Ninth Circuit Clarifies Scope of Commercial Activity Exception to Sovereign Immunity

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On December 6, 2013, the U.S. Court of Appeals for the Ninth Circuit, sitting en banc, issued its decision in Sachs v. Republic of Austria, a case presenting important questions concerning the types of commercial activities that can strip foreign states and state-owned entities of sovereign immunity and subject them to the jurisdiction of U.S. courts. The Ninth Circuit’s decision in Sachs constitutes an important decision in the continued delineation of the “commercial activity” exception to sovereign immunity set forth in the U.S. Foreign Sovereign Immunities Act (“FSIA”), and given the Ninth Circuit’s importance to cross-border business and its status as a key circuit in cases involving foreign state entities, the decision should be of interest to foreign state-owned enterprises and companies doing business with those enterprises, particularly in the Pacific Rim.

1. Introduction: Sovereign Immunity in the U.S. -

Since 1952, U.S. law has reflected a policy of “restrictive sovereign immunity,” pursuant to which foreign states and state entities enjoy immunity from the jurisdiction of U.S. state and federal courts for claims arising out of governmental acts, but are not entitled to immunity, and are subject to U.S. court jurisdiction in connection with claims arising out of commercial activities. Since 1976, sovereign immunity in the United States has been implemented through the FSIA, which reflects the policy of restrictive immunity by affording foreign states and their agencies and instrumentalities presumptive immunity from suit. Section 1605 of the FSIA then sets forth a series of exceptions to immunity that, when present, will leave the foreign state subject to U.S. court jurisdiction in largely the same fashion as non state defendants.

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