Arch Trading Corp. v. The Republic of Ecuador

          Argued: January 5, 2016

         Five companies sue the Republic of Ecuador and two of its instrumentalities for claims arising out of the Ecuadorean government's alleged seizure of a number of the companies' assets in Ecuador beginning in July 2008. Invoking the Foreign Sovereign Immunities Act (FSIA), the District Court (Crotty, J.) dismissed the action for want of subject matter jurisdiction. We conclude that the plaintiff companies cannot invoke the FSIA's takings exception to sovereign immunity because the instrumentalities are not "engaged in a commercial activity in the United States, " see 28 U.S.C. § 1605(a)(3), and that the activities of various subsidiaries and separate entities are not imputable to them in light of the presumption of legal separateness established in First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611 (1983) ("Bancec"). Accordingly, we AFFIRM the judgment of the District Court.

          Pedro J. Martinez-Fraga (Suzanne M. Berger, James M. Altman, C. Ryan Reetz, on the brief), Bryan Cave LLP, New York, NY, and Miami, FL, for Plaintiffs- Appellants.

          Andrew Z. Schwartz, Foley Hoag LLP, Boston, MA, for Defendants-Appellees.

          Before: Pooler, Hall, and Carney, Circuit Judges.

          Susan L. Carney, Circuit Judge

         We are faced here with a question of subject matter jurisdiction over a dispute with a vanishingly thin, if any, connection to the United States. Plaintiffs-appellants are five entities incorporated in the British Virgin Islands. They claim that in 2008, an agency of the Republic of Ecuador unlawfully seized their "property in Ecuador"― primarily, their ownership of over 100 companies located there. Joint Appendix ("J.A.") at 12. In 2013, they filed suit in the Southern District of New York seeking over $1 billion in damages from defendants-appellees the Republic of Ecuador ("Ecuador") and two of Ecuador's instrumentalities―the Corporación Financiera Nacional ("CFN"), and Fideicomiso AGD-CFN No Más Impunidad (the "Trust"). The District Court (Crotty, J.) dismissed the Complaint with prejudice for want of subject matter jurisdiction.

         The Foreign Sovereign Immunities Act (FSIA) establishes a general rule of immunity for foreign states "from the jurisdiction of the courts of the United States and of the States." 28 U.S.C. § 1604; see also 28 U.S.C. § 1330. Only if the action in which the foreign state or its agency or instrumentality is named as the defendant falls within one of the Act's several exceptions, see 28 U.S.C. § 1605, will jurisdiction lie. Plaintiffs here contend that their action fits within the FSIA's "takings" or "expropriation" exception, set forth in Section 1605(a)(3). Section 1605(a)(3) provides that a foreign state (including its agencies and instrumentalities) is not immune from jurisdiction in any case

in which rights in property taken in violation of international law are in issue and [1] that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or [2] that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States[.]

28 U.S.C. § 1605(a)(3) (bracketed numbers added). Both of the two independently sufficient prongs of this subsection (here labeled [1] and [2]) are subject to the precondition that the dispute concern property "taken in violation of international law[.]" Id. Once this condition is met, the second prong then authorizes United States courts to entertain an action against a foreign state's agency or instrumentality where (a)either the taken property or "any property exchanged for such property" is (b)"owned or operated by an agency or instrumentality of the foreign state" and (c) the agency or instrumentality "is engaged in a commercial activity in the United States[.]" Id. In this appeal, we focus on the last element of this second prong: the agency or instrumentality's engagement in commercial activity in the United States.

         Plaintiffs do not contend that either CFN or the Trust is itself engaged in commercial activity in the United States. Rather, they argue primarily that we should impute to each the United States activities of several other entities and on that basis determine that CFN and the Trust are subject to jurisdiction under prong [2]. But CFN and the Trust are entities distinct from the subsidiaries and other Ecuadorean entities to which plaintiffs point. The presumption of legal separateness established by the Supreme Court in First National City Bank v. Banco Parael Comercio Exterior de Cuba, 462 U.S. 611 (1983) ("Bancec"), and respect for international comity compel us to treat these legally separate entities as just that, unless plaintiffs can demonstrate that CFN and the Trust exercise "significant and repeated control over the [entities'] day-to-day operations." EM Ltd. v. Banco Cent. de la República Argentina, 800 F.3d 78, 91 (2d Cir. 2015) ("EM"), cert. dismissed, 136 S.Ct. 1731 (2016). Plaintiffs have failed to clear this substantial bar and therefore have not satisfied the requirements of Section 1605(a)(3). Accordingly, Ecuador, CFN, and the Trust are protected by sovereign immunity under 28 U.S.C. § 1604, and we need not consider the alternative bases for dismissal relied on by the District Court or presented by defendants. We therefore AFFIRM the judgment of the District Court dismissing plaintiffs' action for want of jurisdiction.

         BACKGROUND

         We set out the facts as alleged in the Complaint, amplified by the limited jurisdictional materials submitted by the parties. See Kensington Int'l Ltd. v. Itoua, 505 F.3d 147, 153 (2d Cir. 2007).

         Arch Trading Corp., Arvin Properties Inc., Hezer Holdings Inc., Madec Limited, and Osis International Corp. (together, "plaintiffs") are entities "formed under the laws of the British Virgin Islands, i.e., outside of Ecuador, " and are "separate and distinct juridical entit[ies]." J.A. at 15, Compl. ¶¶ 14, 15. Plaintiffs assert that since he assumed power in 2007, Ecuadorean President Rafael Correa Delgado has "aggressively advanced an agenda of debilitating competing interests and of concentrating power in himself and his allies, " and that they have been victims of that agenda. J.A. at 20, Compl. ¶ 41. Beginning in July 2008, Ecuador's Agencia de Garantía de Depósitos ("AGD")―at the time "Ecuador's equivalent to the Federal Deposit Insurance Corporation, " J.A. at 17, Compl. ¶ 28―unlawfully seized 133 companies owned by plaintiffs (the "Seized Companies") and failed to provide any compensation to them for the taking.^[1] No legal recourse was available in Ecuador, plaintiffs assert: Soon after the seizure, Ecuador's Constituent Assembly issued its "Mandate 13, " which barred Ecuador's judiciary―on penalty of criminal prosecution―from considering any such legal challenges.

         The Seized Companies are now owned and controlled by defendants. Most of the Seized Companies are currently held by the Trust, an instrumentality of Ecuador that CFN and AGD established in March 2009. CFN, another instrumentality of Ecuador, is the Trust's sole trustee.

         In June 2013, plaintiffs filed the Complaint in the United States District Court for the Southern District of New Yo r k against Ecuador, CFN, and the Trust, seeking compensation for the Seized Companies. Defendants moved to dismiss on a number of grounds, including that the FSIA precluded the District Court's exercise of jurisdiction. With respect to whether the FSIA's "takings" exception permitted the court's exercise of jurisdiction over them, they argued that it did not. First, asserting that the ultimate owners of the five plaintiff companies are Ecuadorean individuals, they urged that the expropriations did not violate international law because they fall within the act of state doctrine. See, e.g., Republic of Austria v. Altmann, 541 U.S. 677, 713 (2004) (Breyer, J., concurring) (noting "consensus view that § 1605(a)(3)'s reference to 'violation of international law' does not cover expropriations of property belonging to a country's own nationals"). Second, they contended that even if the takings violated international law, plaintiffs still failed to satisfy Section 1605(a)(3) because the Seized Companies are all "located in" Ecuador (precluding jurisdiction over Ecuador under the first prong of Section 1605(a)(3)), ^[2] and that plaintiffs do not allege―indeed, cannot plausibly allege―that CFN and the Trust engage in any commercial activity in the United States (precluding jurisdiction over CFN and the Trust under the second prong of Section 1605(a)(3)).

         To substantiate their position, defendants submitted declarations from high- ranking Ecuadorean officials discussing the activities in the United States of CFN and the Trust, all pointing toward the conclusion that neither CFN nor the Trust is engaged in commercial activity in the United States. In rebuttal, plaintiffs submitted a declaration made by Francisco Rendón Pantaleón (the "Rendón Declaration"). Rendón declares that he has held important managerial positions at CFN and has served in other high-ranking positions in the Ecuadorean government, including as its Minister of Economy and Finance. He further outlines the commercial activities in the United States that plaintiffs see as relevant to the application of Section 1605(a)(3).

         The District Court granted defendants' motion to dismiss. It reasoned that, although plaintiffs are incorporated in the British Virgin Islands, they should be treated as Ecuadorean because their ultimate individual owners―Roberto and William Isaías Dassum (the "Isaías brothers"), it found, see infra note 3―are of Ecuadorean nationality. Under the act of state doctrine, therefore, the alleged takings of the Seized Companies did not violate international law and Section 1605(a)(3) does not apply. The District Court also ruled that plaintiffs failed to demonstrate that either CFN or the Trust is itself engaged in a commercial activity in the United States. This failure independently precluded plaintiffs' reliance on Section 1605(a)(3). See Arch Trading Corp. v. Republic of Ecuador, No. 13-CV-4445, 2015 WL 3443906 (S.D.N.Y. May 28, 2015).

         In the latter regard, the District Court observed that "[p]laintiffs merely outline examples of commercial activities that CFN and [the Trust's] subsidiaries [or other distinct legal entities] allegedly engage in, " as opposed to activities of CFN and the Trust themselves. Id. at *4 (emphasis added). Because "agencies and instrumentalities of foreign states are presumed to be separate" from other distinct legal entities, the District Court declined to impute the activities of those entities to CFN and the Trust absent a showing that CFN and the Trust "exercise day-to-day control" over them. Id. After finding that venue in the Southern District of New York was improper under the FSIA and also denying plaintiffs' request for jurisdictional discovery, the District Court dismissed the case with prejudice. ^[3]

         This ...