District Court Rejects Applicability of "Commercial Activity" Exception to FSIA Because Neither Alleged Expropriation nor Commercial Activity Was Undertaken by Sovereign

The World in U.S. Courts: Summer 2015 - Alien Tort Statute (ATS)/Foreign Sovereign Immunity Act (FSIA) | May.28.2015

Arch Trading Corp. v. Republic of Ecuador, U.S. District Court for the Southern District of New York, May 28, 2015

Plaintiffs, companies owned by Ecuadorean citizens, sued the Republic of Ecuador and Ecuadorean governmental agencies in federal court in New York, claiming that assets they owned had been expropriated by the government in violation of various international norms and the American Convention on Human Rights. The Court dismissed the case, finding that jurisdiction under the FSIA did not exist and that venue in New York would have been improper in any event.

The Court observed that each of the defendants is a "foreign state" under the FSIA, and as such is immune from suit absent the applicability of one of the FSIA exceptions. The plaintiffs urged the applicability of the "takings exception," which requires that they demonstrate (i) that their property was "taken in violation of international law," and (ii) that the defendants be engaged in a "commercial activity" in the U.S.. The Court found that neither test was met. The alleged expropriation was not a violation of international law because it involved property owned by Ecuadorean entities and was made by an agency of Ecuador, not Ecuador itself, which is a critical distinction from the standpoint of international law. The second requirement was not met because the agency that holds the appropriated property is not, as the FSIA would require, itself engaged in commerce in the U.S.. While the plaintiffs alleged that the agencies' subsidiaries are so engaged, the Court found that the complaint failed to allege that the Ecuadorean agency exercised sufficient "day to day control" over the U.S. subsidiaries so as to be deemed "alter egos" of them. Finally, the Court noted that the FSIA permits cases to be brought only in the District of Columbia or where relevant commercial activities are occurring—in this case, not in New York.

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