D.C. Circuit Rejects FSIA Waiver Exception to Uphold Immunity of Sovereign-Owned Property

In a recent decision, Bainbridge Fund Ltd. v. Republic of Argentina, the D.C. Circuit rejected a judgment creditor’s attempt to attach and execute upon the Chancery Annex, a building owned by Argentina in Washington, D.C.

Argentina’s creditors have chased it for two decades, since the beginning of its sovereign debt crisis, to varying degrees of success. One accounting found 181 lawsuits filed in the Southern District of New York alone. Yet Argentina’s creditors know better than most that a favorable judgment counts for little without the means to enforce it. They may even be sympathetic to an old mountaineering adage: once you reach the summit, you’re only halfway done.

Bainbridge, one such creditor, has graced the pages of TLB before: in December 2023 the S.D.N.Y. declined to order Argentina under New York law to turn over foreign assets in satisfaction of an adverse judgment. It was similarly unsuccessful in D.C. The D.C. Circuit’s decision—though just one of many in the Argentine saga—illustrates the high level of immunity from execution afforded by the Foreign Sovereign Immunities Act (FSIA) generally and the narrow construction of its waiver provision in particular.

Execution Immunity

The FSIA has two parallel regimes. The first, jurisdictional immunity, provides the conditions by which a foreign sovereign or its agencies or instrumentalities may be subject to suit in U.S. courts. The second, execution immunity, provides conditions under which a creditor can attach and execute upon property of the sovereign or its agencies.

An exception to jurisdictional immunity does not operate as an exception to execution immunity. Thus, the creditor must qualify for one of the exceptions enumerated by § 1610 rather than rely upon one of the jurisdictional exceptions of §§ 1605, 1605A, or 1605B.

Also, the execution immunity afforded sovereign property is broader, and thus the exception is narrower, than the jurisdictional immunity afforded the sovereign itself. For property owned by the foreign sovereign, only property “used for a commercial activity in the United States” may be subjected to measures of execution. This commercial activity criterion exists independently of the exceptions enumerated by § 1610(a). With jurisdictional immunity, by contrast, the foreign sovereign can be sued for reasons other than commercial activity, including terrorism-related claims, expropriation claims, and to enforce foreign arbitral awards rendered against the state, among others.

Certain classes of sovereign property, notably central bank assets “held for their own account” and military property, are categorically excluded from attachment and execution. But the burden to show “use for a commercial activity” falls upon the judgment creditor. It is not sufficient merely to show that the property falls outside of a protected category such as central banks assets or diplomatic or military property. This liminal space between categorically excluded and protected, on the one hand, and commercial and presumptively available, on the other, is a focus of the Bainbridge decision.

Waiver

Waiver of jurisdictional immunity and waiver of execution immunity are distinct and operate independently. A foreign sovereign’s waiver to make itself amenable to suit in U.S. courts does not, without more, waive the presumptive immunity of its assets from measures of execution, and vice versa. The principles governing whether an effective waiver was made, however, apply equally to both categories.

An effective waiver may be made expressly or by implication. Waiver can be implied in one of three circumstances: when a foreign state agrees to arbitration in the United States, when a foreign state consents to the application of U.S. law, or when a foreign state files a responsive pleading in U.S. court without raising immunity as a defense.

A foreign sovereign may make an express waiver by treaty, contract, official statement, or “by certain steps taken by the foreign state in the proceedings leading to judgment or to execution” (see H.R. Rep. No. 94-1487 at p. 28). An express waiver must be “clear, complete, unambiguous, and unmistakable.” It is narrowly construed in favor of the state and will not be “enlarged beyond what the language requires.” This precept acknowledges a foreign sovereign’s ability to circumscribe the scope of its waiver to specific transactions, claims, or property. In a recent decision, the Third Circuit rejected a plaintiff’s argument that “any waiver [by the foreign sovereign] should effect a waiver of attachment immunity as to all a foreign state’s commercial property in the United States” (emphases in original). Such an approach would run contrary to precedent “recognizing that the scope of a waiver under the FSIA is delimited by evidence of the foreign state’s intent.” Taking the Third Circuit’s reasoning one step further, a foreign state could waive immunity from execution for some or all of its commercial property only, or it could waive all requirements in the FSIA whatsoever, including the commercial activity criterion. This question, too, was a focus of the Bainbridge decision.

Background Facts

Argentina defaulted on a bond held by Bainbridge. Bainbridge sued in the Southern District of New York and received partial summary judgment in December 2020 for $95 million. Argentina declined to honor the judgment, so Bainbridge undertook enforcement efforts.

Argentina owns the Chancery Annex located at 2136 R Street NW in Washington, D.C. The Chancery Annex had been subject to execution attempts before. Several decades ago, it housed both diplomats and commercial tenants, but since 1997 it has been “uninhabited and in a state of disrepair.” Argentina tried to sell the Chancery Annex twice and creditors sought unsuccessfully to attach the property. At the time of suit, it was not for sale, nor was the Argentine diplomatic mission authorized to sell it. The Chancery Annex was subject to residential property taxes and valued at $3.2 million, but presently used only to store diplomatic files. Access is restricted to members of the Argentine government. But aside from storage, the building is “essentially unusable” due to its decrepit condition.

Bainbridge applied to the federal district court in the District of Columbia to attach and sell the building. In order for Bainbridge to succeed, it needed to show, first, that the Chancery Annex was used for a commercial activity, and second, that Argentina had waived its immunity from attachment and execution with respect to that property. The district court found that the text of the purported waiver (set forth below) was not broad enough to waive the requirement that the building was used “for commercial activity.” It also found that the present use of the Chancery Annex was not commercial notwithstanding the past commercial uses of the building. The parties agreed on the present state of disrepair, strengthening the conclusion that the building was not currently being “used for a commercial activity” (emphasis added). Because the commercial activity criterion was neither waived nor met, Bainbridge’s application failed.

The D.C. Circuit’s Waiver Analysis

The D.C. Circuit affirmed, emphasizing the limits of Argentina’s purported waiver. The underlying bond read:

To the extent that the Republic or any of its revenues, assets or properties shall be entitled . . . to any immunity from suit . . . from attachment in aid of execution of judgment, from execution of a judgment or from any other legal or judicial process or remedy . . . the Republic has [i] irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction and [ii] consents generally for the purposes of the Foreign Sovereign Immunities Act to the giving of any relief or the issue of any process in connection with any Related Proceeding or Related Judgment . . . .

(Romanettes added.) Bainbridge argued that this text contained two distinct clauses: [i] the “Waiver Clause” and separately [ii] the “Consent Clause.” The Waiver Clause was a negative promise not to claim immunity and a waiver of immunity so far as “the laws of such jurisdiction” would allow. The Consent Clause, on the other hand, made no reference to the “laws of [the] jurisdiction” but only the FSIA in particular. According to Bainbridge, this represented “an agreement to forego invoking [all] FSIA defenses,” including the commercial activity criterion.

The Court disagreed. The two clauses were linked and not separated by a comma or other means, so there was no reason to read them as disjunctive. Bainbridge’s distinction would have created two clauses with vastly different reaches: one linked to the FSIA and the other not. Such a reading “strains credulity by insisting that two clauses in the same sentence and in close proximity have vastly different meanings and legal effects, despite the fact that both clauses refer to laws limiting Argentina’s agreement to subject itself to U.S. law.” The purported waiver, read in full, thus did not contain an explicit promise or a clear indication of Argentina’s intent to waive all FSIA defenses, including the requirement that the property in question be used for a commercial activity.

The Court’s conclusion is correct in light of previous courts’ decisions interpreting the same language from Argentina’s bonds. And it aligns with other decisions that stress the commercial activity criterion. The Court declined to opine on whether the § 1610(a) commercial activity criterion was waivable at all, which was unnecessary to the disposition of the case and would have been a matter of first impression in the D.C. Circuit.

The Second Circuit has suggested that the requirement that the targeted property be used for a “commercial activity” is one of the “non-waivable protections of the FSIA.” Sovereign immunity protections writ large are waivable—hence the existence of the § 1605 and § 1610 waiver exceptions in the first instance. The Second Circuit’s suggestion sits uneasily with the fact that even immunity for property with heightened protection, such as central bank assets, can be waived when the conditions for doing so are met. It would be unusual to grant a non-commercial, non-categorically protected asset like the derelict Chancery Annex building greater protection than categorically protected central bank assets. The parties are masters of their contract. Rather than sorting criteria as waivable or not, the better approach is simply to analyze the purported waiver to ascertain its reach. It may be accepted that a state that “completely waives its sovereign immunity from execution” nevertheless intends to rely upon the commercial activity requirement. But if a state “clearly, completely, unambiguously, and unmistakably” wants to waive protections for non-commercial property, a U.S. court should not stand in its way. In Bainbridge, Argentina did not agree to such a waiver. The D.C. Circuit was right to avoid the question of waivability.

The result in Bainbridge may frustrate contract drafters who strive for a clear waiver of sovereign immunity with broad effect. A comparison between Bainbridge and an effective immunity waiver, GDG Acquisitions LLC v. Government of Belize, is instructive. In GDG, the Eleventh Circuit analyzed the following passage in a Master Lease Agreement:

Lessee [i.e., Belize] acknowledges that the activities contemplated by this [agreement] … are commercial in nature rather than governmental or public, and therefore acknowledges and agrees that it is not entitled to any right of immunity or defense on the grounds of sovereignty or otherwise…. Lessee hereby expressly and irrevocably waives any such right of immunity or defense which now or hereafter may exist or claim thereto which may now or hereafter exist…, and agrees not to assert any such right or claim in any such action or proceeding, whether in the United States of America or elsewhere…. Neither Lessee nor any of its property enjoys any right of immunity from suit, setoff, judgment, execution on a judgment or attachment prior to judgment or in aid of execution in respect of its obligations under this [agreement].

The waiver in GDG, though still verbose, is better drafted. First, it clearly establishes that Belize’s activities are commercial in nature. With respect to enforcement, this suggests (though does not conclusively establish) that any property associated with the transaction is used for commercial activity. Second, Belize waived “any such right of immunity or defense” and “agrees not to assert such right” without reference to any particular bodies of law. In Bainbridge, the court viewed the references to multiple bodies of law as contradictory and thus insufficiently clear to uphold immunity. Third, Belize separately waived the protection afforded to its property. Rather than set them apart, Bainbridge combined references to jurisdictional and execution immunity in the same pathological clause that doomed the entire provision.

Conclusion

Bainbridge got stranded at the summit. Although the decision joins a crowded corpus of Argentine enforcement decisions, the D.C. Circuit’s Bainbridge decision is useful for illustrating the limits of the FSIA’s waiver provisions and the narrow construction that courts give purported waivers. Despite the limited success of Argentina’s creditors, the collection of decisions provides helpful guidance for contract drafters who wish to elicit clear, effective FSIA waivers in future agreements.