The United States Supreme Court, in its first signed opinion of the Term, held this month that the commercial activity exception to the Sovereign Immunities Act does not apply to a U.S. resident’s personal injury claims against OBB Personenverkehr AG (“OBB”), the Austrian state-owned railway. OBB Personenverkehr AG v. Sachs, 136 S.Ct. 390 (2015).
The respondent, Carol Sachs, was a California resident who purchased a Eurail pass from a Massachusetts-based travel agent on the internet for rail travel on a trip to Europe. Id. at 393. While in a train station in Innsbruck, Austria, she fell onto the tracks attempting to board the train and suffered severe injuries when the moving train crushed her legs. Id. Sachs sued OBB in the United States District Court for the Northern District of California, asserting causes of action based in negligence, strict liability for design defects in the train and platform, failure to warn, breach of implied warranty of merchantability, and breach of implied warranty of fitness. Id. The Sovereign Immunities Act shields foreign states and their agencies from lawsuits in U.S. Courts unless the action falls within one of the Act’s enumerated exceptions. 28 U.S.C. § 1602 et seq. Sachs claimed her case fell under the “commercial activity” exception, which withdraws sovereign immunity in any case “in which the action is based upon a commercial activity carried on in the United States by [a] foreign state.” 28 U.S.C. § 1605(a)(2). The Supreme Court unanimously disagreed.
As described in the opinion, OBB is one of 30 railways throughout Europe belonging to Eurail Group, an association that markets and manages the Eurail pass program. 136 S.Ct. at 393. These passes are available only to non-Europeans and may be purchased directly from Eurail Group and indirectly through a worldwide network of travel agents. Id. They permit pass holders unlimited passage on participating Eurail Group railways for set periods of time. Id.
The key question before the Court was whether Sachs’ claims were “based upon” OBB’s commercial activity in the U.S. within the meaning of the Act’s commercial activity exception. The Ninth Circuit (on rehearing en banc) found that this requirement was satisfied on the grounds that the commercial activity at issue—Sachs’ purchase of the pass from a Massachusetts-based travel agent—provided “an element” to each of her claims. Id. at 935. For instance, “the court determined that the existence of a ‘transaction between a seller and a consumer’ was a necessary element of Sachs’s strict liability and breach of implied warranty claims.” Id. at 394. The Supreme Court rejected what it described as the Ninth Circuit’s “one element” approach. Id. at 395-96. Instead, it held that in accordance with its decision in Saudi Arabia v. Nelson, 507 U.S. 349 (1993), the “based upon” inquiry must focus on the “particular conduct” that constitutes the “gravemen” of the suit. Id. at 396. Under this analysis, the Court easily concluded that the conduct constituting the gravamen, or “foundation,” of Sachs’ suit occurred abroad: “All of her claims turn on the same tragic episode in Austria, allegedly caused by wrongful conduct and dangerous conditions in Austria, which led to injuries suffered in Austria.” Id. at 396.
If there is a sovereign immunity lesson to be gleaned here for foreign governments and their agents, it’s that it likely matters where your product is designed, manufactured, and causes injury. If your product is a pass on a European railroad that operates only in Europe, there should be little to worry about, regardless of whether the passes are selling like hotcakes in California. If your product makes its way into households, factories, infrastructure, etc. in the United States, it increases the odds you will be on the hook in U.S. courts. In the spirit of the holidays, I leave you to ponder this hypothetical: If someone in the U.S. were to purchase the “Monna Lisa” Umbrella from the Louvre’s online gift shop (http://www.boutiquesdemusees.fr/en/shops/musee-du-louvre/categories/19-fashion/1/?par=104), and the umbrella ended up injuring its user during a New York rainstorm, would the government-owned museum be entitled to sovereign immunity per the “based on” standard articulated in Sachs?