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    The Lawletter Blog

    CIVIL PROCEDURE: Scope of the Commercial Activity Exception to the Foreign Sovereign Immunities Act

    Posted by Suzanne L. Bailey on Thu, Jan 28, 2016 @ 13:01 PM

    The Lawletter Vol 41 No 1

    Suzanne Bailey, Senior Attorney, National Legal Research Group

         The Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602–1611, shields foreign governments and their agencies from suit in U.S. courts unless the suit falls within an exception specifically enumerated in the Act. In a recent decision, OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390, 392 (2015), a unanimous U.S. Supreme Court considered the commercial activity exception, 28 U.S.C. § 1605(a)(2), and concluded that the exception did not extend to the purchase of a Eurail pass in the United States.

         Carol Sachs, a California resident, purchased a Eurail pass over the Internet from a Massachusetts-based travel agent. Eurail passes allow holders unlimited passage for a set period of time on participating Eurail Group railways, including OBB Personenverkehr AG ("OBB"), the Austrian state-owned railway. As she was attempting to board an OBB train in Innsbruck, Austria, Ms. Sachs fell from the platform onto the tracks, where a moving train crushed her legs, requiring amputation of each leg above the knee. She brought suit for her injuries in the U.S. District Court for the Northern District of California on the grounds of (1) negligence, (2) strict liability for design defects in the train and platform, (3) strict liability for failure to warn of the design defects, (4) breach of an implied warranty of merchantability for providing a train and platform unsafe for their intended uses, and (5) breach of an implied warranty of fitness for providing a train and platform unfit for their intended uses.

         OBB moved to dismiss on the basis of sovereign immunity, and Ms. Sachs countered with the commercial activity exception. Under that exception, a foreign state is not immune from suit if "the action is based upon a commercial activity carried on in the United States by the foreign state." Id. § 1605(a)(2). The district court dismissed the suit, concluding that the claims did not fall within the commercial activity exception, but the Ninth Circuit Court of Appeals, sitting en banc, reversed, reasoning that the action was based on the commercial activity of OBB in the United States, since a Massachusetts travel agency had acted as OBB's agent for the sale of the Eurail pass and the sale of the pass was a necessary element of each of Ms. Sachs's claims. 136 S. Ct. at 393-95. The Supreme Court reversed.

         The Supreme Court found that the Ninth Circuit's decision was based upon a misreading of Saudi Arabia v. Nelson, 507 U.S. 349 (1993), in which the Court elaborated on the phrase "based upon." In Nelson, the Court reasoned that the Act's "based upon" inquiry

    first requires a court to "identify[ ] the particular conduct on which the [plaintiff's] action is 'based.' " Id., at 356, 113 S.Ct. 1471. Considering dictionary definitions and lower court decisions, we explained that a court should identify that "particular conduct" by looking to the "basis" or "foundation" for a claim, id., at 357, 113 S.Ct. 1471 (citing dictionary definitions), "those elements . . . that, if proven, would entitle a plaintiff to relief," ibid., and "the 'gravamen of the complaint,' " ibid. (quoting Callejo v. Bancomer, S. A., 764 F.2d 1101, 1109 (C.A.5 1985)). Under that analysis, we found that the commercial activities, while they "led to the conduct that eventually injured the Nelsons," were not the particular conduct upon which their suit was based. The suit was instead based upon the Saudi sovereign acts that actually injured them. 507 U.S., at 358, 113 S.Ct. 1471. The Nelsons' suit therefore did not fit within § 1605(a)(2). Id., at 361-362, 113 S.Ct. 1471.

    Sachs, 136 S. Ct. at 395.

         The Sachs Court explained that Nelson does not require that the court examine the elements of a claim and exercise jurisdiction if the commercial activity was an element of a claim. Rather, Nelson "teaches that an action is 'based upon' the 'particular conduct' that constitutes the 'gravamen' of the suit." Id. at 396. In Sachs, the Court concluded that that conduct occurred at the train station in Austria, since there was "nothing wrongful about the sale of the Eurail pass standing alone." Id. According to the Court, "any other approach would allow plaintiffs to evade the Act's restrictions through artful pleading. For example, any plaintiff 'could recast virtually any claim of intentional tort . . . as a claim of failure to warn, simply by charging the defendant with an obligation to announce its own tortious propensity before indulging it.' [Nelson, 507 U.S.] at 363, 113 S.Ct. 1471." Id.

         Ms. Sachs made an alternative argument before the Supreme Court, i.e., "that OBB's entire railway enterprise constitutes the 'commercial activity' that has the requisite 'substantial contact with the United States,' because OBB reaches out to American customers by marketing and selling Eurail passes in the United States." Id. at 397 (emphasis in original). The Court did not address that argument, finding that Ms. Sachs forfeited it by not presenting it to the courts below. That argument will have to wait for the next American Eurail purchaser who suffers an injury on a European train.

    Topics: civil procedure, Suzanne Bailey, The Lawletter Vol 41 No 1, Foreign Sovereign Immunities Act, commercial activity exception

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