Ninth Circuit Addresses Common Law Immunity from Criminal Prosecution
May 1, 2025
Two years ago, in Turkiye Halk Bankasi A.S. v. United States (Halkbank) (2023), the U.S. Supreme Court held that the Foreign Sovereign Immunities Act (FSIA) does not apply to criminal proceedings and remanded the defendant’s claim of common law immunity to the Second Circuit. On remand, the Second Circuit deferred to the executive branch’s determination that Halkbank was not immune from prosecution, but only because the court independently found that Halkbank was engaged in commercial activities and was, therefore, not entitled to common law immunity. Halkbank is expected to file a petition for Supreme Court review on Monday.
In the meantime, the Ninth Circuit has weighed in on the common law immunity issue. On Monday, April 28, 2025, that court held that four state-owned Chinese companies were not immune from prosecution for economic espionage because they did not perform governmental functions. At the end of its decision, the Ninth Circuit said that deference to the executive branch “reinforces our conclusion” that the defendants are not entitled to common law immunity. But the opinion leaves little doubt that the court reached its conclusion without deference to the executive.
A Case of Economic Espionage
In 2012, the U.S. Department of Justice charged four state-owned Chinese companies with economic espionage. The superseding indictment alleged that Pangang Group Company and three of its subsidiaries tried to steal trade secrets for the production of titanium dioxide, a white pigment used in paints, plastics, and paper.
The defendants moved to dismiss the indictment on its face, arguing that they were immune from prosecution under the FSIA as foreign state-owned companies. The district court rejected this claim, and the Ninth Circuit affirmed. On remand the defendants added a claim of immunity from prosecution under federal common law. The district court rejected this claim too, and the defendants appealed.
While the appeal was pending, the Supreme Court shifted the landscape in Halkbank, holding that the FSIA does not apply to criminal prosecutions but suggesting that criminal defendants might still claim immunity under federal common law.
The Ninth Circuit’s Decision
Writing for a unanimous panel, Judge Daniel P. Collins began by distinguishing two conditions that an entity must satisfy for common law immunity:
First, it must be the kind of entity that is eligible for any immunity at all—that is, it must fall within the domain of foreign sovereign immunity. Second, its immunity must extend to the conduct at issue in the suit—that is, the entity’s conduct must fall within the scope of the immunity conferred on such entities.
The court found that the Pangang companies were not entitled to claim any immunity at all, because they did not fall within the “domain” of foreign sovereign immunity, and so the court did not have to reach the second question concerning the “scope” of immunity. In this respect, the Ninth Circuit’s decision differs from the Second Circuit’s decision in Halkbank, which focused on whether the defendant’s commercial conduct fell within the scope of common law immunity.
Section 66(g)
To determine whether the Pangang companies were entitled to claim any immunity at all, Judge Collins looked to § 66(g) of the Restatement (Second) of Foreign Relations Law (1965), which provides that “[t]he immunity of a foreign state … extends to … a corporation created under its laws and exercising functions comparable to those of an agency of the state.” As the court explained, this rule is consistent with U.S. court decisions prior to 1952, under the then-prevailing absolute theory of foreign sovereign immunity. In 1952, the United States adopted the restrictive theory of foreign sovereign immunity, recognizing exceptions to the scope of foreign sovereign immunity (such as the commercial activity exception). In terms of the two conditions for common law immunity, the restrictive theory limited the scope of common law immunity but did not change its domain.
In 1976, Congress enacted the FSIA. This Act codified the restrictive theory but also expanded its domain, extending foreign sovereign immunity to foreign corporations that are directly majority-owned by a foreign government. But, as the Ninth Circuit emphasized, the FSIA did not change the immunity available at common law. The court found “no support for transposing the FSIA’s legislative expansion of the domain of foreign sovereign immunity into the common law.” Thus, the rule for when foreign corporations may claim common law immunity remained as it had been before 1976, which is to say it remained limited to foreign companies that exercise governmental functions.
Pangang Did Not Exercise Governmental Functions
In this case, the Ninth Circuit held, “the Pangang Companies have not made a prima facie showing that they exercise functions comparable to those of an agency of the [People’s Republic of China]” and “therefore are not the kinds of entities eligible for foreign sovereign immunity from criminal prosecution.” The indictment and other evidence in the record “paint[s] a portrait of an ordinary commercial enterprise engaged in the production of steel and non-ferrous metals.”
“The mere fact that a foreign state owns and controls a corporation,” the court explained, “is not sufficient to bring the corporation within the ambit of § 66(g).” Neither was the fact that this case involved espionage, because “[n]ot all acts of espionage are necessarily sovereign in nature.” Stealing trade secrets in this case may have advanced a Chinese government priority, but this was “not enough to transform that industrial espionage into the exercise of a function comparable to that of a state agency.” Because the defendants were not engaged in governmental functions, they did not fall within the “domain” of foreign sovereign immunity at all, making it unnecessary to decide whether an exception to immunity might apply to their conduct.
Deference to the Executive
The Ninth Circuit did not mention deference to the executive until the very end of its opinion. “Finally, to the extent that we had any residual doubt about the correctness of our conclusion,” Judge Collins wrote, “principles of deference to the political branches on matters touching on foreign relations firmly counsel against recognizing foreign sovereign immunity here.” That the Justice Department had already pursued this case for 13 years, he reasoned, “reflects the Executive Branch’s considered judgment that the companies do not qualify for immunity.” “The deference we accord under the common law to the Executive Branch’s sustained prosecution of this case,” Judge Collins continued, “only reinforces our conclusion that, under federal common law, the Pangang Companies are not entitled to immunity.”
Deemphasizing Deference
Comparing the circuit court decisions in Halkbank and Pangang, one is stuck by the different emphasis the decisions place on deference to the executive branch. In Halkbank, the Second Circuit led with deference to the executive. It was only after concluding that courts should defer to the executive that the court turned to consider whether the prosecution was consistent with the common law and ultimately reserved the question whether deference should be cabined if it derogated from the common law.
In Pangang, this order was reversed. The Ninth Circuit began by considering whether the defendants were entitled to claim common law immunity. Only after the court concluded that they were not, did the court turn to deference, finding that deference to the executive branch “reinforces our conclusion.” Interestingly, the order in which the two courts considered these issues parallels the order in which they were discussed in DOJ’s briefs, with the deference argument appearing first in its Halbank brief and second in its Pangang brief.
One should not infer, however, that the executive branch is softening on deference—in fact, DOJ filed its brief in Pangang before its brief in Halkbank. What may be changing instead is the federal courts’ receptiveness to arguments based on deference. As Ingrid Brunk and I argued in an amicus brief to the Supreme Court in Halkbank, the propositions that the executive branch gets to make the federal common law of immunity and that federal courts are bound by the executive’s determinations of immunity raise serious separation of powers concerns.
I have previously argued that deference to the executive branch should take a somewhat different form in common law immunity cases. Although federal courts should be the ones to make the federal common law in this area, they should give deference to the executive’s views on the content of that law. This is because the federal common law of foreign sovereign immunity is and ought to be based on customary international law. Because of the State Department’s expertise in customary international law, federal courts should give its views great weight.
Unfortunately, this form of deference has not been available so far in common law immunity cases because discussion of international law has been woefully absent from the U.S. briefs. This could easily change, however. Under customary international law, as I have written previously, foreign corporations are immune from criminal prosecution only when they are exercising governmental functions. That is precisely the line that both the Second and Ninth Circuits drew in their analyses of federal common law, albeit following somewhat different routes.
Conclusion
In my view, the Ninth Circuit in Pangang—like the Second Circuit in Halkbank—reached the correct result. The defendants in both cases were not immune from prosecution under federal common law because they were not exercising governmental functions.
My objection is that neither decision connects its holding to customary international law. Doing so would provide a firmer foundation not only for the holdings in these two cases but also for deference to the executive branch.