Supreme Court To Consider Whether Austrian National Railway Subject To Tort Claims In U.S.

Contributed by Isabella C. Lacayo

We have often covered issues relating to jurisdiction over foreign defendants in suits filed in the United States, but the landscape can be even more complex when that foreign defendant is a sovereign nation that asserts immunity.  Indeed, the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602 et seq. (“FSIA”), governs where a United States court may assert subject matter jurisdiction over claims against a sovereign nation, its political subdivisions, agencies or instrumentalities. The FSIA presumes immunity for foreign sovereigns and lays out several specific exceptions under which plaintiffs may bring claims against them in U.S. courts.

There could be an entire blog devoted to these issues, which tend to be particularly sensitive since they touch on issues of foreign relations and international comity, but the Supreme Court recently agreed to hear an appeal that is particularly worth watching.  The case, OBB Personenverkehr AG v. Sachs, No. 13-1067, is an opportunity for the Supreme Court to clarify the requirements of the FSIA’s commercial activity exception.  The commercial activity exception provides that a foreign state and its instrumentalities are not immune from suit in the United States when the action is based upon: (i) a commercial activity carried on in the United States by the foreign state, (ii) an act performed in the United States in connection with a commercial activity of the foreign state elsewhere, or (iii) 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.  28 U.S.C. § 1605(a)(2).

In Sachs, a California resident brought a suit against OBB Personenverkehr AG, Austria’s national railway and a foreign sovereign instrumentality under the FSIA, in California federal court. The plaintiff had been seriously injured while attempting to board a train in Austria and asserted negligence, design defect, failure to warn, and breach of implied warranty claims.  She invoked the FSIA’s commercial activity exception to overcome the railway’s sovereign immunity, specifically the clause regarding commercial activity carried on in the United States by the foreign state.  The complaint claimed that the railway, by selling Eurail train tickets in the United States through a Massachusetts-based internet seller, was carrying on commercial activity in the United States.  In an en banc opinion, the Ninth Circuit reversed the appellate panel and the district court to hold that the internet ticket seller was an agent of the Austrian national railway and therefore the railway conducted enough commercial activity in the U.S. so as to deprive it of its sovereign immunity for purposes of the plaintiff’s claims.  The Ninth Circuit found no immunity even though there was no contractual relationship between the railway and the ticket seller, the ticket was for travel exclusively outside of the U.S., and the alleged tortious acts and injuries all took place in Austria.  The decision was accompanied by two dissenting opinions, one by Judge O’Scannlain, joined by Chief Judge Kozinzki and Judge Rawlison, and a separate one by Chief Judge Kozinzki.

In March 2014, the Austrian national railway submitted its petition for a writ of certiorari to the Supreme Court.  The railway argued that review was necessary because the Ninth Circuit inappropriately applied common law agency principles to the FSIA analysis and erred in finding that Sachs’ claims were “based upon” commercial activity in the U.S. instead of the allegedly tortious acts in Austria.  The decision, according to the railway, dramatically expand[ed] the basis for subject matter jurisdiction over claims against foreign sovereigns.

In May, after all the briefing by the parties was complete and briefs had been submitted by amici curiae, the Supreme Court asked the Solicitor General to present the views of the United States.  The United States filed its brief in December advising that “[f]urther review is not warranted . . .” even though it criticized several aspects of the Ninth Circuit’s decision.  For example, the United States noted that “[i]t [was] unclear [ ] whether the court was correct in concluding that [the internet seller] did in fact act as petitioners agent” and that the court “applied an overly permissive formulation of the based upon requirement.”  Despite the United States’ conclusion that the case does not warrant review, the Supreme Court granted the railway’s petition on January 23rd.

For any practitioner dealing with the FSIA, this is an exciting case because the Supreme Court has rarely, especially recently, decided FSIA issues.  The Supreme Court, though, has focused on jurisdictional issues with respect to foreign companies (see, e.g., our posts on jurisdiction over foreign defendants under the Alien Tort Statute here and here and our posts on general and specific jurisdiction over foreign manufacturers here and here).  The Supreme Court has made clear that U.S. courts must proceed carefully when there are foreign policy implications, such as comity interests, at stake.  See, e.g., Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, 1664, 1669 (2013) (The Supreme Court noted that “United States law governs domestically[,] but does not rule the world,” and warned that “other nations [ ] could hale [United States] citizens into their courts for alleged violations of the law of nations occurring in the United States, or anywhere else in the world.”).  There is no doubt that foreign relations could be greatly impacted by stripping a nation or its instrumentality of immunity for purposes of litigation.  Thus, it seemed only a matter of time before the Supreme Court stepped in to draw stricter boundary lines for the FSIA exceptions.  We do not yet know whether that will happen in this case, but  will be following closely and report on the outcome.