University of Southern California

Preserving International Comity: The Foreign Sovereign Immunities Act of 1976 and Obb Personenverkehr AG v. Sachs

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Note by Jason E. Myers
From Volume 90, Number 4 (May, 2017)

In accordance with a time-honored tradition, foreign sovereigns are generally immune from being summoned to court in another country. This doctrine of “sovereign immunity” was codified and modified in the Federal Sovereign Immunities Act of 1976 (“FSIA”). The FSIA divests United States courts of jurisdiction over defendants that are foreign states, subject to a number of general exceptions designed to provide a level of recourse for an aggrieved party against a foreign government. The FSIA codifies the long-standing attitude against suing foreign governments in the United States and “places in the federal courts the task of determining whether the general immunity provided by the Act attaches” in a given scenario, “weighing ‘the interests of justice’ and ‘the rights of both foreign states and litigants in United States courts.’” As such, the Act is designed to protect “both the rights of domestic litigants and foreign states.” However, the framers of the statute were, and those currently adjudicating disputes arising under the statute are, wary that “err[ing] in the former direction could implicate foreign policy concerns, while being overly solicitous of the status of foreign states could make it impossible for aggrieved parties to be made whole.” This virtual tug-of-war between these two interests was at the forefront of a case decided by the United States Court of Appeals for the Ninth Circuit in 2013, Sachs v. Republic of Austria, a battle that ultimately reached the Supreme Court.

The case involved Carol Sachs, a United States citizen who purchased a train ticket through an online travel agent located in Massachusetts. While using that ticket in Austria to enter a train operated by OBB Personenverkehr AG (“OBB”), a railway company owned by the Republic of Austria, Sachs fell between the platforms; the train crushed both of her legs, ultimately requiring a double amputation. Sachs subsequently sued OBB in federal district court in California, accusing OBB of negligence, among other things. In response, OBB filed a motion to dismiss the case, claiming sovereign immunity under the FSIA. Agreeing with OBB, the district court dismissed the case for lack of subject matter jurisdiction, citing the FSIA and its grant of foreign sovereign immunity. On appeal, the Ninth Circuit initially affirmed the district court’s ruling, but upon a rehearing en banc, a majority reversed, holding that the “commercial activity” exception to the FSIA applied in this case because OBB is a “common carrier . . . [that] engage[d] in commercial activity in the United States when it [sold] tickets in the United States through a travel agent.” In October 2015, the parties presented their case to the Supreme Court in OBB Personenverkehr AG v. Sachs, and after two months of deliberation, the Court unanimously reversed the Ninth Circuit’s decision, concluding that Sachs’s suit “[fell] outside the commercial activity exception” and was, therefore, “barred by sovereign immunity.”

At the forefront of the decision was a question regarding the interpretation and scope of one of the principal exceptions set forth in the FSIA, namely the commercial activity exception. The relevant portion of the exception states that “[a] foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state.” While the narrow exception provides a limited avenue for domestic litigants to pursue redress against a foreign sovereign, the Ninth Circuit erroneously expanded the scope of the exception to encompass a dispute arising entirely based on an event that took place abroad.

As such, the Supreme Court correctly reversed the Ninth Circuit’s grant of subject matter jurisdiction over the Republic of Austria vis-à-vis OBB, because Sachs’s claims, which arose entirely from an accident in Austria, were not “based upon” commercial activity engaged in within the United States. Furthermore, the Court’s decision was also correct in light of the policy interests at stake, specifically relating to global commerce and U.S. diplomatic relations. Finally, while the Court declined to address whether the express definition of “agency” in the FSIA, the factors set forth in First National Bank v. Banco El Comercio Exterior de Cuba (“Bancec”), or common law principles of agency control in defining an agent of a foreign state under the commercial activity exception set forth in the FSIA, the express definition of agency in the FSIA offers the best approach for future cases.

The Supreme Court’s decision will preserve the synergy of global commerce in an era of both e-commerce and the emergence of state-owned corporations. Just in the European railway industry alone, there are hundreds of state-owned railway and shipping companies and “[t]ens of thousands” of United States citizens who use the aforesaid companies annually. Had the Court affirmed the lower court’s far-reaching interpretation of the commercial activity exception, such state-owned enterprises may have seen their foreign sovereign immunity undermined “simply because an American passenger purchased a ticket through a travel agency in the United States.” As a result, “European railways could [have] be[en] forced to defend tort actions in the United States arising from accidents occurring entirely in Europe.” In addition, the Supreme Court’s decision upheld the long-standing policy of favoring sovereign immunity as a mechanism of preserving international comity, and thus, creates a stable platform for diplomatic relations going forward.

Part I of this Note explores the origins of the doctrine of sovereign immunity and the history and application of sovereign immunity in federal courts prior to the FSIA’s codification. Part I also examines the legislative intent underlying the FSIA as well as the Act’s well-defined rules.

In addition, Part I provides an in-depth analysis of the commercial activity exception and the seminal United States cases that have interpreted the scope and substance of this exception. Part II focuses on the Supreme Court’s decision in OBB Personenverkehr AG, a case that arose under the FSIA, particularly reviewing the facts that gave rise to the dispute, the legal issues arising from the incident, the procedural posture of the case, and the legal arguments set forth by each side. Part III begins by demonstrating why the Supreme Court correctly found that Sachs’s claims were not based upon a commercial activity engaged in within the United States. In addition, Part III illustrates why, from a public policy standpoint, the Supreme Court was correct in reversing the Ninth Circuit’s expansive interpretation of the commercial activity exception. Finally, Part III makes a case for the adoption of the express definition of agency set forth in the FSIA for determining when an entity is an agent of a foreign state. In so doing, Part III briefly addresses the alternative standards proposed for agency determinations under the FSIA. This Note concludes by illustrating the presence of other forms of redress for those injured abroad and reiterates why the Supreme Court was correct in reversing the lower court’s decision.

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