May 01, 2017

Supreme Court Decides Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co.

On May 1, 2017, the Supreme Court decided Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co., No. 15-423, holding that a federal court has jurisdiction over a lawsuit against a foreign sovereign under the expropriation exception to the Foreign Sovereign Immunities Act of 1976 only if the foreign sovereign in fact took property in violation of international law, and that a mere non-frivolous allegation to that effect is not sufficient to trigger the exception.

Under the Foreign Sovereign Immunities Act of 1976 (FSIA), a foreign state is generally immune from jurisdiction of the courts of the United States. But under FSIA’s expropriation exception, (28 U.S.C. § 1605(a)(3)), a foreign state is not immune from the federal courts’ jurisdiction “in any case . . . in which rights in property taken in violation of international law are in issue” and the property is “owned or operated by” a foreign state that is “engaged in a commercial activity in the United States.”

A Venezuelan company that is wholly owned by an American parent company supplied oil rigs to various agencies of the Venezuelan government. The companies (i.e., the subsidiary and its parent) sued the Venezuelan government, alleging that the government had unlawfully seized and nationalized the subsidiary’s oil rigs, and sought damages. The Venezuelan government moved to dismiss the suit on the ground that it was immune under the FSIA. The companies argued that the expropriation exception applied and gave the court jurisdiction over their claims.

The district court held that because the subsidiary (which actually owed the oil rigs) was a Venezuelan company, and the expropriation exception does not apply to a foreign sovereign’s taking of its own citizens’ property, the exception did not abrogate Venezuela’s immunity as to the subsidiary’s claims, so it dismissed the subsidiary’s claim. But the district court also held that the parent company had an interest in the subsidiary’s property, and that the Venezuelan government had interfered with that interest, so the court had jurisdiction over the parent’s claim. Both sides appealed.

The D.C. Circuit affirmed in part and reversed in part. It held that both the subsidiary’s and the parent’s claims fell within the expropriation exception. The court held that there is an exception to the normal rule that the expropriation exception does not apply to a sovereign’s taking of its own citizens’ property, and that the exception to the exception might apply here depending on what the evidence showed. Because the subsidiary had made a non-frivolous allegation that the exception to the expropriation exception applied, the court held that there was federal jurisdiction over the claim. And because the parent company had “put its rights in property in issue in a non-frivolous way,” its claims too were subject to the expropriation exception.

The Supreme Court vacated and remanded. The Court rejected the court of appeals’ “nonfrivolous-argument” standard for expropriation-exception claims, holding that courts have jurisdiction to hear the merits of a case relying on the expropriation exception “only where there is a valid claim that ‘property’ has been ‘taken in violation of international law,’” and that “[a] nonfrivolous argument to that effect is insufficient” (emphasis added). The Court recognized that a court normally does not decide the merits of the case in resolving jurisdictional disputes, but concluded that “where jurisdictional questions turn upon further factual development, the trial judge may take evidence and resolve relevant factual disputes.” In light of the objective of sovereign immunity (i.e., to free a sovereign from suit, not just liability), the Court urged district courts that must resolve factual disputes to determine whether the expropriation exception applies to make that determination as early as possible in the case.

Justice Breyer delivered the opinion of the Court, in which all Members joined, except Justice Gorsuch, who took no part in the consideration or decision of the case.

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