PGA v. LIV: Golf, Discovery, Immunity and PIF — The Saudi Arabian Sovereign Wealth Fund
March 9, 2023
Just as the competition between PGA Tour and LIV Golf has divided the golf world, so too may the immunity issues raised by the litigation divide legal experts. Sadly, this post is pretty weak in terms of golf puns – par for the course in legal writing about immunities – but it does address interesting issues of foreign official immunity, state-owned enterprises, and more.
The venerable PGA Tour has a rival: LIV Golf, a new professional golf tour, financed by the sovereign wealth fund of Saudi Arabia, that has signed up some of the sport’s biggest stars by offering them extraordinarily lucrative contracts. Professional golfers who played in LIV Golf events were suspended from playing on the PGA Tour. These suspensions led some individual golfers (and eventually LIV itself) to sue the PGA for anticompetitive conduct in August of 2022. A messy legal battle has ensued.
In one respect the case is unfolding like many others: discovery is critically important and may drive the parties to settle, in part because the discovery could have consequences far beyond this case. But the legal issues involved in this discovery dispute are unusual. PGA has counterclaimed against LIV, alleging that LIV unlawfully interfered with its business relationships. But PGA also sought discovery from some important entities that were not initially part of the litigation or the counterclaim – namely the Saudi Public Investment Fund (PIF), which allegedly owns 93% of LIV, and PIF’s President, Yasi Al-Rymayyan, who is also a minister in the Saudi government. PIF provides the financial backing for LIV and Al-Rymayyan allegedly helped to recruit PGA golfers. The Chairman of PIF is Saudi Crown Prince Mohammed bin Salman.
In a February 9 opinion and order (made public later in February), Magistrate Judge Susan van Keulen (Central District of California) compelled PIF and Al-Rymayyan to comply with subpoenas for documents and deposition testimony – rejecting arguments that they were entitled, respectively, to foreign sovereign and foreign official immunity. This post discusses that order and opinion. The legal issues have changed some since it was issued because PIF and Al-Rymayyan have subsequently been added to the lawsuit. But the February 9 opinion nonetheless raises issues with enduring significance for this case and others.
Before turning to the immunity issues, however, it is worth noting that PIF and Al-Rymayyan have reasons to worry that discovery in this case will negatively affect their other sports-related enterprises that have nothing to do with golf. Indeed, the legal and factual arguments that they advanced to resist discovery in the litigation have already created problems for them in the United Kingdom.
PIF owns more than 80% of English soccer club Newcastle United, an acquisition that apparently required PIF to make legally binding representations that Newcastle would not be controlled by the Saudi state. When the Newcastle deal concluded in 2021, Premier League chief executive Richard Masters represented that if Saudi Arabia controlled Newcastle “we can remove the consortium as owners.” That acquisition has come under new scrutiny because in the PGA discovery dispute, PIF has represented that it is part of the Saudi state. How much damage has already been done to PIF’s business interests in the UK – and how much damage could be done if discovery goes forward – are difficult to assess.
Foreign Sovereign Immunity
That brings us to the immunity issues. The parties agree that the FSIA applies to the discovery requests against PIF because PIF qualifies as a “foreign state” under the statute. But the FSIA does not apply to individual defendants such as Al-Rymayyan – his immunity is governed by federal common law.
Under the FSIA, foreign states are immune from the jurisdiction of courts in the United States unless an exception to immunity applies. Judge van Keulen reasoned that PIF was not entitled to immunity from the discovery requests because the FSIA’s commercial activity exception (28 U.S.C. § 1605(a)(2)) applies. The judge based her holding on the third clause of the exception which provides that there is no immunity over a foreign state in a case in which the action “is based upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” Discovery was appropriate under this exception, she reasoned, because PIF “played an essential role in the founding, financing, oversight, and operations of LIV” and LIV’s hosting of golf tournaments was commercial. The details of PIFs oversight and operation of LIF are redacted, but the judge apparently focused (correctly) on the actions of PIF itself, not just on PIF’s financing or other support for LIV’s conduct.
The exception’s “based upon” requirement is interesting here because it is not entirely clear what should be considered the “action.” The court reasoned that the counterclaim is about LIV’s allegedly tortious conduct in interfering with the PGA’s relationship with the players and had signed on to its tournaments, and that conduct is commercial. Unlike some other cases involving immunity and discovery, PIF was not a party to the litigation when the discovery order was issued. PIF was asserting immunity from the subpoena, and it might be that the action “against” PIF should technically have been understood as just the subpoena, not the broader counterclaim or the claims in the original complaint. That distinction may not have mattered given the facts alleged, because the information sought in the subpoena might not have been materially different than the allegation in the counterclaim. And the distinction is now likely irrelevant because the district court has ordered that PIF and Al-Rymayyan can be added as defendants in PIF’s claim against LIV. But as with the other aspects of the case, keeping PIF and LIV separate is important.
The magistrate judge’s analysis of the “direct effect” requirement in the discovery ruling is difficult to follow because the opinion is redacted in key places. The non-redacted section says that LIV used “unlimited resources from the Saudi government” to induce players to break their contracts with PGA and sign on with LIV. The allegation that PIF provided resources to LIV in Saudi Arabia – even with the intention that LIV would use those resources to engage in tortious conduct in the United States – is likely not enough to satisfy the “direct effect” requirement because the commission of the tort depends upon the actions of the legally distinct intermediary, LIV. As the judge correctly reasoned, “direct effect” under the FSIA means an effect without an intervening action – here that intervening action is supplied by LIV.
The judge also reasoned that the exception for waiver would also apply if discovery showed that PIF authorized LIV to sue the PGA. The discussion of waiver is also heavily redacted, but the magistrate judge apparently reasoned that by authorizing LIV to sue the PGA, PIF waived any immunity defenses with respect to compulsory counterclaims against LIV, as the statute provides in 28 U.S.C § 1697. But PIF and LIV are separate juridical entities and this reasoning (as best I can tell) would depend upon setting aside their separate corporate status, which courts hesitate to do under the Supreme Court’s reasoning in Bancec, and which the judge did not purport do in this case.
Foreign Official Immunity
The magistrate judge’s most important holding – from the perspective of the law of immunity – was that foreign official immunity has an exception for commercial activity. The FSIA provides an exception to immunity for commercial activity, as discussed above, but courts have yet to decide whether the common law immunity due to officials who act on behalf of states has a comparable exception. That is the issue with respect to the deposition of Al-Rymayyan. The judge concluded that he would otherwise have been entitled to foreign official immunity but for the commercial activity exception.
Zach Clopton has recently suggested (and I have also argued) that courts may want to look to the FSIA as they fashion common law of immunity in various contexts, in part to ensure that the statute and the common law do not produce inconsistent outcomes. In this case, as I understand it, the factual basis for applying the commercial activity exception to PIF is the same as the factual basis for applying the exception to Al-Rymayyan. It is unclear as a policy matter that the individual should be protected by immunity if the state enterprise on whose behalf the individual has acted is not immune under the statute. One might argue, as the U.S. government has, that individual officials should be immune (even if the foreign state is not) because they should not be held liable for the conduct of the foreign state. But that argument seems to conflate immunity and substantive liability. If the individual cannot be held liable, the case can be dismissed under FRCP 12(b)(6). Moreover, some cases resolved under federal common law before the enactment of the FSIA suggest that foreign official immunity does not apply to commercial activity, including Cole v. Heidtman in which the State Department recommended denial of immunity. The issue remains open.
Finally, the court included an analysis of personal jurisdiction and whether the subpoenas against Al-Rymayyan and PIF satisfied the minimum-contacts test. Even if the FSIA and/or the common law provide that there is no immunity, the exercise of jurisdiction must comport with any applicable constitutional limitations. Lower courts have held that Fifth Amendment due process requires that corporate and individual defendants have “minimum contacts” with the forum (absent general jurisdiction or consent). In this case, the court held that the relevant forum is the United States as a whole because the case involves the violation of a federal statute.
A minimum-contacts analysis may not be necessary at all, however, because lower courts have held that foreign states are not “persons” entitled to due process protection. Pursuant to this reasoning, if PIF and/or Al-Rymayyan are considered to be the foreign state itself (pursuant to an alter ego, analysis, for example), then they lack due process rights. I disagree with that reasoning and argue that foreign states have due process rights, just as foreign corporations do. But if one accepts that foreign states lack due process rights, it becomes important to distinguish – as a constitutional matter – between foreign state-owned corporations (without constitutional rights) and states themselves (with constitutional rights). Lower courts have applied Bancec to draw that distinction, which may not be correct, because Bancec is a federal common law test based on international law and domestic corporate law with no constitutional analysis at all.
In this case, the close relationship between PIF and Saudi Arabia itself suggests that if Saudi Arabia lacks constitutional rights, perhaps PIF and even Al-Rymayyan also lack constitutional rights. This, too, is an unsettled area of the law.
For transnational litigation enthusiasts, LIV v. PGA is a stroke of luck, and one to watch going forward.