The US Supreme Court has issued a major decision that should make it easier for foreign states and their agencies and instrumentalities to avoid unfounded suits under the Foreign Sovereign Immunities Act (FSIA). In Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co., No. 15-423 (May 1, 2017), the Court unanimously held that expropriation claims against Venezuela failed to invoke the FSIA’s expropriation exception and, therefore, should have been dismissed. In so holding, the Court stressed that an important purpose of the FSIA is to spare foreign states from unnecessary US litigation. Going forward, bare claims of FSIA jurisdiction will not suffice—rather, before the case may proceed, plaintiffs will have to establish that an exception to FSIA immunity actually applies.

Background

Helmerich & Payne and its Venezuelan subsidiary filed suit after Venezuela nationalized the subsidiary's oil rigs. Under the FSIA, a foreign state (and state-owned/controlled entities) are presumed immune from US court jurisdiction in civil actions unless one of the enumerated exceptions in the FSIA applies. Venezuela moved to dismiss the claims of both the parent and the subsidiary, arguing that no exception to its jurisdictional immunity could be shown. In response, plaintiffs asserted that their case fell within the FSIA's "expropriation exception," 28 U.S.C. § 1605(a)(3), which confers jurisdiction over cases where "rights in property taken in violation of international law are in issue." Venezuela argued that international law does not prevent a country from expropriating property from its own nationals, and that this barred the claims of both the parent and the subsidiary. Ultimately, the parties stipulated that their dispute was purely legal: whether the plaintiffs' expropriation allegations, taken as true, implicated the expropriation exception as to both corporate plaintiffs. In holding that both corporate claims could proceed, the DC Circuit found that the parent company claims could proceed because the parent company had stated a "nonfrivolous" expropriation claim, and that this “exceptionally low bar” was all that was required of a plaintiff pleading FSIA jurisdiction.

Overruling the DC Circuit, the Supreme Court held that a plaintiff may not proceed based only on a "nonfrivolous" claim to support jurisdiction. Doing so, the Court stated, would allow a standard "limited only by the bounds of a lawyer's (nonfrivolous) imagination. It would create increased complexity in respect to a jurisdictional matter where clarity is particularly important." The Court further concluded that FSIA suits can no longer proceed simply because jurisdictional facts are intertwined with the merits of a claim. Observing that "merits and jurisdiction will sometimes come intertwined," the Court made clear that "the court must still answer the jurisdictional question," even if doing so "must inevitably decide some, or all, of the merits issues." At bottom, US courts are to decide at the earliest possible opportunity the jurisdictional question of whether the claim falls within a FSIA exception.

Implications

By stressing the importance of plaintiffs actually pleading facts and law sufficient to establish jurisdiction under an applicable FSIA exception, and of the courts deciding jurisdiction definitively, the Supreme Court has made it easier for foreign states and state-owned entities to challenge FSIA-based claims. For example, many FSIA exceptions require a US nexus to support jurisdiction. Helmerich & Payne makes clear that foreign states may challenge scant allegations of a US nexus to test whether plaintiffs have actual evidence of a US connection that is sufficient to support jurisdiction. Thus, in an expropriation case, the result may turn on whether the plaintiff can show that "property or any property exchanged for such property is present in the United States" or, in a commercial-activity case, on whether the plaintiff can offer evidence that commercial activity elsewhere caused a "direct effect" in the United States (under 28 U.S.C. § 1605(a)(2)).

Plaintiffs also can no longer avoid dismissal of their claims merely by asserting that a factual finding on jurisdiction would also decide a merits issue. Rather, the Supreme Court has decided that foreign states should not be subjected to protracted US litigation absent a proven exception to FSIA immunity and has confirmed to the lower courts that the issue of jurisdiction should be decided definitively at the outset of the case.