SIX DEGREE OF SEPARATION: AGENTS AND COMMERCIAL ACTIVITY IN THE
FOREIGN SOVEREIGN IMMUNITIES ACT IN OBB PERSONENVERKEHR AG V.
SACHS
DANIEL R. ECHEVERRI
INTRODUCTION
The foreign sovereign immunity doctrine has been a staple of both American common
law and international law since the founding.1 The Foreign Sovereign Immunities Act (“FSIA”)2
is the country’s modern law on the subject. The FSIA allows foreign sovereigns to be immune
from suit,3 provided they do not fall within a few exceptions.4 The “most significant of the
FSIA’s exceptions,” the commercial-activity exception,5 has become a significant point of
contention in the federal courts.6
OBB Personenverkehr AG v. Sachs7 presents two questions. First, what makes a claim
“based upon” a commercial activity.8 Second, what can the actions of non-sovereign entities be
attributed to foreign sovereigns with respect to the commercial-activity exception.9
1
See Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116, 136–47 (1812) (holding foreign
sovereign immunity, as exemplified in customary international law, applied to a vessel first
owned by American citizens that was then taken by the French military and converted into a
warship and therefore the former owners could not assert a claim for the ship).
2
Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602–11 (2005).
3
§ 1604.
4
See §§ 1605–1605A (establishing the exceptions to foreign sovereign immunity).
5
§ 1605(a)(2).
6
See Kirkham v. Societe Air France, 429 F.3d 288 (D.C. Cir. 2005); Sun v. Taiwan, 201 F.3d
1105 (9th Cir. 2000); Saudi Arabia v. Nelson, 507 U.S. 349 (1993); Republic of Argentina v.
Weltover, Inc., 504 U.S. 607 (1992).
7
135 S. Ct. 1172 (2015).
8
Compare Kirkham, 429 F.3d at 292 (“establish[ing] a fact without which the plaintiff will lose”
will suffice for the “based upon” requirement) with Kensington Int’l Ltd. v. Itoua, 505 F.3d 147,
156 (2d Cir. 2007) (holding the “based upon” requirement is satisfied when a “degree of
closeness” exists “between the commercial activity and the gravamen of the plaintiff’s
complaint”).
9
Compare First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba (Bancec), 462
U.S. 611, 629 (1983) (holding a foreign sovereign can be liable for actions performed by a stateowned corporation only when the entity is “so extensively controlled by its owner that a
relationship of principal and agent is created” or when blindly recognizing separate legal status
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This commentary will detail the facts of this case and then proceed with the legal
background of foreign sovereign immunity. Next, it will outline the Ninth Circuit’s en banc
holding. Then, it will sketch out each party’s arguments regarding the two issues on appeal.
Finally, it will analyze the competing arguments and conclude that the Supreme Court will likely
reverse the lower court, holding that although the claim is “based upon” a commercial activity,
the commercial activity of a separate entity cannot be imputed to the foreign state, and therefore
OBB is immune under the FSIA.
I.
FACTUAL AND PROCEDURAL BACKGROUND
OBB is the national rail service of Austria.10 It operates solely within the Republic of
Austria.11 OBB is an “agency or instrumentality” of Austria and therefore constitutes “a
sovereign state” under the FSIA.12 Along with other European rail services, OBB is a member of
the Eurail Group, an association organized under Luxemburg law.13 The Eurail Group markets
and sells rail passes for these European rail services,14 sometimes using third-party sales
agents.15 One such third-party sales agent is the Rail Pass Experts (“RPE”), a company based in
Massachusetts.16 There is no evidence that OBB is involved in the day-to-day activities of either
the Eurail Group or RPE.17
“would work fraud or injustice.”) with Kirkham, 429 F.3d at 290 (holding that a ticket sale
performed by a travel agency in the United States for a foreign sovereign’s state-owned airline is
considered a commercial activity in order to trigger liability under § 1605(a)(2)).
10
Sachs v. Republic of Austria, 737 F.2d 584, 587 (9th Cir. 2013) (en banc) cert. granted sub
nom. OBB Personenverkehr AG v. Sachs, 135 S. Ct. 1172 (2015).
11
Id.
12
Id. at 591; see 28 U.S.C. § 1603(a)–(b).
13
Id. at 587.
14
Id.
15
Brief for Petitioner at 11, OBB Personenverkehr AG v. Sachs, No. 13-1067 (Apr. 17, 2015).
16
Sachs, 737 F.2d at 587.
17
Brief for Petitioner, supra note 15, at 11.
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In March 2007, Carol Sachs purchased a Eurail pass from RPE’s website to travel in
Austria and the Czech Republic.18 In April, when Sachs tried to board the train, Sachs fell onto
the tracks while the train was moving, crushing her legs.19 A year later, Sachs filed suit against
OBB, OBB Holding, and the Republic of Austria.20 Plaintiff alleges five causes of action:
negligence, design defect, failure to warn, breach of implied warranty of merchantability, and
breach of implied warranty of fitness.21 The district court dismissed the action against OBB for
lack of subject matter jurisdiction because Sachs did not sufficiently show OBB was liable under
the commercial-activity exception.22 Sachs then appealed to the United States Court of Appeals
for the Ninth Circuit.23
A divided three-judge panel affirmed the lower court’s dismissal.24 On rehearing en banc,
the majority reversed the panel’s decision. OBB subsequently filed for a writ of certiorari with
the United State Supreme Court, which the Court granted on January 23, 2015.25
II.
LEGAL BACKGROUND
A. A Historical Overview of Foreign Sovereign Immunity
The first major use of foreign sovereign immunity emerged in The Schooner Exchange v.
McFaddon.26 Writing for a unanimous court, Chief Justice Marshall referred to customary
international law and comity in establishing the doctrine of sovereign immunity.27
18
Sachs, 737 F.2d at 587.
Id.
20
Id. at 588. The Republic of Austria was dismissed from the suit after Sachs failed to oppose its
motion to dismiss.
21
Id.
22
Id.
23
Id.
24
Id.
25
OBB Personenverkehr AG v. Sachs, 135 S. Ct. 1172 (2015).
26
11 U.S. (7 Cranch) 116 (1812).
27
Id. at 136–46.
19
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Until the FSIA, a two-step process determined sovereign immunity.28 A sovereign could
“request a ‘suggestion of immunity’ from the State Department,” which the executive branch
would grant if prudent.29 If the sovereign failed to request the suggestion from the State
Department, or it was denied, the court still could decide if the sovereign had immunity based on
“‘the established policy of the [State Department] to recognize .’”30
Initially, the State Department suggested immunity should extend to all “friendly foreign
sovereigns.”31 However, in 1952, the State Department switched to the “restrictive theory of
sovereign immunity.”32 This new theory states “a state is immune from the jurisdiction of foreign
courts as to its sovereign or public acts (jure imperii), but not as to those that are private or
commercial in character (jure gestionis).”33
B. The FSIA Emerges
The FSIA was created for “two well-recognized and related purposes,” which are (1)
“adoption of the restrictive view of sovereign immunity” and (2) “codification of international
law at the time of the FSIA’s enactment.”34 With this, Congress established “a comprehensive set
of legal standards governing claims of immunity in every civil action against a foreign state or its
political subdivisions, agencies or instrumentalities.”35
28
Samantar v. Yousuf, 560 U.S. 305, 311 (2010) (citing Ex parte Peru, 318 U.S. 578, 587–89
(1943)).
29
Id. (citing Ex parte Peru, 318 U.S. at 581, 588).
30
Id. at 312 (quoting Republic of Mexico v. Hoffman, 324 U.S. 30, 36 (1945)).
31
Verlinden B.V. v. Centr. Bank of Nigeria, 461 U.S. 480, 487 (1983).
32
Letter from Jack B. Tate, Acting Legal Adviser, Department of State, to Acting Attorney
General Philip B. Perlman (May 19, 1952), reprinted in 26 Dep’t of State Bull. 984–85 (1952).
33
Saudi Arabia v. Nelson, 507 U.S. 349, 359–60 (1993) (citing Verlinden at 487).
34
Permanent Mission of India to the United Nations v. City of New York, 551 U.S. 193, 199
(2007).
35
Verlinden, 461 U.S. at 488.
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The FSIA establishes sovereign immunity for all foreign sovereigns,36 unless the case
falls under an exception. “The most significant of the FSIA’s exceptions . . . is the ‘commercial’
exception of § 1605(a)(2).”37 This exception is divided into three clauses. In particular, for the
present case, the first clause of this subsection allows a foreign state to be sued in a case “in
which the action is based upon a commercial activity carried on in the United States by the
foreign state.”38 The second clause allows for liability in a case where the action is based upon
“an act performed in the United States in connection with a commercial activity of the foreign
state elsewhere,” while the third clause requires the action be based upon “an act outside the
territory of the United States in connection with a commercial activity of the foreign state
elsewhere and that act causes a direct effect in the United States.”39
The Act defines “commercial activity” as “a regular course of commercial conduct or a
particular commercial transaction or act. The commercial character of an activity shall be
determined by reference to the nature of the course of conduct or particular transaction or act,
rather than by reference to its purpose.”40 Furthermore, the FSIA defines “commercial activity
carried on in the United States by a foreign state” as a commercial activity that (1) is “carried on
by such state” and (2) has “substantial contact with the United States.”41
A “foreign state” includes not just a government but also “an agency or instrumentality of
a foreign state.”42 An “agency or instrumentality of a foreign state” must have three
characteristics: it must be “a separate legal person, corporate or otherwise”; it must be “an organ
36
Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1604 (2005).
Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 611 (1992).
38
§ 1605(a)(2).
39
§ 1605(a)(2).
40
§ 1603(d).
41
§ 1603(e).
42
§ 1603(a).
37
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of a foreign state or political subdivision thereof, or a majority of whose shares or other
ownership interest is owned by a foreign state or political subdivision thereof”; and it can be
“neither a citizen of a State of the United States as defined in section 1332(c) and (e) of this title,
nor created under the laws of any third country.”43
C. The “Based Upon” Requirement of the Commercial-Activity Exception
The Supreme Court has determined that a claim is “based upon” a commercial activity
where the commercial activity is part of “those elements of a claim that, if proven, would entitle
a plaintiff to relief under his theory of the case.”44 This does not mean that “each and every
element of a claim [must] be commercial activity by a foreign state.”45 Exactly how close the
commercial activity must be to the claim has been debated among the circuit courts.46 Some
courts have held that a claim is based upon a commercial activity “so long as the alleged
commercial activity establishes a fact without which the plaintiff will lose.”47 Others have held
that the claim is only based upon the commercial activity “when there exists ‘a degree of
closeness’ between the gravamen of the plaintiffs’ complaint and the commercial activities
engaged in by the foreign state or instrumentality.”48
D. Attribution and Agency for the Commercial-Activity Exception
The determination of what is a commercial activity “by a foreign state” becomes a more
complex question when it concerns attributing actions of entities or persons who are not
considered part of the foreign state to the state for liability.49 When faced with the question of
43
§ 1603(b).
Saudi Arabia v. Nelson, 507 U.S. 349, 357 (1993).
45
Id. at 358 n.4.
46
Compare Kirkham v. Societe Air France, 429 F.3d 288, 292 (D.C. Cir. 2005) with EM Ltd. v.
Banco Central De La Republica Argentina, No.13-3819-cv, 2015 WL 5090694, at *11 (2d Cir.
Aug. 31, 2015).
47
Kirkham, 429 F.3d at 292 (emphasis added).
48
EM Ltd. at *11 (emphasis added).
49
See Barkanic v. Gen. Admin. of Civil Aviation of China, 822 F.2d 11, 13 (2d Cir. 1987).
44
Page 6 of 22
attribution for the commercial-activity exception, circuit courts have used either the Bancec test
or have looked to common law principles of agency.50
In First National City Bank v. Banco Para El Comercio Exterior de Cuba,51 the Court
held that although “government instrumentalities established as juridical entities distinct and
independent from their sovereign should normally be treated as such,”52 this presumption may be
overcome in two circumstances under traditional corporate law principles.53 First, it may be
ignored “where a corporate entity is so extensively controlled by its owner that a relationship of
principal and agent is created.”54 Second, the Court may pierce the veil “‘when to do so would
work fraud or injustice.’”55 This two-prong theory of liability is often referred to as the “alter
ego” theory.56
On the other hand, traditional agency law finds that an agency relationship exists when
there is “manifestation of consent by one person to another that the other shall act on his behalf
and subject to his control, and consent by the other so to act.”57 This relationship “does not
depend upon the intent of the parties to create it, nor their belief that they have done so. To
constitute the relation, there must be an agreement, but not necessarily a contract, between the
parties.”58 Furthermore, when an agent has more than one principal, it may “in any particular
50
Compare Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 535 (5th Cir. 1992) with Kirkham,
429 F.3d at 292.
51
(Bancec), 462 U.S. 611 (1983).
52
Id. at 626.
53
Id. at 629.
54
Id. (citing NLRB v. Deena Artware, Inc., 361 U.S. 398, 402–404 (1960)).
55
Id. (quoting Taylor v. Standard Gas Co., 306 U.S. 307, 322 (1939)).
56
EM Ltd. v. Banco Central De La Republica Argentina, No.13-3819-cv, 2015 WL 5090694, at
*6 (2d Cir. Aug. 31, 2015).
57
Restatement (Second) of Agency § 1(1) (1958).
58
Id. at cmt. b.
Page 7 of 22
matter, act as an agent on behalf of only one principal.”59 However, these “relationships among
agents and multiple principals do not exist unless the parties manifest assent or otherwise consent
to their creation.”60
The Supreme Court has dealt with attribution and the FSIA in two other recent cases. In
Dole Food Co. v. Patrickson,61 several chemical companies, which at one point in time were
partially owned by Israeli state-owned companies, tried to find sovereign immunity as
instrumentalities of Israel. The Court rejected this because it would “ignore corporate formalities
and use the colloquial sense of [the] term [ownership].”62 Mere subsidiaries “of an
instrumentality [are] not [themselves] entitled to instrumentality status” under the FSIA.63
In Samantar v. Yousuf,64 the ex-Prime Minister of Somalia asserted the FSIA applied to
him as a former official of the foreign sovereign through the definition of “agency or
instrumentality of a foreign state.”65 The Court rejected this argument because although
“petitioner’s interpretation is literally possible, [the] analysis of the entire statutory text
persuades [the Court] that petitioner’s reading is not the meaning that Congress intended.”66 The
Court held that because the definitional statute “refers to an organization, rather than an
individual,”67 “an official acting on behalf of the foreign state” cannot be considered an “agency
or instrumentality” for the purposes of foreign sovereign immunity.68
III.
HOLDING
59
Restatement (Third) of Agency § 3.14, cmt. b (2006).
Id.
61
538 U.S. 468 (2003)
62
Id. at 474.
63
Id. at 473.
64
560 U.S. 305 (2010).
65
Id. at 309.
66
Id. at 315.
67
Id.
68
Id. at 319.
60
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The Ninth Circuit, en banc, reversed the panel and held OBB was liable under the
commercial-activity exception of 28 U.S.C. § 1605(a)(2).69
The court first turned to the question of whether there was a commercial activity in the
United States. The majority opinion rejected OBB’s argument that an agent must first satisfy the
definition of “agency or instrumentality of a foreign state” under 28 U.S.C. § 1603(b) before
applying the common law principles of agency.70 The court found that the definitional statute
had nothing to do with the question of attributing RPE’s actions to OBB.71 The definition of
“agency or instrumentality of a foreign state” is meant to determine “what type of entity can be
considered a foreign state for purposes of claiming sovereign immunity,”72 not “whether the acts
of an agent can be imputed to a foreign state for the purpose of applying the commercial-activity
exception.”73
Therefore, the court looked to “traditional theories of agency” to determine if there was a
relationship between OBB and RPE.74 The majority found that because the Eurail Group sells
tickets for OBB and because Eurail uses subagents for some of these sales, “Eurail Group’s use
of these subagents establishes a legal relationship between OBB (the principal) and RPE (the
subagent).”75 Based on common law principles of agency, the majority found that RPE’s ticket
69
Sachs v. Republic of Austria, 737 F.2d 584, 603 (9th Cir. 2013) (en banc) cert. granted sub
nom. OBB Personenverkehr AG v. Sachs, 135 S. Ct. 1172 (2015).
70
Id.
71
Id. at 595.
72
Id.
73
Id. (citing Gates v. Victor Fine Foods, 54 F.3d 1457, 1460 n.1 (9th Cir. 1995)).
74
Id. at 593.
75
Id.
Page 9 of 22
sale to Sachs could be attributed to OBB through the Eurail Group.76 Thus, OBB “carried on
commercial activity in the United States.”77
The court then turned to the question of “whether the claims of Sachs are ‘based upon’
this commercial activity” or on her injuries that occurred in Austria.78 The court held the “based
upon” requirement is satisfied “if ‘an element of [her] claim consists in conduct that occurred in
commercial activity carried on in the United States.’”79 Furthermore, the majority looked to each
of Sachs’s five claims and found they were all based upon OBB’s commercial activity.80
Because Sachs’s claims are based upon this commercial activity and RPE’s ticket sale in
the United States can be attributed to OBB based on common-law principles of agency, the Ninth
Circuit reversed and reinstated all five of Sachs’s claims.81
IV.
ARGUMENTS
A. OBB’s Arguments
First, OBB argues the “based upon” requirement of the commercial-activity exception
refers to the gravamen of the claim, and therefore Sachs’s claims fail because they are “based
upon” the accident in Austria.82 OBB then claims the commercial activity of the ticket sale was
not performed “by the foreign state” because RPE cannot be considered an agency of Austria
under the FSIA’s definition of “agency or instrumentality”83 or even under the Supreme Court’s
decision in Bancec.84 OBB submits the Court should reverse the Ninth Circuit’s decision.85
76
Id.
Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1605(a)(2) (2005).
78
Sachs, 737 F.2d at 599.
79
Id. (quoting Sun v. Taiwan, 201 F.3d 1105, 1109 (9th Cir. 2000)) (alteration in original)
(emphasis in original).
80
Id. at 600 (citation omitted).
81
Id. at 603.
82
Brief for Petitioner, supra note 15, at 28–38.
83
Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1603(b) (2005).
84
Brief for Petitioner, supra note 15, at 38–64
85
Id. at 64.
77
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The rail service reads the Court’s holding in Saudi Arabia v. Nelson86 to mean the “based
upon” requirement looks to “the gravamen of the complaint.”87 Therefore, Sachs’s claim is based
on her accident in Austria, not the ticket sale.88 OBB claims Sachs’s case is analogous to Nelson.
In Nelson, the plaintiff asserted the commercial-activity exception applied to his action regarding
his arrest, beating, and torture by foreign police because he signed a contract in the United
States.89 The Court held that “[w]hile [the contract] led to the conduct that eventually injured the
Nelsons, they are not the basis for the Nelsons’ suit.”90 Similarly, although Sachs’s ticket
purchase may have led to the injuries she sustained, this sale “is not the basis for her suit.”91 Her
injuries are based upon her activity on the train platform in Austria.92
OBB is concerned that if a ticket sale in the United States is the basis for tort claims
occurring outside the United States, then artful pleading will blur the clear legal lines.93 This
would then open up foreign sovereigns to the craftiness that the Court sought to avoid in
Nelson.94 OBB believes that Sachs’s claim “is merely a semantic ploy” to give her action some
semblance of legitimacy.95 The Court, in Nelson, refused “[t]o give jurisdictional significance to
this feint of language” because it “would effectively thwart the Act’s manifest purpose to codify
the restrictive theory of foreign sovereign immunity.”96
86
507 U.S. 349.
Brief for Petitioner, supra note 15, at 29 (quoting Nelson, 507 U.S. at 356).
88
Reply Brief for Petitioner at 4, OBB Personenverkehr AG v. Sachs, No. 13-1067 (July 28,
2015).
89
Nelson, 507 U.S. at 358.
90
Id.
91
Brief for Petitioner, supra note 15, at 32.
92
Id.
93
Brief for Petitioner, supra note 15, at 35.
94
Nelson, 507 U.S. at 363.
95
Id.
96
Id.
87
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OBB rejects Sachs’s “one-element” test97 because it would treat foreign sovereigns like
private parties, ignoring the whole purpose behind the FSIA and the restrictive theory of
sovereign immunity.98 Although the restrictive theory means sovereigns should be treated like
private parties when they perform private actions, “[i]t does not mean that foreign states and
private parties are treated alike for all purposes.”99
Even if Sachs’s claim is based upon the ticket sale, OBB argues RPE’s actions cannot be
imputed to it.100 OBB first asserts the FSIA controls first and foremost with respect to foreign
sovereign immunity.101 Therefore, the statutes should be the only controlling law with respect to
the issues presented before the Court.102
Because the FSIA is the “sole basis for obtaining jurisdiction over a foreign state,”103
OBB argues that the definition of “agency or instrumentality of a foreign state” under 28 U.S.C.
§ 1603(b) controls in this case.104 Under this definition, there is no room for common law
agents.105 RPE does not satisfy the definition of an agency under § 1603(b). If the plain language
of the statute controls, RPE is not an agency of Austria, and therefore its actions cannot be
attributed to OBB.
Alternatively, OBB argues that Bancec’s two-prong test should apply.106 If the Court is to
look outside the FSIA, then this “inquiry should be dictated by the precepts of the restrictive
97
See Brief for Respondent at 37–51, OBB Personenverkehr AG v. Sachs, No. 13-1067 (July 28,
2015).
98
Reply Brief for Petitioner, supra note 88, at 10–12.
99
Id. at 11 (emphasis in original).
100
Brief for Petitioner, supra note 15, at 38.
101
Id. at 25.
102
Id. at 26.
103
Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993).
104
Brief for Petitioner, supra note 15, at 41.
105
Id.
106
Id. at 50–55.
Page 12 of 22
theory of [foreign sovereign immunity] that Congress sought to codify.”107 Applying this test,
OBB does not have any control over RPE.108 The closest thing to a relationship between OBB
and RPE is that RPE may be “a subagent of an unidentified general sales agent accredited by the
Eurail Group, not OBB itself.”109 And even then, the Eurail Group is a group of thirty European
rail services, so it can hardly be said that OBB exercised sufficient control over the Eurail Group
to attribute liability to the Austrian railroad.110 Furthermore, OBB did not set up this relationship
in order to “work fraud or injustice”; in fact, “there [is] no evidence that OBB even knew RPE
existed prior to the filing of this suit.”111
Finally, OBB argues that the Ninth Circuit’s holding would lead to an inconsistent
application of jurisdiction between foreign sovereigns and foreign private parties.112 The Court
held in Daimler AG v. Bauman113 that federal courts could not assert general personal
jurisdiction over a foreign company unless “that corporation’s ‘affiliations with the State are so
“continuous and systematic” as to render [it] essentially at home in the forum State.”114
However, under the Ninth Circuit’s holding in this case, courts may assert jurisdiction over a
foreign state if somehow there is a connection between it and another company that markets in
the United States.115 If the Ninth Circuit’s holding persists, it “would create the untenable
107
Id. at 50.
Id. at 53 (“there is no evidence, or even allegation, that OBB exercised any degree of direction
or control, or element of control, over RPE.” (emphasis in original)).
109
Id. (emphasis in original).
110
Id.
111
Id.
112
Id. at 61–64.
113
134 S. Ct. 746 (2014).
114
Id. at 761 (citation omitted) (alterations in original).
115
See Brief for Petitioner, supra note 15, at 61 (“‘[a] foreign-state owned common carrier, such
as a railway or airline, engages in commercial activity in the United States when it sells tickets in
the United States through a travel agent.’” (quoting Sachs v. Republic of Austria, 737 F.2d 584,
108
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anomaly that it is easier for a plaintiff to obtain jurisdiction in the courts of the United States
over a foreign state than a foreign corporation.”116
Therefore, OBB contends the Ninth Circuit’s holding should be reversed.117
B. Sachs’s Arguments
Sachs contends that the “based upon” requirement is either satisfied by a general “course
of conduct” that has substantial contact with the United States118 or the one-element test.119
Sachs also asserts that common law agency principles require that RPE’s ticket sale be attributed
to OBB, which satisfies the “commercial activity” requirement.120
Plaintiff-Respondent offers that the term “activity” in “commercial activity” “directs
courts to focus on OBB’s overall commercial railway enterprise, not just on any specific
commercial ‘act.’”121 Sachs arrives at this conclusion after comparing the first clause of the
commercial-activity exception, which is at issue here, with its sister clauses.122 Sachs attempts to
distinguish these clauses because the first clause is “based upon a commercial activity” while the
latter two are “based upon an act” related to commercial activity.123 Furthermore, “commercial
activity” is defined as “a regular course of commercial conduct.”124 Therefore, if this normal
course of commercial conduct has a substantial contact with the United States, it falls under the
commercial-activity exception.125
587 (9th Cir. 2013) (en banc) cert. granted sub nom. OBB Personenverkehr AG v. Sachs, 135 S.
Ct. 1172 (2015)) (alterations in original)).
116
Brief for Petitioner, supra note 15, at 63 (emphasis in original).
117
Id. at 64.
118
Brief for Respondent, supra note 97, at 24–36.
119
Id. at 37–51.
120
Id. at 12–23.
121
Id. at 24.
122
Id. at 24–27.
123
Id. at 24.
124
Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1603(d) (2005).
125
Brief for Respondent, supra note 97, at 25; see § 1603(e).
Page 14 of 22
Moreover, part of the definition of “commercial activity carried on in the United States
by a foreign state” is that it must have “substantial contact with the United States.”126 Therefore,
there is already a requirement for some geographical nexus in the first clause of the commercialactivity exception.”127 If “based upon” also included a geographical requirement, then “the
statute’s ‘substantial contact’ requirement would become superfluous.”128
Even if the Court rejects Sachs’s “general course of conduct” argument, she also claims
that Nelson requires only that “the act constitute[] one element of the plaintiff’s action.”129 Under
Nelson, the Court held that “based upon” referred to “those elements of a claim that, if proven,
would entitle a plaintiff to relief under his theory of the case.”130 In that case, none of the
elements of Nelson’s claims stemmed from the commercial activity of his employment contract,
and therefore the Court found his action did not satisfy the requirement.131 Although Sachs does
not contend that Nelson directly held the one-element test, the case also did not hold the
gravamen test was correct either.132
Sachs contends that in order to establish a clear, bright-line rule, “based upon” should be
read as a one-element test.133 Sachs believes that OBB’s gravamen test is unclear.134 If the
gravamen test is used, “courts [would need] to concoct an approach for determining the ‘gist or
126
28 U.S.C. § 1603(e).
Brief for Respondent, supra note 97, at 29.
128
Id.
129
Id. at 37 (citing Kirkham v. Societe Air France, 429 F.3d 288, 292 (D.C. Cir. 2005)).
130
Saudi Arabia v. Nelson, 507 U.S. 349, 357 (1993).
131
Id. at 358.
132
Brief for Respondent, supra note 97, at 39.
133
Id. at 40–41.
134
Id. at 43–44.
127
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essence’ of the lawsuit, with no clear guideposts at hand.”135 Therefore, Sachs’s claim is “based
upon” the ticket sale because it makes up the duty element of her claim.
Sachs believes that RPE’s ticket sale is attributable to OBB under the common law
principles of agency.136 Sachs rejects OBB’s contention that the FSIA’s definition of “agency or
instrumentality of a foreign state” governs the relationship between RPE and OBB because the
FSIA is only the sole basis for how to assert jurisdiction over the foreign state, not the entire
inquiry of the meaning of the exception.137 Furthermore, the FSIA is meant to codify the
restrictive theory of sovereign immunity, which “is designed to treat foreign states like private
actors when such states operate as ‘every day participants’ in the marketplace,” so the common
law on agency should apply.138 If foreign states decide to use agents, then “attributing the agents’
actions to the states ensures that all commercial actors in this country are treated alike.”139 Sachs
also rejects OBB’s suggestion of using the Bancec test because the facts of that case are not
directly analogous to the present case.140
Therefore, Sachs believes the Court should affirm the lower court.141
V.
ANALYSIS
135
Id. at 44. In response, OBB asserts that the one-element test would also lead to complexities
because it would “requir[e] courts to analyze the elements of each state law claim.” (Reply Brief
for Petitioner, supra note 88, at 13).
136
Brief for Respondent, supra note 97, at 12–23. In her brief, Sachs addressed the attribution
issue first and then turned to the “based upon” requirement because she believes “once one
properly focuses on the overall commercial activity involved, the precise meaning of ‘based
upon’ is irrelevant here.” Id. at 27.
137
Id. at 14 (citing Dole Food Co. v. Patrickson, 538 U.S. 468, 473–78 (2003)).
138
Brief for Respondent, supra note 97, at 15 (quoting H.R. Rep. No. 94-1487 at 7 (1976)).
139
Brief for Respondent, supra note 97, at 15.
140
Id. at 22.
141
Id. at 51.
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Although Sachs is correct in asserting that the “based upon” requirement should be
construed under the one-element test, RPE’s ticket sale should not be attributed to OBB under
the Bancec test for liability under the commercial-activity exception.
A preliminary issue emerges from the structure of the parties’ briefs: which questions
should be addressed first? While OBB claims that the “based upon” inquiry is the first step,142
Sachs asserts that the attribution issue is the first issue at hand.143 The Court should first decide
the “based upon” inquiry. This order is plainly part of the logical process laid out in Nelson: “We
begin our analysis by identifying the particular conduct on which the Nelsons’ action is “based”
for purposes of the Act.144 Therefore, as the most recent Supreme Court case on point, the Court
should continue to use this logic. Furthermore, if the Court determines that Sachs’s action is not
“based upon” a commercial activity, it makes no difference whether or not it is attributable to the
foreign sovereign.
A. Mincing Words: The “Based Upon” Requirement of the Commercial-Activity Exception
Sachs correctly asserts the one-element test, as applied on a claim-by-claim basis,
properly follows the Court’s holding in Nelson.
Sachs’s broad theory that “activity” suffices to establish that Sachs’s claim is based upon
a commercial activity because OBB is a rail service is erroneous. Although Sachs offers a clever
way of reading the statute, parsing the distinctions between “activity” and “act” with the clauses
of the subsection of the statute, her claim undermines the restrictive theory of sovereign
immunity. The theory allows for exceptions to sovereign immunity in “cases arising out of a
142
Brief for Petitioner, supra note 15, at 28 (quoting Saudi Arabia v. Nelson 507 U.S. 349, 356–
57 (1993)).
143
Brief for Respondent, supra note 97, at 27.
144
Nelson, 507 U.S. at 356.
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foreign state’s strictly commercial acts.”145 However, the presumption is that a foreign state is
immune from suit.146 Therefore, if “commercial activity” refers to a sort of general “course of
conduct,” as Sachs claims, then plaintiffs may file actions that are far less connected to the
United States.
For example, in Santos v. Compagnie Nationale Air France,147 the plaintiff asserted that
his claim was based on “Air France’s execution of an airplane lease in the United States with
[his] employer, American Trans Air.”148 The court found that his action, however, was not based
upon a commercial activity because this had nothing to do with his claim: “if it had been an El
Al or Alitailia employee who had been driving, Santos would [have sued] one of those airlines
instead.”149 Under Sachs’s broad theory, however, Santos’s claim would be based upon Air
France’s commercial activity of being an airline. Even though his claim has nothing to do with
being a passenger on an airline, and therefore he has no common carrier relationship with Air
France, Santos could bring suit against a foreign instrumentality simply because the sovereign
chose to operate an airline. This clearly undermines the narrow view of the restrictive theory.
Outside of Sachs’s broad theory, both parties agree that the language in Nelson controls
what “based upon” means.150 Sachs is correct that the one-element test should be the proper test
for the “based upon” requirement. This would, first off, keep in line with several circuit court
cases.151 OBB claims that the gravamen test is superior because it would avoid artful pleading.152
145
Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 487 (1983).
Nelson, 507 U.S. at 355.
147
934 F.2d 890 (7th Cir. 1991)
148
Id. at 892.
149
Id.
150
Brief for Petitioner, supra note 15, at 28–29; Brief for Respondent, supra note 97, at 37–38.
151
Kirkham v. Societe Air France, 429 F.3d 288, 292 (D.C. Cir. 2005); Barkanic v. Gen. Admin.
of Civil Aviation of China, 822 F.2d 11, 13 (2d Cir. 1987); Santos v. Compagnie Nationale Air
France, 934 F.2d 890, 892 (7th Cir. 1991).
146
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However, allowing the one-element test would not necessarily lead to the situation OBB
envisions. Indeed, if the plaintiff is required to show that at least an element of their claim is
based upon a commercial activity, then this establishes a closer connection between the cause of
action and the reason for liability.
The only issue with Sachs’s argument for the one-element test is that she argues that the
one-element test should apply to the entire lawsuit; if the plaintiff can assert one element of one
claim, then the entire action would be based upon a commercial activity.153 This argument does
in fact raise the issue of artful pleading OBB has contended. However, the Ninth Circuit’s
holding went through a claim-by-claim analysis of Sachs’s lawsuit.154 The Court should hold not
only that the one-element test is correct, but also that it should be performed on a claim-by-claim
basis.
B. It’s (Not Really) Complicated: Bancec, the FSIA, and the Relationship of OBB and RPE
Although Sachs should succeed on the “based upon” issue, OBB provides the correct
interpretation that Bancec’s two-prong test should apply.
OBB erroneously claims that the FSIA directly controls the attribution issue.155 The FSIA
“indisputably governs the determination of whether a foreign state is entitled to sovereign
immunity,”156 not if actions are attributable to it.157 This means that the FSIA is the “sole basis”
152
Brief for Petitioner, supra note 15, at 35 (citing Saudi Arabia v. Nelson, 507 U.S. 349, 363
(1993)).
153
Brief for Respondent, supra note 97, at 49.
154
Sachs v. Republic of Austria, 737 F.2d 584, 599–602 (9th Cir. 2013) (en banc) cert. granted
sub nom. OBB Personenverkehr AG v. Sachs, 135 S. Ct. 1172 (2015).
155
Brief for Petitioner, supra note 15, at 39.
156
Samantar v. Yousuf, 560 U.S. 305, 313 (2010).
157
Brief for Respondent, supra note 97, at 18.
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for determining if sovereign immunity applies to a particular entity, not “whether a principalagent relationship exists” between two separate entities.158
In fact, OBB cites to cases that precisely prove this point. In Dole Food Co. v.
Patrickson,159 the plaintiffs were not trying to attribute liability on a foreign sovereign; they
wanted to attribute their actions to the sovereign to seek immunity.160 Similarly, in Samantar v.
Yousuf,161 the ex-prime minister of Somalia was trying to seek foreign sovereign immunity under
the “agency or instrumentality of a foreign state” definition in 28 U.S.C. § 1603(b).162 The Court
used the statutory language in both cases because the defendants were trying to achieve
sovereign immunity, not because the plaintiffs wanted to attribute an agent’s actions in order to
exempt them from immunity.
On the other hand, Sachs’s assertion that common law agency rules apply to this case is
also wrong. Sachs argues that “[t]he FSIA is designed to treat foreign states like private actors
when such states operate as ‘every day participants’ in the marketplace.”163 However, this
argument puts the cart before the horse. The foreign sovereign is only treated like a private actor
when it falls under one of the FSIA exceptions. Sachs would have the Court treat a foreign
sovereign like a private actor in order to reach the FSIA exception. Common law principles
could only possibly apply if the foreign sovereign is already liable under an FSIA exception.
Sachs cannot use the restrictive theory in order to create a loophole in the FSIA.
OBB’s assertion to use the Bancec two-prong test to determine attribution is the one the
Court should use. Bancec correctly presumes that “government instrumentalities established as
158
Id.
538 U.S. 468 (2003).
160
Id. at 471.
161
560 U.S. 305 (2010).
162
Id. at 314–15.
163
Brief for Respondent, supra note 97, at 15 (quoting H.R. Rep 94-1487 at 7 (1976)).
159
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juridical entities distinct and independent from their sovereign should normally be treated as
such.”164 Furthermore, the first prong of Bancec focuses on the control the foreign sovereign
exerts over the entity.165 This allows for liability when the foreign sovereign is clearly acting
through the agent. Nonetheless, it also mitigates this liability; a foreign sovereign who has no
control over an entity cannot direct the entity to act on its behalf. If there is control under
Bancec, then the foreign sovereign has clearly assented to the relationship with the entity.
This case exemplifies the importance of this rule. The Ninth Circuit attributed RPE’s
ticket sale to OBB even though OBB had no control, or even knowledge, of RPE until the suit
was filed.166 However, RPE is a travel agent, working for the Eurail Group, of which OBB is one
member of thirty other rail services.167 Although it may be arguable that the Eurail Group’s
actions may be attributable to OBB because OBB at least has some control over that group, the
same cannot be said for RPE. RPE operates independently of OBB. RPE sells train tickets to
American citizens not just for OBB, but for other Eurail Group members. It is absurd to attribute
RPE’s commercial activity to OBB.
The second prong of Bancec clearly deals with Sachs’s that without the agency principles
from the common law, foreign states could use these non-attributable entities to operate in the
United States market without ever having to worry about liability.168 If a foreign sovereign is
abusing the corporate structure in order to “work fraud or injustice,” i.e. circumvent otherwise
First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba (Bancec), 462 U.S. 611,
626 (1983).
165
Id. at 630.
166
Brief for Petitioner, supra note 15, at 53.
167
Id. at 54.
168
Brief for Respondent, supra note 97, at 15.
164
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perfectly applicable liability, the Court should strike it down. Indeed, this was the exact outcome
of Bancec.169
Finally, OBB presents a strong argument when it compares the Ninth Circuit’s holding to
the Court’s recent decision in Daimler AG v. Bauman.170 There, the Court held that foreign
private companies could not be subject to general personal jurisdiction unless the entity’s
“‘affiliations with the State are so “continuous and systematic” as to render [it] essentially at
home in the forum State.’”171 The Court referenced the same concern for comity that OBB
proposes: “The Ninth Circuit, moreover, paid little heed to the risks to international comity its
expansive view of general jurisdiction posed.” 172 Therefore, if private companies cannot be held
under personal jurisdiction for their particular activities in the United States, it seems completely
anomalous to hold foreign sovereigns liable for activities performed by third-party entities that
the state has no control over.173
CONCLUSION
The Court’s precedent was unclear with respect to these two issues in the FSIA. Foreign
sovereign immunity is a doctrine of law that finely treads the line between the legal and the
political. The Court should keep this frame of reference in mind when it decides this case, just as
Chief Justice Marshall did in the first case of foreign sovereign immunity.174 The Court should
conclude that the “based upon” requirement should follow the one-element test under Nelson on
a claim-by-claim basis, but that Bancec should control the determination of attribution of a nonsovereign entity’s actions to a foreign sovereign.
169
Bancec, 462 U.S. at 632.
134 S. Ct. 746 (2014).
171
Id. at 761 (edits in original) (citation omitted).
172
Id. at 763.
173
Brief for Petitioner, supra note 15, at 63.
174
Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116 (1812).
170
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