Foreign Sovereign Immunity and the Time-of-Filing Rule

banque du liban” by stevendamron is licensed under CC BY 2.0.

Suppose a defendant goes into liquidation during litigation and becomes an agency or instrumentality of a foreign state through the liquidation process. Is the defendant entitled to sovereign immunity under the Foreign Sovereign Immunities Act of 1976 (FSIA)? The Second Circuit recently said yes. The proper answer is no.

Bartlett v. Baasiri

The issue arose in Bartlett v. Baasiri. The plaintiffs are U.S. service members (or their families) who were killed or injured in Iraq by terrorist attacks committed by Hezbollah, which the United States has designated a Foreign Terrorist Organization. The plaintiffs sued (among others) a private commercial bank in Lebanon, Jammal Trust Bank (JTB), under provisions of the Anti-Terrorism Act (ATA). JTB, the plaintiffs allege, knowingly provided services to Hezbollah that facilitated the terrorist attacks.

Nine months into the litigation, the United States designated JTB a Specially Designated Global Terrorist, triggering sanctions freezing the assets of JTB that are subject to U.S. jurisdiction. JTB then sought liquidation, and Lebanon’s central bank, Banque du Liban, placed JTB in receivership. Banque du Liban assigned a liquidator, who intervened in the Bartlett case when it was before the district court. JTB and the liquidator sought dismissal of the suit against JTB in part because the liquidation had allegedly transformed JTB from a private entity into an “organ of a foreign state or political subdivision thereof” and JTB had therefore become an “agency or instrumentality” of Lebanon. Under the FSIA, agencies and instrumentalities of a foreign state generally enjoy the same immunity to which that state is entitled. The district court denied the motion to dismiss based on the Supreme Court’s 2003 decision in Dole Food Co. v. Patrickson.

In Dole Food, the defendants were companies that had once been indirectly owned by the Israeli government. The plaintiffs sued in state court in Hawaii, and the defendants removed the case to federal court under 28 U.S.C. § 1441(d). FSIA § 1603(b)(2) provides that an entity is an agency or instrumentality of a foreign state if it is “an organ of a foreign state or political subdivision thereof” or if “a majority of [its] shares or other ownership interest is owned by a foreign state or political subdivision thereof.”

The Dole Food defendants claimed immunity under the FSIA because a majority of their shares were indirectly owned by Israel at the time of the alleged tort. The Israeli government, however, no longer owned a majority of their shares (indirectly or otherwise) when the suit was filed. The Supreme Court rejected the defendants’ time-of-tort argument and held that instrumentality status under the FSIA must be determined at the time of filing.

The Court reasoned that the FSIA requires determining instrumentality status at the time of filing because § 1603(b)(2)’s plain text—“a majority of whose shares or other ownership interest is owned by a foreign state”—is in the present tense. It also relied upon the “longstanding principle that the Court’s jurisdiction depends upon the state of things at the time the action is brought.” The Court noted that the time-of-filing rule would have been dispositive in a federal diversity suit against a foreign state, and said it would be “anomalous” to interpret § 1441(d) differently. Thus, the Court held that “instrumentality status is determined at the time of the filing of the complaint.”

Based on this language, the district court in Bartlett held that JTB was not entitled to foreign sovereign immunity because it was a private entity when the suit was filed.

The Second Circuit’s Holding

Vacating the district court’s order, the Second Circuit held that immunity under the FSIA “may attach when a defendant becomes an instrumentality of a foreign sovereign after a suit is filed.”

The Second Circuit based its holding on four grounds. First, it noted that the structure of the FSIA shields foreign states from judgments and process. This shield, the Court reasoned, reflects the FSIA’s concern over subjecting foreign sovereigns to the “inconvenience of suit.” Second, the Second Circuit said that this reading aligns with the purposes of foreign sovereign immunity, which the Second Circuit identified as “some present protection” from inconvenience as a “gesture of comity,” which must always be mindful of “current political realities.”

Third, pre-FSIA foreign sovereign immunity decisions, especially the 1924 Supreme Court case Oliver American Trading Co. v. United States of Mexico, purportedly support the position that immunity can attach after suit is filed. Noting that the FSIA “codified the pre-existing common law,” the Second Circuit suggested that these cases inform a proper reading of how the FSIA’s immunity provision interacts with its jurisdiction provision. It then noted more recent decisions—both in and out of the FSIA context—in which different forms of foreign immunity were successfully invoked after suit was filed.

Finally, the Second Circuit addressed the relevance of Dole Food. Because the court identified the purpose of foreign sovereign immunity as offering protection from the inconvenience of suit, it reasoned that to give the FSIA’s use of the present tense “real significance” required allowing sovereign status to be recognized, and therefore immunity to be asserted, post-filing.

Why the Second Circuit’s Holding Is Wrong

The Second Circuit’s analysis is unconvincing. Its treatment of history, fundamental principles of jurisdiction, and the purposes of the FSIA are all questionable.

First, the Second Circuit’s reliance on history conflates the common law regime that predated the Tate Letter with the post-Tate Letter common law regime that the FSIA was meant to codify. As the Second Circuit notes, the United States adhered to the absolute theory of foreign sovereign immunity before 1952, when it adopted the restrictive theory of immunity. The FSIA, enacted in 1976, codified the restrictive theory. The Second Circuit relied heavily on Oliver American Trading Company, a case against Mexico in which the United States gave de facto recognition to the Mexican government during the litigation. The Court held Mexico immune. That case was decided in an era in which “immunity and jurisdiction did not necessarily rise and fall together,” in which absolute immunity was the rule, and it was based on the recognition of the government as a whole, not a change in instrumentality status. Although the FSIA is interpreted based on the common law at the time of its enactment, Oliver American Trading was decided a good fifty years earlier, and the common law has changed.

Second, the Second Circuit’s reliance on other post-filing immunity determinations is unconvincing. In one cited decision, diplomatic immunity attached post-filing because of a post-filing recognition of diplomatic status by the government. However, the individual in that case was already eligible for diplomatic status before the suit was filed. This is dissimilar from the situation in Bartlett, where the party asserting immunity did not attain the status necessary to assert immunity until after suit was filed.

The lone Supreme Court decision cited by the Second Circuit that appears to recognize a post-filing acquisition of immunity turned on the president’s power to suspend domestic law under particular circumstances. In that case, Iraq had been denied immunity under a now-repealed provision of the FSIA that stripped immunity from foreign states for certain acts of terrorism that occurred while the state was designated a state sponsor of terrorism. The Court held that immunity “kicked back in” when the president—pursuant to a specific statutory grant of authority—made that provision inapplicable to Iraq. Thus, that case did not involve a post-filing change in entitlement to immunity, but rather one where the government had previously expressly refused to recognize immunity that otherwise would have applied. In contrast, JTB had no entitlement to immunity, recognized or not, before suit was filed.

Next, the Second Circuit fails to thoroughly assess the relevance of the time-of-filing rule, despite the rule’s centrality in Dole Food and in the district court’s opinion, as well as the rule’s status as a fundamental principle of subject matter jurisdiction. The FSIA links immunity and subject-matter jurisdiction. As the Supreme Court affirmed in Dole Food, subject matter jurisdiction is, in turn, inextricably linked to the time-of-filing rule, including in the context of the FSIA. With the FSIA, Congress enacted a section that confers both personal and subject matter jurisdiction if an exception to immunity applies; indeed, the Court’s recent holding in Halkbank confirms that these provisions must be read together. The time-of-filing rule should not be severed from the FSIA.

This logic is supported by Dole Food’s holding. In Dole Food, the Supreme Court expressly refused to treat immunity under the FSIA like other “status-based” immunities (such as qualified immunity) for which the status of the actor at some time other than the filing of the suit was dispositive. As the Supreme Court noted, cases applying these status-based immunities were not decisions involving statutory interpretation. In other words, interpreting a statute granting subject matter jurisdiction should always involve consideration of the time-of-filing rule. Bartlett does involve statutory interpretation, and there is no evidence that Congress intended the FSIA to operate differently than other statutes that confer subject matter jurisdiction and that use the time-of-filing rule.

In short: under the FSIA, a decision in federal court about immunity is also a decision about subject matter jurisdiction—which is subject to the time-of-filing rule. Furthermore, permitting a defendant to assert immunity under the FSIA after suit was filed would require a court to assert a basis for subject matter jurisdiction that did not exist at the time of filing. Courts of appeal have held this kind of “switch” impermissible under the time-of-filing rule. Since removal by a foreign state and federal diversity jurisdiction over a foreign state are bound by the time-of-filing rule, subject matter jurisdiction under the FSIA should also be bound by that rule.

Finally, the Second Circuit disregards its admonition to the Bartlett plaintiffs, repeatedly reading opinions as statutes even while disavowing such a practice. The Second Circuit spends little time on the language of the FSIA itself and even less on the time-of-filing rule. Instead, it returns again and again to language from Supreme Court decisions that frame the purpose of foreign sovereign immunity as one of protecting foreign sovereigns from the “inconvenience of suit” “as a gesture of comity” and mindful of “current political realities.” While these may be the purposes that motivated Congress to enact the FSIA, none of this language is in the statute.

Perhaps what is most striking is how far the Second Circuit goes to interpret the FSIA’s plain text through principles of comity instead of principles of statutory interpretation. The Second Circuit characterizes the U.S.’s pre-1952 foreign sovereign immunity regime as one of “grace and comity” rooted in the common law instead of statute. It then recognizes that the FSIA was meant to standardize U.S. courts’ application of foreign sovereign immunity by enacting a comprehensive statutory framework. Yet, its interpretation of the FSIA prizes common law-style comity considerations over principles of statutory interpretation and subject matter jurisdiction. By giving short shrift to these basic considerations, the Second Circuit subjugates the FSIA to the comity principles that the statute represents, rather than interpreting those principles as modified and effectuated by the FSIA.

As the Second Circuit notes, the FSIA was meant to do away with the chaotic, ad hoc approach that characterized the years between the Tate Letter and the enactment of the FSIA. It does this by providing a comprehensive statutory basis for foreign sovereign immunity that obviates the need for resort to common law comity or deference to the executive branch to make immunity determinations. Permitting implicit exceptions to fundamental principles of subject matter jurisdiction would defeat that intent. Applying that reasoning in Bartlett means that the Second Circuit is wrong.

A Uniquely U.S. Foreign Sovereign Immunity Problem?

The Second Circuit did not invoke international law as a basis for its holding. But it did rely on the U.S. government’s amicus brief, which argued that interpreting the FSIA to provide immunity for entities that acquire agency or instrumentality status after the complaint is filed is consistent with customary international law. The possibility of an entity gaining agency or instrumentality status post-filing, however, appears to be a uniquely U.S. problem.

Countries that have adopted the restrictive approach to sovereign immunity take different approaches to the immunity of state agencies and instrumentalities. Some treat any entity that is separately incorporated as a “separate entity” that has immunity only when acting in the exercise of sovereign authority (e.g., the U.K., Singapore, Pakistan, and South Africa). The European Convention on State Immunity also adopts this approach. Other countries distinguish agencies or instrumentalities from departments or organs of the executive government but—unlike the FSIA—do not provide for a formal ownership or control requirement, instead allowing courts to assess whether “the entity is exercising governmental functions on behalf of the foreign state.” (e.g., Australia).

Canada’s definition is closest to the FSIA; it defines “agency of a foreign state” as an entity that is an organ of the foreign state but is separate from that state. However, this definition of “organ” does not turn on any ongoing relationship to the foreign state, but instead extends immunity to those acting “at the request of a foreign state in situations where that state would enjoy sovereign immunity”—in other words, to those acting in exercise of sovereign authority. Put simply: foreign legal systems emphasize acts over relationships.

The United States, on the other hand, determines agency or instrumentality status based solely on whether a foreign state is the entity’s majority owner or exercises sufficient control over the entity. Neither of these criteria is common in international practice. No other country has a majority ownership provision like the FSIA’s. And although no uniform test exists to determine whether an entity is an “organ” of a foreign state, U.S. courts have largely interpreted this prong as a question of the entity’s subordination to its respective foreign state, not whether it performs acts at the foreign state’s request.

Jurisdictions can adopt a rule tying agency or instrumentality determination to one of three points in time: (1) the time of the alleged act, (2) the time of filing, or (3) the time when an entity’s formal relationship to the foreign state changes. In international practice, the first approach prevails, adopting precisely the sort of rule that the Supreme Court rejected in Dole Food.

The marked difference between the FSIA and foreign legal systems highlights a divide among countries adopting the restrictive theory of foreign sovereign immunity. Foreign legal systems have replaced immunity based on status (what is in many countries called ratione personae­) with immunity based on the nature of the activity (what is in many countries called ratione materiae). The United Nations Convention on Jurisdictional Immunities of States and Their Property (UNCSI), which is not yet in force, reflects this shift. UNCSI article 2(1)(b)(iii) incorporates agencies or instrumentalities into the UNCSI’s definition of “State” “to the extent that [the agencies or instrumentalities] are entitled to perform and are actually performing acts in the exercise of sovereign authority of the State.” So, under the UNCSI, an agency or instrumentality’s status is determined by its authorization and conduct rather than merely its relationship to a state.

The bottom line is that there is no general and consistent practice of states granting immunity based on ownership or control alone, as the FSIA does. Without such practice, there can be no rule of customary international law requiring such immunity (even without considering opinio juris). Because the United States is not required by international law to extend any immunity based on ownership or degree of control, it is free to pick whatever point in time it wishes to determine agency or instrumentality status. Thus, denying immunity in Bartlett runs no risk of violating international law.


 Although the Bartlett case presents a novel FSIA question, the core of the issue is anything but novel: routine interpretation of a statute that confers subject matter jurisdiction. Subject matter jurisdiction, as the Court held in Dole Food, cannot be severed from the time-of-filing rule, and that rule should prohibit JTB from asserting immunity in Bartlett. By delving into murky assessments of what comity demands of U.S. courts when addressing claims of foreign sovereign immunity, the Second Circuit’s Bartlett holding is a missed opportunity to encourage predictable and uniform sovereign immunity determinations by anchoring FSIA analysis to established principles of subject matter jurisdiction and statutory interpretation.

If the Bartlett plaintiffs petition the Supreme Court for review, the Court should grant cert and reverse the Second Circuit’s holding.