Argument Preview: Perm. Mission of India v. New York on 4/24

The following entry is by Christopher Pudelski, a litigation associate in Akin Gump’s DC office.

May a United States municipality tax a foreign sovereign’s real property in the United States when that property is used to house its staff and other personnel? Tomorrow in Permanent Mission of India v. City of New York, No. 06-134, the Court will answer this question by considering two related issues regarding the interpretation of the Foreign Sovereign Immunities Act (“FSIA”). First, the Court will consider whether a specific exception to the FSIA provides jurisdiction for a municipality’s lawsuit seeking a judgment to establish the validity of a property tax lien on a foreign sovereign’s real property. Second, the Court will consider whether it is appropriate for U.S. courts to interpret FSIA by examining international treaties that have not been ratified by the United States and have only been signed by a limited number of other nations.

John J.P. Howley of Kaye Scholer LLP will argue the case on behalf of petitioners. Michael A. Cardozo of the Corporation Counsel of the City of New York will argue the case on behalf of respondent. Sri Srinivasan, Assistant to the Solicitor General, will argue on behalf of the United States as an amicus in support of petitioners. The parties’ briefs can be found here.

The dispute arises out of property owned by India and Mongolia in New York City, which brought suit to enforce a tax lien against the two countries after they failed to pay local real estate taxes totaling approximately $16 million and $2 million, respectively. The disputed property is currently used for official offices and to house diplomatic personnel and their immediate families. Certain portions of the buildings are also used to house the countries’ missions. Although the parties agree that these areas are immune from taxation, they disagree whether other portions of the buildings – used to house the missions’ staffs – are subject to taxation.

The City filed suit in state court seeking a declaratory judgment under state law establishing the validity of a tax lien against the foreign sovereigns, who subsequently removed the case to federal court in the Southern District of New York. The district court denied the countries’ motion to dismiss for lack of subject matter jurisdiction under the FSIA, which contains an exception from immunity for cases “in which . . . rights in immovable property situated in the United States are in issue.” The district court concluded, as did the Second Circuit on appeal, that a suit seeking a declaratory judgment on a tax lien met the exception and that New York could obtain such a judgment.

The Supreme Court will first consider whether the City’s suit falls within FSIA’s “immovable property” exception. India and Mongolia first argue that it does not, as the exception applies only when “rights in” property – rather than obligations “arising out of rights” to or interests in property – are in dispute. In other words, petitioners argue that a tax lien is not an ownership “right” in real property as contemplated by the Act. The United States, which has sided with the foreign countries, agrees with this interpretation, arguing that a lien simply provides security for the lien-holder’s true interest, which under New York law is a money debt. The City counters that the statute does not expressly exclude real estate taxes, and that the property “rights” of both parties are at issue because a tax lien affects title and implicates ownership rights. Both sides claim support for their respective interpretations from the FSIA’s legislative history and the international law surrounding the Act at the time of its passage.

The Court will also consider whether U.S. courts may look to international treaties not signed by the United States for guidance in determining Congress’s intent in the FSIA exception. The City urges the Court to examine the European Convention on State Immunity and the United Nations Convention on Jurisdictional Immunities of States and Their Property, arguing that these treaties – even if not signed by the United States – offer further evidence of the international practice that FSIA was intended to codify. By contrast, the countries and the U.S. contend that the Court should not consider the treaties because Congress expressly declined to adopt the treaties’ language regarding the immovable property exception when passing FSIA, the United States did not sign them, and they do not properly reflect international law at the time of FSIA’s passage. The parties dispute whether the terms of the treaties themselves preclude taxation of a foreign sovereign’s real property. The parties agree that the Vienna Convention on Diplomatic Relations, to which the United States is a party and to which the FSIA’s legislative history refers, should be used to interpret the FSIA; however, they disagree over whether the Convention would exclude tax claims such as those presented here.

Finally, the City also asserts an alternative basis for jurisdiction – that requiring the countries’ diplomats to reside at their missions satisfies the FSIA’s “commercial activity” exception because the provision of housing is an activity that private businesses can undertake. The countries counter that the exception does not apply because its staff performs a purely governmental function.