In Re: Mezerhane v. Republica Bolivariana de Venezuela, Case No. 1:11-cv-23983-MGC (S.D. Florida 2013)
EXPERT WITNESS REPORT AND OPINION
Of
Mark B. Feldman[1]
Question Presented
As one of the drafters of the Foreign Sovereign Immunities Act of 1976 (hereinafter “FSIA” or “Act”), I have been asked by counsel for plaintiff, Nelson J. Mezerhane, to provide the Court my expert opinion on the drafting and application of the expropriation exception to immunity set forth in Section 1605 (a) (3) of the Act. This Report and Opinion addresses one specific question:
Does the exception to immunity spelled out in the second clause of Section 1605 (a) (3) apply to a foreign state, such as Venezuela, so as to afford jurisdiction over that state in circumstances where the property taken in violation of international law or any property exchanged for such property is not present in the United States, but “is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States?”
Conclusion
Yes. Section 1605(a)(3) expressly provides, as the Executive drafters and the Congress clearly intended, that a foreign state, such as Venezuela, shall not be immune from the jurisdiction of the U.S. courts in any case in which the specified property “is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.”
Qualifications
I graduated from Harvard Law School in 1960 receiving an LL. B. magna cum laude, and am admitted to the bars of New York (1961) and the District of Columbia (1974). At the present time, I am Of Counsel to the law firm Garvey Schubert Barer in Washington D.C. and Adjunct Professor of Foreign Relations Law at Georgetown University Law Center. I have practiced international and foreign relations law in government and in private practice continually since I joined the U.S. State Department, Office of the Legal Adviser in May 1965. My c.v. and a list of my publications are attached (Tab A).[2]
At the State Department, I served as Assistant Legal Adviser for Inter-American Affairs (1968 -1974), Deputy Legal Adviser (1974-1980) and Acting Legal Adviser (1981). In these positions, I was responsible for advising the Secretary of State and other Department officers on many legal issues relating to foreign expropriation and international claims, foreign sovereign immunity and the federal act of state doctrine. I participated directly in the negotiation of investment disputes and claims settlements with Peru, Chile, Iran and the People’s Republic of China and advised the Department on litigation relating to claims against Cuba and Iran. In the Cuban context, I drafted letters signed by the Legal Adviser stating the Department’s position on the federal act of state doctrine. I also advised State Department officers serving on an inter-agency committee established by President Nixon to manage the U.S. response to the numerous expropriations of U.S. investments in developing countries during the late 1960s and 70s.
In the 1970s, I represented the United States in a number of multi-lateral negotiations relating to international investment and expropriation that took place in the United Nations and the Organization for Economic Cooperation and Development and helped draft the 1976 OECD Declaration on International Investment. I also advised Secretary of State Henry Kissinger regarding his efforts to reach a new understanding on expropriation issues with Mexico and South American governments.
Notably, for purposes of this case, as Deputy Legal Adviser I was responsible for determinations of sovereign immunity made by the Department of State and was one of the government attorneys primarily responsible for drafting the bill that, with limited changes, was enacted by Congress in 1976 as the FSIA. Prior to the Act, courts generally deferred to Suggestions of Interest submitted by the Attorney General stating that the Department of State recognized and allowed the claim of immunity asserted by the foreign state.[3] For a time, I personally presided over administrative hearings in which immunity claims made by foreign states were contested by claimants.
President Nixon first submitted immunity legislation to Congress in January 1973. That proposal drew objections, and Congressional staff told the Department to consult with all the stakeholders and to present a new bill that would command broad consensus. The Acting Legal Adviser asked me to coordinate that effort, and I led the consultations with stakeholders and the drafting that resolved most of the issues that caused objections. After two years of work, State and Justice developed a new bill and a section-by-section analysis that were submitted to Congress on October 31, 1975.[4] Congress made some adjustments, but accepted both the basic structure of the bill and the specific language proposed by the Executive for Section 1605(a)(3). I reviewed that language during the first Nixon Administration when, as described in Part II below, I was deeply involved in U.S. expropriation policy, and I edited this particular provision in 1974 when we prepared a new bill for Congress. For the reasons described in this Report and Opinion, the Executive drafted the second prong of Section 1605(a)(3) to facilitate jurisdiction over a foreign government responsible for an uncompensated expropriation.
During the Iran Hostage Crisis (1979-81), I helped the Justice Department and the White House manage hundreds of cases brought against Iran and its agencies in U.S. courts under the FSIA and was the principal draftsman of the Claims Settlement Agreement with Iran published on January 19, 1981 in the form of a Declaration by the Government of Algeria.[5]
My experience with the FSIA continued after I returned to private practice in May 1981. Once the FSIA became law, many improvements were suggested. In response, the ABA Section of International Law and Practice created a committee on Foreign Sovereign Immunity with a mandate to develop a new bill. As Chairman of that Committee in 1986-88, I helped draft several amendments to the Act. The measures sponsored by the ABA were introduced in Congress in 1986, and I testified in support of those bills.[6] Important amendments relating to arbitration and act of state were enacted in 1988,[7] but other proposed improvements were not adopted. I also have represented private clients with expropriation claims against foreign states, including Kalamazoo Spice Extraction Co. in its litigation with Ethiopia where the Court relied on the second prong of Section 1605(a)(3) to sustain its jurisdiction over the foreign state.[8]
Based on this experience with the FSIA, I have published a number of articles describing the drafters’ intent,[9] reviewing judicial treatment of the Act,[10] describing the ABA proposed amendments[11] and analyzing the amendments enacted in 1988.[12] In April 2011, I commented briefly on the question presented here in an ABA panel discussion.[13]
OPINION
Part I. Statutory Structure and Text
The United States was the first nation to codify the law of foreign sovereign immunity by statute. The Foreign Sovereign Immunities Act of 1976 had three broad objectives: (1) to transfer responsibility for immunity determinations from the Department of State to the judiciary; (2) to define and codify the “restrictive” theory of immunity, which generally allows immunity for purely governmental acts but not for commercial acts by the foreign state or its agencies; and (3) to provide a comprehensive, uniform regime for litigation against foreign states and governmental agencies, including such matters as jurisdiction, immunity, service of process, pre-judgment attachment and execution of judgment.
The initiative for this legislation came from the Executive Branch to minimize foreign policy problems resulting from State Department determination of foreign requests for immunity and to meet private sector concerns that the existing system failed to afford due process and was subject to undue diplomatic pressures. The statutory text was drafted mainly by State and Justice Department attorneys, and the section-by-section analysis submitted by the Executive was adopted in large part in the congressional committee reports.
In addition to laying down the rules of immunity as such, the Act generally requires that the acts which are the basis of a claim have a territorial nexus with the United States and creates a form of long-arm statute establishing jurisdiction over claims that meet the criteria. This linkage is structured as follows: Title 28 U.S.C., Section 1330 (a) provides broadly for original jurisdiction of claims “with respect to which the foreign state is not entitled to immunity.” Section 1604 of the Act, provides, in part, “a foreign state shall be immune from the jurisdiction of the courts … except as provided” in Section 1605 (a) and other named sections.[14] Section 1605 (a) states that “a foreign state shall not be immune from the jurisdiction of the courts … in any case”[15] meeting the criteria set out in the subparagraphs that follow. Those criteria define both the types of actions as to which immunity does not attach and the territorial nexus required for adjudication in U.S. courts.
The expropriation exception to immunity, Section 1605 (a) (3) of the Act, reads as follows:
A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case— (3) in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.[16]
A “foreign state” is defined in Section 1603 (a):
“For purposes of this chapter – A ‘foreign state’, except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection b.”[17]
Under the plain language of the statute, the courts have jurisdiction over claims against a foreign state alleging the taking of property in violation of international law whenever that property or property exchanged for it is (1) “present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or” (2) “that property or any property exchanged for such property is owned by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.” (emphasis added)
Further, this is the only reasonable reading of the text. The FSIA is a jurisdictional statute; it does not purport to change the substantive law of liability.[18] Expropriation is a sovereign act, and sovereignty is vested in the foreign state. The foreign state is responsible internationally for any expropriation carried out by its authorities, including any agency or instrumentality, and it is the primary defendant in any expropriation case. An agency or instrumentality may be liable for the state’s action in certain circumstances, but such liability is not created by the FSIA.[19]
The expropriation exception is predicated on foreign state liability for takings in violation of international law and aims to define the circumstances in which a foreign government responsible for such an act should be subject to the jurisdiction of the U.S. courts. The text of 1605(a)(3) reflects the balance struck by the Executive drafters and adopted by Congress. As demonstrated in Part II below, foreign expropriation of U.S. investment was a major foreign policy concern for the U.S. government in the 1960s and 70s. There were numerous uncompensated expropriations in Cuba, Latin America and other developing countries, and the State Department faced strong political pressure for coercive diplomacy to protect American interests as well as Congressional legislation restricting foreign aid.[20]
At the time, few developing countries accepted impartial dispute settlement of investment disputes, so there was a strong national interest in providing a domestic judicial remedy for victims of foreign expropriation. However, State and Justice recognized that expropriation is a governmental act and that foreign governments would likely oppose U.S. jurisdiction in such cases. While the international law of sovereign immunity was far from developed, there was concern that a broad exception for suits based on foreign takings in violation of international law might be challenged in the international community.
The drafters at State and Justice found a solution by limiting jurisdiction under the expropriation exception to two situations involving commercial activities and territorial connections with the United States that they believed would meet any objections based on emerging international law principles relating to jurisdiction and immunity. The first prong of section 1603(a) is exceedingly narrow. A foreign state that chooses to bring expropriated property into the United States for commercial purposes invites litigation of its title to that property including judicial review of the foreign taking under applicable principles of international law. The problem is that, standing alone, this provision would be of little value as few foreign governments would take that chance.
The second prong deals with another situation of great concern to U.S. policy makers. Foreign states who expropriate foreign investments, particularly those in natural resources such as petroleum and mining, often transfer those properties to governmental agencies or state enterprises who use them in world commerce, including the United States. To counter this practice, as an element of U.S. expropriation policy, the second prong of Section 1605 (a) (3) was drafted to allow claims against a foreign state when a government agency or instrumentality that owns or operates property taken in violation of international law is engaged in a commercial activity in the United States. The foreign state is the primary defendant in this situation because it authorized the uncompensated expropriation, directly or indirectly, and placed or maintained the seized assets in the hands of an agency or instrumentality that engages in commercial activity in the United States. U.S. policy makers did not want a foreign state to profit from its confiscation of U.S. investment in this way.
Venezuela’s Arguments
Citing a State Department position adopted 28 years after enactment of the FSIA,[21] Venezuela would have the Court rewrite the statute to deny jurisdiction over a foreign state that has taken property in violation of international law where the state has transferred the property to a government agency or instrumentality and that agency is engaged in commercial activity in the United States. Three reasons are offered to support this construction:
(1) Supposedly, the FSIA merely codified the international law of immunity as it existed in 1976, and Congress allowed a broader remedy for expropriation against a government agency than against the foreign state responsible for the expropriation. As discussed above, section 1605(a)(3) does take a careful approach to jurisdiction in expropriation cases, but it was not intended to adopt a remedy that could rarely, if ever, be invoked. The second prong itself is narrow, but it adds teeth to U.S. jurisdiction over the foreign state. The drafters hoped that the risk of litigation in U.S. courts would deter some foreign expropriations in violation of international law.
Venezuela cites Section 1602,[22] which notes that commercial activities and commercial assets of foreign states are not immune under international law, but this text does not support Venezuela’s argument. It makes no distinction between jurisdiction over foreign agencies and foreign states, and surely does not imply that jurisdiction over a foreign state under the expropriation exception conflicts with international law. To the contrary, Section 1602 makes clear that henceforth foreign states’ claims to immunity shall be decided by the courts “in conformity with the principles set forth in this chapter.”[23] As noted by the Supreme Court in Samantar v. Yousuf, [24]
“After the enactment of the FSIA, the Act—and not the pre-existing common law—indisputably governs the determination of whether a foreign state is entitled to sovereign immunity.”[25]
While the broad principle of sovereign immunity is rooted in international practice, many details were still emerging in 1976. The United States was the first state to legislate in this area, and Congress established rules consistent with the U.S. view of international law. As noted in the House Report:
“Although the general concept of sovereign immunity appears to be recognized in international law, its specific content and application has been left to the courts of individual nations.”[26]
For purposes of the Act, a “public act” immune from jurisdiction is “an act not within the exceptions in sections 1605-1607.”[27]
The drafters took account of potential international law constraints by linking jurisdiction to specified commercial contacts with the United States. As one of the drafters, I was persuaded in 1976, and I am convinced now, that the exercise of jurisdiction over a foreign state under the second prong of section 1605(a)(3) does not contravene any established norm of international law. In any event, the courts are bound by the judgment of Congress. The balance struck in the expropriation exception to immunity embodies the foreign policy of the United States as agreed by the political branches and made statutory law in 1976. The text is explicit, and Congressional intent is clear.
(2) Venezuela argues that limiting jurisdiction over a foreign state in expropriation cases would be consistent with the more protective treatment given to the assets of foreign states as regards attachment and execution of judgment. Congress, on the recommendation of the Executive, did make a sharp distinction between the foreign state and an agency or instrumentality of the state regarding execution; it provided greater protection to state assets as such and less to assets of a separate agency or instrumentality.[28] This distinction reflects the judgment of the Executive that seizure of state assets is more sensitive from a foreign relations standpoint than adjudicating a claim.
The Act also provides differential treatment for agencies and instrumentalities regarding service of process[29] and punitive damages.[30] All this shows is that Congress knew how to distinguish between a foreign state as defined in Section 1603(a) and an agency or instrumentality of a foreign state as defined in 1603(b) when it wanted to do so; in those instances, it took pains to make differential treatment explicit. Congress made no such distinction in any jurisdictional provision under Section 1605. Venezuela asks the Court to override Congress’s judgment on this point.
(3) Finally, Venezuela asserts that granting jurisdiction over the foreign state under prong 2 would strip all of the state’s agencies and instrumentalities of immunity under the Act. That assertion is plainly incorrect; it is a straw man. Jurisdiction over a foreign state by itself never grants jurisdiction over a separate agency or instrumentality, as defined in Section 1603(b). Further, the FSIA does not address questions of substantive law, including the liability of a foreign state for the acts of one of its agencies or the liability of an agency for an act by the state. Section 1606 stipulates: “ … the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances.”[31] As noted in the House Report, the Act is not “intended to affect . . . the attribution of responsibility between or among entities of a foreign state; for example, whether the proper entity of a foreign state has been sued, or whether an entity sued is liable in whole or in part for the claimed wrong."[32] Finally, the legislative history of the FSIA makes clear that the Act respects the separate juridical identities of the state and its different agencies or instrumentalities: “Section 1610(b) will not permit execution against the property of one agency or instrumentality to satisfy a judgment against another, unrelated agency or instrumentality.”[33]
In Bancec, the Supreme Court held that U.S. courts will respect the separate legal status of foreign government entities unless (a) the entity is so extensively controlled by the state that it functions as an agent of the state; or (b) to do so would work fraud or injustice. However, applying equitable principles common to international and federal common law, the Court concluded in Bancec:
“Cuba cannot escape liability for acts in violation of international law simply by retransferring the assets to separate juridical entities. To hold otherwise would permit governments to avoid the requirements of international law simply by creating juridical entities whenever the need arises.” [34]
Congress drafted the second prong of the expropriation exception with just that concern in mind. If a state expropriates (or empowers an agency or instrumentality to) expropriate property in violation of international law and transfers the property to (or maintains it under control of) a state agency or instrumentality engaged in commercial activity in the United States, the state can expect to be held accountable for the expropriation in U.S. courts. In these circumstances, neither the foreign state nor the State Department has a proper complaint.
Garb v. Republic of Poland[35]
As noted in Plaintiff’s response to Venezuela’s motion to dismiss, judicial decisions before and after Garb have sustained jurisdiction over the foreign state under the second prong of section 1605(a)(3).[36] Despite some language to the contrary, Garb is not on point; the second prong could not have applied in that case as no separate agency or instrumentality was involved. The Treasury Ministry was part of the government itself, so jurisdiction had to be founded on the first prong of the expropriation exception. Nonetheless, citing U.S. government views submitted in Garb,[37] Venezuela argues that the State Department has “authoritatively” rejected the application of the second prong as a basis for jurisdiction over a foreign state.
I would make two comments on this contention: First, as explained in Part II below, this position, taken twenty eight years after the FSIA was enacted, is not consistent with the views of the Executive Branch and the Congress who drafted the Act in 1976. (There was little doubt that the second prong applied to Ethiopia when I briefed this issue in the Kalamazoo Spice case in 1984.[38] I was in close touch with the State Department concerning that matter. The United States filed an amicus brief in the Sixth Circuit in that case supporting the treaty exception to the act of state doctrine[39] and approving adjudication of compensation claims in U.S. courts.[40] The Sixth Circuit agreed, noting: “Obviously, the Executive branch feels that an adjudication in this matter is appropriate.” [41] Subsequently, the State Department settled the dispute as part of a broader claims agreement between the United States and Ethiopia.[42])
Second, courts do not defer to Executive views on the interpretation of statutes as “authoritative.” Interpretation of statutes is a judicial function. Among other prominent examples, the Supreme Court rejected the government’s construction of the FSIA in Republic of Austria v Altmann,[43] of the Alien Tort Statute in Sosa,[44] and of both the Uniform Code of Military Justice[45] and the Geneva Conventions[46] in Hamdan.[47] It is particularly hard to argue that State Department views on immunity are authoritative when one of the main goals of the FSIA was precisely to transfer immunity determinations to the courts so they would not be distorted by diplomatic considerations, as happened in Garb.[48]
In Altmann, the Court ruled that claims may be brought under the FSIA arising out of Nazi confiscations decades before the FSIA was enacted. The State Department opposed retroactive application of the FSIA and was deeply concerned by the result fearing that such litigation would cause serious foreign relations problems. Garb was one of the sensitive cases in the pipeline at the time, and it was remanded by the Supreme Court for reconsideration in the light of the Court’s disposition in Altmann. This context may help explain why the Department took such an extraordinarily narrow view of the jurisdiction afforded victims of expropriation by Section 1605(a)(3). It also seems likely that in 2004, the officials concerned did not attach the same importance to protecting investors from uncompensated expropriation as the Executive and Congress did in 1976. Whatever the reasons, this decades-later interpretation cannot trump the intent of Congress expressed in the plain language of the Act.
Part II. Congressional Intent to Further U.S. Expropriation Policy
The Executive initiated and drafted the Foreign Sovereign Immunities Act of 1976. Work on the FSIA began in the late 1960s during the Johnson Administration and continued through the Nixon and Ford Administrations until 1976. Throughout this period, foreign expropriation of American investment was a major foreign policy issue for the United States in both bilateral relations and multilateral diplomacy. The Cuban expropriations that followed the 1959 Castro revolution confiscated American investments worth billions of dollars, and major investments were seized without proper compensation in a number of countries in Latin America, Africa and around the world. Among these were Peru, Chile, Venezuela, Jamaica, Congo, Zambia, and Libya. In addition, petroleum companies came under increasing pressure in Saudi Arabia and the Gulf to transfer ownership and control to host countries. These developments hurt U.S. economic interests, precipitated litigation in U.S. courts, and caused a strong political reaction in the business community and in Congress.
The U.S. position on foreign expropriation is well established. The U.S. has long recognized the sovereign right of a foreign state under international law to take property in its territory for a legitimate public purpose and on a non-discriminatory basis provided that the state makes provision for payment of “prompt, adequate and effective” compensation.[49] In the U.S. view, a taking that does not meet these criteria violates customary international law, and the taking state is responsible for damages. For decades, the U.S. has sought to promote these principles through international agreements and to encourage amicable settlement of international investment disputes by good faith negotiations and impartial arbitration.
These principles were controversial in the 1960s and 70s. At the time, communist countries and many developing countries asserted the right to nationalize foreign investment with or without compensation as a matter of sovereign right. They rejected the application of customary international law to these actions and opposed the international standard of compensation upheld by the United States. Few of them would accept impartial settlement of investment disputes, and many Latin American governments clung to the “Calvo” doctrine[50] holding that foreign claims were the exclusive province of domestic courts.
Responding first to Cuba, Congress adopted the “Hickenlooper Amendment” in 1962 requiring the President to suspend foreign aid to any country taking American property that fails, within six months, “to take appropriate steps, which may include arbitration, to discharge its obligations under international law … including speedy compensation for such property in convertible foreign exchange, equivalent to the full value thereof, as required by international law. …”[51] Two years later, Congress enacted the “Second Hickenlooper Amendment” overruling the Supreme Court decision in Sabbatino[52] which established the federal act of state doctrine. Under this provision, “no court in the United States shall decline on ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law” in taking cases arising after January 1, 1959 unless the President advises the court “that application of the act of state doctrine is required in that particular case by the foreign policy interests of the United States.”[53]
Expropriations multiplied, however. In May 1971, the State Department estimated that 56 cases involving American investments remained unresolved.[54] Political and bureaucratic tensions around these issues came to a boil in 1968-72 with dramatic expropriations in Peru and Chile. After Peru settled a long-standing dispute with the International Petroleum Company (“IPC”), the elected government of President Belaunde was overthrown by the Peruvian military in October 1968. One of the first acts of the new Junta, led by Col. Juan Velasco, was to repudiate the IPC agreement and to nationalize the company without compensation. Despite vigorous diplomacy, neither President Johnson nor President Nixon was able to negotiate a satisfactory solution.
With the Hickenlooper Amendment’s six month deadline set to expire in April 1969, President Nixon had to decide whether to begin his Administration by publicly suspending economic assistance to Peru – an action that would have been perceived throughout Latin America and the Caribbean as coercive intervention in Peru’s internal affairs. The State Department took the lead on this matter, and President Nixon appointed John C. Irwin as his personal emissary to the Velasco government. (I accompanied Ambassador Irwin to Peru and to his meeting with President Nixon on the Hickenlooper Amendment.) In the end, on the recommendation of the State Department and Ambassador Irwin, President Nixon decided not to apply the Hickenlooper Amendment formally, but to back up diplomacy with quiet economic pressure.
This decision caused a backlash from business and in Congress. In early 1970, Treasury Secretary John Connelly began an attack on State Department policy within the Administration. Pressure on State increased sharply when Salvador Allende, heading a Marxist coalition including the Communist Party, was elected President of Chile in September 1970. One of the first acts of the new regime was to nationalize Chile’s large copper mines owned by American investors without providing for any meaningful compensation. Other expropriations and debt repudiation followed. The Nixon Administration, shocked by Allende’s unexpected election and preoccupied with Marxism in the Hemisphere, was slow to authorize negotiations with Allende over copper.[55] Significant negotiations eventually took place, but failed to reach agreement before the Chilean military overthrew the Allende regime.[56]
On June 23, 1971, in this intense environment, National Security Adviser Henry Kissinger ordered a comprehensive review of U.S. expropriation policy by all the interested agencies.[57] After a bitter bureaucratic dispute, the White House instituted a new expropriation policy based on a presumption that the U.S. would henceforth respond to uncompensated expropriations by withholding U.S. financial assistance and voting against loans from international development banks.[58] This program was to be administered by a new inter-agency group under the President’s Committee on International Economic Policy (CIEP). One responsibility of this body was to supervise and direct State’s management of individual expropriation cases previously handled by State without such supervision. President Nixon issued a formal public Statement announcing the new policy on January 24, 1972.[59] In short, the State Department won the IPC battle but lost the bureaucratic war for control of U.S. expropriation policy.[60]
In March 1972, Congress doubled down on this policy, adopting the Gonzalez Amendment requiring the President to instruct U.S. representatives to the World Bank, the Inter-American Development Bank and the Asian Development Bank to vote against loans to foreign countries that expropriated U.S. investment without compensation unless they entered good faith negotiations “aimed at providing prompt, adequate, and effective compensation under the applicable principles of international law.”[61]
In consequence, during the years the FSIA was being drafted in the Executive Branch virtually every expropriation by a developing country became a major foreign policy issue requiring the White House to balance the national interest in protecting American investors from confiscation against the substantial foreign policy costs of seeking to block loans from international financial institutions responsible to the larger international community.
During this period, the United States and other capital-exporting countries also faced serious diplomatic initiatives by developing nations in the United Nations and other forums seeking to establish a new international economic order which would give them greater advantages in world trade, more control over multi-national enterprises, and freedom to nationalize natural resources without compensation or international accountability.[62] State Department attorneys, led by Judge Stephen Schwebel,[63] worked hard to protect U.S. interests in these negotiations including the principle of state responsibility to pay just compensation for expropriated property. In the end, the United States and like-minded countries voted against such resolutions but could not prevent their adoption. U.S. relations with Latin America became so inflamed that Secretary of State Kissinger launched a New Dialogue with Latin American Foreign Ministers in 1974. In this broader context, he tried to broker a new understanding on international law standards relating to expropriation with Mexico’s Foreign Minister, Emilio Rabasa. The effort failed.
Section 1605(a)(3) was originally drafted during the first Nixon Administration and was submitted to Congress in January 1973 at the height of political focus on expropriation in both political branches. Prior to the FSIA, victims of expropriation by foreign states generally did not have recourse to the U.S. courts; they had to rely on the State Department to negotiate settlement with the foreign government. The drafters, including Legal Adviser John R. Stevenson, knew they were breaking new ground, but given the threat to U.S. investors abroad, it was deemed imperative, substantively and politically, to provide a forum for expropriation claims against foreign states in the circumstances delineated in both prongs of the expropriation exception. It was hoped a judicial remedy would provide relief for some claimants and leverage for the U.S. government.
I reviewed the expropriation exception in1972 and studied it carefully in 1974-75 when I was responsible for coordinating a new bill with stakeholders in the private sector.[64] I understood both prongs of the expropriation exception to extend jurisdiction over the foreign state. There were controversies over other provisions of the Act, including limitations on attachment and execution, but I don’t recall any concerns about the scope of the second prong. The business community seemed satisfied, and there were no objections in the Executive or Congress at that time.
Monroe Leigh became Legal Adviser of the State Department on January 21, 1975. As Legal Adviser, Mr. Leigh presented the FSIA bill to Congress[65] and participated directly in the final editing. I was one of his deputies at the time and have no doubt that Monroe Leigh understood the second prong of Section 1605(a)(3) to support jurisdiction over the foreign state as well as any governmental agency or instrumentality responsible for a taking in violation of international law. He would have settled for nothing less.
In private practice, Mr. Leigh represented international oil companies and acted as counsel to the Rule of Law Committee – an industry group established to promote application of international law to foreign investment and to lobby U.S. policy makers on international investment issues. Mr. Leigh had a strong personal interest in sovereign immunity law and marked influence on the FSIA. He frequently criticized State Department determinations as distorted by diplomatic influences and long advocated transfer of immunity issues to the courts.[66] Mr. Leigh took a very broad view of the international law constraints on foreign state actions adversely affecting U.S. investments. He favored adjudication of investor claims in the U.S. courts and objected to the Sabbatino[67] decision which restricted judicial review of expropriations by foreign states.[68] Mr. Leigh explicitly referred to the Second Hickenlooper amendment overturning Sabbatino as the “Rule of Law amendment.”[69] Further, I remember well that Mr. Leigh advocated strict application of the First Hickenlooper Amendment in the IPC case.
In 1976, while the FSIA was pending before Congress, Legal Adviser Leigh published a personal critique of the act of state doctrine calling for adjudication of foreign expropriation claims in the U.S. courts:[70]
“If there has been a public act fully executed within the territory of the foreign State, but if the act in question is alleged to be contrary to international law, a U.S. court should make a detailed investigation and appraisal of international law sources. If the court should conclude that an applicable international legal standard exists, the act of state doctrine would give way to this standard. On the other hand, if the court finds that such an international standard does not exist, this would leave the municipal law of the foreign State as the only rule of decision in the case; the act of state doctrine would apply.”[71]
This position is consistent with reading the expropriation exception to immunity according to its plain language; it does not fit with a narrow reading that subtracts jurisdiction over the foreign state from the second clause. The Legal Adviser understood that section 1605(a)(3) does not address the act of state doctrine as such. In my opinion, he wrote this article to further the litigation of international investment disputes in U.S. courts under the Act and in private litigation.
Conclusion
For the reasons stated above, and based on my experience as a State Department attorney deeply involved in implementing U.S. expropriation policy while the FSIA was being drafted, and as one of the principal drafters of the Act, it is my opinion that --
the exception to immunity spelled out in the second clause of Section 1605 (a) (3) applies to a foreign state, such as Venezuela, so as to afford jurisdiction over that state in circumstances where the property taken in violation of international law or any property exchanged for such property is not present in the United States, but “is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.”
_________________________________
Mark B. Feldman
Garvey Schubert Barer
1000 Potomac Street N.W.
Washington DC 20007-3501
202-321-2690
[1] Redacted
[2] Deleted
[3] See, e.g., Mexico v. Hoffman, 324 U.S. 30 (1945); Ex parte Peru, 318 U.S. 578 (1948); Spacil v. Crowe, 489 F. 2d 614 (5th Cir. 1974).
[4] See Serial No. 47, Hearing on H.R. 11315, Subcom. Admin. L. and Gov. Relations, Comm. On Judiciary, 94 Cong. 2nd Sess., June 2, 1976 at p. 1.
[5] Official Documents: Settlement Of The Iran Hostage Crisis - Declaration Of The Government Of The Democratic And Popular Republic Of Algeria, 75 Am. J. Int’l L. 422 (1981).
[6] See Serial No. 14, Hearing on H.R. 1149 etc., Subcom. Admin. L. and Gov. Relations, Comm. On Judiciary, 100 Cong. 1st Sess., May 28, 1987; Serial J-100-88, Hearing on H.R. 3763, Senate Comm. On Judiciary, 100 Cong., 2d Sess., October 5, 1988.
[7] See Pub. L. No. 100-640 (Nov. 8, 1988) 102 Stat. 3969; Pub. L. No. 100-669 (Nov. 16, 1988) 102 Stat. 3969.
[8] Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 616 F. Supp. 660 (1985); See also Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 729 F.2d 422 (6th Cir. 1984).
[9] See Mark Feldman, The United States Foreign Sovereign Immunities Act of 1976 in Perspective: A Founder’s View, 35 Int’l. Comparative L. Quart. 302 (1986).
[10] See Mark Feldman, Foreign Sovereign Immunity in the United States Courts 1976-1986, 19 Vand. J. Transnat'l L. 19 (1986).
[11] Mark Feldman, Amending the Foreign Sovereign Immunities Act: The ABA Position, 20 Int’l Lawyer 1289 (1986).
[12] Mark Feldman, 1988 Arbitration and Act of State Amendments to the Federal Arbitration Act and Foreign Sovereign Immunities Act: Arbitration Law Strengthened by Congress, New York L.J., November 10, 1988.
[13] See Mark Feldman, Cultural Property Litigation and the Foreign Sovereign Immunities Act of 1976: The Expropriation Exception to Immunity, American Bar Association Section of International Law, Art & Cultural Heritage Law Committee Newsletter, Vol. III, Issue No. 2, pp 9-13, Summer 2011.
[14] Section 1604, 28 U.S.C. § 1604.
[15] Section 1605(a), 28 U.S.C. § 1605(a).
[16] Section 1605(a)(3), 28 U.S.C. § 1605(a)(3).
[17] Section 1603(a), 28 U.S.C. § 1603(a).
[18] Section 1606, 28 U.S.C. § 1606.
[19] See First National City Bank v. Banco Para El Comercio Exterior de Cuba (Bancec), 462 U.S. 611 (1983).
[20] See, e.g., the First Hickenlooper Amendment (28 U.S.C. 2370(e)(1)), requiring the president to suspend foreign aid to any county which expropriates American property and does not takes steps to compensate for the taking within 6 months, and the Gonzalez Amendment (Pub. L No. 92-246, § 21 (Mar. 10, 1972). 86 Stat. 59; Pub. L. No. 92-247, § 12 (Mar. 10, 1972), 86 Stat. 60; and, Pub. L. No. 92-245, § 18 (Mar. 10, 1972). 86 Stat. 57), requiring the President to instruct U.S. representatives to the World Bank, the Inter-American Development Bank and the Asian Development Bank to vote against loans to foreign countries that expropriated U.S. investments without taking steps to compensate for the expropriation.
[21] Letter Brief for Amicus Curiae the United States of America in Support of Petitioners at 1-2, 10-14, Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2004) (No. 02-7844) (the “2004 Letter
Brief”), a copy of which is attached as Exhibit 1 to Venezuela’s Motion to Dismiss (ECF No. 42).
[22] Section 1602, 28 U.S.C. § 1602.
[23] Id.
[24] 130 S.Ct. 2278 (2010).
[25] Id. at 2285.
[26] H.R. Rep. No. 94-1487 at 14 (1976).
[27] Id. at 17.
[28] Section 1610, 28 U.S.C. § 1610.
[29] Section 1608, 28 U.S.C. § 1608.
[30] Section 1606, 28 U.S.C. § 1606.
[31] Id.
[32] H.R. Rep. No. 94-1487, supra, at 12.
[33] H.R. Rep. No. 94-1487, supra, at 29; see also Letelier v. Republic of Chile, 748 F. 2d 790 (2 Cir. 1984) (judgment against Chile may not be executed against assets of the state-owned airline).
[34] Bancec, supra, 462 U.S. at 633.
[35] 440 F.3d 579 (2d Cir.2006).
[36] See, e.g., Agudas Chasidei Chabad v. Russian Federation, 528 F.3d 934 (D.C. Cir. 2008); Siderman v. Republic of Argentina, 965 F. 2d 699 (9th Cir. 1992), cert. den. 507 U.S. 1017 (1993); De Csepel v. Republic of Hungary,808 F. Supp. 2d 113, 131 (D.D.C. 2011); Altmann v. Republic of Austria, 142 F. Supp. 2d, 1187, 1202-1205 (C.D. Cal 2001), aff’d, 317 F.3d 954 (9th Cir. 2002), aff’d on other grounds, 541 U.S. 677 (2004); Kalamazoo Spice Extraction Co., supra, 616 F. Supp. 660.
[37] Letter Brief for Amicus Curiae the United States of America, supra, n. 18.
[38] Kalamazoo Spice Extraction Co., supra, 616 F. Supp. 660.
[39] Brief for Amicus Curiae the United States of America in Support of Petitioner at 4-6, Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 729 F.2d 422 (6th Cir. 1984) (No. 82-1521).
[40] Id.,n. 5 at 9.
[41] Kalamazoo Spice Extraction Co., supra, 729 F. 2d at 427.
[42] See Compensation Agreement Between the Government of the United States and the Provisional Military Government of Socialist Ethiopia, T.I.A.S. No. 11193.
[43] 541 U.S. 677, 701 (2004). “The issue now before us, to which the Brief for United States as Amicus Curiae is addressed, concerns interpretation of the FSIA’s reach–a ‘pure question of statutory construction well within the province of the Judiciary.’ While the United States’ views on such an issue are of considerable interest to the Court, they merit no special deference.” (internal citations omitted).
[44] Sosa v Alvarez-Machain, 542 U.S. 692 (2004).
[45] 10 U. S. C. § 801 et seq.
[46] Geneva Convention (III) Relative to the Treatment of Prisoners of War, Aug. 12, 1949, [1955] 6 U. S. T. 3316, T. I. A. S. No. 3364 (Third Geneva Convention).
[47] Hamdan v. Rumsfeld, 548 U.S. 557 (2006).
[48] H.Rep. 94-1487, supra, at 7.
[49] See, e.g. Note from Secretary of State Hull to the Foreign Minister of Mexico, August 22, 1938, 3 Hackworth, Digest of International Law 658-59 (1942).
[50] See, e.g. 1976 Dig. U.S. Prac. Int'l L. 435 (1976).
[51] 28 U.S.C. 2370(e)(1).
[52] Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964).
[53] 28 U.S.C. 2370(e)(2).
[54] Memorandum to President Nixon from Acting Secretary John Irwin, May 8, 1971; U.S. Department of State, Foreign Relations of the United States (F.R.U.S.): Nixon-Ford Administrations, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969-1972, Doc. 153.
[55] Ambassador Edward Korry wanted to negotiate compensation issues with Allende even before his inauguration and brought me to Santiago in October 1970 to assist in that effort. The mission was cancelled by the White House after one day.
[56] I participated in secret meetings with senior Chilean officials in 1972.
[57] National Security Study Memorandum 131, June 23, 1971; F.R.U.S., supra, Doc. 155.
[58] National Security Decision Memorandum 136, October 8, 1971; F.R.U.S., supra, Doc. 169.
[59] Statement Announcing United States Policy on Economic Assistance and Investment Security in Developing Nations, January 19, 1972. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=3385.
[60] See generally, Jessica Einhorn, Expropriation Politics (Lexington Books 1974).
[61] See Inter-American Development Bank Act, Pub. L No. 92-246, § 21 (Mar. 10, 1972). 86 Stat. 59; International Development Association Act, Pub. L. No. 92-247, § 12 (Mar. 10, 1972), 86 Stat. 60; and Asian Development Bank Act, Pub. L. No. 92-245, § 18 (Mar. 10, 1972). 86 Stat. 57.
[62] See, e.g., UN General Assembly, Permanent Sovereignty Over Natural Resources, 17 December 1973, A/RES/3171; UN General Assembly, Declaration on the Establishment of a New International Economic Order, 1 May 1974, A/RES/3201; UN General Assembly, Charter of Economic Rights and Duties of States, 6 November 1974, A/RES/3281.
[63] Then Deputy Legal Adviser, later President of the International Court of Justice.
[64] We made one technical change deleting “political subdivision” from the second prong.
[65] See Testimony of Monroe Leigh, Legal Adviser, Department of State, Serial No. 47, Hearing on H.R. 11315, Subcom. Admin. L. and Gov. Relations, Comm. On Judiciary, 94 Cong. 2nd Sess., June 2, 1976 at 24-29.
[66] See, e.g., Monroe Leigh & Timothy Atkeson, Due Process in the Emerging Foreign Relations Law of the United States- Part II, 22 Business Lawyer 3, 22, 27 (November 1966); Monroe Leigh, New Departures in the Law of Sovereign Immunity, 63 Am Soc’y Int’l Law Proc. 182, 187 (1969).
[67] Banco Nacional de Cuba, supra, 376 U.S. 398.
[68] “The present author has been a critic of the Supreme Court decision in Sabbatino from the beginning.” Monroe Leigh, Sabbatino’s Silver Anniversary and the Restatement, No Cause for Celebration, 24 Int’l Lawyer 1, 4 (1990); Monroe Leigh & Timothy Atkeson, Due Process in the Emerging Foreign Relations Law of the United States- Part I, 21 Business Lawyer 853 (July 1966).
[69] Id.at 868.
[70] Monroe Leigh and Michael David Sandler, Dunhill: Toward a Reconsideration of Sabbatino, 16 Va. J. Int. L. 685 (1976).
[71] Id.at 717.