SI Group Consort Ltd. v. Ukraine, No. 15-CV-3047 (S.D.N.Y. Jan. 30. 2017) [click for opinion]

SI Group is an Israeli company that specializes in waste management. In 2013, SI Group entered into a series of waste disposal contracts with Ukraine's Department for Construction, Housing, Urban Development, and Architecture of the Ivano-Frankivsk Regional State Administration ("DCIF"). The principal contract between the parties provided that disputes would be resolved "in court under the laws of Ukraine." The contract further specified that "[a]ll disputes meant to be settled in court shall be settled at the location of the Client," namely, the Ivano-Frankivsk State in Ukraine. A dispute arose over payments SI Group claimed were owed and they brought suit against DCIF in a Ukrainian court in 2014. SI Group was awarded a monetary judgment, but the DCIF did not pay. SI Group then brought this action seeking to collect judgment from the U.S. assets of Ukraine, the Ivano-Frankivsk Regional State Administration, and DCIF.

Pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. § 1604, foreign states are presumptively immune from the jurisdiction of the courts of the United States, unless a statutory exception to immunity applies. SI Group did not dispute that Defendants are foreign sovereigns, but argued that three statutory exceptions applied: waiver, commercial activity, and expropriation.

SI Group first argued that Defendants implicitly waived their sovereign immunity by consenting broadly to resolve disputes "in court." The court determined, however, that Defendants' contractual consent to resolve suits in the courts of the Ukraine did not imply an intent to waive sovereign immunity in U.S. courts. Nor did Defendants' participation in the Ukrainian litigation evidence such an intent. SI Group next argued that Defendants implicitly waived sovereign immunity by consenting to arbitration before the International Centre for Settlement of Investment Disputes in a bilateral investment treaty between Israel and the Ukraine. The court determined that, while the Second Circuit has held that sovereign immunity is waived in cases of enforcement of ICSID awards, no such award was at issue here.

Turning to the commercial activity exception, the court found that SI Group did not allege facts demonstrating that the acts that formed the basis of its claim caused a direct effect in the U.S. Thus, the action to enforce a foreign judgment based on that claim would not meet the commercial activity exception. The court also denied SI Group's request for jurisdictional discovery, holding that such discovery is permissible to verify allegations of specific facts crucial to an immunity determination, not to uncover grounds for allegations in the first place.

Finally, SI Group argued that the expropriation exception applied because its right to the payment of a foreign judgment was taken by Defendants in violation of international law. The court held that failure to pay was not a "taking," as SI Group still had the right to payment. The court noted that SI Group's argument would mean that all cases seeking to enforce judgments against foreign sovereigns would be subject to the expropriation exception. The court further distinguished the arbitral awards that SI Group relied on, stating that in those cases the sovereigns "nullified or otherwise prevented collection of a valid judgment, effectively confiscating the right to payment."

The court therefore found that SI Group had not shown grounds for a statutory exception to Defendants' sovereign immunity to apply and it accordingly lacked both subject matter and personal jurisdiction over the Defendants. The court granted Defendants' motions to dismiss.