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October Term, 2013

June 16, 2014

Today the Supreme Court issued one decision, described below, of interest to the business community.

Foreign Sovereign Immunities Act—Post-Trial Discovery

Republic of Argentina v. NML Capital, Ltd., No. 12-842 (described in the January 13, 2014, Docket Report)

The Supreme Court held today in Republic of Argentina v. NML Capital, Ltd., No. 12-842, that the Foreign Sovereign Immunities Act does not prohibit postjudgment discovery of information concerning a foreign-sovereign judgment debtor’s extraterritorial assets. The decision marks a substantial expansion of postjudgment discovery available under the FSIA.

As relevant here, the Foreign Sovereign Immunities Act of 1976 provides for subject-matter jurisdiction to adjudicate claims against a foreign sovereign if one or more exceptions to sovereign immunity, including waiver of immunity to jurisdiction, exist. See 28 U.S.C. § 1605. The FSIA also authorizes execution of a judgment against the property of a foreign state in the United States if that property is used for a commercial activity in the United States. See 28 U.S.C. § 1610(a). Several federal courts had held that postjudgment discovery from a foreign sovereign is limited to identifying property that could be subject to execution under the FSIA. The Second Circuit, in conflict with these decisions, approved broad-based postjudgment discovery, including discovery relating to assets of a foreign government’s—in this case, Argentina’s—“agencies, instrumentalities, ministries, political subdivisions, representatives, State Controlled Entities …, and all other Persons acting or purporting to act for or on behalf of” the foreign government.

The Supreme Court affirmed in a 7-1 opinion by Justice Scalia (with Justice Ginsberg dissenting and Justice Sotomayor recused). The Court first noted that the rules governing discovery in postjudgment execution proceedings are generally quite permissive. The Court further noted that Argentina did not challenge the permissive postjudgment discovery rules, and instead focused solely on whether the discovery was in violation of sovereign immunity under the FSIA. The Court stressed that the “single, narrow question before us is whether the Foreign Sovereign Immunities Act specifies a different rule when the judgment debtor is a foreign state.” Slip op. at 5.

The Court determined that the FSIA did not specify a different postjudgment discovery rule for foreign-sovereign judgment debtors. The Court first examined the background of the FSIA, which was created by Congress to replace the prior system (of ad hoc determination of sovereign immunity by either the Executive or Judicial branches) with a comprehensive set of legal standards governing sovereign immunity. The Court then analyzed the two specific kinds of immunity conferred on foreign states. The first, that a foreign state is immune from jurisdiction of the courts of the United States absent certain exceptions, was not relevant to this case because Argentina had waived its immunity. The second, which the Court characterized as execution immunity, provides that property of a foreign sovereign is subject to attachment only when (1) it is used for a commercial activity in the United States and (2) an enumerated exception to sovereign immunity, such as waiver, applies. The Court concluded that, because neither of these exceptions restricts postjudgment discovery, the FSIA does not contain the plain statement necessary to preclude application of standard federal discovery rules.

The Court rejected the United States’ argument, as amicus curiae, that broad discovery would invade foreign sovereignty, undermine international comity, and threaten harm to United States foreign relations. The Court concluded that such arguments were best directed at Congress, which passed the FSIA and has the authority to amend it.

Justice Ginsberg argued in dissent that a more modest reading of the FSIA was appropriate, given that foreign countries generally adopt a much more limited approach to discovery. Justice Ginsberg proposed a reading that would limit discovery to property used in the United States or abroad in connection with commercial activities, a position that she argued was more in keeping with the international norm.

The decision is important to entities that do business with foreign governments because it will give them more tools for executing on judgments that they may obtain against those governments and, as a result, reduce the leverage those governments may hold over them in disputes that may arise. At the same time, the decision may dramatically increase the burden and expense to financial institutions that do business with foreign governments.

Any questions about the case should be directed to Evan Tager (+1 202 263 3240) in our Washington office.

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