How should a court determine whether a foreign state has taken property in violation of international law? Is the pleading standard for establishing jurisdiction under the Foreign Sovereign Immunities Act’s expropriation clause more restrictive than the pleading standard for federal question jurisdiction?
This case will address what pleading standard a plaintiff attempting to use the Foreign Sovereign Immunities Act’s (FSIA) expropriation exception is required to meet to establish jurisdiction. The Bolivarian Republic of Venezuela, Petroleos de Venezuela and PDVSA Petroleo (“Venezuela”) argue that, in order for private American corporations like Helmerich & Payne International Drilling Co. and Helmerich & Payne Venezuela (“H&P”) to bring a claim against a foreign sovereign in U.S. courts, plaintiffs must meet the usual standards of subject matter jurisdiction under the FSIA. In contrast, H&P argues that the approach taken by the Court of Appeals for the D.C. Circuit, which only denies jurisdiction to “wholly insubstantial or frivolous” claims, is the appropriate standard under the expropriation exception. This case will impact the viability of future claims of expropriation against foreign sovereigns, especially within the context of private corporations seeking redress against foreign governments.
Questions as Framed for the Court by the Parties
The Foreign Sovereign Immunities Act (FSIA) provides that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter." 28 U.S.C. § 1604. Under the Act's expropriation exception, in pertinent part, "[a] foreign state shall not be immune * * * in any case* * * in which rights in property taken in violation of international law are in issue." Id. § 1605(a)(3).
The three questions presented in this petition concern the requirements for pleading jurisdiction under the expropriation exception. They are:
- Whether, for purposes of determining if a plaintiff has pleaded that a foreign state has taken property "in violation of international law," the FSIA recognizes a discrimination exception to the domestic-takings rule, which holds that a foreign sovereign's taking of the property of its own national is not a violation of international law.
- Whether, for purposes of determining if a plaintiff has pleaded that "rights in property taken in violation of international law are in issue," the FSIA allows a shareholder to claim property rights in the assets of a still-existing corporation.
- Whether the pleading standard for alleging that a case falls within the FSIA's expropriation exception is more demanding than the standard for pleading jurisdiction under the federal question statute, which allows a jurisdictional dismissal only if the federal claim is wholly insubstantial and frivolous.
Helmerich & Payne, an Oklahoma-based American company, had successfully operated an oil-drilling business in Venezuela through a series of Venezuelan subsidiaries (such as Helmerich & Payne, Venezuela (H&P-V)) from 1975 until 2010. The Venezuelan government had nationalized its oil industry in the 1970s and created Petroleos de Venezuela S.A. (PDVSA), the resultant nationalized oil enterprise. PDVSA continued to contractually engage H&P-V’s oil rigs, as these were able to drill to depths of over four miles. In 2007, H&P-V created and executed ten contracts pertaining to these rigs.
Soon after signing and executing the contracts, PDVSA fell behind on payments, which totaled over $63 million. By 2009, the overdue receivables exceeded $100 million. In 2010, H&P announced that it would not renew any contracts until Venezuela made “an improvement in receivable collections”. Later that same year, H&P fulfilled its contractual obligations and disassembled and stacked the materials in its yards pending payments.
On June 12, 2010, the Venezuelan National Guard along with PDVSA employees blockaded H&P’s two plants. PDVSA then went on to issue a series of press releases stating that “The Bolivarian Government . . . nationalized 11 drilling rigs belonging to . . . Helmerich & Payne, a U.S. transnational firm” and projecting that this government action would increase oil production and generate new jobs. Another series of statements criticized American imperialism and the invasion of Venezuela by US corporations. Following these statements, on June 29, the Venezuelan National Assembly issued an official Bill of Agreement, recommending that President Hugo Chavez promulgate a Decree of Expropriation. Chavez issued the Decree, justifying the government action with the global scarcity of the specific type and quality of drill that was used by H&P. On the same day, the president of the Venezuelan National Assembly’s Committee on Energy and Mines issued a public statement criticizing those who opposed the nationalization for being controlled by the U.S. Department of State. The Minister of Energy and Petroleum led a rally at one of the blockaded sites celebrating the blockaders for guarding the property just acquired by the Venezuelan revolutionary state from “foreign gentlemen investors” in an “American Company.”
PDVSA filed two eminent domain actions in Venezuelan courts, seeking to compensate H&P for the taking. One of the proceedings has since then been indefinitely stayed, while the other has not served process to H&P-V. Thus, H&P (the American parent and the Venezuelan subsidiary) has brought claims in U.S. Federal Court under the expropriation exception of the FSIA.
The district court determined that H&P-V constituted a Venezuelan national under international law, and thus the petitioner failed to state a claim and establish jurisdiction under the FSIA exception. The Court of Appeals for the D.C. Circuit ruled that the nationality of the subsidiary should be established in a full court proceeding on the merits and that the petitioner’s claim was not “wholly insubstantial or frivolous” and thus satisfied the 12(b)(6) threshold.
DOES THE FSIA PERMIT A LESSER STANDARD IN SOME CASES?
The Bolivarian Republic of Venezuela, Petróleos de Venezuela, S.A., and PDVS Petróleos, S.A. (“Venezuela”) argue that the Court of Appeals erred by departing from the typical Foreign Sovereign Immunities Act (“FSIA”) analysis and incorporating the standard for federal question jurisdiction set forth in Bell v. Hood. According to Venezuela, the FSIA sets out two threshold requirements for establishing jurisdiction under the expropriation exception: that the plaintiff must present that rights are (1) “at issue” and (2) that these rights are “in property taken in violation of international law.” Venezuela asserts that the overlap in jurisdiction pleading and pleading on the merits in Helmerich & Payne International Drilling Co. and Helmerich & Payne de Venezuela, C.A.’s (H&P) claim does not justify upsetting the strong presumption of immunity for foreign sovereigns. Venezuela maintains that allowing jurisdictional analysis to shift depending on the content of H&P’s claims is counter to the FSIA’s stated purpose. Venezuela claims that allowing a case to proceed under FSIA jurisdiction without ensuring that the plaintiff’s claim meets all the requirements of the expropriation exception eliminates the predictability and uniformity that the FSIA provides. Venezuela also highlights that one of the FSIA’s stated purposes is to resolve the question of jurisdiction over a foreign sovereign at the earliest stage possible. With that goal in mind, Venezuela contends that the Court of Appeal’s lesser standard contravenes this purpose by subjecting foreign sovereigns to the beginning stages of litigation, consequently lowering the foreign sovereign’s immunity. Venezuela asserts that the FSIA’s text does not permit the standard of review the Court of Appeals used because the expropriation exception requires that the rights in property actually be in issue, not merely alleged to be in issue.
H&P asserts that the FSIA and its presumption of immunity does not displace the Bell v. Hood standard or hold claimants to a higher standard . H&P counters the argument that Bell v. Hood is a lower standard by stating that Venezuela is in fact asking that the Court apply the usual FSIA standard, but use Bell v. Hood’s “wholly unsubstantial or frivolous” standard as a means of interpreting which rights have been put “in issue,” therefore creating a supplemented, rather than lesser standard. H&P emphasizes that this standard is not altered because of the overlap between the inquiry into both the merits and the jurisdiction but rather because the failure to prove a claim has never operated as a bar to subject matter jurisdiction. H&P further claims that the Bell v. Hood standard does not depend on the content of the plaintiff’s claim but rather its nexus to foreign commercial activity. To support this argument, H&P highlights the non-waivability of subject matter jurisdiction and the Supreme Court’s long-standing adherence to Bell v. Hood and 28 U.S.C. § 1331 as a means of determining whether subject matter jurisdiction exists. H&P also rejects Venezuela’s argument that the application of Bell v. Hood to FSIA expropriation exception claims would contravene the FSIA’s legislative purpose. H&P tracks the history of sovereign immunity and asserts that the FSIA represents a departure from the absolute theory of immunity toward a more restrictive theory that was more mindful of American resources abroad. The purpose of implementing the FSIA, according to H&P, was to allow for claims against foreign sovereigns, to allow an unnecessarily higher standard against foreign sovereigns would in fact be counter to intent of the Act.
THE COMPATIBILITY OF BELL V. HOOD AND FSIA JURISDICTION
Venezuela argues that the analogy between the FSIA’s pleading standard and the pleading standard for federal question jurisdiction elucidated in Bell v. Hood is not rational. Venezuela rebuts this analogy by emphasizing that Section 1331, which grants jurisdiction to any civil action “arising under the Constitution,” and Bell v. Hood, which allows any claim that isn’t “wholly insubstantial or frivolous,” create an “exceptionally low” and presumptively inclusive standard for jurisdiction. Venezuela juxtaposes this broad inclusion with the FSIA’s presumptive immunity as a means of illustrating that these two types of jurisdiction were not intended to be analogous standards. Venezuela highlights the disparity in pleading requirements under Bell v. Hood as further evidence of the inappropriateness of this analogy, stating that Bell v. Hood and Section 1331 merely require that the plaintiff raise a particular type of question in a way that is not “wholly insubstantial or frivolous,” while the FSIA’s expropriation exception goes much further by inquiring into the specific type of right, the alleged harm, and the legal violation before granting jurisdiction.
Venezuela further asserts that neither Congress nor the Supreme Court has treated federal question jurisdiction and FSIA jurisdiction as analogous. Petitioner argues that if Congress had wanted to import a pleading standard and broad jurisdiction from federal question jurisdiction, it had the opportunity to do so, but instead chose language unique to the FSIA and its exceptions. Likewise, Venezuela asserts that the Supreme Court has chosen to treat jurisdiction under the FSIA and federal question jurisdiction separately by giving special attention to the history and policy of the two statutes. Venezuela uses the lack of mention of Bell v. Hood and Section 1331 in previous FSIA cases as evidence of the inappropriateness of the comparison.
Venezuela emphasizes that the statutes’ diverging purposes further illustrate the inutility of comparing the two types of jurisdiction. Section 1331 and Bell v. Hood relate to the relationship between the federal and statute judicial systems and allow for claims to be brought in a limited number of courts. In contrast, the FSIA contemplates the relationship between the United States and foreign sovereigns, allowing for claims to be brought in any United States Court. Venezuela also emphasizes that Section 1331 did not contemplate the possibility of bringing a foreign sovereign into United States courts and therefore does not take into consideration the important consequences of requiring foreign sovereigns to litigate abroad.
H&P argues that the application of Bell v. Hood applies well beyond Section 1331 and therefore that the analogy between the FSIA’s pleading standard and Bell v. Hood’s is appropriate, if not necessary. H&P highlights the many different contexts and statutes to which Bell v. Hood’s standard applies, including the Sherman Act, the Tucker Act, the Securities Exchange Act, bankruptcy law, criminal law, and admiralty law. H&P also uses this broad application of Bell v. Hood to counter Venezuela’s argument concerning congressional intent. H&P contends that the Court should assume that when crafting the FSIA, Congress was aware of the broad applicability of the Bell v. Hood pleading standard and would have exempted the FSIA explicitly if it had intended to do so H&P further emphasizes that the FSIA’s statutory language, as written by Congress, does not adopt Venezuela’s proposed standard either; H&P contends that if Congress had intended to only allow claims where a judgment had already found a taking of property in violation of international law, the FSIA’s language would be more explicit to that regard. H&P next refutes Venezuela’s claim that the Supreme Court has not applied Bell v. Hood to previous FSIA cases. Instead of interpreting the Court’s failure to mention Bell v. Hood in FSIA cases, H&P argues that the Court tacitly applies Bell v. Hood to all questions of jurisdiction and would admit so if asked.
Lastly, H&P contends that the diverging purposes of the FSIA and Section 1331 do not render the application of Bell v. Hood to claims of expropriation inappropriate. H&P draws attention to the application of Bell v. Hood to determine which rights are “in issue” in other legal contexts like issue preclusion, the full faith and credit clause, the statute of limitations, and attorney client privilege. According to H&P, this consistency is important because these aspects of the law are not limited to cases where the division of labor between state and federal judicial systems is concerned, and in the case of issue preclusion does contemplate foreign parties’ relationship to American courts. H&P asserts that the Bell v. Hood standard is in fact the more efficient way of addressing the FSIA’s concerns. H&P contends that Venezuela’s interpretation of the pleading standard requires a preliminary examination of the merits of a claim and front-loads the burden of litigation, offering limited immunity to foreign sovereigns. By first determining jurisdiction, plaintiffs who have wholly unsubstantial or frivolously claims cannot force a foreign sovereign to enter discovery and thus provides greater immunity. H&P also emphasizes that the Bell v. Hood standard addresses and protects from the types of artful pleading Venezuela fears and allow courts to dismiss claims made solely for jurisdictional purposes.
THE COMITY OF NATIONS
The United States, supporting Venezuela, argues that the principle of international comity between nations is best upheld with stronger protection of foreign sovereign immunity. The United States posits that a strong presumption of immunity is necessary to preserve the dignity of foreign sovereigns.
Former State Department Attorneys John Norton Moore and Edwin D. Williamson, in support of H&P, argue that the comity of nations is best preserved with the establishment of fair judicial proceedings, which prevent escalations of issues through diplomatic retaliation measures. Moore and Williamson argue that bringing more sovereigns into courts is a desirable alternative to unilaterally imposed executive sanctions or embargoes, which lack transparency and opportunity for appeal.Moore and Williamson point to the historical context of the FSIA and argue that, by conferring federal jurisdiction on sovereign immunity claims, Congress aimed to avoid diplomatic retaliation in instances of foreign expropriation (as was the case with the Castro expropriations of American assets during the Cuban revolution).
PRELIMINARY INQUIRY OR TRIAL ON THE MERITS?
The United States stresses that sovereign immunity protects sovereigns from the burdens of litigation and not just from liability. According to the United States, applying Bell v. Hood in sovereignty cases would submit sovereigns to the burdens of litigation without establishing that the case falls within the purview of the FSIA exception. The United States argues that this would contravene the policy purpose of the FSIA, which sought to make a narrow exception in a broader declaration of respect for foreign sovereign immunity. The United States argues that the FSIA reflects this intent in the structure of the act in characterizing expropriation as the exception rather than the rule. A jurisdictional inquiry based on the FSIA exception would make the most sense as a preliminary inquiry, as it would preserve the narrow exception and minimize the litigation costs for defendant sovereigns.
H&P points out that the United States’ approach would either frontload the burden of litigation (if the hearing was conducted on the merits) or abridge the rights of U.S. citizens seeking to sue foreign sovereigns by restricting instances in which plaintiffs have access to discovery (if the hearing did not delve into the merits). Moore and Williamson agree that adopting Venezuela’s standard for the FSIA exception would frustrate the main FSIA exception policy goal by denying claimants a trial on the merits. The FSIA asks that a plaintiff plead facts that “if taken as true” would establish the elements set forth in the relevant statutory exception. Moore and Williamson argue that Venezuela’s reading of the FSIA would ask courts to refuse claims that did not certainly allege an “actual” violation of international law. According to Moore and Williamson, introducing a high pleading threshold would result in an abbreviated preliminary hearing, during which a court would not be able to fully analyze the merits of a claim. Moore and Williamson assert that this would contradict the legislative intent of creating standing for US citizens to bring claims against foreign sovereigns in the US.
WHO INTERPRETS INTERNATIONAL LAW: JUDGES OR DIPLOMATS?
Moore and Williamson point out that a full trial on the merits is consistent with the role of federal courts as interpreters of international law as stated in The Paquette Habana. Under this theory, a judge should make the determination about whether or not the expropriation of a foreign-registered subsidiary of a U.S. company is a violation of international law. Moore and Williamson argue that adopting Venezuela’s standard for FSIA claims risks the politicization of the adjudicative process. If courts are prevented from conducting judicial proceedings on the merits for FSIA claims, Moore and Williamson contend that they might look to the statements of the executive branch as sources of international law, therefore pushing the interpretation of international legal standards back into the realm of diplomatic and political agents rather than judicial ones.
At the same time, the United States points out that applying the non-frivolous standard, currently in use in D.C., leads to courts taking plaintiffs’ conjectures about international law as fact. This presents a problem if one accepts that the exception is to be construed narrowly and that more deference be given to the presumption of sovereignty.
CONSISTENCY AND FAIRNESS IN EXPROPRIATION EXCEPTION CLAIMS
Venezuela argues that allowing a lawsuit to proceed under the Bell v. Hood standard would harm the consistency and fairness of expropriation exception suits by turning them into “a game of artful pleading.” According to Venezuela, the standard set forth by the D.C. Circuit allows plaintiffs to bring “a garden variety of common law claims” along with their standards for review under the FSIA, which usurps the role of the statute as the narrow delineation of permissible claims.
Moore and Williamson counter that traditional statutory interpretation does not require consistency between two distinct inquiries.
- Jon Gingerich, Hogan Lovells Reps Venezuela in Pending Supreme Court Case, O’Dwyer’s (March 23, 2016).
- Lawrence Hurley, Venezuela to Hear Venezuela Oil Rig Dispute, Reuters (June 28, 2016).
- John Kennedy, Venezuela Takes Oil Nationalization Dispute to High Court, Law 360 (October 19, 2015)