has never sought to deprive state courts of all
jurisdiction of all federal questions, or to authorize removal of all
such questions from state to federal courts, even of cases directly
involving foreign governments, diplomats, treaties, or other
international matters.”). Petitioners’ argument is reminiscent of
their federal “common law of foreign relations” theory, which
the court of appeals rejected and regarding which petitioners did
not seek certiorari. See Pet. App. 18a (“[W]e see no evidence
that Congress meant for the federal courts to assert jurisdiction
over cases simply because foreign governments have an interest
inthem....”).
Petitioners rely on The Western Maid v. Thompson, 257 U.S.
419 (1922), which involved a judicially created immunity
doctrine, not a question of statutory interpretation. The Western
48
Maid reflected special in rem admiralty rules applicable to the
domestic sovereign, not foreign sovereign immunity.”* Foreign
vessels were subject to different treatment. See Mexico v.
Hoffman, 324 U.S. 30, 38 (1945) (unanimously denying
immunity to a commercial ship owned but not possessed by the
Mexican Government). In any event, at the time of The Western
Maid, United States courts still adhered to the absolute theory of
foreign sovereign immunity, and foreign government-owned
corporations were rare. Further, the decision in The Western
Maid was not endorsed by Congress. In fact, Congress
responded to the decision in 1925 by extending the right to sue
the United States to include claims involving public vessels. 46
U.S.C. App. § 781. See Blanco v. United States, 775 F.2d 53, 59
(2d Cir. 1985) (“The Western Maid merely added fuel to the fire
that had already been building in Congress to [enact]... a
waiver of sovereign immunity for damages caused by public
vessels.”).
The status-based immunity cases (Dole Br. 44; Dead Sea Br.
47) are likewise inapposite. They are not based on statutory
interpretation. They reflect an interest in avoiding a “chill” of
executive or judicial decision-making — a chill that would persist
if a government official were subject to suit after leaving public
office. See Nixon v. Fitzgerald, 457 U.S. 731, 744-45 (1982).
The special interest in avoiding a “chill” of government officials’
decision-making does not arise with respect to foreign
corporations.
* Cf The Siren, 7 Wall. 152 (1869) (allowing a claim against the proceeds
of the vessel when sold, but stressing that no claim could be enforced while
the Government owned the vessel).
49
CONCLUSION
The judgment of the Court of Appeals should be affirmed.
Respectfully submitted.
Scott HENDLER JONATHAN S. MASSEY
THE HENDLER LAW FIRM Counsel of Record
816 Congress Avenue JONATHAN S. MASSEY, P.C.
Suite 1100 3920 Northampton St., N.W.
Austin, Texas 78701 Washington, D.C. 20015
(512) 473-3672 (202) 686-0457
MICHAEL J. BRICKMAN
CHRISTIAN H. HARTLEY
RICHARDSON, PATRICK,
WESTBROOK & BRICKMAN
174 East Bay Street
Charleston, S.C. 29402
(843) 727-6500
Counsel for Respondents
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