Execution of Judgments Against the Assets of Foreign Sovereigns Located Abroad

The Foreign Sovereign Immunities Act (FSIA) provides immunity from execution for the “property in the United States of a foreign state.” It does not confer immunity on a foreign state’s property located abroad. The limitation makes sense: to the extent that a foreign sovereign’s property located outside the United States is not subject to the jurisdiction of U.S. courts, immunity is not relevant. Yet a court in the United States with personal jurisdiction over a foreign state may have the power to order various forms of relief that would reach or relate to property located abroad. A court might order discovery about those assets, or it might order the transfer of those assets into the United States to facilitate the enforcement of a judgment against them. Is foreign sovereign immunity implicated by such orders? For discovery, no.  For transfer, yes.

Discovery Orders

The Supreme Court held in Republic of Argentina v. NML Capital that the FSIA does not limit discovery about a foreign sovereign’s assets located abroad. The text of the statute confers no immunity on property located outside the United States. The text also provides no relevant limitations on discovery. The Court accordingly made short work of Argentina’s arguments that the FSIA shielded it from discovery. As Justice Ginsburg pointed out in dissent, however, the effect of the decision is to permit broader discovery about a foreign state’s assets abroad than about its assets in the United States. For the latter, immunity prevents execution of judgments unless the property is in commercial use, so discovery about assets that are not in commercial use would not be relevant.  For assets abroad, no such immunity limitations apply – at least not based on U.S. law. The Supreme Court’s decision gave the green light to unlimited discovery about a foreign sovereign’s assets located abroad.

Justice Ginsburg would have presumptively limited discovery of assets abroad to the same extent that discovery about assets in the United States is limited:

Unless and until the judgment creditor, here, NML, proves that other nations would allow unconstrained access to Argentina’s assets, I would be guided by the one law we know for sure—our own. That guide is all the more appropriate, as our law coincides with the international norm. See § 1602. Accordingly, I would limit NML’s discovery to property used here or abroad “in connection with … commercial activities.” §§ 1602, 1610(a). I therefore dissent from the sweeping examination of Argentina’s worldwide assets the Court exorbitantly approves today.

Transfer Orders

A district court in New York recently considered whether immunity limits the power of district court to order a foreign sovereign to transfer its assets abroad into the United States to satisfy judgment creditors. The case, Bainbridge Fund Ltd. v. Republic of Argentina, arose from Argentina’s default on debt securities. The Court entered judgment for Bainbridge to the tune of $95,424,899.38. Although the case was in federal court, Federal Rule of Civil Procedure 69(a)(1) provides that the procedure on execution “must accord with the procedure of the state where the court is located.”  Bainbridge moved under New York State law for an order compelling Argentina to turnover foreign assets to satisfy the judgment.

The court had personal jurisdiction over Argentina based on a written waiver in which the Republic“irrevocably submitted to the jurisdiction of any New York state or federal court sitting in the Borough of Manhattan … over any suit, action, or proceeding against it or its properties, assets or revenues with respect to the [relevant securities].”  Because the court had personal jurisdiction, it had the power under New York law to order the transfer of assets located outside the United States—unless doing so would violate immunity to which Argentina is entitled.  The FSIA did not confer immunity on the assets located abroad, the court reasoned, citing NML Capital’s language that immunity for a foreign sovereign must “stand on the Act’s text. Or it must fall.”

The court went on to hold that the assets would be immune from execution if located in the United States, however, and accordingly refused to issue the transfer order.  In a similar case involving a private defendant with control over assets belonging to a foreign sovereign, the Second Circuit developed a  “two-step process” in which “the relevant asset is first recalled and then analyzed pursuant to the FSIA.”  Immunity is analyzed after the asset is recalled to the United States.  In Bainbridge, by contrast, Judge Preska decided to evaluate whether the assets would be subject to execution immunity before ordering their transfer to the United States. Because the assets in question “belong directly to the Republic and, the Republic contends, are used for government functions” a two-step process could subject Argentina to “substantial, and unwarranted, disruption and interference with its sovereign activity, including the provision of services to its citizens.” The court went on the conclude that, if brought to the United States, the assets would be immune from measures of execution and that the motion to compel their transfer should therefore be denied.

Conclusion

A foreign sovereign that is subject to personal jurisdiction in New York potentially makes all its global assets potentially available for measures of execution.  Under the FSIA, personal jurisdiction is conferred to the extent that an exception to immunity applies.  In Bainbridge itself, the waiver of immunity also included a forum selection clause that consented to personal jurisdiction, so the result is sensible. But under 1605(a) the same outcome would result from a simple waiver of immunity that did not select a forum or waive personal jurisdiction defenses.   Given the very broad reach of New York law over foreign assets, Judge Preska’s approach to immunity is very sound.

The Bainbridge case also provides practical support for Justice Ginsburg’s position reasoning in NML Capital.  Why should discovery about foreign assets be broader than discovery about domestic assets if the same immunity limitations effectively apply in both situations?  Fortunately, FRCP 26(b)(1) requires a proportionality analysis for all discovery requests.  And discovery about a foreign sovereign’s assets located abroad and not in commercial use—even if relevant—may impose a burden that outweighs its potential benefit.