Issues
Whether Powerex Corp., a wholly owned subsidiary of a corporation that is wholly owned by the government of Canada, is an “organ” of Canada and, thus, entitled to the benefits of the Foreign Sovereign Immunities Act (FSIA), including the right to remove suits brought against them in state court to federal court. Also, whether the Ninth Circuit had jurisdiction to review the District Court’s remand order, despite the fact that 28 USC §1447(d) prohibits appellate review of an order remanding a case to the state court from which it is removed.
Alleging illegal manipulation of the electricity market, the State of California and individual energy customers (collectively, “California energy customers”), brought suit in California state court against Powerex Corp., a Canadian corporation that is wholly owned by a corporation that is—in turn—wholly owned by the Canadian government. Powerex removed the case to the United States District Court for the Southern District of California under the Foreign Sovereign Immunities Act (FSIA) which gives “organs” of foreign states the right to remove suits brought against them in state court to federal court. The District Court concluded that Powerex did not qualify as an “organ” of a foreign state under FSIA and remanded the case to state court. On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the District Court’s determination that Powerex is not an “organ” of a foreign state and thus not entitled to the benefits of the FSIA. In this case, the Supreme Court will likely provide a new test for determining what constitutes an “organ” of a foreign state under the FSIA. The Supreme Court will also decide the threshold question of whether the Ninth Circuit had jurisdiction to review the District Court’s remand.
Questions as Framed for the Court by the Parties
- Whether an entity that is wholly and beneficially owned by a foreign state’s instrumentality, and whose sole purpose is to perform international treaty and trade agreement obligations for the benefit of the foreign state’s citizens, may nonetheless be denied status as an “organ of a foreign state” under the Foreign Sovereign Immunities Act of 1976(FSIA), 28 USC § 1603(b)(2), based on an analysis of sovereignty that ignores the circumstances surrounding the entity’s creation, conduct, and operations on behalf of its government.
- Whether the Court of Appeals had jurisdiction to review the District Court’s remand order, notwithstanding 28 USC §1447(d).
Facts
The Petitioner, Powerex Corp. (“Powerex”), is a Canadian corporation wholly owned by BC Hydro, a Canadian corporation that is wholly owned by the Canadian government. Amicus Curiae Brief for the United States at 2. Powerex was assigned Canada’s rights under the Columbian River Treaty, which provides that the United States will reimburse Canada for releasing more water from Canadian dams than would be optimal for their own power-generating purposes, in order to maintain water levels in the United States. Id. Powerex is also responsible for providing power to the City of Seattle as required by the Skagit River Treaty. Id. at 3.
The Respondents, which include the State of California and individual energy customers (collectively, “California energy customers”), sued Powerex, BC Hydro, and others in California state court for alleged manipulation of the electricity market in violation of California state law. Id. Powerex and BC Hydro removed the case to federal district court under the Foreign Sovereign Immunities Act (FSIA) which gives “organs” of foreign states the right to remove suits brought against them in state court to federal court. Id. at 4. The California energy customers moved to remand the case to state court, arguing that Powerex could not remove under the FSIA because it was not an “organ” of Canada. Id. The District Court concluded that, indeed, Powerex did not qualify as an “organ” of a foreign state under FSIA and, thus, remanded the case to state court. Id.
On appeal, the United States Court of Appeals for the Ninth Circuit held that 28 USC §1447(d) did not bar appellate review because §1447(d) only barred review of cases remanded by the district court for procedural error, and that this case was correctly removed to federal court because the co-plaintiff, BC Hydro, was deemed an “organ” of a foreign state. Id. at 5. The Ninth Circuit also affirmed the district court’s determination that Powerex is not an “organ” of a foreign state, giving greater weight to Powerex’s degree of independence from the Canadian government, lack of financial support from the Canadian government, and lack of special privileges or obligations under Canadian law than to other factors. Id. at 5-6.
In its petition for certiorari to the Supreme Court, Powerex argued that the Ninth Circuit’s analysis of what constitutes an “organ” of a foreign state under the FSIA is a departure from Supreme Court precedent, congressional intent, and will interfere with the United States’ obligations under the North American Free Trade Agreement (NAFTA). See Petition for Writ of Certiorari at 11-13. The Supreme Court will not only address whether Powerex is an “organ” of a foreign state under the FSIA, but also whether the Ninth Circuit had jurisdiction to review the District Court’s remand in the first place.
Analysis
Law at Issue
The statute in question, the Foreign Sovereign Immunities Act (FSIA), affords jurisdictional and procedural protections to foreign states and their agencies and instrumentalities. See 28 USC § 1391(f). Specifically at issue in this case is the FSIA’s stipulation that a “foreign state” may remove suits brought against it in state court to federal court. Id. § 1441(d). Under the FSIA, a “foreign state” entitled to such removal includes any “agency or instrumentality of a foreign state.” Id. § 1603(a). The FSIA defines an “agency or instrumentality of a foreign state” as any entity that “is a separate legal person, corporate or otherwise;” “is an organ 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 “is neither a citizen of a State of the United States” nor “created under the laws of any third country.” Id. § 1603(b). At issue in this case is whether Powerex is an “organ” of British Columbia, a “political subdivision” of the “foreign state” of Canada. See Brief for Petitioner at 14.
Also at issue in this case is whether the Ninth Circuit had appellate jurisdiction to hear the appeal from the district court. Id. Specifically, the Supreme Court has ordered the parties to address the applicability of 28 USC § 1447(d), which states that an “order remanding a case to the State court from which it is removed is not reviewable on appeal or otherwise.” Id.
Appellate Jurisdiction
Powerex argues that the Ninth Circuit correctly concluded that it had appellate jurisdiction, notwithstanding 28 USC §1447(d), because that section only applies when the remand by the district court was authorized by section 1447(c). SeeBrief for Petitioner at 19. Section1447(c), Powerex maintains, authorizes district courts to remand cases when there is a defect either in removal procedure or subject-matter jurisdiction at the time of removal. See id. Powerex deduces that because the district court concluded that the entire action was properly removed from state court, section 1447(d) does not apply in this instance. See id.
The California energy customers counter that although the district court did not expressly cite section 1447(c) in its initial order, the district court said numerous times that it was remanding for lack of subject matter jurisdiction. See Brief of Plaintiffs-Respondents at 12-13. The California energy customers maintain that Supreme Court precedence makes it clear that when the district court concludes that it has no jurisdiction, there can be no appeal to review the correctness of the jurisdictional remand. See id. at 8, citing Kircher v. Putnam Funds Trust, 126 S. Ct. 2145 (2006).
Powerex’s Status as an “Organ” of a Foreign State
Furthermore, Powerex argues that in enacting the FSIA, Congress intended the term “organ” to encompass a wide variety of foreign governmental entities with many different ownership structures, including the structure utilized at Powerex. See Brief for Petitioner at 21. Powerex concludes that when interpreting the term “organ,” the courts have traditionally looked to many factors to determine whether the entity serves in a national interest or for a public purpose, including the manner of the entity’s creation, its purpose, government supervision of the entity, financial support from the government, and the entity’s obligations and privileges under the foreign law. Id. at 24. Powerex maintains that the Ninth Circuit erred by disregarding evidence that Powerex fulfills a public purpose and instead utilizing a new “mechanical and circumscribed” inquiry that failed to consider all relevant factors, thus deviating from Congress’s intent to afford the FSIA’s protections in a wide variety of governmental entities. See id. at 33.
Powerex asserts that the circumstances of Powerex’s creation and operation demonstrate that it is an “organ” of Canada. Id.at 25. Powerex explains that the Province of British Columbia directed BC Hydro, a corporation wholly-owned by the Province, to create Powerex to serve as the exclusive exporter of Provincial hydropower. Id. Furthermore, its revenue does not result in any private profit because neither BC Hydro nor Powerex has any private shareholders. Id. at 26. Powerex highlights that Provincially appointed BC Hydro directors control Powerex’s board of directors, that the corporation’s risk management committee reports to British Columbia’s Ministry of Finance, and that the Provincial Treasury Board can regulate the corporation’s capital expenditures. Id. at 28-29, 30. Finally, Powerex claims that it receives significant benefits under Canadian and Provincial law, including being exempt from federal and Provincial income tax, eligible for loans from the Province, and able to request that land owned by the government be reserved for Powerex’s use. Id. at 31-32.
Countering Powerex, the California energy customers argue that in drafting the FSIA, Congress sought to provide a balance between an injured private party and a foreign state-related defendant. See Brief of Plaintiffs-Respondents at 37. Thus, Congress intended entities seeking “organ” status to demonstrate not only that they perform a specific governmental function, but also that the foreign government exercises meaningful control over them. Id. The California energy customers conclude that the Ninth Circuit carefully weighed the facts and properly found Powerex’s evidence wanting. See id. at 47.
The California energy customers explain that because Powerex functions like an independent, for-profit private enterprise, it is not an “organ” of British Columbia. See id. at 38. Specifically, the California energy customers cite that Powerex’s function is not to manage a Provincial resource, as BC Hydro does, but simply to sell surplus power at the highest possible price. Id.at 39. The California energy customers also maintain that the so-called benefits that Powerex says it is afforded under Canadian law are afforded to normal private corporations, in one form or another, and that the regulations Powerex says it must submit to are no different than those required of other non-governmental entities. Id. at 43-44. Finally, the California energy customers insist that Powerex’s employees are not civil servants, but rather share in Powerex’s profits through a bonus plan. Id. at 45. Given the forgoing factors, they determine that the Ninth Circuit could not have ruled that Powerex is an “organ” of British Columbia. See id. 47.
Discussion
In its attempt to overturn the Ninth Circuit’s finding, Powerex argues that the FSIA’s text and Supreme Court precedent show that in deciding whether an entity is an “organ” of a foreign state, a court should take into account a wide range of factors to determine whether the entity serves a public purpose. See Brief for Petitioner at 18. Powerex maintains that by finding only three factors dispositive (degree of independence from the State, lack of financial support from the State, and lack of special privileges or obligations under the State’s law), the Ninth Circuit departed from this broader, “fact-sensitive” analysis provided for in the FSIA’s text and Supreme Court precedent. See id. at 18-19. Powerex asserts that under such a “fact-sensitive” analysis, Powerex is clearly an “organ” of Canada. Id. at 18. To support its claim that it serves a public purpose, Powerex cites that it fulfills Canada’s obligations under both the Columbia River Treaty and the Skagit River Treaty; that its activities benefit only the public treasury and the customers of the Canadian public utility, BC Hydro; and that Canadian law imposes obligations on and provides benefits to Powerex that are not incurred or received by private business. See id. at 19.
The California energy customers argue that the Ninth Circuit did not adopt a new or different test for determining what constitutes an “organ” of a foreign state under the FSIA, but merely found that the district court did not err in applying the normal test provided by Supreme Court precedent. See Brief of Plaintiffs and Respondents in Opposition to the Petition at 8. Specifically, the California energy customers explain that the Ninth Circuit chose to highlight which of the “wide range of factors” supported the district court’s conclusion. See id.
Because the Supreme Court’s decision will have serious implications on the rights of certain types of entities wholly owned by foreign states, both the United States and Canada have filed amici briefs. Canada argues that determination of sovereign status is governed by rules of customary international law. See Brief Amicus Curiae for Canada at 3. Canada maintains that the rules of customary international law define “state agencies” as including entities that “are entitled to perform and are actually performing acts in the exercise of sovereign authority of the State.” Id. at 9. Canada asserts that Powerex’s activities relating to the performance of Canada’s treaty obligations are included in this definition. See id. The United States also argues that Powerex is an “organ” of Canada. See Amicus Curiae Brief for the United States at 2. The United States maintains that a proper analysis of whether an entity is an “organ” of a foreign state should consider all factors that determine whether the entity serves a public purpose on behalf of its government. See id. at 6. Specifically, the United States argues that if the Ninth Circuit had given greater weight to the circumstances of Powerex’s creation and its close involvement with the wholly owned Canadian corporation, BC Hydro, the Court should have concluded that Powerex is an “organ” of the state as contemplated by the FSIA. See id. at 7.
If the Ninth Circuit’s ruling is upheld, private parties might be able to bring actions in state courts against a greater number of foreign state-related entities. See Brief for Petitioner at 37. An increased exposure to litigation could result in a reduction in the number of state-related entities doing business in the United States. See id. The trade conducted by state-related entities with the United States is substantial. Powerex alone exported energy to the United States worth more than $5.5 billion Canadian from 2000 to 2005. Id. Powerex argues that similarly situated wholesale power suppliers in the United States are considered sovereign entities, thus a determination by the Supreme Court that Powerex is not a sovereign entity could also disrupt the NAFTA, which requires the U.S. to provide foreign corporations with treatment no less favorable than it accords domestic corporations. See id. at 38-39.
Conclusion
Powerex Corp. v. Reliant Energy Services