On May 1, 2017, the US Supreme Court delivered the decision in Bolivarian Republic of Venezuela v. Helmerich & Payne International. The decision focused upon the threshold a party must establish for the purposes of the ‘expropriation exception’ under § 1605(a)(3) of the Foreign Sovereign Immunities Act (FSIA).
As previously reported, the dispute grows out of Venezuela’s nationalization of oil and gas infrastructure and property in 2010. The oil-drilling rigs of Helmerich & Payne de Venezuela, a Venezuelan corporation, which was wholly-owned by Helmerich & Payne International, a US corporation, were among the expropriated property (H&P-V and H&P, respectively). Both corporations filed a claim against Venezuela under the FSIA in the District Court for the District of Columbia.
Under the FSIA, foreign governments cannot be sued in US courts. However, the FSIA allows for some exceptions and denies foreign sovereign immunity “in any case … in which rights in property taken in violation of international law are in issue” (28 U.S.C. § 1605(a)(3)).
In this respect, H&P and H&P-V argued that the oil-drilling rigs were taken “in violation of international law” and thus asserted jurisdiction under the FSIA’s ‘expropriation exception.’ Venezuela, on its part, moved to dismiss on grounds that the expropriation exception is inapplicable and that the entire claim was barred under the act-of-state doctrine. Venezuela’s motion to dismiss was not decided since the parties filed a joint stipulation to the District Court in which they agreed to four threshold issues:
- Whether, for purposes of determining if a “taking in violation of international law” has occurred under the FSIA’s expropriation exception, H&P-V is a national of Venezuela under international law;
- Whether H&P-IDC has standing to assert a taking in violation of international law on the basis of Venezuela’s expropriation of H&P-V’s property;
- Whether the plaintiffs’ expropriation claims are barred by the act-of-state doctrine, including whether this defense may be adjudicated prior to resolution of Venezuela’s challenges to the court’s subject matter jurisdiction; and
- Whether, for purposes of determining the applicability of the FSIA’s commercial activity exception, plaintiffs have sufficiently alleged a “direct effect” in the United States within the meaning of that provision.
The District Court resolved the first question in Venezuela’s favor but sided with H&P and H&P-V on the other three. All four issues were appealed to the DC Circuit Court of Appeals.
this recent decision potentially reduces the prospects for successfully resorting to the expropriation exception
On appeal, the parties mainly reiterated their arguments and focused on the applicability of the expropriation exception. Venezuela maintained that the expropriation exception is inapplicable here for two reasons. First, as a Venezuelan national, H&P-V may not claim a taking in violation of international law; and, second, that under generally applicable corporate law principles, H&P, a US parent company, has no ‘rights in property,’ which belong to its subsidiary, and thus it lacks standing. H&P and H&P-V argued, inter alia, that Venezuela has unreasonably discriminated against it on the basis of its sole shareholder’s (American) nationality, thus implicating an exception to the domestic takings rule; and, that ownership in shares meets the requirement of ‘rights in property,’ in the sense of the FSIA exception.
The Court of Appeals found that the expropriation exception applies. Under the Circuit’s standard for surviving a motion to dismiss in a FSIA case, jurisdictional dismissal is allowed only where the federal claim is wholly insubstantial and frivolous. Applying this standard, the DC Circuit held that H&P’s and H&P-V’s claim against Venezuela is neither ‘wholly insubstantial’ nor ‘frivolous,’ hence the claim may proceed.
Venezuela petitioned the US Supreme Court to review the decision of the Court of Appeals on several grounds.
The proceedings before the Supreme Court
Following the invitation of the Supreme Court, the Solicitor General recommended that the Court grants cert to hear only one aspect of Venezuela’s petition, since the courts of appeals were divided on that point, and allowing that conflict to persist might facilitate forum shopping. The Supreme Court adopted this recommendation and focused on the question whether a court lacks jurisdiction under § 1605(a)(3) only when the plaintiff’s claim that it has placed in issue “rights in property taken in violation of international law” is frivolous or completely devoid of merit.
the bench was troubled with two interrelated policy considerations
Apart from the ‘statutory’ question, during the oral arguments the bench was troubled with two interrelated policy considerations. First, and following the brief of the Solicitor General (pp 21-22), the Court was concerned with the effect of its decision on the foreign relations of the US. More pointedly, the justices worried that setting the bar too low so as to allow US companies to easily bring expropriation-related claims against foreign states would lead to a reciprocal low bar in foreign courts, and thus allow companies to easily bring claims against the US.
At the same time, the Court was mindful that adopting a narrow reading of the exceptions to immunity and setting a high standard with respect to ‘rights in property’ and ‘violations of international law’ would necessitate an in-depth factual examination at the preliminary stage of jurisdiction, instead of reserving such factual determinations for the merits. Both concerns were addressed, and perhaps eased, in the recent decision.
Justice Stephen Breyer, who delivered the opinion of the Court (8-0; Justice Gorsuch did not participate), vacated the decision of the Court of Appeals and deemed the low standard of the nonfrivolous-argument inconsistent with the FSIA.
At the outset, Justice Breyer put the main question before the Court, and its answer, in the following terms:
The question here concerns the phrase “case … in which rights in property taken in violation of international law are in issue.” Does this phrase mean that, to defeat sovereign immunity, a party need only make a “nonfrivolous” argument that the case falls within the scope of the exception?
* * *
[No] The relevant factual allegations must make out a legally valid claim that a certain kind of right is at issue (property rights) and that the relevant property was taken in a certain way (in violation of international law).
The Court’s decision rests on several justifications, namely, the language and structure of the Statute, the legislative history and the object and purpose of the FSIA, and policy considerations.
First, the Court addressed the language of § 1605(a)(3). Based on the wording and the structure of the provision, the Court held that the expropriation exception grants jurisdiction to US courts “only where there is a valid claim that ‘property’ has been ‘taken in violation of international law,’” while “a nonfrivolous argument to that effect is insufficient.”
The Court elucidated that “explicit statutory language,” like that used in § 1605(a)(3), would “normally foresee a judicial decision about the jurisdictional matter. And that matter is whether a certain kind of ‘right’ is ‘at issue,’ namely, a property right taken in violation of international law.”
To illustrate, the Court offered the example of a person who owns a house in a foreign country, and the house is subsequently nationalized by that foreign state. According to the Court, to resort to the expropriation exception and sue in US courts, “the claiming party would as a jurisdictional matter prove that he claimed ‘property’ (which a house obviously is) and also that the property was ‘taken in violation of international law.’” However, the claiming party “need not show as a jurisdictional matter that he, rather than someone else, owned the house,” for “that question is part of the merits of the case and remains “at issue.’”
Therefore, to successfully invoke the expropriation exception, both the property right and its violation under international law ought to be established “as near to the outset of the case as is reasonably possible.” In this respect, the Court addressed one of its main concerns on the interrelationship between the preliminary stage and the merits.
the Court “found nothing in the history of the statute that suggests Congress intended a radical departure from these basic principles” of restrictive immunity
Second, to support its interpretation, the Court turned to the legislative history and the preparatory works of the Statue. The Court observed that the FSIA was tailored “to reflect basic principles of international law, in particular those principles embodied in what jurists refer to as the ‘restrictive’ theory of sovereign immunity.” This, the Court explained, is why the FSIA“starts from a premise of immunity and then creates exceptions to the general principle” in cases arising out of “a foreign state’s strictly commercial acts.”
Further, the Court “found nothing in the history of the statute that suggests Congress intended a radical departure from these basic principles” of restrictive immunity. “To the contrary,” the Court stressed that the views of the US State Department on sovereign immunity and the position of the US before international bodies (for instance, the UN General Assembly) support its narrow interpretation of the expropriation exception.
Building on the above, the Court explained that the language, structure, and history of the FSIA reveal and corroborate the main objectives of this Statute, which is “to free a foreign sovereign from suit.” With respect to expropriation, the Court explained that a “sovereign’s taking or regulating of its own nationals’ property within its own territory is often just the kind of foreign sovereign’s public act that the restrictive theory of sovereign immunity ordinarily leaves immune from suit.”
Indeed, the Court recognized that there may be cases where a sovereign’s taking of its own nationals’ property allows recourse to the expropriation exception as it amounts to an expropriation that violates international law (roughly put, to be lawful under international law, expropriation must be for a public purpose, accompanied by due process, made on a non-discriminatory basis, and accompanied by “prompt, adequate and effective” compensation). “But,” the Court stressed, “such arguments are about whether such an expropriation does violate international law.”
On this point, the Court distinguished between two instances. According to the Court, “to find jurisdiction only where a taking does violate international law is consistent with basic international law and the related statutory objectives and principles” of the FSIA. “But to find jurisdiction where a taking does not violate international law (e.g., where there is a nonfrivolous but ultimately incorrect argument that the taking violates international law) is inconsistent with those objectives.”
Finally, the Court supported its decision by reference to broader policy considerations. In this framework, the Court noted that its interpretation of the expropriation exception provides clarity, which “is doubly important here where foreign nations and foreign lawyers must understand our law.” This clear interpretation, according to the Court, simplifies the legal standard and thus saves judicial time and minimizes the duration of litigation.
the Court considered the effect of its decision on the treatment of US nationals in foreign courts
Conversely, the “nonfrivolous-argument” interpretation would, in many cases, embroil the foreign sovereign in an American lawsuit for an increased period of time. It would substitute for a more workable standard (“violation of international law”) a standard limited only by the bounds of a lawyer’s (nonfrivolous) imagination. It would create increased complexity in respect to a jurisdictional matter where clarity is particularly important.
Additionally, and returning to its second concern in the oral proceedings, the Court considered the effect of its decision on the treatment of US nationals in foreign courts, and noted that the nonfrivolous-argument standard would generate “friction” with other states, and “that our grant of immunity to foreign sovereigns dovetails with our own interest in receiving similar treatment.” The Court also argued that this narrow interpretation respects the “absolute independence of every sovereign authority” and helps to “induc[e]” each nation state, as a matter of “international comity.”
Based on all the foregoing, the Supreme Court vacated the decision of the Court of Appeals and rejected the nonfrivolous-argument standard. The Court held that where the facts are not in dispute, “those facts bring the case within the scope of the expropriation exception only if they do show (and not just arguably show) a taking of property in violation of international law. Simply making a nonfrivolous argument to that effect is not sufficient.”
The Court then remanded the case to the lower courts “for further proceedings consistent with this opinion.” This means that to proceed with their claim against Venezuela, H&P and its subsidiary will now be required to demonstrate that they meet a significantly higher standard.
The practical effects and way forward
By setting out a more stringent standard this recent decision potentially reduces the prospects for successfully resorting to the expropriation exception under § 1605(a)(3). Thus arguably, the decision conforms to the Court’s aims and protects the general premise that the sovereign is immune from suit.
However, it remains to be seen whether the Court was right on the point of policy consideration and the treatment of US nationals abroad. Venezuela recently nationalized the property of several foreign investors, including US companies. Notable in this regard is the seizure of GM’s plant, an American multinational corporation headquartered in Detroit. The decision of the Supreme Court means that should GM (or other US entities) seek to sue Venezuela in US courts, they will be required to meet a new and higher standard, and will perhaps struggle to litigate in US courts.
Editors’ Note: This post first appeared on Letters Blogatory, and is reproduced with permission and thanks.