Argument preview: Pleading standards and the “expropriation” exception to the FSIA
on Oct 27, 2016 at 2:10 pm
Under the Foreign Sovereign Immunities Act, a federal law enacted in 1976, foreign countries normally cannot be sued in U.S. courts unless one of only a few specific exceptions applies. One of those exceptions, known as the “expropriation” exception, applies to situations in which a foreign government has nationalized privately owned property. It allows lawsuits against foreign governments to go forward in the United States when “rights in property taken in violation of international law are in issue” and there is a commercial connection to the United States. Next week, the justices will consider what standard a plaintiff must meet to survive a motion to dismiss: Is it enough that the allegations in the complaint are not frivolous (as the lower court held), or does the complaint have to lay out facts that satisfy all the elements of the expropriation exception – a much tougher standard?
Helmerich & Payne de Venezuela is a Venezuelan corporation owned by Helmerich & Payne International, a U.S. company. Helmerich & Payne de Venezuela entered the oil-drilling business in that country in the 1950s and began to drill for the state-owned oil company in the 1970s. But that relationship soured, and by the end of 2009 Helmerich & Payne had stopped drilling and taken down its oil rigs, which it stored on its property in Venezuela. In June 2010, then-President Hugo Chavez issued a decree appropriating the drilling rigs, which the state-owned oil company now uses.
In September 2011, Helmerich & Payne de Venezuela and Helmerich & Payne International filed a lawsuit in the U.S. District Court for the District of Columbia. They alleged, among other things, that Venezuela and its oil company had taken their property in violation of international law, and that the FSIA’s expropriation exception gave the court jurisdiction over the lawsuit. Venezuela and the company asked the district court to dismiss the case, arguing that the expropriation exception did not apply. The district court agreed with them on the claim by Helmerich & Payne de Venezuela, because the company is a national of Venezuela. But it denied the motion to dismiss with regard to Helmerich & Payne International’s claim, on the ground that the seizure of property owned by Helmerich & Payne de Venezuela “effectively took its interest in” the company as a “going concern.”
On appeal, the U.S. Court of Appeals for the D.C. Circuit ruled that both expropriation claims could go forward. Judge David Tatel wrote for the majority, in an opinion that was joined by Chief Judge Merrick Garland – President Barack Obama’s nominee to fill the vacancy created by the death of Justice Antonin Scalia. To survive a motion to dismiss for lack of jurisdiction, the court of appeals explained, Helmerich & Payne’s allegations only needed to meet what the court described as an “exceptionally low bar”: The two companies’ claims would be dismissed only if they were “wholly insubstantial or frivolous” – which, the court concluded, they are not. Venezuela then asked the Supreme Court to weigh in on the question of the proper pleading standard, which it agreed to do in June of this year.
In the Supreme Court, Venezuela argues that the bar to survive a motion to dismiss is much higher than the one that the D.C. Circuit imposed. It is not enough that a plaintiff like Helmerich & Payne can make allegations that are non-frivolous; it must also satisfy the substantive requirements of the FSIA exceptions. This means that, for cases brought under the expropriation exception, “a court should decide whether the complaint pleads” rights in property that were legally recognized when the taking occurred, under the law of the place where the property was located, as well as “a taking that is an actual violation of customary international law.” And the rights in property must actually be in issue, as evidenced by the FSIA’s use of the word “are”: It is not enough that they are “colorably” in issue. Here, Venezuela contends, because there is (among other things) an “established and bright-line” rule making clear that a government’s nationalization of its own national’s property does not violate international law, the D.C. Circuit could and should have dismissed Helmerich & Payne’s claim.
Helmerich & Payne outlines a very different test for determining whether courts have jurisdiction over lawsuits brought under the expropriation exception. All that is required, the company argues, is the “assertion of a particular type of claim.” Specifically, the company explains, rights in property taken in violation of international law will be “in issue” so long as “one side asserts a taking of rights in property in violation of international law and the other side denies it.” Such a rule, the company continues, is consistent with how the phrase “in issue” has been interpreted elsewhere. What is “in issue” is “what the parties contested”; it is the court’s job to resolve the issues on the merits.
For Helmerich & Payne, Venezuela’s argument boils down to the nonsensical idea that a court lacks jurisdiction “to decide whether rights in property were taken in violation of international law unless it first concludes that rights in property were taken in violation of international law.” But jurisdiction is the power to decide a dispute, Helmerich & Payne contends, and whether a court has jurisdiction in a case cannot turn on the merits of the case. Helmerich & Payne points to the Supreme Court’s 1946 decision in Bell v. Hood for the principle that courts can still have jurisdiction even if a complaint does not outline a cause of action on which the plaintiff could actually recover. That rule had been “well settled” for many years before Congress enacted the FSIA, Helmerich & Payne argues, in cases dealing with everything from antitrust to bankruptcy and admiralty, and there is a presumption that Congress would expect it to apply to the FSIA.
Venezuela counters that, in Bell, the court was merely interpreting 28 U.S.C. § 1331, the general federal-question jurisdiction statute, rather than establishing a general rule to govern all statutes that confer jurisdiction. But, Venezuela emphasizes, Section 1331 contains broad language, without any of the substantive requirements outlined in the FSIA’s expropriation exception. And Section 1331 serves a very different purpose from the FSIA: It is used to determine whether a case should go forward in state or federal court, while the FSIA “governs whether a foreign state may be sued in any United States court.”
Venezuela also complains that, under the standard used by the D.C. Circuit, litigation against a foreign state can proceed whenever the plaintiff can meet the “exceptionally low” pleading standard. But the whole point of the FSIA, it argues, is to protect foreign countries from being subjected to litigation in U.S. courts, and to make that determination at the outset of a lawsuit. The federal government, which filed a brief supporting Venezuela, warns that, if lawsuits are allowed to proceed past the initial threshold in U.S. courts, there is a danger that suits against the United States in foreign courts will similarly be allowed to go forward, “embroiling the United States in expensive and difficult litigation, based on legally insufficient assertions that sovereign immunity should be vitiated.”
Helmerich & Payne dismisses this argument as effectively begging the question. Applying the Bell standard is, it argues, in fact exactly what the FSIA requires. Moreover, the rule advocated by Venezuela and the United States wouldn’t actually “shield sovereigns from any burdens of litigation,” but instead would “simply frontload those burdens into the jurisdictional stage, including potentially broad discovery into the factual basis of the claim.” In any event, applying the D.C. Circuit’s standard is not likely to cause any real problems, it suggests: Neither Venezuela nor the federal government has “identified a single expropriation claim brought against the United States in a foreign court” – because the United States does not expropriate private property.
The justices will hear oral argument in the case on Wednesday, November 2. A decision is expected sometime next year.