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SCOTUS rules that in order to trigger FSIA’s expropriation exception to jurisdiction, a violation of international law is necessary.

In the case Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co., No. 15-423, the Supreme Court examined the Foreign Sovereign Immunities Act (FSIA) of 1976’s expropriation exception (28 U.S.C. § 1605(a)(3)). The key language of this clause identifying what constitutes an exception is:

any case… in which rights in property taken in violation of international law are in issue and that property…is owned or operated by an agency or instrumentality of the foreign state…engaged in a commercial activity in the United States. §1605(a)(3).

On May 1, 2017, the Court released its decision holding that “a party’s non-frivolous, but ultimately incorrect argument that property was taken in violation of international law is insufficient to confer jurisdiction.”

A Summary of the Facts

An American parent corporation and its wholly owned Venezuelan subsidiary claimed that the Venezuelan government had unlawfully expropriated the subsidiary’s oil rigs. More specifically, after the Venezuelan government failed to pay compensation of $10M to the subsidiary, Venezuela sent government troops to the subsidiary’s storage yard to prevent the subsidiary from removing the rigs. The government then issued a “Decree of Expropriation” nationalizing the rigs.

The subsidiary filed an FSIA action to recover its rigs. Venezuela filed a motion to dismiss the case, asserting that the trial court lacked subject matter jurisdiction to hear the case. Verlinden B. V. v. Central Bank of Nigeria, 461 U. S. 480, 493–494 (1983). Venezuela argued that because “international law does not cover expropriations of property belonging to a country’s own nationals” there was not a violation of international law to trigger FSIA’s expropriation exception. The trial court agreed with Venezuela and dismissed the case observing that the government was entitled to sovereign immunity for its actions.

The appellate court reversed on the grounds that an exception exists to the rule that a country’s expropriation of its citizen’s property is not a matter of international law. When a country’s “expropriation unreasonably discriminates on the basis of a company’s shareholders’ nationality” it triggers international law; and hence FSIA jurisdiction. Banco Nacional de Cuba v. Sabbatino, 307 F. 2d 845 (CA2 1962)). Importantly, the appellate court concluded that the subsidiary might have a claim based on plaintiff subsidiary’s non-frivolous assertions.

The Supreme Court’s Decision

Justice Breyer began the unanimous opinion of the Court by observing that “[f]oreign sovereign immunity is jurisdictional in this case because explicit statutory language makes it so.” 28 U.S.C. §1604. In the Court’s view, “the expropriation exception grants jurisdiction only where there is a valid claim that ‘property’ ” has been “taken in violation of international law.” §1605(a)(3). The Court had no concerns that property was at issue in this case. For the Court, the gravamen of the case was whether the rights to the property at issue case were determined by domestic or international law.

J. Breyer then observed that the FSIA:

“…starts from a premise of immunity and then creates exceptions to the general principle.” Almost all the exceptions involve commerce or immovable property located in the United States.… [This is an example of] what jurists refer to as the “restrictive” theory of sovereign immunity. (Citations omitted.)

Nothing in the FSIA’s legislative history suggests that “Congress intended a radical departure from these basic principles.” Indeed, FSIA’s legislative history demonstrates that

…the expropriation exception on its face emphasizes conformity with international law by requiring not only a commercial connection with the United States, but also a taking of property “in violation of international law.” (Emphasis in the original.)

Accordingly, U.S. courts only have jurisdiction over a foreign government’s expropriation of it citizen’s property when a

taking does violate international law [and] is thus consistent with basic international law and the related statutory objectives and principles that we have mentioned. (Emphasis in the original.)

Conversely, granting FSIA jurisdiction in a case based on the “non-frivolous-argument” interpretation of the appellate court, “would, in many cases, embroil the foreign sovereign in an American lawsuit for an increased period of time.”

The Court then examined and dismissed other arguments raised by the plaintiff subsidiary. It remanded the case to determine whether the Venezuelan government’s expropriation of the plaintiff’s oil rig involved a violation of international law.

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