Reply Brief — Dead Sea Bromine Co., Ltd. v. Patrickson

i, FILED

No. 01-594

IN THE

Supreme Court of the United States

DEAD SEA BROMINE CO., LTD. and BROMINE

COMPOUNDS LIMITED,

Petitioners,

v.

GERARDO DENNIS PATRICKSON, et ai.,

Respondents.

On Wait oF CERTIORARI TO THE

Unitep States Court OF APPEALS FOR THE NINTH CiIRCUIT

REPLY BRIEF

Tuomas C. WALSH Peter R. PADEN

James F. BENNETT Counsel of Record

Bryan Cave LLP Puitip E. KARMEL

One Metropolitan Square LAURENCE A. HorvATH

St. Louis, MO 63102 Bryan Cave LLP

(314) 259-2000 1290 Avenue of the Americas

New York, NY 10104-3300

Georce W. BRANDT

Lyons, BRANDT, Cook

& HIRAMATSU

1800 Davis Pacific Center

841 Bishop Street

Honolulu, HI 96813

Attorneys for Petitioners

177178 g

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

(212) 541-2000

i

STATEMENT PURSUANT TO RULE 29.6

Petitioners’ Rule 29.6 Statement was set forth at page ii

of their Petition for a Writ of Certiorari, and there are no

amendments to that Statement.

I.

il

TABLE OF CONTENTS

The State Of Israel “Owned” A Majority Of

The Shares Of And Had A Majority

“Ownership Interest” In DSB. ...........

A. Respondents and the United States Fail

to Refute that the Plain Meaning of

“Owned” and “Ownership Interest”

in § 1603(b)(2) Encompasses Israel’s

Majority Ownership Stake in DSB. ...

1. A Shareholder of a Parent

Corporation “Owns” the Shares of

a Subsidiary Corporation. .......

2. The State of Israel Held an

“Ownership Interest” in DSB. ....

B. Respondents’ Proffered Policy

Arguments Apply As Much to a

Corporation Directly Owned by a

Foreign State As to Its Indirectly Owned

Subsidiaries and In Any Event Are

to Pee eee

The Relevant Period For Determining An

Entity’s FSIA Status Includes The Time Of

FRO AGA MD oc 02cectiaseseneeens

11

Contents

Page

A. The “Plain Meaning” Arguments

Presented by Respondents and the

Solicitor General Are Meritless. ...... ll

B. The Policy and Other Non-Textual

Arguments Presented by Respondents

and the Solicitor General Should Not

EE, cccccecccceccccccscceces oo. ©

iv

TABLE OF CITED AUTHORITIES

Page

Cases: .

Bangor Punta Operations, Inc. v. Bangor &

Aroostoock R.R., 417 U.S. 703 (1974) ........ 2

Barrett v. United States, 423 U.S. 212 (1976) ..... 13, 14

Briscoe v. Bank of K »., 36 U.S. 257 (1837) ....... 10

Buckhannon Bd. & Care Home, Inc. v. West Virginia

Dept of Health & Human Res., 532 U.S. 598

SEED occecadtdéecdéstevusenessnebdaesedas 4

Copperweld Corp. v. Independence Tube Corp.,

Gee Gah SUE nevcdcbudeseaessehecece 2

Danciger v. Cooley, 248 U.S. 319 (1919) ........ 5

Delgado v. Shell Oil Co., 231 F.3d 165 (Sth Cir.

2000), cert. denied, 532 U.S. 972 (2001) ...... =

Dickerson v. New Banner Institute, Inc., 460 U.S.

PEGE cccndennucoestévesbensinndacees 13

Flink v. Paladini, 279 U.S. 59 (1929) ........... 2

Franchise Tax Board of California v. Alcan

Aluminium Ltd., 493 U.S. 331 (1990) ......... 2

GE Capital Corp. v. Grossman, 991 F.2d 1376

SoG SEED conchucsuanuuaniescésennsenee 19

Gwaltney of Smithfield, Ltd. v. Chesapeake Bay

Foundation, Inc., 484 U.S. 49 (1987) ......... 14, 15

Vv

Cited Authorities

Page

Harrison v. PPG Ind., Inc., 446 U.S. 578 (1980) .. 5

Ingalls Shipbuilding, Inc. v. Director, Office of

Workers’ Compensation, 519 U.S. 248 (1997)

sdetinbodendedetedesesbiscdcdotedsiveeses 14

K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (1988)

evoddsecdcbucesscecesécegeecteosesedses |

Mollan v. Torrance, 22 U.S. 537 (1824) ......... 12

Norfolk & Western Ry. v. American Train

Dispatchers’ Assoc., 499 U.S. 117 (1991) ...... 6

Ocasek v. Flintkote Co., 796 F. Supp. 362 (N.D. Il.

BED cccecdcccesenccesosescsscecescceses 17

Otte v. United States, 419 U.S. 43 (1974) -........ 13

Price Waterhouse v. Hopkins, 490 U.S. 228 (1989)

sp ended veRSdGaSenscesdesonseesesecesesec 14

Ruggiero v. Compania Peruana De Vapores, 639 F.2d

872 (2d Cir. 1981) .......... ce ecccccccccees 8

Scarborough v. United States, 431 U.S. 563

CIGTTD . cccccccccccccccsccccccccccccccoces 14

Smith v. United States, 508 U.S. 223 (1993) ...... 3

Stafford v. Briggs, 444 U.S. 527 (1980) .......... 15

United States v. Bestfoods, 524 U.S. 51 (1998) .... 2,3

vi

Cited Authorities

United States v. Powell, 423 U.S. 87 (1975) ...... 5

United States v. Turkette, 452 U.S. 576 (1981) .... 5

United States v. Wilson, 503 U.S. 329 (1992) ..... 13

Verlinden B.V. v. Central Bank of Nigeria, 461 U.S.

480 (1983) .. 2... cece cece cece ee ee ee enees 8,9, 12

Watt v. Western Nuclear, Inc., 462 U.S. 36 (1983) ... 6

W.S. Kirkpatrick & Co., Inc. v. Environmental

Tectonics Corp., 493 U.S. 400 (1990) ......... 19

United States Constitution:

GERRI Coccccocetccnscescecadsétanncceds 12

Statutes

Se BNE cccccvcesccsdcosecsecasdaeie 20

BP ee Cc dvccceccccdncccscesoopass 8,12

Sy ly OED oes edecvecnescocescoscecss 15

SPU SEEN edovccesévecccccesécedees 8,9

Pe FOND covenvedeccccedcccevcevesess 12

es OF ED ocrecnccccscoceseesooceedes 7

28 U.S.C. § 1603(b)(1) .. 2.2... cece ee ec ceeee. 3

vil

Cited Authorities

Page

FB UBL. 6 DGTBEIMED oc ccccccccccccccsccess passim

SEU. © GRD ccccccccccccccccccccecsceses 10

SO UBL. 6 GEREN ccwecvccccccgcccccccccess 15

TB UBL. 6 BGR cc ccccccccccccccccccess 15

28 U.S.C. § 1608(b)(3)(A) ... 2... cee cece eee 15

BP ie OF URED co cccccccccccccvccoeccovcess 15

33 U.S.C. § 1365(a)(1) .. 6... cece cece eee eens 14

33 U.S.C. § 1365(b) IMA) ... 2... cece eee 14

ie OF BUSS - ce boccccccscescscccccesees 20

Other Authorities:

H.R. Rep. No. 94-1487 ......0 6... c cece ee eeees 8

House Legislative Counsel's Manual on Drafting

Working Group of the American Bar Ass’n,

Reforming The Foreign Sovereign Immunities Act,

40 Colum. J. Transnat’! L. 489 (2002) ........ 11,17

a ‘Gale ee Tae

nt) a tee pee a” Ce ce ere. 2 aay eee : ; Fi

|

I. The State Of Israel “Owned” A Majority Of The Shares

Of And Had A Majority “Ownership Interest” In DSB.

A. Respondents and the United States Fail to

Refute that the Plain Meaning of “Owned” and

“Ownership Interest” in § 1603(b)(2) Encompasses

Israel’s Majority Ownership Stake in DSB.

Respondents and the United States devote a great deal of

energy attempting to demonstrate that “own” — on its face a

general term with a variety of usages — is a word that can only

be understood to mean direct ownership or legal title. They fail,

however, to cite a single authoritative source for that proposition.

Rather, their arguments rest on a discussion of certain “bedrock”

principles of corporate law relating to the separateness of

corporate entities and rules concerning veil piercing and

limitations on liability — precepts that have no relevance to the

question of statutory interpretation at issue. Similarly, they do

not even try to controvert DSB’s showing that “ownership

interest” is a broad term, commonly used to describe the interest

a corporate shareholder has in the corporation’s subsidiaries,

but instead rely on inapplicable canons of statutory construction

to urge that the plain meaning of the term should be ignored.

1. AShareholder of a Parent Corporation “Owns”

the Shares of a Subsidiary Corporation.

It is beyond dispute that the word “own,” and similar words

such as “ownership” or “owned,” are frequently used in formal

legal contexts to describe the connection between a corporation’s

shareholder and the corporation’s subsidiary: that is, a corporate

shareholder is said to “own” the shares in or property of a

corporation’s subsidiary or to be a “shareholder” of the

subsidiary. This Court has so used these words in such diverse

contexts as: (a) trademarks, in a case in which a subsidiary’s

trademark was held to have been “owned by” the parent

corporation (K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 292,

298-99, 318-19 (1988)); (b) the law of standing, in which a

parent corporation was held to have standing to bring a tax case

on behalf of its subsidiary’s subsidiary, an entity in which it

2

was, according to the Court’s usage, a “shareholder” (Franchise

Tax Board of California v. Alcan Aluminium Ltd., 493 U.S. 331,

339 (1990)); (c) a personal injury case on the high seas, in which

stockholders were held to be the “owners” of their corporation’s

vessel, enabling them to assert certain limited liability

protections available to vessel owners (Flink v. Paladini, 279

U.S. 59, 63 (1929)); (d) a securities and antitrust case, in which

a third-tier subsidiary was equitably estopped from bringing an

action as to which estoppel barred its great grandparent

corporation, an entity described as having “ownership of about

98.3% of the outstanding stock” of the third-tier subsidiary

(Bangor Punta Operations, Inc. v. Bangor & Aroostoock R.R.,

417 U.S. 703, 706 (1974)); and (e) an antitrust case, in which a

parent and :ts subsidiary were held to be incapable of entering

into an antitrust conspiracy because they are “subject to common

ownership” (Copperweld Corp. v. Independence Tube Corp.,

467 U.S. 752, 759 (1984)). DSB Br. 21-23.

Plainly, the word “own” and similar words may be and

frequently are appropriately used to refer to the interest of a

shareholder of a corporation in a corporate subsidiary or its

assets. Respondents’ attempt to distinguish these authorities on

the ground that they involved veil piercing, see Resp. Br. 19, is

in error. None of these decisions involved fraud or reaching

back in any way to hold shareholders responsible for corporate

liabilities. See United States v. Bestfoods, 524 U.S. 51, 62 (1998)

(“veil piercing” is doctrine under which “the shareholder [is]

held liable for the corporation’s conduct when . . . the corporate

form would otherwise be misused to accomplish certain

wrongful purposes, most notably fraud, on the shareholder’s

behalf”). Nor was this the purpose for which these cases were

cited. DSB readily agrees that it is a separate entity from both

its parent corporations and the State of Israel, and there is no

basis to “pierce the corporate veil” to hold DSB’s parent or the

State liable for any alleged tort committed by DSB. See DSB

Br. 24. Rather, the purpose of citing these cases is to establish

that the ordinary meaning of the words “shares . . . owned by a

foreign state” in § 1603(b)(2) encompasses the State of Israel’s

|

3

ownership of DSB’s shares through the State’s ownership of

DSB’s parent entities.

None of the arguments presented by respondents or the

Solicitor General rebut this point. Their briefs go to great lengths

(Resp. Br. 16-19; U.S. Br. 10-12) to establish that DSB is a

“separate entity” from its parent corporations — which, as noted

above, is undisputed. The fact that DSB is a separate entity,

however, has nothing to do with whether its shares were “owned”

by the State.’

DSB is not arguing that “corporate separateness is meaningless

or may be disregarded on a routine basis.” Resp. Br. 20. When

faced with the issue of whether a corporate shareholder (or parent

corporation) may be held liable for the actions of a subsidiary, this

Covrt, like the highest courts of all fifty states, generally resists

such a result, because Congress is presumed to legislate in light of

the “bedrock” principle that a shareholder is not liable for corporate

debts. Bestfoods, 524 U.S. at 62.? This “bedrock” principle of

limited liability, however, does not control the meaning of the word

“owned” in § 1603(b)(Z). The plain meaning of this word is

established by its usage by this Court and numerous others, see

Dole Br. 17-19, to encompass shareholder ownership of a

corporation’s assets or subsidiaries.

In its initial brief, DSB noted that the words in § 1603(b)(2)

at issue here — “owned” and “ownership interest” (the latter

term is discussed below) — are not defined in the statute and

therefore should be construed in accordance with their “‘ordinary

or natural meaning.”” DSB Br. 25 (quoting Smith v. United

States, 508 U.S. 223, 228 (1993)). In response, the Solicitor

1. Respondents’ reliance on case law expounding the separate

entity doctrine, see Resp. Br. 17-18, is particularly odd, in view of

Congress’ explicit decision to part from that doctrine and bring corporate —

entities owned by foreign states squarely within the reach of the statutory

scheme. See 28 U.S.C. § 1603(b)(1); DSB Br. 36-38; accord Resp. Br.

36 (“Congress did not intend to adopt the separate entity rule”).

2. It is for this reason that the FSIA provides that the assets of an

agency or instrumentality will be available to enforce a judgment only

against that particular agency or instrumentality. See U.S. Br. 11 n.2.

4

General asserts that ““[w]ords that have acquired a specialized

meaning in the legal context must be accorded their /egal

meaning.” U.S. Br. 13 (quoting Buckhannon Bd. & Care Home,

Inc. v. West Virginia Dep t of Health & Human Res., 532 U.S.

598, 615 (2001) (Scalia, J., concurring)); see also Resp. Br. 14.

But respondents and the Solicitor General fail to show that the

exclusive “legal meaning” of the word “owned” is the narrow

concept of title such as they propose, or that the broader usage

of this word by this Court and others is in error. In fact, the

word “owned,” standing alone, plainly encompasses both a

narrow and a broader concept.

The broad “legal meaning” of the word “owned” is

powerfully illustrated by Congress’ repeated use of the word

in respondents’ long list of federal statutes using the

phrase “directly or indirectly owned” or similar formulations

involving the words “owned” or “ownership” and “directly”

and “indirectly.” Resp. Br. 15 n.6; see also U.S. Br. 15. These

statutes demonstrate that the words “o ” and “ownership”

encompass indirect as well as direct ownership. The fact that in

the FSIA Congress included neither the word “directly” nor the

word “indirectly” does not establish that “owned” means

“directly owned.” To the contrary, the use of the word “owned”

without any limiting adverb suggests that its breadth should not

be artificially restricted by a judicial interpretation that inserts

the modifier “directly,” when Congress chose not to do so.

See Delgado v. Shell Oil Co., 231 F.3d 165, 176 (Sth Cir. 2000),

cert. denied, 532 U.S. 972 (2001).

2. The State of Israel Held an “Ownership Interest”

in DSB.

DSB has demonstrated that “ownership interest” is a term

with a broad and well established meaning that clearly

encompasses the nature of the interest that the State of Israel

had in DSB. DSB Br. 25-30. Therefore, even if the State of

Israel cannot be said to have owned the “shares” of DSB, the

State had a majority “ownership interest” in the company that

satisfies this alternative requirement of § 1603(b)(2).

5

The Solicitor General dismisses this argument in a single

footnote, contending that the State of Israel could not have had

an “ownership interest” in DSB because DSB issued “shares”

that were owned by its parent corporation and thus did not have

any “other ownership interest” that could have been owned by

the State. U.S. Br. 17 n.7. This linguistic sleight of hand simply

disregards the plain meaning of the term “ownership interest.”

DSB has provided numerous examples of the use of the term

“ownership interest” to describe the nature of the interest that a

shareholder or grandparent corporation has in tiered corporate

subsidiaries in which the shareholder or grandparent corporation

has no direct share ownership. DSB Br. 26-27. Neither the

Solicitor General nor respondents address these authorities.

And the Solicitor General offers no rationale whatsoever why

the term “ownership interest” in the FSIA should not be

construed as it is ordinarily used.

In attempting to avoid the plain meaning of the term

“ownership interest,” respondents place principal reliance on

the assertion, also articulated by the Ninth Circuit below, that

the ordinary reading of the term would render superfluous the

antecedent statutory reference to “shares.” Resp. Br. 21-22. This

argument concedes the broad meaning of “ownership interest”

urged by DSB; there would otherwise be no need to invoke a

limiting canon of construction. DSB refuted the superfluity

analysis in its initial brief. DSB Br. 40-41. Respondents notably

fail to address DSB’s rebuttal.

Respondents also allude to the canon ejusdem generis (“of

the same kind”). Resp. Br. 21. That canon, however, like the

related presumption against superfluousness, see DSB Br. 40,

has no utility where it would result in a “depart[ure] from the

primary rule that words are to be taken in their ordinary sense.”

Danciger v. Cooley, 248 U.S. 319, 326 (1919); see also United

States v. Turkette, 452 U.S. 576, 581 (1981); Harrison v. PPG

Ind., Inc., 446 U.S. 578, 588 (1980); United States v. Powell,

423 U.S. 87, 91 (1975). Since neither respondents nor the

Solicitor General present any authority for a more restrictive

6

definition of “ownership interest,” the ejusdem generis canon

cannot be used the trump the plain meaning of that term.’

In any event, application of the canon should not lead to a

contrary result. If the words “ownership interest” are to be

limited or construed in light of the more specific word “shares,”

“ownership interest” must include any kind of ownership akin

to share ownership. For the reasons already noted, “share

ownership” should be understood to include indirect as well as

direct share ownership. See 1-4, ante. But if that is incorrect,

indirect share ownership would seem to be a type of ownership

as closely analogous to direct share ownership as one could

imagine and would therefore be encompassed by the term

“ownership interest.” See DSB Br. 40-41; Dole Br. 22-23.

Respondents and the Solicitor General suggest that allowing

indirect ownership would create uncertainty and complexity in

ascertaining the existence of a majority interest. Resp. Br. 22;

U.S. Br. 20. Percentage ownership interest, however, is derived

by multiplying the percentage ownership at each corporate tier,

an exercise in grade school arithmetic. For example, if the

foreign state holds 80% of the shares of a corporation that in

turn holds 80% of the shares of a subsidiary, the foreign state’s

ownership interest in the subsidiary is 64% (80% x 80%).

Alternatively, if the same parent corporation’s stake in the

3. Moreover, ejusdem generis is inapplicable where a specific

reason can be inferred why the legislature may have included a single

specific word preceding a more general term. See Watt v. Western Nuclear,

Inc., 462 U.S. 36, 44.5 (1983) (declining to apply canon to limit breadth

of “minerals,” as Congress could have included antecedent reference to

“coal” due to its special treatment in other statutes); Norfolk & Western

Ry. v. American Train Dispatchers’ Assoc., 499 U.S. 117, 129 (1991)

(declining to apply canon to limit breadth of “law,” as Congress could

have included antecedent reference to “antitrust laws” to prevent

application of canon that implied repeals of antitrust laws are disfavored).

In the case of the FSIA, Congress may have thought it necessary to

reference “shares” to make clear that corporations could be eligible for

“agency or instrumentality” status notwithstanding the pre-FSIA rule

that they were “separate entities” that could not assert sovereign immunity

status. DSB Br. 36-38.

7

subsidiary were only 50%, the foreign state’s ownership interest

in the subsidiary would be 40% (80% x 50%). The foreign state

would hold a majority ownership interest in the first situation

but not in the second. Application of the plain meaning of

“ownership interest” is entirely compatible with a preference

for “administrable, predicable, bright-line [jurisdictional]

rule{s]}.” Resp. Br. 23.‘

Respondents criticize DSB’s discussion of the nature and

degree of Israel’s oversight and control over the company under

the Government Companies Law (DSB Br. 8-14) as an effort

“to smuggle the FSIA’s ‘organ’ test into the entirely separate

‘ownership’ inquiry of Section 1603(b)(2).” Resp. Br. 24. This

discussion, however, serves simply to illustrate how bizarre and

illogical it would be to conclude that the State of Israel did not

have a majority ownership interest in DSB on this record. Under

the Government Companies Law, by virtue of the State’s

majority ownership interest in DSB through a tiered corporate

structure, the State exercised substantial control over DSB,

essentially the same as that it would have had if DSB had been

directly owned by the State; and the State had far reaching

rights to supervise and manage DSB’s affairs well beyond the

rights of a majority direct shareholder in a U.S. corporation.

DSB Br. 28-30.°

4. There is no suggestion in their briefs that respondents or the

Solicitor General disagree with DSB’s calculation of Israel’s varying

percentage ownership interest in DSB during the relevant time period.

See DSB Br. 5-7.

5. Respondents devote the first four pages of their argument

(Resp. Br. 10-14) to a critique of the recursive interpretation of § 1603,

which holds that an entity majority owned by a foreign state is an “agency

or instrumentality of a foreign state” (per § 1603(b)(2)) and thereby a

“foreign state” (per § 1603(a)), making any entity majority owned by

that “foreign state” an “agency or instrumentality of a foreign state”

(per § 1603(b)(2)). The discussion is beside the point, as DSB does not

rely on the recursive theory. DSB Br. 39 n.15.

8

B. Respondents’ Proffered Policy Arguments Apply

As Much to a Corporation Directly Owned by

a Foreign State As to Its Indirectly Owned

Subsidiaries and In Any Event Are Unpersuasive.

Respondents present a host of reasons why they believe

Congress should not have included a corporation indirectly

owned by a foreign state in the Act’s definition of “foreign

state.” These arguments, however, apply equally to a corporation

directly owned by a foreign state as to a majority-owned

subsidiary and, accordingly, provide no basis to draw a line

between the two. Since whether such a line should be drawn is

the issue in this case, respondents’ arguments are irrelevant and,

in any event, do not withstand analysis.

Respondents assert that DSB is a “commercial mining

enterprise[] whose operations are far removed from the core

concerns of the FSIA.” Resp. Br. 2. While DSB is a commercial

mining enterprise, the same is true of its parent entity (although

its parent might be more accurately described as a mining and

chemicals enterprise). Thus, the fact that DSB is involved in

mineral extraction does not distinguish between it and its directly

state-owned parent. Nor is it true that a mining company is

“far removed from the core concerns” of the Act. Insofar as the

Act addresses commercial activities of foreign state entities, its

core concern is to provide certain procedural protections, such

as a right to a federal forum and a non-jury trial, when legal

claims are asserted against them in the United States. 28 U.S.C.

§§ 1330(a), 1441(d); Verlinden B.V. v. Central Bank of Nigeria,

461 U.S. 480, 497 (1983); Ruggiero v. Compania Peruana

De Vapores, 639 F.2d 872, 875-78 (2d Cir. 1981). The legislative

history reflects the Congressional determination that a “mining

enterprise” owned by a state, like a state-owned trading enterprise,

shipping line, airline or steel company, be accorded the protections

of the Act. DSB Br. 33-34 (quoting H.R. Rep. No. 94-1487 at 16).

Respondents point to the fact that under “prevailing

international [law] . . . foreign state-owned entities . . . are not

entitled to sovereign immunity based on direct foreign

ownership.” Resp. Br. 26; see also U.S. Br. 18-19. Yet Congress

9

endorsed a very different approach when it allowed state-owned

corporations to assert “agency or instrumentality” status under

the Act. The international rule provides no basis to distinguish

between an entity directly owned by a foreign state and its

subsidiary, as neither would be an “agency or instrumentality”

under the international rule. Moreover, it is illogical to rely upon

a rule Congress rejected to interpret the scope of the Act.°

Respondents suggest that the Act would more closely reflect

the practice in other countries if FSIA status turned on

“performance of governmental purpose, not tiered ownership.”

Resp. Br. 27. Of course, “governmental purpose” does not

distinguish between directly owned corporate entities and their

subsidiaries and is therefore irrelevant to the issue at bar. More

fundamentally, here too Congress specifically rejected such an

approach, allowing any and all state-owned commercial entities

to assert “agency or instrumentality” status under the Act.

Respondents dubiously suggest that corporate entities assert

FSIA status “to the detriment of U.S. citizens and of U.S.

companies that must compete with these foreign entities.”

Id. 29. Allowing “agencies or instrumentalities” to remove an

action from state to federal court (28 U.S.C. § 1441(d)) does

not injure U.S. citizens or U.S. companies. In most commercial

cases (and certainly most commercial cases involving U.S.

citizens), the “agency or instrumentality” will not be able to

assert sovereign immunity (id. § 1605) and the case will proceed

in federal court. In a narrow category of commercial cases,

typically those not involving U.S. plaintiffs, the required “direct

effect in the United States” may be absent, see Verlinden, 461

U.S. at 497 n.23, and the claim against the agency or

6. Congress intended to conform to international practice in

adopting the restrictive theory of sovereign immunity, but rejected a

particular aspect of such practice in allowing state-owned commercial

enterprises to assert “agency or instrumentality” status under the Act.

See U.S. Br. 18-19 (“foreign states do not grant sovereign-immunity-

based protections of any kind to government-owned corporations”).

The over-broad assertion that the Act was intended to “align{] U.S. law

with international practice,” Resp. Br. 26, elides this distinction.

10

instrumentality will be dismissed for want of subject matter

jurisdiction. Nothing in this framework creates either a

substantial burden on U.S. citizens or U.S. corporations, or

provides any basis to distinguish between entities directly and

indirectly owned by foreign states. In any event, if and to the

extent there is a detriment to U.S. citizens or businesses,

Congress has decided that in balancing such interests with its

goals in enacting the FSIA, the statutory objectives take

precedence.

Respondents assert that the “FSIA eliminates personal

jurisdiction principles of state long-arm statutes,” and “prohibits

jury trials” with respect to claims against foreign states and their

agencies or instrumentalities. Resp. Br. 31,32. These concerns,

whatever their merit, have no bearing on whether the statute

should be interpreted to distinguish between parent corporations

and their subsidiaries.

Respondents assert that the FSIA should not offer immunity

to a corporate entity that does not have immunity under the

laws of the foreign state in which it is incorporated. Jd. 35. Again,

however, this consideration does not differentiate between

government-owned corporations and their subsidiaries, since,

typically, neither entity is entitled to sovereign immunity under

the laws of foreign states. See U.S. Br. 18-19. Similarly, the

FSIA provides protection to “political subdivisions” — such as

cities and village governments — notwithstanding the fact that

such municipal entities have no sovereign immunity in foreign

jurisdictions. Respondents’ contention is a critique of the breadth

of the FSIA, not an effort to interpret its terms. Respondents’

other arguments are similarly off-base.’

7. Respondents assert that a state “‘imparts none of its attributes

of sovereignty”” to an entity in which it owns shares, Resp. Br. 17

(quoting Briscoe v. Bank of Ky., 36 U.S. 257, 325-26 (1837)), but that is

the separate entity rule the FSIA specifically rejects — as respondents

elsewhere concede. Jd. 36. Respondents’ suggestion that “foreign

corporations .. . directly owned by a foreign government may have a

‘hidden identity,”” id. 29-30, is merely a critique of the Act. Finally,

(Cont’d)

11

The Solicitor General favorably cites an American Bar

Association report, see U.S. Br. 21, but in that report a group of

distinguished practitioners and law school professors concluded

that inclusion of tiered entities as agencies or instrumentalities

would best serve “the purposes and structure of the Act.”

Working Group of the American Bar Ass’n, Reforming The

Foreign Sovereign Immunities Act, 40 Colum. J. Transnat’! L.

489, 522 (2002). Contrary to the implication of the Solicitor

General’s citation, the report recommends that the Act be

amended to clarify this point due to the uncertainty created by

the conflict in the case law this Court granted certiorari to

resolve — not because the report’s authors determined that the

Act as currently drafted excludes tiered subsidiaries. /d.

Nor is there merit to the Solicitor General’s assertion that

DSB is asking this Court to “thrust itself into a policy-making

function that does not ordinarily reside in the Judicial Branch.”

U.S. Br. 20. DSB is merely asking the Court to confirm the

judgment of the vast majority of lower courts that have

considered the issue and interpret the words “owned” and

“ownership interest” in the Act in accordance with their ordinary

meaning, which is in harmony with the policies underlying the

statute.

Il. The Relevant Period For Determining An Entity’s FSIA

Status Includes The Time Of The Acts At Issue.

A. The “Plain Meaning” Arguments Presented by

Respondents and the Solicitor General Are

Meritless.

The first heading of Point II of the United States’ brief asserts

that “[tJhe plain terms of the FSIA grant protection to those

entities that satisfy the FSLA’s definitional requirements at the

time of suit.” U.S. Br. 23. Yet the discussion beneath the heading

skips over the “plain terms” of the Act and proceeds to a

(Cont'd)

respondents decry the Act’s provision of federal court jurisdiction over

“garden-variety tort and contract claims,” id. 41, but this complaint,

too, is more aptly addressed to Congress and provides no basis to

12

supposed “hornbook principle governing jurisdictional statutes”

that “‘the jurisdiction of the Court depends upon the state of

things at the time of the action brought.” U.S. Br. 24 (quoting

Mollan v. Torrance, 22 U.S. 537, 539 (1824)); see also Resp.

Br. 44. Notably, no hornbook is cited for this proposition.

Instead, the Solicitor General and respondents rely upon Mollan

and several other cases, all of which concern diversity

jurisdiction.

It is indeed well established that diversity must exist at the

time an action is commenced for a federal court to exercise

diversity jurisdiction. But these cases do not articulate a generally

applicable principle that governs all fonts of jurisdiction. Federal

question jurisdiction, for example, has nothing to do with the

status of the parties on the date that an action is commenced.

Rather, it tums on whether an action is one “arising under” the

Constitution, laws, or treaties of the United States. U.S. Const.,

Art. Ill, § 2. The existence of such jurisdiction depends on the

issues in the case, and whether they raise a federal question,

which turns on whether some event — often a past event — gives

rise to a claim or defense grounded in federal law. See Verlinden,

461 U.S. at 494 (well pleaded complaint rule does not govern

scope of Article III “arising under” jurisdiction).

It is of particular relevance that federal question cases do

not turn on the status of the parties on the date an action is

commenced, because the constitutional basis for the exercise of

subject matter jurisdiction in FSIA cases is the “arising under”

Clause in Article Ill. Jd. at 493. Since “arising under” jurisdiction

turns on the presence of a federal question rather than the status of

the parties at the time an action is brought, the fact that DSB is no

longer majority owned by the State of Israel has no bearing on

whether a court has jurisdiction over this action under the FSIA.

There is no “hornbook” or other principle of law to the contrary.

8. The implementing jurisdictional statute sheds no further light

on the timing issue, as it simply incorporates the definition of “foreign

state” in 28 U.S.C. § 1603, which is the focus of this case. See 28 U.S.C.

§ 1330(a).

13

In a nod in the direction of a “plain language” argument,

the Solicitor General notes that the operative language of

§ 1603(b)(2) uses the word “is” but provides no support — other

than an irrelevant quotation from a diversity case — that “is”

refers to the date an action is commenced. U.S. Br. 24 n.13.

Indeed, the Solicitor General forthrightly acknowledges the

correctness of petitioners’ observation (DSB Br. 42-43; Dole

Br. 41-42) that the FSIA elsewhere uses the present tense to

refer to events that occurred at the time of the circumstances

giving rising to the lawsuit. U.S. Br. 24 n.13.

Respondents press the plain language argument more

forcefully, focusing their attention on Congress’ use of the word

“is.” However, they too fail to address the authorities petitioners

have cited which show that the use of the present tense in a

federal statute does not necessarily refer to the date on which a

suit is commenced and, in fact, frequently refers to past or future

time periods. See Dole Br. 40-41 (quoting and citing legislative

drafting references, including the House Legislative Counsel s

Manual on Drafting Style); DSB Br. 41-43 (quoting grammar

book and case law). Instead, respondents cite a number of other

cases (see Resp. Br. 42-43), most of which have no relevance to

the issue at bar.

In four of the cases, this Court held that a federal statute

that uses a verb in the past or past perfect tense should be

interpreted to refer to a past event.’ Quite obviously, the fact

that past tense verbs from other statutes have been interpreted

9. See United States v. Wilson, 503 U.S. 329, 333 (1992) (statute’s

reference to “sentence was imposed” and “has spent in official detention”

implies that imposition of sentence and time spent in official detention

occurred in the past, prior to the calculation of jail time credit); Dickerson

v. New Banner Institute, Inc., 460 U.S. 103, 111 (1983) (statute’s

reference to “who has been convicted” refers to conviction that occurred

in the past); Barrett v. United States, 423 U.S. 212, 216 (1976) (statute’s

use of “has been” shipped in interstate commerce means event must

have occurred in the past); Otte v. United States, 419 U.S. 43, 49 (1974)

(statute’s use of “performed any service” in defining an employee refers

to former employees who “performed” the service in the past).

14

to refer to past events sheds no light on the issue here.

Inexplicably, respondents cite three other cases in which this

Court construed present tense verbs in a federal statute as

referring to events occurring in the past, prior to the date a

litigation is commenced, an interpretation that supports DSB’s

position that present tense verbs do not necessarily refer to the

date an action is commenced." In all of these cases, the Court

examined Congress’ choice of verb tense, together with the rest

of the statutory language, its context and the legislative purpose.

In some, the Court found the tense of the verb to be significant,

see, e.g., Barrett, 423 U.S. at 217 (“statute’s pattern is consistent

and no unintended misuse of . . . tense is apparent”); in others,

the verb tense was notably unhelpful, see, e.g., Scarborough,

431 U.S. at 571 (“Congress’ choice of tenses is not very

revealing”). Altogether, these cases provide no support for

respondents’ argument.

Respondents also cite Gwaltney of Smithfield, Ltd. v.

Chesapeake Bay Foundation, Inc., 484 U.S. 49 (1987), which

construed a Clean Water Act provision under which a citizens

suit may be commenced against any person “alleged to be

in violation of” the Act if the violation is not corrected

within 60 days after the plaintiff has given a pre-suit notice.

See 33 U.S.C. §§ 1365(a)(1), 1365(6)(1 (A). Gwaltney held that,

by using the phrase “alleged to be in violation” and giving the

alleged violator an opportunity to avoid a suit by coming into

compliance prior to commencement of suit, Congress evidenced

10. See Price Waterhouse v. Hopkins, 490 U.S. 228, 240 (1989)

(civil rights statute’s reference to “fail or refuse to hire” involves the

use of “operative verbs” in the “present, active tense” to refer to adverse

employment decisions in the past, prior to initiation of employment

discrimination litigation); Scarborough v. United States, 431 U.S. 563,

570 (1977) (statute’s use of “receives, possesses, or transports . . . any

firearm” refers to actions that occurred in the past, prior to indictment);

Ingalls Shipbuilding, Inc. v. Director, Office of Workers ’Compensation,

$19 U.S. 248, 255 (1997) (construing “enters into a settlement” as

referring to a settlement entered into in the past, prior to person’s filing

for death benefits against the employer under the statute).

15

an intent that the alleged violation exist at the time the action is

commenced. 484 U.S. at 60. There is no comparable language

or structural device in the FSIA that suggests such a result here.

Finally, respondents point to Stafford v. Briggs, 444 U.S.

527 (1980). The statutory language in that case established venue

in a mandamus 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 added). Such language focuses on the

status and actions of the defendant, a status that exists only

upon the filing-of a complaint. Nothing in the FSIA, however,

requires that an agency or instrumentality of a foreign state be

owned by the foreign state on the date that an agency or

instrumentality is named as a defendant. Moreover, in reaching

its conclusion the Court in Stafford discussed the purpose, structure

and Congressional intent of the statute and noted only that the

sentence at issue can “reasonably be read as describing the character

of the defendant at the time of suit,” 444 U.S. at 535, not that

such a reading is compelled by the use of the present tense alone.

Respondents seek to bolster their argument based upon

the FSIA provisions pertaining to service of process and

execution of judgments upon an “agency or instrumentality.”

See Resp. Br. 45; 28 U.S.C. §§ 1608(b), 1610. Yet nothing

in these provisions suggests that an entity must be owned by

a foreign state at the time suit is commenced. Indeed, the

rules for service of process are analogous to rules of service

on any private corporation in the United States, which is

typically effected by service on the corporation’s officers or

directors, cf. 28 U.S.C. § 1608(b)(2) (service on officer or

managing agent), or on the Secretary of State of the state in

which the corporation is organized, cf. id. § 1608(b)(3)(A)

(service “as directed by an authority of the foreign state or

political subdivision”).

There is no substance to respondents’ suggestion that

petitioners (and, by implication, the circuit courts that have

unanimously ruled against respondents’ position on the

16

timing issue) are attempting to rewrite § 1603(b)(2) by

changing “is” to “was” and adding the phrase “at the time of

the acts upon which the complaint is based.” Resp. Br. 43-

44. The word “is” does not itself say whether a status must

exist at the time of the acts giving to a lawsuit or at the time

a lawsuit is filed. There would be nothing remotely unusual

or ungrammatical about § 1603(b)(2) if it had said “is, at the

time of the acts upon which the complaint is based, an organ

of a foreign state, etc.” Accordingly, DSB’s argument does

not turn on changing “is” to “was.” It is of course true that

the phrase “at the time of the acts upon which the complaint

is based” does not appear in the statute — but neither does

the phrase “at the time of the filing of the lawsuit.” Since

neither phrase appears in the text of the statute, the text alone

does not resolve the timing issue. It is therefore appropriate

to take into account the policies and objectives of the statute,

as well as the general principle developed in connection with

other immunity doctrines that immunity is not divested

merely because of a change in status prior to the time a lawsuit

is commenced.

B. The Policy and Other Non-textual Arguments

Presented by Respondents and the Solicitor

General Should Not Prevail.

Respondents assert that “[i]t would be difficult to think

of a more dramatic expression by a government that its direct

interest in a company has ended than privatization.”

Resp. Br. 46. The record is to the contrary. It was upon the

privatization of DSB in the 1990s that the State of Israel

required amendments to its corporate charter declaring that

the State has “Vital Interests” in DSB and giving the State a

Special State Share that continues to vest in the State

extraordinary approval rights with respect to DSB’s affairs.

JA 107-08, 73-74; DSB Br. 7.

The American Bar Association report cited by the

Solicitor General concludes that “actions of foreign states

remain potentially politically sensitive even after the entity

17

is sold or otherwise loses its status as a foreign state or

instrumentality” and for this reason concludes that the FSIA’s

“policies favor applying the statute . .. when the defendant

was a foreign state or instrumentality either when the alleged

violation [tort or other legal wrong] occurred or when the

complaint is filed.” Reforming The Foreign Sovereign

Immunities Act, 40 Colum. J. Transnat’l L. at 530. The

Solicitor General disagrees with this conclusion, opining that

“the United States has not encountered ‘diplomatic friction’

arising from post-privatization litigation.” U.S. Br. 29. Of

course, as the Solicitor General conceded in his brief in

support of certiorari, see U.S. Br. 14 (May 2002), with the

exception of a lone district court, every court that has reached

the timing issue, including four federal circuits, has held that

the protections of the FSIA remain in place with respect to

pre-privatization conduct after an instrumentality’s

privatization. See DSB Br. 48. That no “diplomatic friction”

has developed under a virtually uniform interpretation of the

Act permitting former instrumentalities to invoke its

protections hardly suggests that the same would be true if

this Court were to adopt the opposite interpretation.'!

The Solicitor General also opines that the “foreign

State’s interests in a suit against a former majority-owned

corporation are likely to be . . . attenuated.” U.S. Br. 28.

Again, no support is given for this conclusion. One need look

no further than the complaint in this action to discern why a

foreign state might well retain a significant interest in the

process and rules by which claims against a former

instrumentality may be pursued. Respondents’ pleading

alleges that their exposure to DBCP caused them “serious

11. Respondents err in suggesting (Resp. Br. 46 n.35) that the courts

are split on the issue. With the exception of a lone district court decision,

Ocasek v. Flintkote Co., 796 F. Supp. 362 (N.D. Ill. 1992), the cases

they cite do not address whether foreign state status at the time the cause

of action arose would be sufficient to create FSIA jurisdiction. DSB Br.

48 n.20.

18

and permanent injuries,” including sterility, cancer, birth

defects, and miscarriages (JA 27); that industry scientists

learned as early as 1958 that DBCP exposure caused

“testicular atrophy” and adverse “liver, lung and kidney

effects” (JA 28-29); that the industry manipulated the

information submitted to the federal government in 1961 to

register the pesticide without scrutiny of adverse health

effects (JA 29); that the industry failed to warn agricultural

workers who used the products of its dangers and failed to

recommend use of safety devices when handling the product

(JA 32); that even after the U.S. Environmental Protection

Agency banned the product the industry continued to promote

its use in Central America (JA 33); and that in hearings before

a Senate Committee, Senator Leahy excoriated the industry,

stating that “(t]he tale of DBCP is an appalling one” (JA 34).

In fact, DSB (and its BCL subsidiary) have little or

nothing to do with any of these allegations (which remain

unproven at this stage of the litigation) and were not even

named as direct defendants in this suit. But what if DSB had

been the sole or principal manufacturer of DBCP, or the entity

that initially researched its health effects, or that handled its

early registration with the U.S. government, at a time it was

majority-owned by Israel and subject to the oversight regime

reflected in Israel’s Government Companies Law? In such

circumstances, it would likely have been a prime target of

the plaintiffs’ quest for an adverse judgment, and Senator

Leahy’s public condemnation. One can easily imagine, were

those the facts, that the State of Israel — or any similarly

situated foreign state — might have a strong interest in how

the American judicial system adjudicates such claims. It

might, for example, have significant concerns as to how a

remote state court jury would adjudge its conduct during the

time period in which it owned the defendant, or how the

defendant’s association with the foreign state might affect

19

the adjudication of the claims.'? Thus, the lower courts and

American Bar Association working group are clearly correct

in concluding that suits against entities formerly owned by a

foreign state fall within the class of lawsuits that the FSIA

was enacted to address, since they require a court in this

country to “‘judg[e] the acts of another nation.”” DSB Br. 44

(quoting GE Capital Corp. v. Grossman, 991 F.2d 1376, 1381

(8th Cir. 1993)).”

Under other immunity doctrines — such as sovereign

immunity, the qualified immunity of government employees,

diplomatic immunity and the absolute immunity of judicial

officers — immunity in existence with respect to alleged

conduct is not lost upon a change in status of the potential

defendant. DSB Br. 46-47; Dole Br. 43-45. Respondents and

the Solicitor General assert that the timing rule for foreign

sovereign immunity should be different from the other

immunity doctrines because they are rooted in the common

law rather than statute. Resp. Br. 48; U.S. Br. 26. No basis is

offered, however, as to why this consideration warrants a

different timing rule. Nor is there anything in the text or

legislative history of the FSIA, which codified the common

law doctrine of foreign sovereign immunity, that suggests

12. Add to this hypothetical, as in fact happened in this case,

that essentially identical claims have been asserted against the foreign

state instrumentality in almost a dozen. lawsuits brought in separate

county courts in Texas, Louisiana and Hawaii, and the foreign state

might be expected to have a very strong interest in a right to the

more uniform and consistent forum provided by a federal non-jury

trial.

13. The suggestion that “that concern is already addressed by

the act of state doctrine” (Resp. Br. 47) ignores the Congressional

determination to enact the FSIA precisely because that doctrine is

inadequate to the task, since it is implicated only to the extent a suit

requires “a court in the United States to declare invalid the official

act of a foreign sovereign performed within its own territory.”

W.S. Kirkpatrick & Co., Inc. v. Environmental Tectonics Corp.,

493 U.S. 400, 405 (1990).

20

Congress expected the courts to depart from the way in which

the timing issue is handled under other immunity doctrines.

Indeed, the Solicitor General essentially concedes as much,

acknowledging that in certain circumstances foreign

sovereign immunity might be asserted “based on past conduct

by a non-natural person that has lost its sovereign status.”

U.S. Br. 26. Other status-based immunities have also been

codified, see, e.g., 19 U.S.C. § 1513 (immunity of customs

officers), 42 U.S.C. § 14073 (immunity of employees of

federal and state law enforcement agencies), without explicit

language addressing the timing issue. Respondents’

arguments, if applied to these statutes, would suggest that

these statutory immunity protections would be lost if the

status of the protected individual were to change before a

judicial action is commenced. There is no reason to believe

that Congress expected or intended such a result under these

statutes or the FSIA itself.

Respectfully submitted,

Georce W. BRANDT Peter R. PADEN

Lyons, BRANDT, Cook Counsel of Record

& HIRAMATSU Puiu E. KARMEL

1800 Davis Pacific Center LAURENCE A. HORVATH

841 Bishop Street Bryan Cave LLP

Honolulu, HI 96813 1290 Avenue of the Americas

New York, NY 10104-3300

(212) 541-2000

Tuomas C. WALSH

JAMES F. BENNETT

Bryan Cave LLP

One Metropolitan Square

St. Louis, MO 63102

(314) 259-2000

Attorneys for Petitioners