Sachs v. Austria, 737 F.3d 584 (9th Cir. 2013) [click for opinion]

OBB Personenverkehr AG operates passenger rail service in Austria and is a member of the Eurail Group.  Eurail Group is responsible for marketing and selling rail passes.  Carol Sachs, an American citizen, bought a four-day Eurail pass from the Rail Pass Experts, a travel agent located in Massachusetts.  When trying to board OBB's train, she fell between the tracks.  Her legs were crushed and had to be amputated. 

Sachs sued OBB in the Northern District of California for negligence.  The district court granted OBB’s motion to dismiss for lack of subject matter jurisdiction after finding that OBB was an instrumentality of Austria and hence immune from suit under the Foreign Sovereign Immunities Act (“FSIA”).  The Ninth Circuit, sitting en banc, reversed. 

The FSIA provides foreign sovereigns immunity from suit in the United States.  There is, however, an exception that applies when commercial activity is carried on in the United States and the claim is "based upon" that activity.  The first main issue before the court was whether the sale of the Eurail pass by Rail Pass Experts, which the parties agreed was a commercial activity, can be imputed to OBB.

The Ninth Circuit examined the legislative history of the FSIA and concluded that Congress intended the commercial activity exception to be read broadly.  The court also concluded that, since the FSIA codified the common law of sovereign immunity, the FSIA preserved common-law principles.  And even though Congress defined the term “agency or instrumentality of a foreign state,” the Ninth Circuit was not convinced Congress meant to displace common-law agency principles for assessing commercial activities. 

Using common-law agency principles, the court observed that a foreign state may engage in commerce in the United States indirectly through agents or subagents, and so long as they act with actual authority, those acts can be imputed to the foreign state.  The Ninth Circuit characterized Rail Pass Experts as a subagent of OBB through Eurail Group and further found Rail Pass Experts had actual authority to sell the Eurail pass—though this authority derived from the original authority OBB granted to Eurail Group.

The second main issue was whether Sachs’s claim was “based upon” the commercial activity.  According to the court, Sachs must show a nexus between her claims and the sale of the Eurail pass.  Sachs’s theory was that her purchase of the Eurail pass meant that OBB owed her a duty of care because it established a common-carrier/passenger relationship. The Ninth Circuit agreed, noting that a common carrier's duty of care is established when its agent sells a ticket or otherwise makes travel arrangements for passage abroad. 

For these reasons, the Ninth Circuit held that the commercial-activity exception applies to a common carrier owned by a foreign state that acts through a domestic agent to sell tickets to U.S. citizens or residents for passage on the foreign common carrier’s transportation system.  (The court observed that the Second and D.C. Circuits have reached the same conclusion in cases involving travel agents.)

Three judges dissented, arguing that the commercial-activity exception to the FSIA should be interpreted narrowly and took issue with the majority’s attribution of Rail Pass Expert's ticket sale to OBB.  Judge Kozinski wrote a separate dissent, arguing that the commercial-activity exception did not apply because Sachs's claim was not "based upon" commercial activity in the United States; rather it was "based upon" events that transpired in Austria.