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A subsidiary of a corporation already found to be immune from suit cannot claim the same privilege under the Foreign Sovereign Immunity Act of 1976, a U.S. District Judge in New York has ruled. Judge Shira A. Scheindlin, deciding an issue that has split federal circuit courts, said that immunity under the act should only apply to the “first tier” of ownership — those companies that are directly owned by a foreign state or one of its political subdivisions. It was the judge’s second ruling since November in In re Ski Train Fire in Kaprun, MDL No. 1428, a series of cases stemming from the fire that killed 155 people in a mountain train tunnel in the Austrian ski resort town of Kaprun on Nov. 11, 2000. In November, Scheindlin ruled that parent corporation Oesterreichische Elektrizitaetswirtschafts AG (OE AG) was immune from suit as an instrumentality of a foreign state because the state of Austria owned 51 percent of the company’s shares. But Scheindlin said that the same immunity could not apply to the operator of the ski resort, Gletscherbahnen Kaprun AG (GBK), even though GBK is 45 percent owned by OE AG and almost 34 percent owned by the Village of Kaprun. “There is a disagreement among the Circuits on the proper interpretation of ‘foreign state’ as the term is used in the definition of agency or instrumentality” in the act, Scheindlin said. More expansive immunity has been recognized by circuits ruling that, once a company has been found to be an agent or instrumentality of a foreign state, the company is considered a foreign state for purposes of immunity. Under this reasoning, subsidiaries such as GBK would be entitled to the protections of the act. But Scheindlin joined those courts that believe that the term “foreign state” as used in � 1603(b)(2) of the act, “does not include agencies or instrumentalities but refers solely to foreign states proper.” The judge cautioned against a “circular interpretation” of � 1603(b). “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,” she said. “It is a subtle distinction, but also the only explanation that can be squared with the remainder of Section 1603.” Moreover, she said, the statute’s use of the term “‘political subdivision thereof’ would be superfluous if both political subdivision and agency or instrumentality … were rolled into the phrase ‘foreign state or political subdivision thereof’ in Section 1603(b).” CONGRESSIONAL INTENT Judge Scheindlin said that “Congress intended to immunize a finite class of foreign governments and their majority-owned businesses because of the affront entailed in hauling a foreign government into court or draining its resources directly by awarding large damages to private litigants.” “Congress could have, but did not, immunize every foreign corporation that is partially state-owned,” she said. “If the term ‘foreign state,’ as used to define agencies or instrumentalities, were to include agencies and instrumentalities, the definition would bring within it a succession of subsidiaries where state control is many times removed and therefore remote at best.” Therefore, with parent company OE AG immune, but not considered a foreign state for purposes of the act, and the Village of Kaprun owning only a minority stake in GBK, the ski resort operator must defend itself in the multidistrict litigation. The plaintiffs are represented by Robert Swift and Martin J. D’Urso of Kohn, Swift & Graf in Philadelphia; Jay J. Rice of Nagel, Rice, Dreifuss & Mazie in Livingston, N.J.; Edward D. Fagan of Fagan & Associates in Livingston; Kenneth Nolan and Christina Frye of New York-based Speiser, Krause, Nolan & Granito. Robert A. Weiner of McDermott, Will & Emery represents the defendant.

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