Foreign Sovereign Immunities Act

Supreme Court Grants Cert in Jam v. International Finance Corporation

By Eliot Kim
Tuesday, June 12, 2018, 9:31 AM

On May 21, the Supreme Court granted certiorari in Jam v. International Finance Corporation to determine whether international organizations are afforded the same immunity from lawsuits under the International Organizations Immunities Act (IOIA) that foreign governments are conferred under the Foreign Sovereign Immunities Act. Since the IOIA was enacted in 1945, foreign sovereign immunity has been curtailed by the development and codification of the “commercial activities exception” doctrine. Under this doctrine, foreign governments cannot enjoy sovereign immunity when the lawsuit is based on those governments’ commercial activities.

Jam will determine whether such developments in foreign sovereign immunity apply in turn to international organization immunity. The case involves a power plant in India that was financed by the International Financial Corporation (IFC), the private-sector investment arm of the World Bank. By granting certiorari, the Supreme Court has a chance to bring much needed clarity to what Circuit Judge T.L. Pillard has described as the “perplexing state” of the law on international-organization immunity, at a time when these organizations are increasingly being sued in U.S. courts. The following is a summary of the factual and procedural background of this case and the D.C. Circuit’s opinion.

Factual and Procedural Background

The IFC is an international organization based in Washington D.C. comprised of over 180 member countries. The purpose of the IFC is “to further economic development by encouraging the growth of productive private enterprise in member countries.” The IFC focuses on funding private sector projects in developing countries that would otherwise have difficulty attracting capital.

This case arose from the IFC’s 2008 decision to lend $450 million to an Indian power company developing the Tata Mundra Power Plant in Gujarat, India. The plaintiffs—farmers and fisherman who lived near the plant, the government of village located near the plant, and a local trade union of fishworkers—claimed that the IFC failed to comply with its internal policies and with the specific environmental action plan that was part of the funding agreement for the plant. As a result, the plaintiffs claim the area surrounding the plant suffered disastrous environmental and social harm, including contamination of drinkable groundwater, degradation in local air quality, and displacement of local fisherman and farmers.

In 2015, the plaintiffs brought suit against the IFC in the U.S. District Court of the District of Columbia claiming negligence, negligent supervision, public nuisance, private nuisance, trespass and breach of contract. Judge John D. Bates dismissed the complaint on jurisdictional grounds, holding that the IFC was immune from the lawsuit under the IOIA. The IOIA provides that:

International organizations, their property and their assets, wherever located, and by whomsoever held, shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organizations may expressly waive their immunity for the purpose of any proceedings or by the terms of any contract.

In interpreting the IOIA, Bates cited a 1998 D.C. Circuit case Atkinson v. Inter-American Development Bank, which held that international organizations receive the same foreign immunity as foreign governments at the time the IOIA was enacted in 1945. This interpretation excluded the developed commercial activities exception, so the plaintiffs urged Judge Bates to instead follow the Third Circuit’s decision in OSS Nokalva, Inc. v. European Space Agency, which held that the IOIA incorporates subsequent changes in foreign sovereign immunity, including the commercial activities exception. Noting that the District Court’s “role is to apply [D.C.] Circuit law,” Bates concluded that the IFC is entitled to “virtually absolute immunity” under Atkinson.

The court also rejected the plaintiffs’ alternative argument that the IFC waived its immunity in its Articles of Agreement. Specifically the plaintiffs referred to Article VI, Section 3 of the those articles, which states:

Actions may be brought against the [IFC] only in a court of competent jurisdiction in the territories of a member in which the [IFC] has an office, has appointed an agent for the purpose of accepting service of process, or has issued or guaranteed securities. No actions shall, however, be brought by members or persons acting for or deriving claims from members. The property and assets of the [IFC] shall, wheresoever located and by whomsoever held, be immune from all forms of seizure, attachment or execution before the delivery of final judgment against the [IFC].

Judge Bates rejected this claim by citing to the D.C. Circuit’s decisions in Osseiran v. International Financial Corporation and in Vila v. Inter-American Investment Corporation. In those cases, the D.C. Circuit rejected the argument that international organizations with “nearly identical language” in their founding documents had waived their immunity. The plaintiffs subsequently appealed to the D.C. Circuit.

D.C. Circuit Judgment

Judge Lawrence H. Silberman wrote the majority opinion, which Judge Harry T. Edwards joined and Judge Pillard joined in part. Judge Pillard wrote a separate concurrence.

Majority Opinion

The majority agreed with the District Court’s “well-reasoned” decision on both scope of immunity under the IOIA and the absence of waiver of immunity in a succinct, ten page opinion. Though majority acknowledged the “dismal picture” painted by the plaintiffs’ complaint, the court found the plaintiffs’ arguments foreclosed by its own prior case law.

The plaintiffs first argument was that IOIA intended to incorporate of changes to the law of foreign sovereign immunity, rather than preserving the prevailing understanding of foreign sovereign immunity from 1945. Thus according to the plaintiffs, the Atkinson court misinterpreted Congress’s intent to keep immunity for foreign governments and international organizations connected. In response, the majority reiterated the rationales of Atkinson, starting with the argument that the statute explicitly delegated the responsibility of changing the amount of immunity granted to international organizations to the president, not to the courts. In addition, the majority reiterated the point made in Atkinson that the Congress that passed the IOIA in 1945 considered—yet ultimately rejected—inclusion of a commercial activities exception to international organization immunity. Finally, the majority rejected the plaintiffs argument by reminding the them that the D.C. Circuit “recently reaffirmed Atkinson” in its 2014 decision, Nyambal v. International Monetary Fund.

The plaintiffs further contended that Atkinson should be ignored because the Supreme Court has in recent years undermined the premise of Atkinson that foreign sovereign enjoyed absolute immunity in 1945 when IOIA was enacted. Instead, the plaintiffs asserted that immunity was granted based on the deference to the judgment of political branches, specifically through express request by the State Department. However, the majority dismissed the relevance of the Supreme Court dicta cited by the plaintiffs. According to the majority, those cases’ references to State Department intervention refer to the mechanism for conferring immunity on foreign sovereigns in 1945, not the scope of that immunity. To support its position, the court again invoked its decision Nyambal, which came after the Supreme Court cited by the plaintiffs.

As in the lower court proceedings, the plaintiffs raised an alternative argument that the IFC waived its immunity. According to the plaintiffs, their position was consistent with Osseiran, Vila, and Mendaro v. World Bank, in which the D.C. Circuit first adopted the “corresponding benefits” test for determining whether an international organization waived its immunity. Under this test, courts determine ex post whether waiving immunity for certain plaintiffs and claims would have “benefitted” the international organization. An international organization is considered to have received a “corresponding benefit” for waiving its immunity if that waiver would have been “necessary to enable the [international organization] to fulfill its functions.” Thus according to Silberman, creditors or bondholders are types of plaintiffs for whom international organizations probably waived their immunity because the organizations would not have been able to borrow money without agreeing to waive their immunity.

The majority rejects the notion that the IFC would receive a corresponding benefit to waiving its immunity for the plaintiffs’ suit for two reasons. First, Silberman emphasized that prior case law has generally accepted waiver arguments only when the “claims have grown out of business relationships” between the plaintiffs and the international organizations. By contrast, the IFC has no direct commercial or contractual relationship with the plaintiffs. Silberman highlighted another fatal issue for the plaintiffs: their case “threaten the policy discretion of the organization” because the claims arise from “core operations [of the IFC], not ancillary business transactions.” As such, the court determined that the consequences of waiving immunity in this type of case would determined outweigh any benefit to the IFC. Accordingly, the majority affirmed the district court’s opinion.

Pillard’s Concurrence

Pillard agreed with the majority that the outcome of the case is decided by D.C. Circuit precedent. However, she wrote separately to urge her colleagues on the D.C. Circuit to reconsider Atkinson and Mendaro, two cases which she believes were “wrongly decided.”

Pillard began by looking at Section 1 of the IOIA, which reads in relevant part:

The President shall be authorized, in the light of the functions performed by any such international organization, by appropriate Executive order to withhold or withdraw from any such organization or its officers or employees any of the privileges, exemptions, and immunities provided for in this subchapter ...

According to Pillard, the mistake in Atkinson was the court’s incorrect interpretation of Section 1 of IOIA as authorizing “the President alone to have the ability, going forward to adjust international organizations’ immunity from where it stood as of the IOIA’s enactment in 1945.” Instead, Pillard noted that the use of the singular terms such as “any such organization” and “its officers or employees” in Section 1 suggests that Congress intended to authorize the President to limit immunity for organization on a case-by-case basis. In fact, no part of Section 1 of IOIA suggests that “Congress framed or intended [that section] to be the exclusive means by which an international organization’s immunity might be determined to be less than absolute.”

Pillard offered several additional arguments to support her reading of the IOIA. First, she contended that the interpretation in Atkinson rested on the flawed assumption that Congress chose “an indirect and obscure route to freezing international organizations’ immunity over a direct and obvious one.” Congress could have simply stated its intention to grant unchangeable, absolute immunity to international organizations; instead, Congress chose to set the level of international organization immunity by reference to the immunity of foreign governments.

Furthermore, Pillard compared the IOIA text to the unambiguous language of the original House version of the IOIA, which granted international organizations “immunity from suit and every form of judicial process.” The fact that this draft language, untethered to the level of immunity enjoyed by foreign governments, was not included in the final version of the bill implied to Pillard that Congress intended the two levels of immunity to be dynamically linked.

In addition, Pillard cited to the State Department’s support for the dynamic view of international organizational immunity, noting that additional weight should be given to the State Department view given its involvement in drafting in the IOIA. Finally, Pillard highlighted the illogical consequences of Atkinson. Granting broader immunity to international organizations than to foreign governments would immunize “nations that collectively breach contracts or otherwise act unlawfully through organizations,” even if that same conduct would be subject to judicial process if a nation were acting on its own. Thus, according to Judge Pillard, the D.C. Circuit “took a wrong turn in Atkinson when [it] read the IOIA to grant international organizations a static, absolute immunity.”

Pillard added that the D.C. Circuit has “compounded” its errors in Atkinson by adopting the “corresponding benefits” test for waiver of immunity in Mendaro. Pillard dismissed the process of asking “the judiciary to re-determine an international organization’s waiver calculus” based on “amorphous” concepts of long-term benefit. Instead of using a test that “lacks a strong legal foundation,” Pillard suggested that an international organization’s intent to waive immunity should be determined either by referring directly to the language in an organization’s charter using the already well-developed case law under the FSIA for determining whether a sovereign nation has waived its immunity.

Pillard advised that the full D.C. Circuit “revisit” Atkinson and Mendaro. However, three months after its opinion, the D.C. Circuit denied a petition for an en banc rehearing on Jam v. IFC. In January 2018, the plaintiffs filed a petition for certiorari with the Supreme Court.

Supreme Court Review

Jam is the first case before the Supreme Court considering the scope of immunity for international organizations under IOIA. The court’s decision to grant cert in Jam may have come as a surprise because it recently declined to resolve a circuit split on the scope of immunity under the IOIA after the D.C. Circuit’s 2014 decision in Nyambal conflicted with the Third Circuit’s 2010 decision in OSS Nokalva. One reason the court may have now decided to resolve this issue is that international organizations are increasingly finding themselves in U.S. courts, facing serious allegations such as aiding and abetting violations of human rights. As noted by the plaintiffs in their cert-stage reply brief, international organizations are deeply involved in a range of matters from “international business to natural resource management to human health and safety.” As the portfolios of international organizations have expanded, the number of lawsuits against these organizations brought in U.S. courts has also increased in recent years. A decision on the merits that weakens the immunity granted to international organizations could therefore have a chilling effect, especially on organizations like the IFC, which according to D.C. Circuit opinion primarily engages in “commercial activities.” Such a decision would also provide third parties who are being harmed by international organizations’ activities an important avenue of redress.

Although it agreed to address the scope of IOIA immunity, the Supreme Court declined to consider the second question raised by Jam: what are the rules governing immunity for international organizations? Thus, this case will leave unresolved several important questions on international organization immunity raised during the lower court proceedings. One such question raised by the plaintiffs is whether the executive branch intervention is necessary for an international organization to have immunity. The other issue is how courts can determine whether an international organization has waived its immunity. Specifically, the plaintiffs in their petition for cert claimed that the D.C. Circuit’s “corresponding benefits” test as a distorting the statutory language of the IOIA. Just as the court in recent terms has reconsidered the scope of foreign sovereign immunity, Jam could signal the beginning of a string of Supreme Court cases providing greater clarity on the status of international organizations within our legal system.