Thursday, October 6, 2016

Venezuela v. Helmerich: Protecting Foreign Sovereigns At What Cost? (Guest Post by Simona Grossi)

Simona Grossi presents the following guest post on one of the important cases on the Supreme Court’s docket this Term:

[Update: Simona has also posted on SSRN a more detailed essay analyzing the case.] 

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On Wednesday, November 2, the Supreme Court will hear oral arguments in Venezuela v. Helmerich & Payne International, to decide whether to make it harder for the plaintiffs to plead jurisdiction over a foreign state under the Foreign Sovereign Immunities Act (“FSIA”). FSIA provides a framework for determining when a foreign state may be subject to the jurisdiction of the federal or state courts of the United States, and when it shall be immune from such jurisdiction. In particular, and specifically at issue in Helmerich, is the expropriation exception under §1605(a)(3), which strips the foreign sovereign of immunity when, among other things, the foreign sovereign has engaged in a taking of property in violation of international law.

The plaintiffs in the case are Helmerich & Payne International Drilling Co. (H&P-IDC), an Oklahoma-based corporation, and one of its subsidiary, Helmerich & Payne de Venezuela (H&P-V), incorporated under Venezuela law. They sued the Bolivarian Republic of Venezuela and two state-owned corporations, Petróleos de Venezuela, S.A. (PDVSA) and PDVSA Petróleo, (collectively, “PDVSA”), before the United States District Court for the District of Columbia claiming breach of contract and a taking of property in violation of international law. They had entered into a series of contracts for oil-drilling with PDVSA, and defendants breached those contracts by failing to make timely payments for the services rendered, and by unlawfully expropriating plainitffs’ rigs. Venezuela and PDVSA moved to dismiss the complaint on the grounds that neither FSIA exception applied and that the act-of-state doctrine—under which American courts “will not question the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders”—bars the suit altogether. The district court held that the plaintiffs had standing to assert a taking in violation of international law and that the claim was not barred by the act-of-state doctrine.

On appeal, Venezuela argued that the expropriation exception in the FSIA—denying foreign sovereign immunity “in any case . . . in which rights in property taken in violation of international law are in issue,” 28 U.S.C. § 1605(a)(3)—did not apply because H&P-V was a Venezuelan national and, as such, under United States v. Belmont, 301 U.S. 324, 332 (1937), it could not claim a taking in violation of international law. Relying on Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845, 861 (2d Cir. 1962), and the Restatement (Third) of Foreign Relations Law, H&P-V rebutted that the defendants had unreasonably discriminated against it on the basis of its sole shareholder’s foreign nationality, thus implicating a discrimination exception to the Belmont rule. The D.C. Circuit found that H&P-V had satisfied the Circuit’s standard for surviving a motion to dismiss in a FSIA case— this standard allows a jurisdictional dismissal only if the federal claim is wholly insubstantial and frivolous—and held the taking exception applicable. Hence, Venezuela would not be immune from the jurisdiction of the court.

Venezuela petitioned the Supreme Court for review arguing that plaintiffs had failed to plead facts sufficient to support a claim of discriminatory taking. The question before the Supreme Court is whether the pleading standard for alleging that a case falls within the FSIA's expropriation exception is more demanding than the standard for pleading jurisdiction under the federal-question statute. Petitioners argue that for this case to fall within the jurisdiction of the court, plaintiffs must show “an actual violation of customary international law” and plead facts sufficient to “establish the existence of all of the elements set out in the relevant statutory exception.” (Brief for Petitioners at 14-15). Essentially, Venezuela is claiming that the plaintiffs should prove their case to have access to the jurisdiction of the court. Surprisingly, or perhaps not much so, Venezuela’s demand for this high jurisdictional threshold is fully endorsed by the United States, that has filed an amicus brief in support, “to ensure that the foreign state actually receives the protections of immunity if no exception applies, to preserve the dignity of the foreign state and comity between nations, and to safeguard the interests of the United States when it is sued in foreign courts.” (U.S. Amicus Brief, at 8)

Regardless of whether a high threshold pleading requirement might seem in line with the restrictive theory of sovereign immunity and the presumption against the exercise of jurisdiction over foreign sovereigns that the FSIA codifies, FSIA concerns access to federal courts, it governs the types of action in which foreign sovereigns may be sued in U.S. federal and state courts, and it codifies the standards governing foreign sovereign immunity as an aspect of substantive federal law. A FSIA claim concerns the determination of the validity, construction, or effect of federal law, and its success depends on such determination. Hence, that claim gives rise to a true controversy on federal law which, as such, deserves a federal forum.

The United States’ amicus brief invites a return to the law of foreign sovereign immunity as it stood in the early nineteenth century, that is, virtually to a status of absolute immunity for foreign sovereigns. A denial of jurisdiction under FSIA would also deny access to state courts and, most likely, access to justice to plaintiffs who won’t have recourse in the courts of the defendant state. The argument furthered by Petitioners and the United States presents a classic example of arguing from a conception—sovereign immunity—to an abstract but controlling proposition of law. This formalistic approach prevents the creation and development of federal substantive law and, ultimately, the enforcement of substantive rights. A more realistic approach, one that examines the facts, is put to the side in the interest of the conception. This type of legal analysis is inconsistent with the dispute resolution mission of federal courts in a democratic system. The proper and constitutionally legitimate jurisdictional standard here would demand a realistic appraisal of the claim, and assess whether the claim’s success truly depends on the construction, validity, or effect of federal law. A higher standard would also disregard the intent of Congress that would have demanded a higher jurisdictional threshold in FSIA if it had felt such necessity.

Venezuela v. Helmerich offers the Supreme Court an opportunity to resist the trend of frontloading the merits analysis to the outset of the litigation, making procedure hyper-technical, and hyper-formalistic, essentially frustrating the mission of procedure and courts as means for the creation and enforcement of individual claims of right. By elevating form over substance, modern procedure often prevents the development of substantive law, thus silently eroding an essential aspect of our democracy. It is hoped that the Supreme Court will resist that trend in a field, human rights violations, especially in need of courts’ intervention.


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