The World in U.S. Courts: Spring 2016 - Personal Jurisdiction/Foreign Sovereign Immunities Act (FSIA)/Forum Non Conveniens
This sprawling putative class action lawsuit was filed on behalf of futures and derivatives traders and holders of interests in oil-producing regions in the North Sea against a number of producers and traders of Brent North Sea crude oil, charging violations of the securities and antitrust laws.
Among other issues, defendant Statoil moved to dismiss on FSIA grounds. The District Court in New York noted the parties' agreement that Statoil was a non-U.S. sovereign, and then considered whether the FSIA's "commercial exception" applied so as to permit the claims against Statoil to proceed.
The Court observed that each of the three statutory provisions comprising the "commercial exception" require that it identify the conduct on which the plaintiff's claims are "based." To do that, the Court examined the "core" of the suit, and concluded that it was "alleged manipulative and collusive trades and orders," which were placed and consummated outside the U.S.
This conclusion made the first of the "commercial exceptions" inapplicable, as it requires that a claim be "based upon a commercial activity carried on in the United States." The Court also noted that none of Statoil's allegedly manipulative reporting occurred in the U.S. The second "commercial exception" applies where a claim is "based upon" a non-commercial act performed in the U.S. in connection with a commercial activity of the non-U.S. sovereign elsewhere, and no such non-commercial act was alleged. Finally, the Court considered the third "commercial exception," in which an act outside the U.S. in connection with a commercial activity of the non-U.S. sovereign causes a "direct effect" in the U.S. The Court observed that the third provision comes with a number of judicially-created limitations: That an act is considered to have a "direct effect" in the U.S. if the effect "follows immediately" from the act, with no "intervening element," and that the "effect" must be more than "trivial or incidental." In light of the FSIA's general purpose to preserve the immunity of non-U.S. sovereigns, courts have expressed skepticism that an effect is direct where the "effect falls at the end of a long chain of causation and is mediated by numerous actions by third parties." With that standard in mind, the Court found that the plaintiffs had not alleged a "direct effect." Rather, the alleged U.S. injury was part of "ripple effects" caused by many intervening events after the alleged manipulations.
The Court concluded that the plaintiffs had failed to show by a preponderance of evidence that any of the three "commercial exceptions" to the FSIA applied, and thus dismissed Statoil from the case.