CORPORATE OWNERSHIP AND SOVEREIGN IMMUNITY
By:
Georges R. Delaume
Washington, D.C.
The Foreign Sovereign Immunities Act's (FSIA, 28 U.S.C. §§ 1330, 1602 et seq.) immunity rules are applicable to the governments of foreign states and to their "agencies and instrumentalities," defined in § 1603 (b) as any entity:
"(1) which is a separate legal person, corporate or otherwise, and
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and
(3) which is neither a citizen of a State of the United States ... nor created under the laws of any third country."
The meaning of this provision has been the central issue in numerous court cases. Although these cases demonstrate that courts have little difficulty in applying the FSIA to foreign public entities, on occasion, however, problems of interpretation have arisen. The emergence in recent years of new forms of association between states and their agencies in the pursuit of commercial or other economic ventures has provided courts with some of the most difficult problems of interpretation.
A recent decision of the Seventh Circuit Court of Appeals illustrates this point (In re Air Crash Disaster near Roselawn, Indiana, 96 F.3d 932 (7th Cir. 1996)). Following an aircraft disaster, representatives of the victims' estates brought suit against the airline, an American corporation, and the manufacturer of the aircraft (ATR), a commercial company created by an international agreement between France and Italy, and incorporated in France. Though both governments controlled the operations of ATR, their ownership was indirect in the sense that it was channeled through other government-owned corporations.
At the request of ATR, the case had been removed from the state courts to the federal courts. Intent on having the benefit of trial by jury, plaintiffs moved to remand the case. Among other arguments (including the contention that the FSIA violated the Seventh Amendment), plaintiffs contended that ATR could not be regarded as a "foreign state" because in order to qualify as such an entity must be majority-owned by a single government. Plaintiffs also argued that government ownership must be direct and cannot be channeled through intermediaries. In other words, the FSIA's definition should be construed as excluding both cases of "pooled" ownership and "tiered" ownership.
The Court rejected both arguments. In regard to "pooled" ownership, the Court noted that: (i) ATR was the product of an international joint venture between France and Italy for the purpose of developing their civil aeronautic industry within the framework of European cooperation; and (ii) ATR was managed and controlled by both governments. Under the circumstances, ATR qualified both as "an agency" or "an instrumentality" of a foreign state and as a "foreign state" for the purposes of the FSIA. In reaching this conclusion, the Court noted that nearly every court that had considered the issue of "pooling" had reached the same conclusion.
However, the Court was also faced with a novel issue. ATR was incorporated in France and, thus, under Italian law, was regarded as an entity created under the law of a "third" country, thereby arguably, falling outside the scope of § 1603 (b)(3) of the FSIA. Under this view, the Italian-owned shares of ATR could not be counted to satisfy the FSIA test. This contention foundered on the fact that ATR was not an ordinary investment in a private commercial enterprise, but rather was a joint sovereign venture created by an international compact between two governments whose purpose was to further public objectives. Under such circumstances, the Italian ownership interest, like that of France, had to be taken into account and, as a result of this "pooled" ownership, ATR qualified as an "instrumentality" under the FSIA definition.
Having so ruled, the Court considered the issue of "tiered" ownership. After reviewing earlier decisions on point, the Court held that this type of ownership satisfied the FSIA requirements. Referring to the Legislative History of the Act, the Court found support for the view that the FSIA definition of a "foreign state" was broadly formulated intentionally and that to limit that concept to such notions as those regarding "foreign sovereign" or "foreign government" would be equivalent to rewriting the Act. As a result, under the circumstances, ATR fell within the scope of the statutory definition of "foreign state."
