Court of Appeals Finds “Takings” Exception to FSIA Inapplicable because Actions of Nonparty Instrumentalities of Government Could not be Imputed to the Defendant

The World in U.S. Courts: Winter 2016 - Alien Tort Statute (ATS)/Political Question Doctrine/Foreign Sovereign Immunity Act (FSIA)/ Act of State Doctrine

Arch Trading Corp. v. Republic of Ecuador, US Court of Appeals for the Second Circuit, October 14, 2016

Five entities incorporated in the British Virgin Islands sued two instrumentalities of the Republic of Ecuador for more than $1 billion in damages arising out of an alleged nationalization of 133 companies owned by the plaintiffs.  The District Court dismissed the complaint pursuant to the FSIA and the plaintiffs appealed, asserting that the case fell within the statute’s “takings” or “expropriation” exceptions.

The parties agreed that the defendants were a “foreign state” presumptively entitled to sovereign immunity under FSIA.  The “takings” exception applies, among other things, to “rights in property taken in violation of international law” where either the taken property or “any property exchanged for such property” is (i) “owned or operated by an agency or instrumentality of the foreign state” and (ii) “that agency or instrumentality is engaged in a commercial activity in the United States[.]”  Thus, application of the FSIA turned on whether the defendants were “engaged in a commercial activity” in the US.

The Court of Appeals in New York held that the defendants did not fall within the takings exception, as the plaintiffs did not contend that the defendants engaged in commercial activity in the US.  In addition, the Court of Appeals declined to impute the US activities of nonparty Ecuadorean instrumentalities’ to the defendants themselves. The Court of Appeals found that international comity required that the separateness of different legal entities be presumptively respected, and concluded that the plaintiffs failed to demonstrate that the defendants’ alleged exercise of significant and repeated control over the other entities’ day-to-day operations warranted a contrary result.

RETURN TO Winter 2016 Edition

RETURN TO The World in U.S. Courts Home Page

U.S. Laws Discussed

Editorial Board