Ninth Circuit Addresses Application of Foreign Sovereign Immunity Waiver Exception to Domestic Side Trip During International Travel

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1 JUNE 25, 2004 Ninth Circuit Addresses Application of Foreign Sovereign Immunity Waiver Exception to Domestic Side Trip During International Travel In Coyle v. P. T. Garuda Indonesia, 1 a case that arose out of the death of two U.S. passengers in the crash of an Indonesian domestic flight, the Ninth Circuit addressed an interesting intersection of the Foreign Sovereign Immunities Act ( FSIA ) 2 and the Warsaw Convention. 3 The court ordered the case dismissed for lack of subject matter jurisdiction. The court held that the foreign sovereign immunity of the Indonesian state-owned airline, Garuda Indonesia, had not been waived and that the commercial activities exception to immunity was not applicable because the passengers purchased their tickets in Indonesia as a side-trip separate from their transportation from the United States to Indonesia, which had been purchased in the United States. 4 As is required of foreign airlines flying to the United States, Garuda Indonesia had obtained a foreign air carrier operating permit, which expressly provided for a waiver of sovereign immunity. Garuda Indonesia s permit extended the waiver to, among other things, any claim under any international agreement or treaty cognizable in any Court or other Tribunal of the United States. 5 The court s analysis of whether Garuda Indonesia had waived its foreign sovereign immunity turned on whether the Warsaw Convention made the claim F.3d 979 (9th Cir. 2004) U.S.C. 1330, 1391, 1441, 1602, et seq. 3. The Convention for the Unification of Certain Rules Relating to International Transportation by Air ( Warsaw Convention ). 49 U.S.C note. 4. Id. at Id. at of 5

2 cognizable in U.S. courts and, thus, made the immunity waiver clause applicable. 6 The Warsaw Convention applies only to international transportation and provides that a claim brought under it may be brought in the courts of a Convention signatory nation that is the carrier s domicile, its principal place of business, where it has a place of business through which the contract of carriage was made, or the place of destination of the international travel. 7 Because none of the other clauses of Article 28(1) was applicable, the issue came down to whether the passengers place of destination was in the United States. Whether a case arises from international transportation and what is the ultimate destination of that transport under the Convention are not determined solely by reference to the origin and destination of a particular flight segment. On the contrary, Article 1(3) of the Convention provides that: Transportation to be performed by several successive air carriers shall be deemed, for the purposes of this convention, to be one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall not lose its international character merely because one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty, mandate, or authority of the same [Convention signatory nation]. 8 Accordingly, whether the subject flight qualified as international transportation and whether the United States was the passengers ultimate destination at the time of the crash and thus whether the Convention applied and whether the Convention made a suit cognizable in the United States were both determined on the basis of whether the international transportation to Indonesia and the subsequent flight within Indonesia were parts of a single operation. 9 This determination is made based on the objective, rather than the subjective, intent of the parties and by reference to the expression of the parties intent in the contract of transportation, i.e., the ticket. 10 In the Coyle case, the passengers had purchased round-trip tickets from a travel agent in Oregon before flying to Indonesia. 11 After arriving in Indonesia and two months after their original ticket purchase, the passengers, using Indonesian currency, bought additional tickets for round-trip travel between destinations within Indonesia. 12 The court distinguished cases where several tickets are purchased at once and/or where the different tickets make reference to each other or to a larger itinerary and rejected the plaintiff s speculation that the airline must have checked the passengers identification when it sold them tickets in 6. Id. at Id. at 986 (citing Warsaw Convention, Article 28(1)). 8. Id. at 986 (emphasis original, quoting Warsaw Convention Article 1(3)). 9. Id. at Id. at Id. at Id. at of 5

3 Indonesia and would have known that the American passengers would eventually be returning to the United States. 13 The court concluded that: the objective evidence in this case unambiguously signifies the parties mutual intent: that the Badens flight to Medan was a side-trip, unconnected to their larger international itinerary, and beyond the waiver made in Garuda s USDOT permit. 14 The court also rejected the plaintiff s argument that the commercial activities exception to foreign sovereign immunities applied. The court found that the required nexus between the commercial activities and the United States was lacking for the accident in Indonesia during a flight between places in Indonesia pursuant to tickets purchased in Indonesia. The nexus could not be provided by the sale of the original tickets in Oregon since, as the court had already held, the accident flight was not part of the international transportation contracted for in the original tickets. 15 Finding no exception to foreign sovereign immunity, the Ninth Circuit directed the district court to dismiss the action for want of subject matter jurisdiction. Other FSIA Developments Since Dole Food Co. v. Patrickson The most significant recent decision under the FSIA was the Supreme Court s 2003 decision in Dole Food Co. v. Patrickson. 16 In that case the Court held that in order for a corporate entity to be an agency or instrumentality of a foreign state under the FSIA by virtue of state ownership, a majority of its shares must be directly held by the foreign government (with no intervening layers of corporate ownership) at the time the suit is filed. 17 This holding was particularly significant because most prior authority had allowed indirect tiered ownership and had considered ownership at the time of the acts sued on, not just at the time the suit was filed. In addition to Coyle, the following cases have also shed some light on the law of foreign sovereign immunity since Dole: In USX Corporation v. Adriatic Insurance Company, 345 F.3d 190 (3d Cir. 2003), a third-party defendant insurer indirectly owned and controlled by the government of Ireland had removed the case to federal court, originally claiming that it was an agency or 13. Id. at , Id. at Id. at U.S. 468, 123 S. Ct (2003) ( Dole ). Most other recent case authorities decided under the FSIA have dealt with the retroactive application of the FSIA and its expropriation exception to Nazi-era claims, e.g., Republic of Austria v. Altmann, 124 S. Ct (2004), to the torture and terrorism exceptions, or to other areas equally unlikely to impact claims against state-owned aviation entities. 17. Id. at 123 S. Ct of 5

4 instrumentality of a foreign state on the basis of Ireland s indirect ownership. 18 After the Supreme Court s decision in Dole, denial of a motion to remand was upheld on the basis that it was an agency or instrumentality of a foreign state because of its status as an organ of the Irish government. 19 This holding may greatly decrease the impact of Dole on corporations indirectly owned by foreign governments. The court considered the following seven factors in reaching this determination: (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, particularly regarding whether the foreign state requires the hiring of public employees and pays their salaries; (6) the entity s obligations and privileges under the foreign state s laws [and] (7) the ownership structure of the entity. 20 Under the last of these factors, the fact that an entity is indirectly owned by a foreign state, while not adequate to support a claim to be an agency or instrumentality of a foreign state by virtue of ownership, is a factor weighing in favor of that status as an organ of the foreign government. 21 Significant weight was given to a governmental purpose of the government in taking indirect ownership of the entity under the first two factors, which will probably be present in almost every such entity. 22 If the organ determination is made in the same way by other courts, many companies, including state-owned airlines, that are indirectly owned by foreign governments may still be able to claim the privileges of the FSIA by claiming to be organs of their governments, despite the Supreme Court s holding in Dole. In I.T. Consultants, Inc. v. Islamic Republic of Pakistan, 23 the D.C. Circuit decided an issue raised, but not decided, by the Supreme Court in Republic of Argentina v. Weltover, Inc.: 24 whether a foreign state is a person entitled to the protections of the Fifth Amendment, including the requirement that a person have minimum contacts with a forum before a court of that forum can assert personal jurisdiction over that person. The D.C. Circuit held that the Fifth Amendment and the minimum contacts requirement are inapplicable to a foreign government, but are applicable to an official of that government Id. at Id. at Id. at Id. at Id. at F.3d 1184 (D.C. Cir. 2003) U.S. 607, 619 (1992). 25. I.T. Consultants, 351 F.3d at (affirming denial of dismissal of claims against Pakistan, while reversing denial of dismissal of claims against Pakistani official). 4 of 5

5 For more information on this issue or other aviation matters, please contact: Brian C. Dalrymple at (415) Stephen C. Johnson at (415) Hugh R. Koss at (415) Kyle Levine at (415) Donald B. MacDougall at (516) Domenico Perrella at (415) William L. Robinson at (949) Eric Strain at (415) Christopher D. Thomas (585) Lori Winfree at (949) of 5