U.S. Supreme Court rules that Foreign Sovereign Immunities Act does not regard subsidiaries of state-owned corporations as "instrumentalities of foreign state" and that instrumentality status need only exist at time of filing suit
In 1997, a group of farm workers from Costa Rica, Ecuador, Guatemala, and Panama (plaintiffs) brought a class action against the Dole Food Company and other companies (defendants) in the courts of Hawaii. The suit alleged that exposure in their home countries to dibromochloropropane, a chemical used as an agricultural pesticide, caused them serious injuries. The defendants impleaded Dead Sea Bromine Co., Ltd., and Bromine Compounds, Ltd. ( the Dead Sea Companies or DSCs) and later removed the action to federal court.
As a basis for removing the action, the defendants argued that 28 U.S.C. Section 1331 provided general federal-question jurisdiction since plaintiffs' claim arose under the federal common law of foreign relations. Although the District Court agreed that it did have jurisdiction, it dismissed the case on grounds of forum non conveniens.
The DSCs also removed, but they claimed to be entitled to removal under 28 U.S.C. Section 1441(d) as "instrumentalities of a foreign state" as defined by the Foreign Sovereign Immunities Act of 1976 (the Act). The District Court disagreed and held that the DSCs did not qualify as foreign state instrumentalities.
The U.S. Court of Appeals for the Ninth Circuit reversed. Addressing the ground relied on by the defendants, it held that removal could not rest on the federal common law of foreign relations. In the Supreme Court, however, defendants did not seek review of that portion of the Court of Appeals' ruling.
The Court of Appeals also reversed the order allowing removal at the instance of the DSCs who claimed that they were instrumentalities of the State of Israel. The Court of Appeals mentioned, but declined to decide, the question of whether courts should assess status as an instrumentality of a foreign state as of the time of the alleged prior wrongdoing or as of the time suit is filed. It did hold that the DSCs, even at the earlier date, were not instrumentalities of Israel as the Act defined it.
The Supreme Court granted certiorari and affirms 7 to 2. (Two Justices filed an opinion concurring in part and dissenting in part.)
The Court first quotes part of 28 U.S.C. Section 1603(a), the FSIA's definition section. An agency or instrumentality of a foreign state is defined, in turn, as: "[A]ny 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 ... Section 1603(b)."
The Court's analysis centers on the DSCs' instrumentality status on clause (2), searching mainly for the underlying intent of Congress. "Section 1603(b)(2) speaks of ownership. The [DSCs] urge us to ignore corporate formalities and use the colloquial sense of that term. They ask whether, in common parlance, Israel would be said to own the [DSCs]. We reject this analysis."
"In issues of corporate law, structure often matters. It is evident from the Act's text that Congress was aware of settled principles of corporate law and legislated within that context. The language of Section 1603(b)(2) refers to ownership of "shares,' showing that Congress intended statutory coverage to turn on formal corporate ownership."
"Likewise, Section 1603(b)(1), another component of the definition of instrumentality, refers to a "separate legal person, corporate or otherwise.' In light of these indicia that Congress had corporate formalities in mind, we assess whether Israel owned shares in the [DSCs] as a matter of corporate law, irrespective of whether Israel could be said to have owned the [DSCs] in everyday parlance."
"A basic tenet of American corporate law is that the corporation and its shareholders are distinct entities. [Cites] An individual shareholder, by virtue of his ownership of shares, does not own the corporation's assets and, as a result, does not own subsidiary corporations in which the corporation holds an interest. [Cite]"
"A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary. [Cite] The fact that the shareholder is a foreign state does not change the analysis." [1660]
To further strengthen its conclusion that Congress intended the term "instrumentality" to be based on formal corporate ownership, the Court looks at how Congress has expressed a variety of intentions in other federal statutes. "Where Congress intends to refer to ownership in other than the formal sense, it knows how to do so. Various federal statutes refer to "direct and indirect ownership.' [Cites] See, e.g., 5 U.S.C. Section 8477(a)(4)(G)(iii) (referring to an interest "owned directly or indirectly'); 12 U.S.C. Section 84(c)(5) (referring to "any corporation wholly owned directly or indirectly by the United States'); 15 U.S.C. Section 79b(a)(8)(A) (referring to securities "which are directly or indirectly owned, controlled, or held with power to vote'); Section 1802(3) ("The term 'newspaper owner' means any person who owns or controls directly, or indirectly through separate or subsidiary corporations, one or more newspaper publications'). The absence of this language in 28 U.S.C. Section 1603(b) instructs us that Congress did not intend to disregard structural ownership rules." [1661]
The Court rejects the DSCs' reading of "other ownership interest" as including a state's "interest" in an instrumentality's subsidiary. "The better reading of the text, in our view, does not support this argument. The words "other ownership interest,' when following the word "shares,' should be interpreted to refer to a type of interest other than ownership of stock. The statute had to be written for the contingency of ownership forms in other countries, or even in this country, that depart from conventional corporate structures."
"The statutory phrase "other ownership interest' is best understood to accomplish this objective. Reading the term to refer to a state's interest in entities lower on the corporate ladder would make the specific reference to "shares' redundant. Absent a statutory text or structure that requires us to depart from normal rules of construction, we should not construe the statute in a manner that is strained and, at the same time, would render a statutory term superfluous." [Cites] [Id.]
The DSCs urged the Court to take into account the degree of control, if any, that the State of Israel exercised over their operations. The Court, however, disagrees. "Control and ownership ... are distinct concepts. [Cite] The terms of Section 1603(b)(2) are explicit and straightforward. Majority ownership by a foreign state, not control, is the benchmark of instrumentality status. We need not delve into Israeli law or examine the extent of Israel's involvement in the [DSCs'] operations."
"Even if Israel exerted the control the [DSCs] describe, that would not give Israel a "majority of [the companies'] shares or other ownership interest.' The statutory language will not support a control test that mandates inquiry in every case into the past details of a foreign nation's relation to a corporate entity in which it does not own a majority of the shares." [Id.]
Next, the Court addresses the issue of whether the courts should determine instrumentality status as of the time suit is filed or whether, as the [DSCs] urge, it is based upon the status of the entity at the time of the previous conduct that gave rise to the action. "We think the plain text of this provision, because it is expressed in the present tense, requires that instrumentality status be determined at the time suit is filed. Construing Section 1603(b) so that the present tense has real significance is consistent with the "longstanding principle that "the jurisdiction of the Court depends upon the state of things at the time of the action brought.' [Cites]" [1662]
The DSCs also asked the Court to administer the FSIA by analogy to other status-based immunities. The Court, however, finds the analogies inapt. "The immunities for government officers prevent the threat of suit from "crippl[ing] the proper and effective administration of public affairs.' [Cites]"
"Foreign sovereign immunity, by contrast, is not meant to avoid chilling foreign states or their instrumentalities in the conduct of their business but to give foreign states and their instrumentalities some protection from the inconvenience of suit as a gesture of comity between the United States and other sovereigns. [Cite]" [1662-63]
In conclusion, the Court holds that third-party defendants, Dead Sea Bromine Co., Ltd., and Bromine Compounds, Ltd., are not entitled to instrumentality status both because the Act does not confer it upon subsidiaries of state-owned corporations and because it turns upon the corporation's status [only] at the time plaintiff filed the complaint.
Citation: Dole Food Company v. Patrickson, 123 S. Ct. 1655 (U.S. Sup. Ct., 2003).
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