Permanent Mission of India v. New York City (06-134)


Appealed from: United States Court of Appeals for the Second Circuit

Oral argument: April 24, 2007

International law, Foreign Sovereign Immunities Act, Diplomatic immunity

In April 2003, New York City brought actions against the Permanent Missions of India and Mongolia to the United Nations for unpaid property taxes. The Missions claimed that they were immune to suit under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq., but the Court held that it had jurisdiction under a statutory exception for cases in which rights in real property situated in the United States are in issue. In doing so, the Court interpreted the Act using the European Convention on State Immunity and the United Nations Convention on Jurisdictional Immunities of States and Their Properties. In this case, the Supreme Court will determine the most proper construction of the real property exception to sovereign immunity under the Act. Additionally, the Court will clarify whether the lower court’s use of international law to interpret a United States federal statute was appropriate.

Questions Presented

1. Does the exception to sovereign immunity for cases “in which ... rights in immovable property situated in the United States are in issue,” 28 U.S.C. § 1605(a)(4), provide jurisdiction for a municipality’s lawsuit seeking to declare the validity of a tax lien on a foreign sovereign’s real property when the municipality does not claim any right to own, use, enter, control or possess the real property at issue?

2. Is it appropriate for U.S. courts to interpret U.S. statutes by relying on international treaties that have not been signed by the U.S. Government and that do not accurately reflect international practice because they have only been signed by a limited number of other nations?

Issues

  1. Does the exception to sovereign immunity under the Foreign Sovereign Immunities Act for cases “in which . . . rights in immoveable property situated in the United States are in issue” provide jurisdiction to pass declaratory judgment on the validity of a tax lien?
  2. May U.S. courts appropriately consider international treaties in interpreting international law?

Facts

The Permanent Mission of India to the United Nations (Indian Mission) is located in a 26-floor building in Manhattan, New York City. New York v. Permanent Mission of Indian to the United Nations, 446 F.3d 365, 367 (2d Cir. 2006). The Mission maintains diplomatic offices on the first six floors and uses the remainder of the building to house diplomatic employees, their families, security personnel, and a driver. Id. Likewise, the Ministry for Foreign Affairs of the People’s Republic of Mongolia (Mongolian Mission) uses a six-story building in New York City partly to provide diplomatic offices and partly to quarter low-level diplomatic employees. Id. The Missions both claim that housing the lower-level officials is essential to the functioning of their missions. Id.

Under New York law, real property owned by a foreign government is exempt from state taxation to the extent that it holds diplomatic offices or residential space for an ambassador or minister plenipotentiary (i.e. one having full governmental authority) to the United Nations. N.Y. Real Property Tax Law § 418 (West 2006). If parts of the property are not used for such purposes, they are subject to taxation absent a contrary bilateral agreement between the United States and the particular country. Id.; see also Missions, 446 F.3d at 367. Only one of the four residential floors of the Mongolia Mission, and none of the residential floors of the Indian Mission, qualify for tax exemption under this definition. See Missions, 446 F.3d at 367.

Under its interpretation of New York law and governing treaty law, the City has been levying taxes against the missions for years. Id. Under New York law, these taxes eventually transform into tax liens held by the City against the missions. Id. The City claims that by February 1, 2003, the Indian Mission owed $16.4 million in unpaid property taxes and interest and the Mongolian Mission, $2.1 million. Id. Accordingly, and faced with a budget crisis, the City filed suit in state court on April 2, 2003 for declaratory judgment that the liens gave the City valid claims against the Missions. See id.; Thomas J. Lueck, Bloomberg Sues 4 Countries, Saying They Owe City $100 Million, N.Y. Times, Apr. 10, 2003, at D3. The missions removed the action to the Federal District Court of the Southern District of New York and moved to dismiss for lack of subject matter jurisdiction. Missions, 446 F.3d at 367–68. India and Mongolia argued that the missions were immune to suit in the United States under the Foreign Sovereign Immunities Act, 28 U.S.C. 1602 et seq. (2000)(“FSIA”). Id. at 368. The City responded that the FSIA provides an exception to sovereign immunity if the lawsuit implicates rights to immovable property situated in the United States. Id.; see also 28 U.S.C. § 1605(a)(4).

Ruling solely on the issue of jurisdiction, the court determined that the immovable property exception applied to this case and denied the motion to dismiss. Id. On interlocutory appeal to the U.S. Court of Appeals for the Second Circuit, India and Mongolia argued that the exception should apply only to suits in which the title, ownership, or possession of the immovable property itself is in question. Missions, 446 F.3d at 369. In contrast, the City urged that the exception applied more broadly to include actions to determine the validity of a tax lien. Id.

The Second Circuit agreed with the City and affirmed the district court. Id. at 377. According to Judge Kazan, the FSIA’s immovable property exception to foreign sovereign immunity extended not only to (a) suits addressing a foreign country’s rights to or interest in property situated in the United States, but also to (b) suits addressing the country’s use or possession of such property or (c) the country’s obligations “arising directly” out of these rights to or use of such property. Id. at 375. The Court came to this conclusion after referring to the language of the Act, id. at 370, its legislative history, id. at 371, recent legislation that authorized the Secretary of State to deduct from foreign aid an amount equal to 110% of real property tax judgments, see Foreign Operations, Export Financing, and Related Programs Appropriations Act of 2006, Pub. L. 109–102, 119 Stat. 2172 (Appropriations Act), and the Restatement (2nd) on Foreign Relations Law. Missions, 446 F.3d at 371–72.

The Second Circuit’s interpretation of the FSIA also relied heavily on international treaties. In particular, Judge Kazan sought guidance from the European Convention on State Immunity, May 16, 1972, ETS No. 74, art. 9 (European Convention), which he claimed was “presumably known” to the drafters of the FSIA, and the United Nations Convention on Jurisdictional Immunities of States and Their Property, adopted by U.N. General Assembly on December 2004 (U.N. Immunities Convention). Id. at 372–73. The United States is not a party to either the European Convention or the U.N. Convention, see Brief for United States as Amici Curiae in Support of Petitioners at 7, and the U.N. Convention has not yet come into force, id. at 373, n. 10. On January 19, 2007, the Supreme Court granted certiorari on the issue of jurisdiction under the FSIA.

Discussion

Swedish diplomat Hans Blix has said that international cooperation is indispensable; U.S. diplomat Benjamin Franklin has said that nothing is certain but death and taxes. Taking what is indispensable and what is certain together, it is not surprising that a primary engine of international cooperation by the United States—the foreign mission to the United Nations—nevertheless is subject to certain tax obligations to its host state. In Permanent Mission of India v. New York, the Supreme Court will clarify which of these obligations are valid and which interpretive tools the Court may permissibly employ to determine this issue.

FOREIGN SOVEREIGN IMMUNITIES ACT

The Foreign Sovereign Immunities Act, 28 U.S.C. 1602 et seq. (2000), provides the exclusive basis for civil jurisdiction against a foreign nation and its agencies. See Michael D. Murray, Jurisdiction Under the Foreign Sovereign Immunities Act for Nazi War Crimes of Plunder and Expropriation, 7 N.Y.U. J. Legis. & Pub. Pol’y, 102 (2004). The FSIA codified customary international law binding sovereign states to waive jurisdiction over one another in order to promote international cooperation. See id. Nonetheless, the FSIA is similar to but distinct from law immunizing foreign diplomats for criminal violations on U.S. soil. See id. Under state law, the peace-promoting rationale for sovereign immunity extends to freedom from tax liability for foreign diplomatic missions engaging in necessary diplomatic activity. See, e.g., N.Y. Real Property Tax Law § 418 (West 2006)(waiving tax liability for office space and residence of high-ranking officials of foreign missions to the United Nations).

However, the FSIA provides an exception to tax immunity for cases in which “rights in immovable property situated in the United States are in issue.” 28 U.S.C. § 1605(a)(4). The exception reflects a fundamental principle of international law: that a sovereign state enjoys jurisdiction over every physical thing within its territory but retains no jurisdiction over any physical thing beyond its territory. See Pennoyer v. Neff, 95 U.S. 714, 722 (1877). The Indian and Mongolian Missions argue that the immovable property exception should be read narrowly to not apply to actions addressing the validity of tax liens because such actions do not put rights to the property “in issue.” Brief for Petitioners at 8. But New York believes that Congress intended the exception to permit jurisdiction in such cases. Brief for Respondent at 5.

Accordingly, a Supreme Court decision will clarify the permissible tax-exempt uses of mission property under the FSIA. However, given the Appropriations Act, the decision might have limited impact, as this Act directly permits state action against foreign governments with outstanding tax liability. See Pub. L. 109–102, 119 Stat. 2172. More broadly, an outcome favorable to the City could impact the ability of foreign missions to operate effectively by compelling them either to pay taxes if they maintain quarters for lower-level staff or else to downsize the number of such staff.

INTERNATIONAL LAW AS INTERPRETIVE TOOL

In addition to contesting the Second Circuit’s broad reading of the FSIA’s immovable property exception, the Missions argue that the court erred in referencing international treaties to give content to this exception. See Brief for a Writ of Certiorari at 10–16. Whether and under what circumstances courts of the United States should employ international law to determine the substance of U.S. law is the subject of a lively debate about Supreme Court jurisprudence. See e.g., Justice Antonin Scalia and Justice Stephen Breyer, Debate at U.S. Ass’n of Constitutional Law Discussion (Jan. 13, 2005). Following a recent decision by the High Court rejecting an interpretation by the International Court of Justice of a treaty for which the International Court had compulsory jurisdiction, see Sanchez-Llama v. Oregon, Nos. 04-10566 and 05-51 (2006), this debate has gained momentum among both opponents and proponents of use of such law. Interestingly, neither the Missions nor the State of New York addressed in their briefs the issue of what role international law should play in the interpretation of U.S. law, likely because both sides rely in part on arguments supported by international treaties.

The issue of the proper role of international law has split the Supreme Court Justices along ideological lines. On one end, Justice Ginsburg proposes that the Court should actively employ international law to find “common denominators of fairness” between the two systems of law. Ruth Bader Ginsburg, A Decent Respect to the Opinions of [Human]kind: The Value of a Comparative Perspective in Constitutional Adjudication (Apr. 1, 2005). In the same camp, Justice Kennedy maintains that international law can give meaning to broad provisions of the U.S. Constitution, see Lawrence v. Texas, 539 U.S. 558, 576–77 (2003)(using English law to interpret the Fourteenth Amendment’s Due Process Clause), and Justice Breyer has argued that U.S. courts can aid developing democracies by citing them more often, see generally Debate. On the other end, Justices Roberts and Alito have expressed concern that judges deploy foreign or international law to inject personal preferences and “cloak them with authority.” See Judge Samuel Alito’s Nomination to the Supreme Court: Hearing Before the U.S. Senate Judiciary Committee, 108th Cong. (2006); Judge John Roberts’s Nomination to the Supreme Court: Hearing Before U.S. Senate Judiciary Committee, 108th Congress (2005). Similarly, Justice Scalia has consistently opined that the content of the U.S. Constitution should not be dictated by “foreign moods, fads, or fashions,” Lawrence, 539 U.S. at 598 (Scalia J., dissenting).

A decision in Permanent Mission of India could illuminate which use of international law is permissible and under what circumstances a treaty can be said to authoritatively espouse international law. Because the European Convention was ratified just prior to the FSIA, the Second Circuit argued that the drafters of the FSIA intended that it should capture the Convention’s provisions. Missions, 446 F.3d at 372. In comparison, the U.N. General Assembly adopted the U.N. Convention in 2004, nearly three decades after the drafting of the FSIA. Thus, the Second Circuit possibly referred to the Convention, not to decipher the intent of the FSIA drafters, but rather to advocate that the meaning of the FSIA should change over time to reflect international practice. Missions, 446 F.3d at 373–74. Therefore, the Court’s disposition on the different treaties could clarify which uses of international law are appropriate and which uses are inappropriate.

A decision in this case could also provide guidance regarding the level of acceptance a treaty must reach to authoritatively reflect international law. The European Convention has only been signed by a handful of the members of the Council of Europe and the U.N. Convention has not yet entered into force. See Brief for Petitioner at 23–24. Thus, if the Court finds for New York and affirms the use of the treaties to define the FSIA, it will signal that the Court is increasingly willing to look beyond the nation’s borders for guidance on domestic law, at least where such law purports to be codifying international practice.

Analysis

FOREIGN SOVEREIGN IMMUNITIES ACT—AMBIGUOUS?

Interpretation of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. (2000)(“FSIA”) is the core of the dispute before the Court. Congress passed the FSIA in 1976 to facilitate effective and de-politicized action against foreign states in order to preserve diplomatic relations. See generally William H. Hanz, Foreign Sovereign Immunities Act of 1978 With Amendments: A Legislative History of Pub. L. No. 94-583 (2000). The Act clarified the circumstances under which aggrieved parties could proceed against foreign states, states could invoke foreign immunity as a defense to such actions, and prevailing parties could satisfy judgments against states. See id. The FSIA codified the “restrictive” theory of sovereign immunity, which extends only to a state’s public acts and not to the state’s commercial activities. See id.; see also 28 U.S.C. § 1602 (2000).

The FSIA provides broad immunity to sovereign states. See 28 U.S.C. § 1604 (2000). Nonetheless, courts can refuse to immunize states in any case in which there is waiver, violation of international law, arbitration, certain tort and terrorism-related activities, or “rights in immovable property situated in the United States are in issue.” See 28 U.S.C. § 1605 (2000). The question of what Congress meant by “in issue”—and what law can be permissibly used to decipher this intent—are the two principal issues before the Court.

MISSIONS’ ARGUMENTS

Congressional Intent: Plain Language

The Missions argue that sovereign immunity should apply unless there is a specific exception. See Brief for Petitioner at 14. Given the plain language of the real property exception, which authorizes jurisdiction only when rights are “in issue,” the exception does not cover action for tax enforcement because such action does not put rights to property “in issue.” Instead, the case must challenge a party’s rights of ownership, use, control, possession or occupancy of the property or allow another to disturb or encroach upon those rights. See id. at 14-15. If Congress wanted the provision to apply to “obligations arising directly out of such rights,” as the Court of Appeals held, Congress would have been more clear. See id. (internal quotations omitted). Indeed, the Missions point out, Congress addressed immunity for any claim “arising out” of malicious prosecution, abuse of process, and similar wrongs in the very next subsection of the FSIA. See id. at 15–16.

The Missions next contend that the Second Circuit’s reading of legislative history to expand the real property exception to “obligations arising under” the FSIA incorrectly interpreted this history. See id. at 29–37. According to the Missions, the House Report passages regarding the FSIA that the Second Circuit relied upon, which explicitly addressed the real property exception, did not support this expansion. See id. at 29 (referring to H.R. Rep. No. 94-1487, reprinted in 1976 U.S.C.C.A.N. 6604). The Circuit has read the Report out of context, because although the Report explicitly “denies sovereign immunity in litigation relating to real estate,” it is referring to the Vienna Convention on Diplomatic Relations (“Vienna Convention”), done Apr. 18, 1961, 23 U.S.T. 3227, Art. 22, which specifically exempts a foreign state from “all . . . municipal dues and taxes in respect of the premises of the mission” in the very next Article. Id. at 29-30. Moreover, although the Report permits domestic courts to adjudicate issues of “ownership, rent, servitudes, and similar matters” in actions against foreign missions, a lien is only a “security interest” and does not give the lien holder any “general right” to property. See id. at 29, 34 (internal citations omitted).

Congressional Intent: Contemporaneous Materials and Practice

The Missions next argue that the then-existing international practice did not support application of the exception to tax lien validity claims. See id. at 17–23. According to the Missions, the Restatement (Second) of Foreign Relations Law (1965), available to the drafters, prevents domestic courts from hearing claims of tax enforcement against the property of a foreign state. See id. at 18–19 (citing § 65, comment d). Additionally, New York’s highest court previously held that New York lacked authority to enforce real property tax claims against the Republic of Argentina. See id. at 20 (citing Argentina v. New York, 25 N.Y.2d 252 (N.Y. 1969)).

Furthermore, the Missions agree with the Second Circuit that the drafters of the FSIA relied on the European Convention as evidence of then-existing international practice, but maintain that the Convention actually retains immunity in tax enforcement suits. See id. at 23–29. The Missions indicate that Article 29 of the Convention explicitly precludes jurisdiction for actions for “customs, duties, taxes, or penalties” against foreign sovereigns. See id. at 24. Moreover, they contend, even if the Convention did waive immunity in cases to determine tax lien validity, Congress must have been aware of the European Convention and, thus, their decision not to adopt the exact language means that they did not intend to follow the Convention. Id. at 26. Instead, the Vienna Convention is a better reflection of the drafters’ assumptions on the state of accepted international practice, which exempts a foreign mission’s diplomatic agents and staff from liability for outstanding taxes on real property held for the purposes of the mission. See id. at 28.

Current Material and Practice

Finally, the Missions object to the Second Circuit’s reliance on the 2004 and 2005 Foreign Operations Appropriations Act, which authorizes a set-off of foreign aid for countries with unpaid tax obligations to the United States, to give meaning to the FSIA. Id. at 36. Giving controlling weight to legislation enacted after the FSIA violates the principle that Congress’s earlier intent may not be inferred from subsequent action. Id. at 36 (citing U.S. v. Price, 361 U.S. 304 (1960)). Likewise, the Appropriations Act may be given effect without conferring jurisdiction under the FSIA; for instance, if the foreign government waived immunity and successfully claimed to recover over-paid taxes, the Act would apply and require a foreign aid set-off. Id. at 37.

NEW YORK’S ARGUMENTS

Congressional Intent: Plain Language of the FSIA

New York maintains that Congress intended the FSIA’s real property exception to confer jurisdiction on domestic courts to pass declaratory judgment on the validity of a property tax lien. According to New York, a lien places the rights of both the lien holder and property holder “in issue” under section 1605(a)(4) because it confers on the lien holder a conditional right to possess the property under state law, and restricts the property holder’s freedom to convey title to a purchaser. See Brief for Respondent at 8–14. If a lien is a property right, a declaratory action to determine validity of such a lien places the property rights of the parties in issue. See id. at 10.

Furthermore, legislative history reveals that this was Congress’s intent. The House Report cited by the Missions, which authorizes a court to adjudicate questions of “ownership, rent, servitude and similar matters” regarding foreign sovereign property ownership, permits jurisdiction over actions determining the validity of tax liens because liens, like servitudes, affect the property owner’s rights to alienate his property. See id. at 12–13 (citing H.R. Rep. No. 94-1487, reprinted in 1976 U.S.C.C.A.N. 6604). Finally, New York suggests that their argument is consistent with the principle that a sovereign nation exercises authority over property within its territorial limits, an axiom found in both federal statutory law, see id. at 15, and case law, see id. at 16.

Congressional Intent: Contemporaneous Materials & Practice

Echoing the Missions’ argument, New York next contends that then-existing international practice supports the proposition that Congress intended the real property exception to apply to the current situation. See id. at 19. First, New York notes that the FSIA was designed to codify the restrictive theory of sovereign immunity, under which a state is immune only for its public actions. See id. Under this theory, property ownership is not an inherently sovereign action, and thus foreign states are subject to jurisdiction regarding property that the states own in the territory of the host state. See id. Second, the Restatement (Second) of Foreign Relation Law concludes that immunity does not apply to actions to “establish a property interest in immovable property” located in the host state. See id. at 21 (citing Restatement § 68). Notably, while the Restatement precludes jurisdiction for tax enforcement, it permits taxation. See id. at 22. According to New York, this reading of the real property exception is bolstered by Associacion de Reclamantes v. Mexico, 735 F.2d 1517 (D.C. Cir. 1984), which held that an action to determine the validity of a property tax lien is an action to establish a property interest in immovable property, as recognized by the Restatement. See id. at 22.

Finally, New York also looks to international treaties drafted before the FSIA’s enactment as evidence of then-existing international practice that the FSIA drafters intended to codify. Like the Missions, New York argues that the European Convention is a reliable indicator of Congressional intent. New York, however, cites a different article, which precludes immunity if proceedings relate to “rights or interests in . . . immovable property” or “obligations arising out of them.” Id. at 23 (referring to European Convention, Art. 9). Furthermore, the Vienna Convention only exempts the “premises” of diplomatic missions in state territory from state taxation, and thus impliedly permits the host state to tax residential spaces. See id. at 34 (citing Art. 23).

Current Materials and Practice

New York’s final argument is that current materials and practice authorize the Court to pass declaratory judgment on the validity of the tax lien. See id. at 32. First, the Restatement (Third) of Foreign Relations Law specifically declares that foreign sovereign immunity does not apply to property tax claims. See id. at 22 (citing § 455, comment b). Second, U.S. courts since Reclamantes have decided a series of cases holding that Section 1605(a)(4) permits jurisdiction for claims directly involving property interests or rights to possession. See id. at 28 (citing, e.g., City of Englewood v. Socialist People’s Libyan Arab Jamahirya, 773 F.2d 31, 31 (3d Cir. 1985)). Finally, the recent Appropriations Act bolsters New York’s reading because it explicitly penalizes foreign governments with tax liability to the host state. See Brief of the International Municipal Lawyers Ass’n and U.S. Conference of Mayor as Amici Curiae in Support of Respondent (IMLA Brief) at 28. New York argues that subsequent practice can be used to decipher the original meaning of the FSIA. Specifically, there is no evidence that the state of international law regarding sovereign immunity (that the FSIA was intended to codify) has changed since 1976. See Brief of the International Municipal Lawyers Ass’n and U.S. Conference of Mayor as Amici Curiae in Support of Respondent (IMLA Brief) at 5.

Conclusion

In this case, the Supreme Court will determine whether an exception to sovereign immunity under the Foreign Sovereign Immunities Act for cases involving real property authorizes jurisdiction to determine the validity of a property tax lien against India and Mongolia. A decision on this issue could clarify the scope of the FSIA in light of recent legislation. The Court will also address under what circumstances courts may use international treaties to give meaning to U.S. law. A decision affirming the lower court will provide support for the principle that courts may rely on treaty law to discover Congressional intent but not to impose duties not independently existing in U.S. law.

Authors

Prepared by: Ferve Ozturk

Additional Sources