NOTE: THE U.S. SUPREME COURT CONSIDERED THE BELOW CASE AND ISSUED A DECISION ON DECEMBER 1, 2015.  
SEE LEGAL UPDATE FOR DECEMBER 2015.

The Foreign Sovereign Immunities Act (“FSIA”) provides U.S. courts, both state and federal, statutory jurisdiction over foreign states. 28 U.S.C. 1605(a)(6)(B). The FSIA  provides foreign states immunity from suit unless one of a number exceptions apply. One such exception is the “commercial activity” exception, which provides that a foreign state shall not be immune from U.S. jurisdiction when the action that forms the basis of the suit is based “upon a commercial activity carried on in the United States by the foreign state or its agent.”

The Ninth Circuit Court of Appeals was recently asked to decide whether the district court had subject matter jurisdiction over OBB, a national railway and agent of Austria pursuant to the FSIA. Specifically, whether actions by Rail Pass Experts’ (“Experts”) may be attributed to OBB, and thus considered an  agent of the Republic of Austria. In Sachs v. Republic of Austria, 2012 WL 4377784 (9th Cir. Sept. 26, 2012), the court held that the federal district courts have no subject matter jurisdiction over OBB because Experts’ acts cannot be imputed to OBB.

Sachs, a California resident, purchased a Eurail pass from Experts, a Massachusetts-based sub-agent of Eurail Group, a European company partly owned by OBB.  The Eurail Group markets and sells rail passes worldwide, including in the United States.  OBB trains carry Eurail customers in Austria. While in Austria, Sachs attempted to board an OBB train, fell onto the tracks and suffered severe injuries which resulted in the amputation of both legs.

Sachs sued OBB and the Republic of Austria (Austria) in U.S. district court based on the fact the sale of the Eurail pass from Experts is a commercial activity that should be imputed to OBB.  Austria subsequently moved to dismiss for lack of subject matter jurisdiction on the ground that it had immunity pursuant to FSIA.  The district court granted Austria’s motion to dismiss, ruling that Austria was entitled to sovereign immunity because the “commercial exception” did not apply.

The Ninth Circuit affirmed.  The Court rejected Sachs’ argument that Austria lacks sovereign immunity from suit because the first clause of the commercial exception applies—namely that Experts’ acts, selling Eurail passes, should be imputed to OBB, Austria’s agent.  The Court found that there were insufficient ties between Experts and OBB under the “commercial activity exception” to extend jurisdiction over the Austrian government to the US courts.  The Court noted that in determining which of the acts alleged in the complaint may legitimately be attributed to the foreign state for purposes of establishing jurisdiction under the FSIA, courts must recognize that a foreign state has a presumption of separate juridical status.  That presumption is overcome only if the complaint alleges “day-to-day, routine involvement” of the foreign state in the individual or corporation’s affairs.”  The Court further noted that neither OBB nor Austria had a “day-to-day” routine involvement over the affairs of Experts.

With respect to claims against foreign governments or their agents brought in the U.S. courts concerning wrongdoings abroad, a company based in the U.S. having some involvement with the foreign state or its agents will not be deemed to be an agent of the foreign state unless the foreign state or its agents have significant involvement in the day-to-day affairs of the U.S.-based company.  If not, the U.S. courts will not permits such claims to be prosecuted against the foreign state or its agents.

For further information, please contact:  Nicholas P. Connon, Managing Partner; tel:  +1.626.638.1757; E-mail: nconnon@connonwood.com