Introduction -

On October 14, 2016, the U.S. Court of Appeals for the Second Circuit (Second Circuit) issued a decision in Arch Trading Corp. v. Republic of Ecuador, a case addressing the expropriation exception to sovereign immunity under the Foreign Sovereign Immunities Act (FSIA), which abrogates the immunity of foreign states from U.S. judicial proceedings in cases involving the taking of property in violation of international law. Relatively few appellate decisions have explored the expropriation exception – likely because so many expropriation cases today are resolved through treaty arbitrations – and the Second Circuit’s decision in Arch Trading provides a significant addition to the jurisprudence construing the exception, while also providing useful insight into the FSIA’s treatment of agents and alter egos and the showings necessary to impute jurisdictional facts between a sovereign and other entities with whom the sovereign may be related.

FSIA and the Expropriation Exception -

The FSIA was enacted in 1976 with the principal purpose of codifying American sovereign immunity law and eliminating the executive branch’s involvement in determinations of foreign sovereign immunity and give that role to the judiciary, which had come to be viewed as potentially inconsistent and subject to political considerations. Section 1604 of the FSIA provides that foreign states are presumptively immune from the jurisdiction of U.S. state and federal courts. This immunity extends not only to the state itself, but also to any “agency or instrumentality” of the foreign state. Consistent with the global trend favoring “restrictive” immunity, which seeks to preserve immunity for governmental acts while leaving sovereigns subject to suit for their non-governmental acts, the FSIA’s grant of immunity is subject to a number of exceptions, set forth in Section 1605 of the Act. Where a case brought against a foreign state falls into one of the exceptions, the foreign state will not be immune, and a U.S. court will have subject matter jurisdiction to hear it.