Supreme Court Oral Argument in OBB Personenverkehr v. Sachs, a Foreign Sovereign Immunities Act Case

The Supreme Court heard argument yesterday in OBB Personenverkehr v. Sachs. The case was brought by Carol Sachs, a California woman seriously injured while boarding a train in Austria. She sued the railway, OBB Personenverkehr, which is owned by the Republic of Austria. Sachs brought suit in California where she purchased the ticket (a Eurorail pass) from the website of a Massachusetts ticket company. OBB moved to dismiss on the grounds that it is immune from suit under the Foreign Sovereign Immunities Act. The Supreme Court granted certiorari to consider two questions:

First, could the actions of the ticket company be attributed to OBB, and should the answer to this question come solely from the statutory language, or also from the common law principles of agency or the Courts decision in First Nat’l City Bank v. Banco para el Comercio Exterior de Cuba 462 U.S. 611 (1983)?

Second, was Sach’s claim “based upon” commercial activity in the United States within the meaning of the first prong of Section 1605(a)(2) of the Foreign Sovereign Immunities Act (FSIA)?

At oral argument, the Justices showed no interest in the first question. Almost all of the argument and all of the questions focused on the “based upon” issue. The Justices seemed strongly inclined to hold for OBB and reverse, but they proffered several potential reasons for doing so.

1. Saudi Arabia v. Nelson compels reversal.

The first potential basis for reversing is that the Court’s reasoning in Saudi Arabia v. Nelson means (or at least strongly suggests) that Sach’s action is not “based upon” the ticket sale. In Nelson, the plaintiff was recruited in the United States to work for a state-run Saudi Hospital. Once on the job he complained of safety violations and the hospital allegedly retaliated against him by calling the police who beat him up and eventually put him in jail. The Court held for the defendants, reasoning that the conduct in that case was “based” on sovereign conduct, not commercial conduct. Some language in Nelson could suggest that Sach’s claim is not based upon commercial activity in the U.S., but as Justices Ginsburg and Kennedy pointed out today, the contexts were different because in Nelson the Court was concerned with carefully policing the line between commercial and sovereign conduct. Not so in this case, where all agree that running a railroad company and selling tickets are commercial activity.

2. Applying Due Process analysis, the case against OBB should be dismissed.

At various points during the argument Justices Kagan, Scalia, Kennedy and Sotomayor all suggested that the Court might apply its standard due process analysis to interpret the “based” upon language in the FSIA. One advantage of this approach is that it would tend to treat foreign sovereigns like private corporations. But there are several problems.

It is not at all clear that the due process analysis should apply to the “based upon” language in the statute. As the Solicitor General pointed out today, the FSIA does not use the precise language of due process, and Section 1605 is not just about personal jurisdiction, it also confers subject matter jurisdiction on the federal courts and it is also designed not draw the U.S. into potential conflicts with other countries. Justice Kagan noted at argument, however, that the statute’s language is very similar to the familiar “arising out of” or “referring to” which we see in the due process context.

The Justices did not mention an important background issue: the Due Process Clause of the Fifth Amendment may not apply to foreign sovereigns at all, as several lower courts have held. The statute may still apply the due process analysis (and perhaps agencies and instrumentalities do have due process rights even if foreign sovereigns themselves do not) but at times (page 17 of the transcript, Justice Kennedy, for example) some language seems to suggest that Due Process Clause would apply even if there is no statute. Perhaps – but this is an unsettled question. See Republic of Argentina v. Weltover, 504 U.S. 607 (1992).

The due process analysis is not a good statutory fit for an important reason not addressed in the arguments today (and also not addressed in the briefing): the third prong of Section 1605(a)(2) requires a “direct effect” in the United States. When interpreting this language in Weltover the Court did not rely on due process analysis or concepts such as foreseeability and the substantiality of the effect. Applying due process analysis to one prong of the commercial activity exception but not the others is a poor approach to the statute as a whole.

Finally, the due process analysis itself is not entirely clear. In other words, would there be jurisdiction over OBB if it were a private company and it raised a due process defense? The parties disagreed about the answer to this question and it is certainly not an issue the Court has addressed nor has it been carefully briefed in this case. The Solicitor Generally correctly argued that a decision on this issue might have implications for many cases between private parties. The Court should direct new briefing and have re-argument on that question if it wants to address it.

3. The “gravamen” of the Complaint is Austria, and therefore the action is not “based upon” commercial activity in the U.S.

Although the U.S. government opposed the grant of certiorari, it ultimately filed an amicus brief supporting reversal on the second issue -- Sach’s claim was not based upon commercial activity in the United States. The government argued that the analysis should be controlled by a “gravamen” test, at least in tort cases. A hypothetical from Chief Justice Roberts at the beginning of the case (and revived by Justice Scalia later and presented by Respondent’s brief at page 44) illustrated one weakness with this approach: what if an airline employee negligently sets the landing gear of an airplane as it is departing from New York. Upon landing in Vienna the landing gear does not function correctly and someone is injured. Where is the “gravamen” of the suit? Counsel for OBB seemed to say that the gravamen could be in more than one place, an answer rejected by Justice Scalia later in the argument. If the “gravamen” test results in more than one place, the test seems indeterminate and unhelpful at least as applied to some facts. Having a different test for torts and contract cases is also not optimal and does not lead to the clear application of this jurisdictional statute.

4. Narrow “ticket sales only” option.

The Justices could try to draft a narrowly reasoned opinion which says only that sale of a ticket was not enough to satisfy “based upon” under the circumstances of this case. This option draws from Justice Kagan’s hypothetical during the argument: the Vienna Opera Company sells a ticket to someone in the U.S. who trips on the stairs at the Opera and sues for negligence. Counsel for Sachs said no specific jurisdiction in that case, but that Sachs is different because the duty of safe passage was created by the U.S. ticket sale. It is unclear why that argument would not also apply to the hypothetical Vienna Opera Company which arguably had a duty of care to opera-goers based on their purchase of a ticket. So the Court could reason that claims alleging negligence abroad are not “based upon” ticket sales in the U.S., even if the ticket sale gives rise to the duty of care. This reasoning might be coupled with a concern about the sovereign interests of other countries such as Austria in negligence-plus-ticket-sales cases. This concern was raised by amici The Kingdom of Netherlands and the Swiss Confederation.

There are difficulties with this approach, too. Sachs also brought an implied warranty claim based on the ticket purchase, as Justice Kagan noted. This is similar to an issue raised in Nelson: the plaintiffs brought a “failure to warn” claim in addition to their tort claims. The Court reasoned in Nelson that plaintiffs should not be able to convert any intentional tort into a failure to warn case. But as described above, the Court in Nelson was concerned in part with policing the sovereign/commercial conduct line, which is not an issue in this case. Nevertheless, concerns about “artful pleading” might lead one or more Justices to embrace the gravamen approach. On the other hand, weak implied warranty claims (and other similar ones) could be evaluated and dismissed under Rule 12(b)(6). And if the plaintiff’s implied warranty claim is strong enough to survive 12(b)(6) scrutiny, the case starts to look more like a breach of contract claim, which Justice Kagan suggested (through a question to OBB’s counsel) might be brought in the U.S., where the ticket was purchased.