OBB Personenverkehr AG v. Sachs

Issues 

When is an entity an “agent” of a “foreign state” for purposes of the Foreign Sovereign Immunities Act; and, what degree of commercial activity within the United States is sufficient to trigger an exception to immunity for personal injury liability under that Act?

Oral argument: 
October 5, 2015

The Foreign Sovereign Immunities Act (“FSIA”) limits the ability of U.S. citizens to bring causes of action against foreign states and their agents in U.S. courts. See Brief for Petitioner, OBB Personenverkehr AG at 25. But the FSIA contains a commercial activity exception, which allows a U.S. court to hear suits involving a foreign state when the action is “based upon” the state’s commercial activity in the United States. See id. In this case, the Supreme Court will consider how to define when an entity is an agent of a foreign state, and the scope of the commercial activity exception’s “based upon” requirement. See id. at i. OBB Personenverkehr AG (“OBB”), a state-run Austrian passenger railway, argues that foreign states are “presumptively immune” from U.S. jurisdiction under the FSIA unless an exception applies. See id. at 25 (internal quotation omitted). OBB contends that injured Americans like Carol Sachs cannot satisfy “the based upon” requirement for claims arising from harm incurred on foreign soil. See id. at 28. Sachs argues that a sale of a ticket in the United States constitutes commercial activity and thus satisfies that requirement. See Brief for Respondent, Carol P. Sachs at 23–24. In the alternative, OBB argues that the FSIA clearly defines who can be an “agent” of the state, and that the Ninth Circuit erred in relying on common-law agency principles to find that a third-party’s ticket seller was an agent of OBB. See Brief for Petitioner at 43–46. Sachs counters that common-law agency principles should apply notwithstanding the language of the FSIA. See Brief for Respondent at 20–21. This case may affect the balance of international litigation and may result in a shift from the restrictive theory of sovereign immunity. See Brief of Amici Curiae Governments of the Kingdom of the Netherlands and the Swiss Confederation, in Support of Petitioner at 26, 34. This case may also result in changes to how agents of a foreign state engage in business with the United States over the Internet. See Brief of NML Capital, LTD, in Support of Respondent at 16; Brief of Amici Curiae International Rail Transport Committee, in Support of Petitioner at 14.

Questions as Framed for the Court by the Parties 

  1. For purposes of determining when an entity is an “agent” of a “foreign state” under the first clause of the commercial activity exception of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2), does the express definition of “agency” in the FSIA, the factors set forth in First National City Bank v. Banco Para el Comercio Exterior de Cuba, or common law principles of agency, control?
  2. Under the first clause of the commercial activity exception of the FSIA, 28 U.S.C. § 1605(a)(2), is a tort claim for personal injuries suffered in connection with travel outside of the United States “based upon” the allegedly tortious conduct occurring outside of the United States or the preceding sale of the ticket in the United States for the travel entirely outside the United States?

Facts 

In March 2007, Carol Sachs purchased a four-day Eurail pass for travel in Austria and the Czech Republic from Rail Pass Experts (“RPE”), a Massachusetts company. See Sachs v. Republic of Austria, 737 F.3d 584, 587 (9th Cir. 2013). Sachs purchased the Eurail pass from RPE’s website. Id. The Eurail pass included a disclaimer setting forth that “the issuing office is merely the intermediary of the carriers in Europe and assumes no liability resulting from the transport.” Id. OBB, the passenger railway that Sachs had arranged to travel on, is a separate legal entity wholly owned by OBB Holding Group, a joint-stock company created by the Republic of Austria. Id. OBB Holding Group is itself entirely owned by the Austrian Federal Ministry of Transport, Innovation, and Technology. Id.

In late April 2007, Sachs attempted to board the train in Austria, but she fell between the tracks. Id. at 588. The moving train crushed her legs, which had to be amputated above the knee as a result. Id.Sachs filed suit against OBB in the United States District Court for the Northern District of California and asserted five related claims, among them, negligence. Id. OBB moved to dismiss, claiming that it was entitled to sovereign immunity under the FSIA, and in the alternative, that Sachs’s complaint should be dismissed for forum non conveniens, lack of personal jurisdiction, and international comity. Id. The district court granted OBB’s motion to dismiss for lack of subject-matter jurisdiction on the grounds of sovereign immunity. Id. RPE’s sale of the Eurail pass could not be attributed to OBB, the district court concluded, because the relationship between OBB and RPE was too attenuated to qualify as a principal-agent relationship. Id.; see Brief for Petitioner at 13. Sachs appealed. Sachs, 737 F.3d 588.

A divided three-judge panel of the Ninth Circuit affirmed the district court’s decision, although the two judges in the majority could not agree on the reasoning. Id. The majority opinion relied on Doe v. Holy See, 557 F.3d 1066 (9th Cir. 2009) (per curiam), but the concurrence contended that Holy See was inapplicable to the facts of this case. Id. Instead, the concurrence claimed that Sachs’ claim failed because she did not allege facts sufficient to show that her claims were “based upon” the sale of the Eurail pass in the United States. Id. at 588–89. The dissent, however, asserted that the plain language of the FSIA and its exception is sufficient to give jurisdiction over OBB. Id. at 589.

On rehearing en banc, the Court of Appeals reversed the decision. Brief for Respondent, Carol P. Sachs at 8. The Supreme Court of the United States then granted certiorari on January 23, 2015. Brief for Petitioner, OBB at 1.

Analysis 

In this case, the Supreme Court will consider how to determine when an entity is an agency of a foreign state for purposes of the FSIA’s commercial activity exception. See Brief for Petitioner, OBB at i. OBB argues that the express language of the FSIA limits the commercial activity exception to foreign states and agencies or instrumentalities of foreign states, which includes government-owned corporations like OBB, but excludes common law agents. See id. at 40-43. OBB contends that REP does not satisfy the FSIA’s more stringent definition of agency. See id. Sachs argues that the Court should interpret the FSIA in light of common-law agency principles, and that REP and OBB have a clear principal-agent relationship. See Brief for Respondent, Carol P. Sachs at 12-13.

Additionally, the Court will determine whether a tort claim for a personal injury that occurred outside of the United States can be “based upon” the sale of the travel ticket, which occurred within the United States. See Brief for Petitioner at i. OBB posits that the Court should start its analysis by determining the particular conduct, or gravamen, that Sachs’ tort claim is based on. See id. at 27–29, 33. OBB argues that the gravamen of the Sachs’ complaint is her falling while boarding the train in Austria, which has no connection with the United States and therefore fails the based upon requirement. See id. at 33. But Sachs argues that she does not need to satisfy a “gravamen test,” but rather, she needs to satisfy only a “one-element test.” See Brief for Respondent at 37–38, 46–47. Under this test, Sachs argues, the Court need only consider whether OBB’s relevant conduct in the United States, the ticket sale, constitutes an element of the allegedly tortious conduct. See id. at 46.

WHAT IS “AGENCY” UNDER THE FSIA?

DOES THE FSIA DEFINE "AGENCY?”

OBB contends that the proper way to determine whether OBB is an agent of a foreign state is to examine the definitions section of the FSIA. See Brief for Petitioner at 38. OBB argues that the FSIA “carefully define[s]” the meaning of “foreign state,” and likewise indicates that the definition of foreign state applies to the commercial activity exception. See id. at 38–39. OBB acknowledges that this definition encompasses agencies or instrumentalities of foreign states, such as OBB, but concludes that the definition excludes common law agents. See id. at 40–41. In short, OBB asserts that FSIA “agencies” exhibit only the enumerated characteristics presented in FSIA § 1603(b), to the exclusion of “travel agents.” See id. at 41–42. OBB supports its position by examining the history of sovereign immunity and the creation of the FSIA. See id. at 58–59. OBB explains that before Congress enacted the FSIA, various factors were evaluated to determine whether sovereign immunity should apply to an agent of a foreign state, which resulted in unclear and non-uniform application that the FSIA sought to rectify. See id.

Sachs counters, arguing that the definitions section of the FSIA produces incongruous outcomes, in which foreign states conducting business in the United States could avoid the reach of American courts by acting through third parties. See Brief for Respondent at 18. Sachs posits that the definitions section that OBB is depending on is meant to determine which “entities are eligible for sovereign immunity and not which entities may act as an agent of a foreign state.” Id. at 10. Sachs also argues that if only the definitions section of the FSIA is used to define the terms in question, the definitions of “foreign state” and “agency” will fall short of the FSIA’s intentions. See id. at 20. For example, Sachs asserts that the definition of “agency” excludes state citizens. For purposes of federal diversity jurisdiction, corporations are citizens. As such, Sachs argues, “if [a foreign state] establishes a [state created] subsidiary in the United States to conduct its business, it would not” be subject to jurisdiction,” thereby “turn[ing] the FSIA on its head.” See id. at 21. Finally, Sachs notes that of the eight courts of appeal to address the FSIA’s commercial activity exception, every one has applied common-law agency principles. See id. at 13.

DOES PRECEDENT PRECLUDE LIMIT THE APPLICATION OF COMMON LAW AGENCY PRINCIPLES?

OBB argues that if the Court goes beyond the FSIA’s definitions, then the Court should apply its decision in First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611 (1983) (“Bancec”). See Brief for Petitioner at 27. OBB argues that the attribution analysis in Bancec—“where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created”—is the relevant inquiry. See id. at 51. OBB asserts that RPE’s actions are not under the extensive control of OBB and thus no jurisdiction exists. See id. at 53. In support, OBB contends that there is no evidence that OBB and RPE acted in a principal-agent relationship or that OBB even knew of RPE’s existence. See id.

However, Sachs argues that Bancec does not directly apply to the case at hand because Bancec “dealt with piercing the veil of a foreign state’s ‘corporate affiliates,’” which involved different considerations and a less stringent test. See Brief for Respondent at 22. Sachs posits that if the law was the way OBB contends, “then foreign states conducting business in the United States could evade jurisdiction simply by acting through third-party agents,” which would undercut the FSIA’s purpose. See id. at 10.

HOW IS THE “BASED UPON” REQUIREMENT FOR COMMERCIAL ACTIVITY SATISFIED?

OBB contends that the “based upon” requirement of the FSIA’s commercial activity exception is not met. See Brief for Petitioner at 18. OBB argues that the only commercial activity that occurred in the United States was the purchase of the train ticket by Sachs from a distant party. See id. at 19. OBB states, quoting the Court’s opinion in Saudi Arabia v. Nelson, 507 U.S. 349 (1993), that the analysis begins “by identifying the particular conduct,” or gravamen, “on which the [plaintiff’s] action is ‘based,’” but that the “activities that lead to the conduct that eventually injured the [plaintiff] . . . are not the basis for the [plaintiff’s] suit.” See id. at 19–20, 28. OBB argues that all of the claims alleged by Sachs arise from her fall at the train station and not from the commercial activities in the United States. See id. at 20. In its reply brief, OBB argues that Sachs’ suggestion of using the one-element test would in effect overrule Nelson and go against the text of the FSIA. See Reply Brief for Petitioner at 9-10.

Sachs counters that her action is based upon OBB’s commercial activity of operating a railroad, which has substantial contact to the United States. See Brief for Respondent at 23, 24, 31. Sachs argues that the based upon requirement does not have to refer to the gravamen but rather only has to refer to one element of the action. See id. at 30. Sachs states that the language of the commercial activity exception, 28 U.S.C. § 1605(a)(2), uses the terms “activity” and “act” to differentiate between continuous activity and isolated commercial acts in the United States. See id. at 30. Sachs contends that both activities and acts with substantial connection to the United States satisfy the statutory language. See id. Hence, Sachs concludes this one-element test for the based upon requirement is satisfied because of OBB’s commercial activity in running the railway. See id. Sachs further contends that OBB’s reliance on a geographic tie is mistaken and that instead “based upon” covers matters that are only partially connected to the act. See id.

Discussion 

This case presents the Supreme Court with the opportunity to determine when an entity is an agent of a foreign state and may therefore fall within the FSIA’s commercial activity exception. See Brief for Petitioner, OBB at i. In addition, the Court will consider whether the sale of a ticket in the United States for travel exclusively outside the United States satisfies the commercial activity exception’s “based upon” requirement. See id. at i. OBB argues that Sachs’ tort claim is based upon actions in a foreign country, and thus U.S. courts do not have jurisdiction to hear the case. See id. at 25, 28. Sachs argues that the tort claim is “based upon” the sale of the ticket in the United States. See Brief for Respondent, Carol P. Sachs at 12–13, 4647. The Supreme Court’s resolution of this case has the potential to impact the international treatment of sovereign immunity and businesses’ use of Internet technology. See Brief of Amici Curiae Governments of the Kingdom of the Netherlands and the Swiss Confederation, in Support for Petitioner at 26, 34; Brief of Amici Curiae NML Capital, LTD, in support of Respondent at 16; Brief of Amici Curiae International Rail Transport Committee, in Support of Petitioner at 14.

SOVEREIGN IMMUNITY AND INTERNATIONAL COMITY

OBB and supporting amici warn that a decision finding that OBB can be tried in American courts would jeopardize international comity regarding sovereign immunity. See Brief of Amici Curiae Governments of the Kingdom of the Netherlands and the Swiss Confederation at 4. OBB, the Kingdom of the Netherlands, and the Swiss Confederation posit that respect for sovereign immunity has “reduc[ed] the risks of legal, diplomatic, and even military conflicts” among participating nations. Id. In addition, the International Rail Transport Committee contends that if the Court finds jurisdiction here, then soon American courts will be resolving disputes that have little to no connection with the United States. See Brief of Amici Curiae International Rail Transport Committee at 16.

But supporting amici for Sachs argue that foreign states should be responsible for their agents when they engage in commercial activity in the United States. See Brief of Amici Curiae NML Capital, LTD at 16. NML Capital argues further that when OBB engaged in commercial activity in the United States, it lost protection under sovereign immunity and therefore the concern of disrespecting sovereign immunity is exaggerated. See id. at 10–12.

THE MODERN INTERNET ECONOMY

OBB and supporting amici argue that finding OBB to have engaged in commercial activity in the United States will result in changes to the way online tickets are sold in the United States, to the determinant of American travelers. See Brief of Amici Curiae International Rail Transport Committee at 14; Brief of Amici Curiae Governments of the Kingdom of the Netherlands and the Swiss Confederation at 29–30, 32. The International Rail Transport Committee states that it could face increased litigation in the United States, and thus would need to look for other ways to offer to sell tickets to American travelers without placing itself at risk. See Brief of Amici Curiae International Rail Transport Committee at 14. The International Rail Transport Committee states that other railway companies and services would face a similar predicament. See id. at 16.

However, supporting amici for Sachs emphasize that there must be a nexus between the foreign entity’s commercial activity and the United States to subject the entity to jurisdiction. See Brief of Amici Curiae NML Capital, LTD at 21–22, 25. NML posits that foreign states should be subjected to United States courts to the same extent private parties are with respect to engaging in commercial activity. See id. at 21–22. In doing so, NML argues, courts do not risk jeopardizing the sovereign immunity of a foreign entity, because the entity has surrendered its immunity by engaging in commercial activity in the United States. See id. at 10–12.

Conclusion 

In this case, the Supreme Court will determine whether a citizen of the United States can sue a foreign railway in a United States court for allegedly tortious conduct that occurred outside the United States. See Brief for Petitioner, OBB at i. To resolve this issue, the Court will have to determine how to interpret the FSIA’s use of the terms “agent” and “foreign state” in the FSIA’s commercial activity exception. See id. at 25. In addition, the Court will have to consider whether a tort claim may be “based upon” the sale of a travel ticket inside the United States for travel outside the United States or only the allegedly tortious conduct that occurred abroad. See id. at i. The Court’s ruling will potentially alter the jurisdictional approaches adopted by the United States and other nations, as well as how entities in foreign nations may transact business in the United States, especially over the Internet. See Brief of Amici Curiae Governments of the Kingdom of the Netherlands and the Swiss Confederation, in Support for Petitioner at 26, 34; Brief of NML Capital, LTD, in support of Respondent at 16; Brief of Amici Curiae International Rail Transport Committee, in Support of Petitioner at 14.

Edited by 

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