United States Supreme Court Limits Exception To Immunity For Government-Owned Entities

The United States Supreme Court recently issued a decision in OBB Personeverkehr AG v. Sachs, 136 S. Ct. 390 (Dec. 1, 2015) which significantly limited the basis upon which a commercial entity owned by a foreign government can be sued in the United States under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1601 et seq. (the "FSIA"). This decision may significantly impact certain suits brought in the US against state-owned air carriers.

Background on the FSIA

The FSIA applies in both state and federal courts in all litigation against foreign states and governments, including their "agencies and instrumentalities." The basis for the court's jurisdiction to hear cases against those entities is found in the FSIA, which also provides in those cases rules for service and damages available and extinguishes the right to a jury trial.

The purpose of the FSIA is set forth in 28 U.S.C. § 1602, which provides:

The Congress finds that the determination by United States courts of the claims of foreign states to immunity from the jurisdiction of such courts would serve the interests of justice and would protect the rights of both foreign states and litigants in United States courts. Under international law, states are not immune from the jurisdiction of foreign courts insofar as their commercial activities are concerned, and their commercial property may be levied upon for the satisfaction of judgments rendered against them in connection with their commercial activities. Claims of foreign states to immunity should henceforth be decided by courts of the United States and of the States in conformity with the principles set forth in this chapter.

The term "foreign state" is defined in the FSIA to include (1) a political subdivision of a foreign state or (2) an agency or instrumentality of a foreign state (28 U.S.C. § 1603). Foreign-owned airlines are "instrumentalities of a foreign state" to the extent that "a majority of [the airline's] shares or other ownership interest is owned by a foreign state or political subdivision thereof." (28 U.S.C. § 1603). However, if the airline is not owned directly by the foreign government, but rather is owned by a holding company that is owned by the foreign government, the airline will be deemed to have a "tiered" ownership structure and will not be immune from suit under the FSIA.

"Tiering" occurs when a foreign sovereign owns a majority interest in a holding company or other intermediary entity, which in turn owns a...