The Supreme Court granted certiorari recently in Helmerich & Payne International v. Venezuela, to resolve a circuit split about the proper pleading standard needed to allege an expropriation claim under the Foreign Sovereign Immunities Act (FSIA) that survives a motion to dismiss. Is raising some facts that could show an expropriation enough to survive a motion to dismiss, or does a plaintiff actually need to show that some type of expropriation in violation of international law occurred?

The facts of the case are relatively straightforward. Venezuela nationalized oil rigs belonging to a Venezuelan subsidiary set up by its parent corporation, plaintiff-respondent Helmerich & Payne International. The plaintiff filed suit in the United States, fearing that it would not obtain a fair process in Venezuela (shocking!), relying on FSIA’s expropriation exception, 28 U.S.C. § 1605(a)(3). That section denies the assertion of sovereign immunity “in any case . . . in which rights in property taken in violation of international law are in issue.” The plaintiff lost on this issue before the district court, but the D.C. Circuit reversed, holding that dismissal is proper only if the plaintiff failed to allege a “taking in violation of international law or has no rights in property in issue only if the claims are “wholly insubstantial or frivolous. A claim fails to meet this exceptionally low bar if prior judicial decisions inescapably render the claim frivolous and completely devoid of merit.”

Whether a taking under international law occurred is the ultimate question to resolve, but that issue is intertwined with whether a U.S. court can accept jurisdiction under FSIA’s expropriation exception. So the issue becomes what a plaintiff must show to survive a motion to dismiss. Two circuits, the D.C. Circuit and the Ninth Circuit, apply the nonfrivolity test: whether the claim as pled states a nonfrivolous violation of international law but need not actually demonstrate whether a taking in violation of international law occurred at the pleading stage. Five circuits – the Second, Seventh, Fifth, Eighth and Eleventh – take a more rigorous review common to jurisdictional motions to dismiss under Rule 12(b)(1): Do the allegations actually describe the loss of property rights in violation of international law? Under § 1605(a)(3), that’s a two-part inquiry: (1) Is there an international law violation? and (2) is the plaintiff seeking to vindicate its property rights?

The D.C. Circuit found that the plaintiff met its burden under the less strict analysis. Usually, domestic expropriations (i.e., taking of property from a domestic entity by its own government) are not violations of international law under the FSIA, and in this instance the oil rigs were owned by a domestic (Venezuelan) entity. However, the plaintiff alleged that the oil rigs were taken by Venezuela to discriminate against a U.S. entity because Venezuela is heavily biased against the United States.

The more rigorous sought by Venezuela and the United States via an amicus brief analysis presents a high hurdle for the plaintiff. Because it set up a Venezuelan entity to own the oil rigs, the expropriation could be deemed exclusively domestic – a Venezuelan entity lost its property to the Venezuelan government. The plaintiff would have a high hurdle on the second inquiry too: It didn’t lose any of its Venezuelan property because it only owns (and still owns) shares in its subsidiary.

While an esoteric pleading issue, the issue could have wide-ranging ramifications under the expropriation exception and the FSIA generally. It’s not uncommon for U.S. companies and individuals to set up a local entity to own property – in fact, that’s the norm. In some instances, a local company may actually be required to own real estate. So a pleading requirement to show an actual international law violation could potentially be impossible to meet (absent expropriation of the local subsidiary, which basically never happens). And as the United States noted in its amicus curiae brief, other FSIA exceptions – such as the terrorism exception, which allows for suits under sovereigns for state-sponsored terrorism, 28 U.S.C. § 1605A(a)(1); and the tort exception, which allows for suits against sovereigns for torts committed by states or its officials, 28 U.S.C. §1605(a)(5) – could be subject to the same analysis. Under these exceptions, the legal merits of the dispute are intertwined with the jurisdictional issues, basically requiring the plaintiff to prove its claims at the complaint stage.

Given the sovereign rights at stake, the Supreme Court is likely to require a more rigorous pleading standard. From an equitable standpoint, that feels unfair because Venezuela undoubtedly stole this property (although the plaintiff executed its deal with Venezuela in 2007, so buyer beware). But time after time, the Supreme Court (and the U.S. government) has narrowly construed the limited immunity waivers permitted under the FSIA. A similar result seems in the offing here. We’ll continue to follow this case.