Lawrence W. Newman and David Zaslowsky

It would be reasonable to think that, in interpreting foreign law, U.S. courts would accept the statement of a foreign government as to the meaning of its own law. Not necessarily so, according to the U.S. Supreme Court. In this column, we look at that decision and two other significant Supreme Court decisions from this past term in the area of international litigation.

Interpreting Foreign Law

In Animal Science Products v. Hebei Welcome Pharmaceutical Co., Case No. 16-1220 (June 14, 2018), U.S.-based purchasers of vitamin C brought suit alleging that four Chinese corporations that manufacture and export vitamin C had agreed to fix the price and quantity of vitamin C exported to the United States, in violation of §1 of the Sherman Act. The Chinese sellers moved to dismiss the complaint on the ground that Chinese law required them to fix the price and quantity of vitamin C exports, thus shielding them from liability under U.S. antitrust law. The Ministry of Commerce of the People’s Republic of China filed an amicus brief in support of the motion, explaining that it is the administrative authority authorized to regulate foreign trade, and stating that the alleged conspiracy in restraint of trade was actually a pricing regime mandated by the Chinese government. The U.S. purchasers countered that the Ministry had identified no law or regulation ordering the Chinese sellers’ price agreement, highlighted a publication announcing that the Chinese sellers had agreed to control the quantity and rate of exports without government intervention, and presented supporting expert testimony.

The district court denied the Chinese sellers’ motion in relevant part, concluding that it did not regard the Ministry’s statements as “conclusive.” The case was then tried to a jury, which returned a verdict for the plaintiffs. The Second Circuit reversed, holding that, when a foreign government whose law is in contention submits an official statement on the meaning and interpretation of its domestic law, federal courts are “bound to defer” to the foreign government’s construction of its own law, whenever that construction is “reasonable.”

The Supreme Court  reversed the Second Circuit. Issues of foreign law are determined under Federal Rule of Civil Procedure 44.1, which authorizes the court to “consider any relevant material or source.” In the spirit of “international comity,” a federal court should carefully consider a foreign state’s views about the meaning of its own laws. The appropriate weight in each case, however, will depend upon the circumstances; a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials. As to those circumstances, the Supreme Court said, “relevant considerations include the clarity, thoroughness, and support of the statement of the foreign government; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement’s consistency with the foreign government’s past positions.”

The Supreme Court analogized to its treatment of submissions from States of the United States. If the relevant state law is established by a decision of “the State’s highest court,” that decision is binding on the federal courts, but views of the state’s attorney general, while attracting “respectful consideration,” do not garner controlling weight. In a unanimous decision, the Supreme Court held that a federal court determining foreign law should accord “respectful consideration” to a foreign government’s submission, but is not bound to accord it conclusive effect. Because the Second Circuit concluded that the district court was bound to defer to the Ministry, it did not consider the shortcomings the district court identified in the Ministry’s position. The case was remanded.

No ATS Suits Against Foreign Corporations

Enacted in 1789 as part of the first Judiciary Act, the Alien Tort Statute (ATS) provides the federal courts with jurisdiction to hear non-U.S. plaintiffs’ claims related to a violation of the “law of nations or a treaty of the United States.” 28 U.S.C. §1350. A claim under the ATS requires that there be state action, yet may not be brought against the foreign state itself (which is immune under the Foreign Sovereign Immunities Act). Historically, the ATS was rarely invoked, until the Second Circuit breathed life into it in 1980 with its decision in Filartiga v. Peńa-Irala, 630 F.2d 876 (2d Cir. 1980). Since then, and increasingly in the last 15 years, plaintiffs’ attorneys and human rights organizations have been employing the ATS more frequently against corporate defendants.

In Jesner v. Arab Bank, Case No. 16-499 (April 24, 2018), the petitioners filed suits under the ATS, alleging that they, or the persons on whose behalf they asserted claims, were injured or killed by terrorist acts committed abroad, and that those acts were in part caused or facilitated by respondent Arab Bank, PLC, a Jordanian financial institution with a branch in New York. The Second Circuit affirmed the district court’s dismissal of the plaintiffs’ claims on the grounds that the ATS could only be used to sue individuals, not corporations.

The Supreme Court issued splintered opinions, with Justice Kennedy writing the plurality opinion holding that foreign corporations may not be sued under the ATS (and affirming the decision of the Second Circuit). There were two drivers for his decision. First, is separation of powers. The court’s view is that the legislative and executive branches are in a better position to weigh the risks and benefits in private litigation. Thus, in recent decades, the court has resisted recognizing new categories of claims, even in the realm of domestic laws.

The second driver concerned foreign relations. The ATS was intended to promote harmony in international re­lations by ensuring foreign plaintiffs a remedy for international-law violations when the absence of such a remedy might provoke foreign nations to hold the United States accountable. But here, and in simi­lar cases, the opposite was occurring. For 13 years, this litigation had caused considerable diplomatic tensions with Jordan, a critical ally that considers the litigation an affront to its sovereignty. And this is not the first time that a foreign sovereign has raised objections to ATS litigation. One may raise an eyebrow over the court’s reasoning. How do suits against corporations cause more of a ruffle in foreign relations than do suits against individuals? Moreover, there have always been questions about the source or basis for the statute, which Judge Friendly described as a “legal Lohengrin” (ITT v. Vencap, 519 F. 2d 1001 (2d Cir. 1975)), much less the peaceful foreign relations rationale posited by the court.

Jesner is the third time that ATS plaintiffs have not fared well before the Supreme Court. In Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), the Supreme Court refused to hold that the ATS applied only to the causes of action included in the original text of statute, but nevertheless held that the statute could be used only in certain narrow circumstances. Then, in  Kiobel v. Royal Dutch Petroleum (2013), the court addressed liability for actions outside the U.S. and foreclosed all liability except when the tort violations “touch and concern” U.S. territory. And, while Jesner did not decide the issue with respect to the liability of non-foreign corporations, the decision was itself limiting, and one can easily see how the logic of the opinion could be extended to all corporations.

Enforcing Judgments Against Foreign Sovereigns

The Foreign Sovereign Immunities Act of 1976 (FSIA) sets forth the general rule that a foreign sovereign is immune from the jurisdiction of the courts of the United States unless it is party to a case that comes within one of the exceptions enumerated in the statute. 28 U.S.C. §1604. The FSIA also includes provisions regarding the enforcement of judgments against sovereigns, which was the subject of the Supreme Court’s decision in Rubin v. Islamic Republic of Iran, Case No. 16-534 (Feb. 21, 2018).

In September 1997, three Hamas suicide bombers blew themselves up in an a crowded area in Jerusalem. Among the injured were eight U.S. citizens, who later filed a lawsuit against the Islamic Republic of Iran for its role in providing material support to the attackers. The case was brought under the FSIA immunity exception for state-sponsored terrorism (28 U.S.C. §16005A) and resulted in a $71.5 million default judgment against Iran. After Iran failed to pay, the petitioners brought the underlying action in the U.S. District Court for the Northern District of Illinois to attach and execute against certain Iranian assets, namely, a collection of ancient clay tablets and fragments containing ancient writings, known as the Persepolis Collection, held in the possession of the University of Chicago.

The district court did not permit the judgment execution. 28 U.S.C. §1610 provides that “[t]he property in the United States of a foreign state … used for a commercial activity in the United States, shall not be immune from attachment ….” The plaintiffs did not argue that Iran used any of the artifacts in a commercial manner to satisfy this exception, but did assert that the statute should not be limited to the commercial activities of the foreign state itself. The district court rejected that argument based on the definition in 28 U.S.C. §1603 that referred to activity of the “foreign state.” The district court also applied the same reasoning as the Supreme Court to the interpretation of Section 1610(g), described below. The Seventh Circuit affirmed. That decision was in conflict with a decision in the Ninth Circuit. The Supreme Court therefore granted certiorari to address the Section 1601(g) issue.

The FSIA grants blanket immunity from execution to the property of a foreign state, but carves out limited exceptions in certain situations, such as: (i) waiver by the foreign state; (ii) when the property is used for a commercial activity upon which the claims is based; and (iii) where execution relates to a judgment establishing rights in property which has been taken in violation of international law. Before 2008, the FSIA did not expressly address under which circumstances a foreign state’s agencies or instrumentalities could be held liable for judgments against the state. The Supreme Court had addressed that question in First Nat. City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 628 (Bancec), and held that, as a default, agencies and instrumentalities of a foreign state are separate legal entities that cannot be held liable. It recognized the availability of exceptions, however, and set forth five relevant factors (the Bancec factors) to assist the lower courts in determining whether the exception applied. In 2008, Congress amended the FSIA, adding §1610(g) for purposes of enforcement of a §1605A judgment. Subparagraphs (A) through (E) thereof incorporate almost verbatim the Bancec factors, leaving no dispute that, at a minimum, §1610(g) serves to abrogate Bancec where a §1605A judgment holder seeks to satisfy a judgment held against the foreign state.

The petitioners argued that §1610(g) provides a blanket exception to the immunity typically afforded to the property of a foreign state where the party seeking to attach and execute holds a §1605A judgment. The Supreme court disagreed and, in a unanimous decision authored by Justice Sotomayor, affirmed the decision of the Seventh Circuit. As the court explained, §1610(g) serves to identify property that will be available for attachment and execution in satisfaction of a §1605A judgment, but it does not in itself divest property of immunity. Rather, §1610(g) operates only when the property at issue is exempt from immunity as provided elsewhere in §1610. Here, the petitioners had not established that the antiquities were exempt from immunity under any other provision in §1610. Thus, they could not invoke §1610(g) to attach and execute against those assets. The decision of the Seventh Circuit was affirmed.

 

Lawrence W. Newman is of counsel and David Zaslowsky is a partner in the New York office of Baker McKenzie.