In insurance dispute involving Irish insurance company owned by Irish government, Third Circuit holds that, for sovereign immunity purposes under FSIA Section 1603(b)(2), "organ" of foreign government requires public activity by company on behalf of foreign government
USX Corporation and Bessemer and Lake Erie Railroad Company ("B&LE") (USX's subsidiary during the relevant time) (jointly referred to as USX) sought indemnification from approximately 50 insurance companies under umbrella liability insurance policies. These insurance arrangements had been set up beginning in the 1970s and included layers of insurance, as well as coverage of up to $325 million.
In 1982, B&LE had pleaded nolo contendere to violations of the Sherman Antitrust Act (15 U.S.C. Section 1) for its part in a conspiracy to restrict the transport of iron ore to inland steel mill locations. For example, the railroads allegedly prevented the introduction of self-unloading vessels and refused to let non-railroad-owned docks and trucking firms share in iron ore transport. Massive litigation later arose which became known as the In re Lower Lake Erie Iron Ore Antitrust Litigation. The final judgments totaled $638.5 million, and B&LE was left as the sole defendant after all other defendants settled or were dismissed.
The insurers denied coverage and in 1995 USX brought a coverage action in Pennsylvania state court against the insurers of the catastrophic liability insurance program. Claiming to be an "agency or instrumentality of a foreign state," ICAROM plc, successor to the Insurance Corporation of Ireland (ICI), removed the action to federal court. USX then voluntarily dismissed its state court action and filed a similar action in federal court, the only difference being that it excluded ICAROM because it was an "agency or instrumentality of a foreign state." Three of the named insurers, however, brought third-party complaints against ICAROM. [USX unsuccessfully sought a remand to state court.] The district court eventually gave summary judgment to defendants.
The U.S. Court of Appeals for the Third Circuit affirms. Title 28 section 1441(d) permits a foreign state, as defined in the FSIA, to remove state actions brought against them to federal court. Section 1603(b)(2) of the FSIA defines a foreign state to include an "agency or instrumentality of a foreign state" which is (1) a separate legal person, and (2) an organ of a foreign state or political subdivision thereof, or majority-owned by a foreign state.
One of the key issues in this appeal is whether the district court had subject matter jurisdiction. Here, it appears that the district court would only have removal jurisdiction if ICAROM is an "agency or instrumentality of a foreign state" under the FSIA.
ICAROM is the successor of the Insurance Corporation of Ireland, which began in 1935 and became the largest liability and marine insurer in Ireland. In the 1970s, it expanded into foreign markets, including the London Insurance Market. In the early 1980s, Allied Irish Banks acquired the company and found its financial situation precarious due to losses in London. To avoid a collapse, the Irish government received all company shares for Irish Pounds 5 and gave them to a company called Gebhard Limited solely as custodian.
Two high-ranking civil servants held Gebhard's shares in trust for the Irish Minister for Industry, Trade, Commerce, and Tourism. By Act of Parliament, the government effectively acquired the holding company. In 1990, the company sold its business, changed its name to ICAROM, and serves only as a "runoff company" to wind down its remaining liabilities.
While this appeal was pending, the U.S. Supreme Court considered this jurisdictional issue in Dole Food Co. v. Patrickson, 123 S.Ct. 1655 (2003). [See 2003 International Law Update 71]. In Dole, the Supreme Court rejected the "tiered" ownership reading of the FSIA and held that a subsidiary of an instrumentality is not itself an instrumentality. Instead, Section 1603(b)(2) applies "only if the foreign state itself owns a majority of the corporation's shares." Dole, 123 S.Ct. at 1662.
As for ICAROM, the Court notes the Irish Government's significant role in company affairs. For example, the ICAROM administrator frequently consults with the Irish Department of Enterprise, Trade, and Employment, and the company makes all its important decisions with the Department's approval.
The FSIA, however, does not define the term "organ" in Section 1603(b)(2). Other circuits have developed a flexible approach to determine whether an entity qualifies as an organ of a foreign state and is thus an "agency or instrumentality. We agree with the Court of Appeals for the Ninth Circuit that for an entity to be an organ of a foreign state it must engage in a public activity on behalf of the foreign government. Requiring less would open the door to situations in which a party only tangentially related to a foreign state could claim foreign state status and avail itself (and incidentally, any other defendants in the case) of the FSIA's procedural provisions which ... plaintiffs are not likely to welcome."
"This result would be unfair to plaintiffs, who in some such cases might not have reason to know of the slight relationship of their dealings with the foreign states, and who, therefore, likely would not have had the opportunity to consider this important fact when negotiating contracts by, for example, negotiating for waiver clauses, or when initiating suit by following the special procedures required by the FSIA. ... Requiring less would not further the goal of avoiding adverse foreign relations. On the other hand, requiring more would pose potential foreign relations problems." [Slip op. 45-46]
The Fifth and Ninth Circuits have applied various factors. These include (1) the circumstances surrounding the entity's creation; (2) the purpose of its activities; (3) the degree of supervision by the government; (4) the level of government financial support; (5) the entity's employment policies and whether the government is involved in hiring and paying salaries; (6) the entity's obligations and privileges under the foreign state's laws." The Third Circuit adds another factor, the ownership structure of the entity.
The Court then applies these factors to the case at bar. Five factors favor a finding of "organ" status: An Act of the Irish Parliament authorized the government's assumption of control over ICI; the purpose was to protect the Irish insurance and banking industries; the Irish government supervises the company; the Irish government provides financial supports; and the Irish government indirectly has complete control of the company's ownership.
Only two factors suggest otherwise: The company's employment policies do not require the hiring of Irish civil servants, and the company's pension plan is not a government plan; and the company has no special obligations or privileges. The Court concludes that ICAROM is clearly an organ of Ireland for purposes of Section 1603(b)(2).
Citation: USX Corp. v. Adriatic Ins. Co., No. 00-3424 (3rd Cir. September 25, 2003).
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