The Foreign Sovereign Immunities Act and its lesser-known sibling, the International Organizations Immunities Act, enacted in 1945, codify the immunities afforded to foreign states and certain international organizations in U.S. courts. Sovereign and international organization immunity stand at the nexus of international affairs, policy, and the law. This program will concentrate on developments in this dynamic area of the law, particularly in light of the recent Supreme Court case, JAM v. IFC. The panel features prominent legal practitioners who have litigated these issues and served as directors of international organizations.
- Rick Herz, Senior Litigation Attorney, EarthRights International
- Eliot Pedrosa, Partner, Jones Day
- Moderator: Harout Samra, Counsel, DLA Piper
As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
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Guy DeSanctis: Welcome to The Federalist Society’s webinar call. Today, February 10, we discuss “Foreign, Sovereign, and International Organization Immunity in U.S. Courts: Recent Developments and the Way Forward.” My name is Guy DeSanctis, and I’m Assistant Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today’s call.
Today, we are fortunate to have with us our moderator, Harout Samra, Counsel of DLA Piper. Throughout the panel, if you have any questions, please submit them through the question-and-answer feature or the chat so that our speakers will have access to them for when we get to that portion of the webinar. With that, thank you for being with us today. Harout, the floor is yours.
Harout Samra: Thank you very much, Guy. And thank you to The Federalist Society as well as to the International & National Security Practice Group for sponsoring today’s event. As Guy mentioned a moment ago, the title of today’s program is “Foreign, Sovereign, and International Organization Immunity in U.S. Courts.” And the real purpose of today’s program is to give everyone a sense of recent developments in this area, which have been the subject of Supreme Court precedents recently, but also to try to anticipate where we’re going in this area.
As many of you know, the Foreign Sovereign Immunity’s Act and the International Organizations Immunities Act, which was enacted in 1945, codified the immunities afforded to foreign states in certain specified or enumerated international organizations in the U.S. Courts. Sovereign and international organization unity stands really at the nexus of international affairs, policy, and the law—topics I think we’re going to be discussing over the course of the day as we kind of work through this subject.
Today, we’ll concentrate on recent developments, as I said, in this dynamic area. It’s changing, and it’s evolving. And I think there’s some exciting developments that we’re going to be discussing over the course of the hour, but particularly in light of the recent Supreme Court case, Jam v. IFC, which is a pending case and one of whose litigants we have with us today to discuss the program. So I’ll introduce our two speakers, who are really, I think, perfectly suited for this subject.
The first is Rick Herz. Rick directs EarthRights International’s work on cases against multinational corporations and international organizations for international human rights and environmental abuses in federal and state courts. He’s been litigating these issues for over 25 years and has filed amicus briefs in the U.S. Supreme Court and various U.S. circuit and district courts on behalf of NGOs, law professors, and others in important human rights cases. He advises human rights and environmental activists and lawyers on international law and is co-counsel, as I mentioned, for the plaintiffs in Jam v. IFC and Doe v. IFC.
Eliot Pedrosa is a partner with the law firm Jones Day. He’s a first chair litigator and a trial lawyer with over 20 years of experience representing businesses in complex and challenging litigation involving frequently international disputes as well as other disputes including financial securities and products liability. He recently completed a term as the Senate-confirmed Executive Director – rather, Director of the Inter-American Development Bank, which is, of course, the largest source of development finance for Latin America and the Caribbean.
So with that, I’d like to ask Eliot -- Eliot, if you can, maybe give us a little bit of the framework. Let’s discuss the FSIA, the organizational -- International Organizations Immunities Act and some of the other sources of law in this area.
Eliot Pedrosa: Happy to, Harout. Thanks for the invitation, and thanks to Guy and to The Federalist Society and to the practice group for putting together this program. You sort of laid down the tablecloth; let me sort of lay out the place settings a little bit so that we sort of understand where we are. And to do that, I want to take us back to 1944. World War II is still raging, but the end is in sight. And the U.S. and its allies are starting to eye what the post-war world is going to look like. They’re reflecting on the utter failure of the League of Nations to prevent a second global outbreak of war within a 30-year stretch, and they’re trying to craft the architecture of an international system that can do a better job of avoiding massive global conflicts, like World War I and World War II.
In the U.S. and the U.K., some policymakers are also very nervously eyeing Stalin and the Soviet Union and the threat from the international spread of communism. So in 1944, representatives from 44 countries get together in Bretton Woods, New Hampshire, to iron out a framework for two international financial institutions. Those would later become the IMF and the World Bank. The IMF would help stabilize the international monetary system. The World Bank would promote development by making loans to help with reconstruction after the war and to help poorer countries develop. Then, a year later, 45 countries signed the UN charter, and then there’s just an explosion of an international alphabet soup of organizations.
Now, at this time, the U.S. is an emerging superpower, really the only emerging superpower, because the Soviet Union is still pretty far behind. The U.S. has proven twice that it has an economic and industrial capacity that, for all intents and purposes, is limitless. And unlike the rest of the world, the U.S.’s infrastructure is largely untouched by the war. So at the end of World War I, President Wilson had been the chief proponent of the League of Nations, Senate never ratified it, and that’s one of the big reasons that it became utterly useless. And so, their recognition both inside the United States and around the world that, if the U.S. is not going to be an important player in any international organizations that are created in the aftermath of World War II, they’re sort of going to be doomed to the same fate. So everyone wants the U.S. to be heavily involved. And one of the reasons that they want to do that is by setting the headquarters of a number of these organizations, including the Bretton Woods organizations, including the United Nations, in the United States.
So in 1945, anticipating this, Congress enacts the International Organizations Immunities Act, which creates a legal framework for the U.S. to recognize international organizations so that it can be a host and define their privileges and immunities from local law. And with respect to lawsuits and legal process, what the act says is that international organizations will have “the same immunities from suit in every form of judicial process as is enjoyed by foreign governments.” Now, in 1945, there is no act of Congress that defines what the immunities enjoyed by foreign sovereigns are. Instead, courts look to the State Department basically to decide as a matter of policy, not law, what immunity is in any given case. And in 1945, the State Department’s view is consistent with what’s known as the classical theory of foreign sovereign immunity, which, for all intents and purposes, is essentially absolute immunity from suit for foreign sovereigns. That’s 1945 when the International Organizations Immunities Act is passed.
In 1952, it’s President Truman’s last year in office, and the State Department decides to reverse its position and adopt what’s known as the restrictive theory of sovereign immunity, which basically divides sovereign acts into two categories: truly sovereign acts, which are things that governments do, and then commercial acts, which are defined as things that commercial actors can also do. And the State Department’s restrictive theory is that foreign sovereigns are immune from suit for sovereign acts but not for commercial acts. And they put out a letter that explains that the reasoning behind this shift is that foreign governments are starting to participate as commercial actors issuing debt on public markets and engaging in a series of commercial activities, which really requires that private counterparties to contracts have an ability to enforce the rights and obligations that are created by contract. So that’s 1952.
It takes Congress a couple of decades, but they actually get involved in 1976. Post-Watergate, they’re passing act after act, really stripping the executive branch and the president of power. And one of the things that they passed is the Foreign Sovereign Immunities Act, which probably everyone on this call is familiar with, which, as you mentioned, Harout, codifies the immunities and codifies the restrictive theory of sovereign immunity. So it creates sort of a presumption of immunity for foreign sovereigns, but then it enumerates a series of exceptions, I would argue the most important of which is the commercial activity exception, which I think we’ll talk about in the context of the Jam case.
So it’s 1976, and now you have these two statutes. You have the FSIA, which defines now by its statute what are the immunities of foreign sovereigns in the United States. And you have the 1945 International Organization Immunities Act, which now, together, create at least an arguable ambiguity because the IOIA says that the international organizations have the same immunity “as is enjoyed by foreign sovereigns.” Well, does that mean as was enjoyed by foreign sovereigns in 1945 when the International Organizations Immunities Act was passed? Or does that mean that the law of international organization immunity evolves in parallel with changes in the law of foreign sovereign immunity? And does that mean that in 1952, when the State Department adopted the restrictive theory, that applied to international organizations? And then in 1976, when Congress adopts the FSIA, does that now apply to international organizations?
And that was the question really presented to the U.S. Supreme Court, and before that, the DC Circuit and the DC District in the Jam case, which both Rick and I will talk a little bit more about later. Just before we get to that, there’s a third layer that is possibly equally important—in some cases, really the trump card. And that is that each of the international organizations exists by charter, and those charters are treaties. And so, in the U.S., provided that the charter was signed by the president and ratified by two-thirds of the Senate, the charter itself has the force of federal law.
And every international organization charter that I’ve ever seen has a section on privileges and immunities. Some of them are sort of general and don’t really define them all that well. Others of them are very specific and very broad. Some of them are self-executing; some of them, maybe not. And so, it’s really an organization-by-organization analysis. But, for example, the Jam case discusses how broad the IMF’s charter immunity is. The IMF has what I think the Supreme Court characterized—and I would agree—is an absolute immunity theory incorporated into its charter in language that certainly appears to be self-executing. And so, to the extent that we have a debate or that courts have a debate about what the International Organizations Immunities Act might mean is largely not all that relevant for the IMF because the IMF has its charter, which has its own very broad statement of immunity. So with that, I think the table’s a little bit set. And I’ll hand it back to you, Harout.
Harout Samra: Yeah. We’re ready to jump in for the meal now. And so, Rick, I really want to turn it over to you. We’ve gotten this really robust overview of this statutory dynamics and some of the contexts that led to it. Can you tell us a little bit—before we get to Jam v. IFC, which Eliot sort of previewed a little bit—how has this developed in the 70 years or so of cases and history that have ensued since the end of the second world war?
Richard Herz: Sure. But first, thank you to The Federalist Society for inviting me here today. I really appreciate it. You know, Eliot’s really laid out, I think, the structure, and I’ll just be putting a little bit -- to extend his metaphor, a little bit of meat on the bone of what he said. So there are two ways to sue an international organization, either through their waiver provisions in their own charters or through statute and statutory waivers of immunity or exceptions to immunity.
The first, as Eliot said, is the IOIA, which entitles the IFC only to the same immunity from suit as is enjoyed by foreign governments. Now, most of the -- let me just back up a quick second. Almost all of the jurisprudence on both of these issues comes from the DC Circuit, and that’s because DC is where these organizations, for the most part, are headquartered. So the leading cases are off in the DC Circuit. And the first one I’d just like to mention is Atkinson, where the DC Circuit said that the phrase in the IOIA “as is enjoyed” means that international organizations get the same immunity foreign governments get in 1945 when the IOIA was passed, not the immunity that foreign governments get today. And then they went further and said that when the IOIA was passed, foreign sovereign immunity was automatically absolute.
Now as suggested, that raises two questions. Do they really get -- should they really get the immunity of 1945, and what was the immunity in 1945? So the DC Circuit had applied this rule of absolute immunity a number of times. And then we got -- we filed our case in Jam, which was a case against the IFC for its involvement in a coal-fired power plant in India that devastated the livelihoods of local farmers and fishermen. And we said, “Look, both of Atkinson’s conclusions are wrong.”
First, as enjoyed -- the term, “as enjoyed,” in the IOA has to refer to immunity today, not immunity in 1945. But even if you were going to say that you looked to 1945, immunity wasn’t actually absolute. It was whatever the State Department said. Now, to be sure, they usually said immunity is absolute, but not always. And if you’re going to apply a rule of immunity is whatever the State Department says, you wouldn't look to what the State Department said about immunity in 1945 because the whole point of deferring to an immunity rule is to get the state -- deferring to the State Department is to get the State Department’s rule today -- or policy today. So under either of those approaches, you’re going to get to the Foreign Sovereign Immunities Act because that’s what the State Department has said should apply today. Now, this case went to the Supreme Court, and the Supreme Court looked, as a pure textual matter, and said “as is enjoyed” looks to immunity today. And therefore, the IOIA essentially incorporates the Foreign Sovereign Immunities Act.
The second way to sue an international organization is through its waiver provisions. Now, the waiver provision of some organizations—in particular, the IFC and other entities in the World Bank Group—is very broad. It says, “Actions may be brought against the corporation.” The first time the DC Circuit looked at this about 50 years ago, they said -- they just read the plain language and said, “That means you can be sued.” And that was in a case called Lutcher. Subsequently, in a case called Mendaro, the DC Circuit created a new test and said, “Well, there has to be a corresponding benefit. We don’t think” -- what the DC Circuit said, “We don’t think they really meant the language to be as broad as they wrote it. And that they wouldn't have waived immunity, we think, unless they got a benefit for waiving immunity. And therefore, international organizations are immune unless they can show the organization would benefit from the type of suit at issue.”
The DC Circuit, like most circuits, or perhaps all circuits, is not supposed to -- one panel was not supposed to rewrite the jurisprudence of another panel, but they did. And Mendaro has been the rule that has been followed consistently by the DC Circuit ever since, including in the Jam case. So I think that kind of brings us up to speed on where the state of the law is now, at least in general terms. And we’ll talk in a bit about where these issues play out going forward. But I think now I’ll turn back over to --
Harout Samra: Yeah, no. Thank you, Rick, for that overview. And so, Eliot, I wanted to turn back to you. And having had the perspective of working with one of the institutions as the U.S. Executive Director to the IDB, I know one of the things that’s relevant here as part of this continued table setting is the structure of many of these institutions. And you touched on this earlier. Can you kind of elaborate on that a little bit before we jump into the Jam case?
Eliot Pedrosa: Sure. So as you mentioned, I did work as Executive Director at the IDB. The IDB, the Inter-American Development Bank, was founded in 1960 and really modeled after the world bank but intended to be regional in character. And it was the first regional bank that was established. There were, thereafter, a number of other regional banks established. The United States is a member of four different regional banks—the African Development Bank, Asian, the European Bank for Reconstruction and Development, and the IDB. But there are probably a dozen others of which the U.S. is not a member.
And the five that the U.S. is a member of are all patterned -- the four the U.S. is a member of are patterned after the World Bank Group’s structure. And that structure is that the highest decision-making body of the organization is a board of governors that is comprised primarily of finance ministers. Some countries, it’s not the finance minister; it’s a different cabinet-level minister. But usually it’s the finance minister of the member countries. For the U.S., that means the Treasury Secretary serves as the U.S. governor in the highest policy-making body of the institution. So currently, Secretary Yellen is also governor, U.S. governor, of the World Bank.
As you can imagine, the finance ministers have lots of other duties, and they can’t be running the international financial institutions on a day-to-day basis. So most of the day-to-day decision-making and the day-to-day policy-making is delegated to a board of executive directors, who are appointed by each member country. In the case of the United States, that’s the job that I had at the IDB. And obviously, I had counterparts at the World Bank Group while I was at IDB, but I never worked at the World Bank Group. The other part of the structure that I think is important to understand -- and so, these are inherently political animals. They are political animals that are led by bodies on which representatives of foreign sovereigns make policy by voting.
The other important thing to understand is that each of these institutions, with the exception of the European Bank, have both a public sector lending window where they lend to governments, sometimes just to help them make up—what we call budget support -- to help them make up their public budgets, but also to finance particular projects—a dam, a powerplant, a road, a bridge. And at the World Bank, that’s done through three entities—the IBRD, the International Bank for Reconstruction and Development; I-D-A, IDA, the International Development Agency; and MIGA, which is the Multilateral Investment Guarantee -- I think it’s association. And all three of those lend to governments.
But the World Bank has another entity called the IFC, which is the entity that was the defendant in the Jam case, whose mission is different. It is to lend into the private sector. Now, it still works in coordination with the host government of where its borrowers are located, and the voting on the IFC is exactly like the voting at the IBRD and the other public sector windows. That means it is controlled by political appointees of member governments who own the shares in the institution. But instead of lending money to, for example, Bolivia to build a road, it will lend money to a private corporation or potentially a public-private partnership to build a road or engage in whatever other project.
And so, the Jam case arises in the context of a power plant—a coal-fired power plant—built in India that was financed in part by a loan from the IFC. That loan would have been approved in Washington by the Board of Executive Directors of the IFC, which is made up largely of the exact same people that are on the Board of Executive Directors of the other World Bank entities. But the actual construction of the dam—excuse me, of the power plant—happened in India, and the supervision of that construction happened through the local office in India. And all of this becomes important on remand after the Supreme Court opinion when the Court is tasked with determining whether or not the actions of the World Bank upon which the plaintiffs were suing fall under the commercial activity exception of the FSIA incorporated into the IOIA. So with that, I’m probably already starting to tread onto the next section, and I’ll stop again and hand it back to Harout.
Harout Samra: Yeah. Thank you, Eliot. And so, that actually that dovetails well. And so, what we want to do now is, having kind of given this background talking about the different institutions that are in play, the statutory framework, and the evolution of the case law over the last now 80-almost years, Rick, tell us a little bit -- expand on sort of the introduction that Eliot’s given on Jam v. IFC. Give us a little bit of background about the case. And its procedural history is sort of interesting, if you want to give us an overview of that. And then we can talk a little bit about, broadly, where things stand now.
Richard Herz: Sure. So as we’ve said a little bit, Jam v. IFC is a case against the IFC for funding a coal-fired power plant in India. The power plant itself made no economic sense and makes no economic sense. It’s completely losing money because it was dependent on low-priced coal from Indonesia that didn't materialize. But that apart, it’s caused enormous environmental and social damage to its neighbors in the communities around the plant by destroying the fisheries. It didn't line its intake channel, so salt water’s intruded into the groundwater, making it unusable for drinking and farming. And there’s been obvious air pollution impacts on local people.
So we sued the IFC in DC. We went all the way to the Supreme Court on the question of whether IFC can be sued at all or whether it’s absolutely immune. The Supreme Court, as we’ve discussed, said that its immunity must be determined under the Foreign Sovereign Immunities Act. So we were remanded back to the district court to litigate the Foreign Sovereign Immunities Act. And this is where, in one sense, this case becomes vastly more important than it used to be because now, it’s a Foreign Sovereign Immunities Act case that applies the Foreign Sovereign Immunities Act just as much to international organizations as to foreign governments.
So the Foreign Sovereign Immunities Act says there’s no immunity if a claim is based upon the foreign sovereign’s commercial activity in the United States. And we said, as Eliot alluded to, everything IFC did was in the United States. It approved the loan in the United States. It approved the design of the plant in the United States. That’s where IFC made all of its decisions. And that’s commercial activity because they’re loaning money to a private party to build a private project at market-based interest rates, which a private party -- they were just acting like a bank. So in our view, that met the commercial activities exception of the Foreign Sovereign Immunities Act. IFC argued, and the DC Circuit held, that because the harm to our clients was most directly caused by the power plant owner, the claim wasn’t “based upon IFC’s conduct at all.” It was based upon the third party’s conduct.
And now, that is a sea change in the law. The law has always looked to, across many different circuits, the foreign state’s own conduct, not the conduct of third parties, to determine what the claim is based upon because if you’re going to determine whether a foreign state entity or an international organization is immune for particular conduct, that makes the most sense. You say, “Well, is the conduct commercial activity in the United States?” The DC Circuit didn't do that. And it’s now at odds with a number of other circuits in being the first circuit to look to the act of another party and to create this vague and undefined test of what’s the most direct cause of the harm.
Now, the biggest loser, I think, in this change in the law is the U.S. business community and U.S. investors because there’s all sorts of cases where U.S. businesses get into commercial disputes with a number of parties, a number of potentially liable parties, one of which is a foreign government entity, but the foreign government entity isn’t necessarily the most direct cause of the harm. For example, there’s cases where they’ve sued foreign government entities for abetting fraud. Or for example, there’s a case that ExxonMobil brought against a Cuban government entity for trafficking in property that was expropriated by the Cuban government. And the argument is that -- well, the argument under the DC Circuit’s opinion would be, “Well, look, what actually injured Exxon was not the trafficking in the expropriated property by this government entity. It was the actual seizure of the property by the government itself.” And so, under that theory, the government entity should be immune.
A third example is there’s litigation against a Chinese sovereign enterprise and a number of other sovereign entities and ordinary commercial entities for conspiracy to fix television part prices. The conspiracy itself allegedly cost American businesses billions of dollars. And some of the entities were sovereign entities involved in the conspiracy. Under the DC Circuit’s approach, you couldn't sue the sovereign entities at all because they wanted the most direct cause of the harm. So this is an important issue, important in a lot of different contexts to a lot of different parties. And because there’s a circuit split, we have just recently filed a cert petition. The IFC has not yet responded to the cert petition. Their brief, I think, is due in the middle of March. And so, we’ll see if the Supreme Court allows this circuit split to stand or steps in. With that --.
Harout Samra: Thank you for that. Yeah. Thank you for that, Rick. And we’re going to go a little bit into where do we go from here in a little bit as well. I do want to mention we’ve had a question come in. I will be looking at the questions, and we reserve time at the end. But if there’s a particularly timely question, feel free to submit it, and I’ll go ahead and raise it during the course of the presentation of our two speakers. But continue to submit questions. We have reserved time at the end of today’s program to address any additional questions that you all submit. So thank you for that.
So as we discuss where we go from here -- and Rick, you sort of laid out how, I think, there is really the possibility for significant change more broadly even than with regard to international organization immunity, but frankly with regard to the Foreign Sovereign Immunities Act. If we pull back just for a moment to some of the policy issues around an international organization’s operation here in the U.S., some of the things that arise from their perspective -- Eliot, having served in the roles that you served in at the IDB, can you walk us through some of the perspectives from the international organization’s standpoint as to these issues?
Eliot Pedrosa: Sure. I think I’ll mention three things. The first is sort of to take just a step back from it and not so much talk about the policy considerations of how you define the immunity, but rather think about what kinds of entities these are. We’re probably all lawyers on this call, and one of my favorite expressions is, “When all you’ve got’s a hammer, everything looks like a nail.” Harout, I think I’ve actually used that in another panel that you moderated. But it absolutely rings true.
And for lawyers, we’ve got hammers in the law, and that’s what we’re used to working with. And so, it’s very easy to see an entity, and it looks like a nail. But when you dig down into these entities, they’re not nails. These are not -- they’re entirely different. They are not commercial banks. They are not commercial corporations. They are really bodies through which sovereign policymaking is channeled and incentivized with money. And so, the boards of these institutions are inherently political boards, where there is horse-trading, there is persuasion. And the U.S. executes its foreign policy by how it wields its vote on these boards.
One thing that people should know is that with respect to the international financial institutions—including the World Bank Group, the IMF, the IDB—unlike the UN in which it’s one country, one vote, at the IFIs, the voting is weighted by shareholding. And the U.S. is the largest shareholder in each of these institutions. So at the World Bank Group, for example, the U.S.’s vote is about 16 percent, and the next largest vote -- the next largest weight by voting is China, which has about 5 percent. Most countries’ vote is less than a percent. At the IDB, the U.S. -- I had a 30 percent share. So my vote counted for 30 percent. The next largest was 11 percent. And so, these are tools of U.S. foreign policy and tools of the foreign policy of all of the other member institutions. And they are really political bodies.
Second point that I’ll make -- each of these institutions has an internal -- what they call an internal accountability mechanism, which is a way for the institution to monitor and police itself, audit its own projects to determine whether they’re complying with its own rules and regulations and whether they’re having the effectiveness that they really want to have in terms of spurring local development, and provide a mechanism for something that you can think of like an alternative dispute resolution process. So they are really, by charter, created to be self-contained in that respect. And so the idea that there needs to be immunity in order for them to achieve their political mission and maintain their inherently political character is counterbalanced by an internal mechanism that allows persons who feel that they’ve been aggrieved by some action of the institution to bring that to the attention of this internal body which has investigatory authority and, for some of the banks, has the authority to actually make decisions and either mediate a settlement in which compensation is paid or even in some cases award compensation itself.
And then the third thing that I’ll talk about is that each of these institutions has a set of ESG policies—environmental, social, and governance policies—that they are required, not only to adhere to themselves, but to ensure that the borrowers are adhering to, whether that borrower is a sovereign government or whether that borrower is a private sector entity or a government-sponsored enterprise or a PPP. The banks, by charter and by policy, are required to make sure that their borrowers are following the best practices that are set at the banks. And those best practices are defined, again, by an entirely political process where the U.S. and its European allies are often pushing in favor of very strict environmental, social, and governance safeguards to make sure that the banks are doing no harm and that the types of things that were ledged in the Jam case don’t happen.
Are they perfect? I don’t know of any human institution that is perfect. But they do have policies. And in fact, as I read the Jam case, largely the claim was that IFC has what it calls its performance standards, which is its version of these ESG policies. And in this particular instance, there were ways in which they fell short. And there’s actually an internal audit by one of the internal accountability mechanisms pointing out ways that the institution did not achieve all of the things that it would have liked to have achieved in its performance standards. And that’s pretty typical across all of these international financial institutions, that they have both those ESG policies that they require their borrowers to adhere to and also an internal accountability mechanism which functions as like part inspector general and part ADR to allow for the resolution of certain disputes that might arise from the work of the institution.
Harout Samra: Got it. Thank you, Eliot. So I want to turn it over to Rick. Having heard a little bit of the policy issues that, really, these issues implicate from the institutional perspective, Rick, do you want to maybe present a counterpoint to those and some of the policy issues that are implicated from the perspective of your clients?
Richard Herz: Sure. So I don’t think any of those concerns would in any real way speak against suit or in favor of immunity. So the first one, that the IFC acts as a political body, that may or may not be true, but the way that the Foreign Sovereign Immunities Act has always been applied by the Supreme Court and elsewhere is that you look at the character of the conduct to determine whether it’s commercial, not the purpose of the conduct. And in this case, when the IFC loans money, it’s loaning money to a commercial entity to build a commercial project at market interest rates. And that is exactly what a commercial bank does. So it may have some other purpose in mind, but purpose is irrelevant to whether it’s immune.
Now, as to the internal watchdogs, that’s also true that the IFC, in particular, has an organization called the CAO within it that’s an internal ombudsman. But the problem with that is that the IFC can, and in this case did, completely ignore its recommendations. So in this case, the CAO issued a scathing report that said that they had violated their own policies, that this project was a mess, and that they ought to do something about it. And the IFC said, “Thanks, but we’re not going to do anything about it.” And in one of the problems, one of the things that they said that they had violated was the third thing that Eliot spoke of, their own internal environmental and social safeguards. They said that they had ignored them, and IFC basically did nothing about that either.
You know, the IFC exists to help poor people. That is its mission. And according to it, it says that its intent to do no harm to people for the environment is “central to IFC’s development mission.” Even though there is this -- in the DC Circuit, there is this invented test that the IFC has not waived its immunity unless it benefits the organization, we argued—and I think we were right—that this case -- these sorts of cases do benefit the IFC because the fundamental problem at IFC is that sometimes, at least, too many people there are more interested in getting money out the door than actually rigorously serving their poverty-fighting mission. And that’s essentially what the CAO identified as the issue.
And so, when you have management that isn’t serving IFC’s development mission, at least in particular cases, the only way to actually enforce IFC’s own mission is through cases like this one, which benefits the IFC. And, of course, if IFC -- as the Supreme Court said, if IFC feels -- or if the political entities that run IFC, the government members, feel that they can’t operate with liability, they can just change their charter and immunize themselves. But they haven’t done that. And that gets to their waiver point, which is when they formed, they understood that they didn't need immunity. They granted a broad waiver. And now, IFC’s coming back and asking courts not to interpret the waiver the way it was written.
Harout Samra: Thank you, Rick. And so, we do have some questions coming in. I’m going to hold a couple of them to the end. But I think both of you have touched on the question that we received from John Kraut. So I wanted to put it to both of you now. Eliot, I think it’s sort of phrasing as a question of almost the point that you made, but I think if you want to elaborate on that a little bit and then maybe, Rick, if you want to respond to it. The question that John has presented to the panel is, “If an international organization’s purpose is basically commercial activity such as international development, why should the commercial activity exception to immunity apply?” So, I mean, Eliot, if you want to maybe take that first, since it’s sort of a point that you had raised, elaborate on that a little bit, and then, Rick, if you want to present your perspective on that as well.
Eliot Pedrosa: Sure. So if I’m understanding the question correctly, the gist is if the organization’s purpose is commercial, why isn’t it commercial activity? And I would quibble with the premise. Rick mentioned something, which I’ll concede, which is that the case law says that in applying the commercial activity exception, you don’t look at the purpose; you look at the activity. And so, if a country is acquiring tanks in order to be able to wage war, you don’t look at -- and you’re dealing with an immunity challenge to an acquisition transaction, a contract, to purchase tanks, you don’t look at the fact that the reason that they’re purchasing tanks is to wage war, which is inherent sovereign activity. You look at the activity itself.
But putting that aside, I will quibble with the premise because the organization’s purposes are not commercial at all. They’re not to make money. They are to provide support in the form of lending where the market is not functioning and would not otherwise provide that funding. So there are a number of people in the U.S. foreign policy community and the treasury that question whether we still need these banks at all because there is so much private commercial finance available in the developing world, but the problem is that private commercial finance available in the developing world tends to go to the most well-financed, private institutions.
So the five most wealthy families in Colombia have no problem getting a commercial loan to start a new business, but everyone else does. So you need an organization that can lend to banks with the condition that those banks lend out that money to small and medium-sized enterprises. That’s one of the big things that IDB Invest—which is the IDB’s version of IFC—would do. And all of it is with a basic purpose in mind to foster development in these countries to help the poor and to allow these countries to create a better standard of living for these citizens.
And I’ll end sort of at the beginning with respect to the IDB and just a little bit of a germ of why the IDB was founded. The IDB, as an idea, was first floated in the 19th century by a Brazilian president, and nobody really cared much about it. It never got any traction. In 1959, there was a communist revolution in Cuba. And President Eisenhower said, “Well, this is a problem. This is on our doorstep. We need to figure out a way to provide an alternative to the developing countries in the world to communism by raising their standards of living.” And they dug up this proposal for a development bank focused on Latin America and the Caribbean, and that became the IDB, an inherently political purpose by the United States in cooperation with Brazil and other of the larger regional economies to spur economic development in order to ward off the advance of international --
Harout Samra: And so, actually, John just sent us a clarification. And if you want to take one or two more minutes, Eliot, to explain. He says, “I guess I phrased it wrong. If they’re charted to pursue their purposes by commercial means, how could Congress have intended their commercial activities would not be immune?”
Eliot Pedrosa: Because the commercial activity exception to the FSIA contains two very important words, which are “based upon.” So in order for the commercial activity exception to apply, the claim has to be based upon commercial activity in the United States. And there are two other subsections, but that phrase “based upon”—and this is what the DC Circuit focused on in its remand opinion in the Jam v. IFC case—if the claim -- the commercial activity has to be in the United States and the claim has to be based upon that commercial activity in the United States.
So if the claim is based upon commercial activity that occurs in India, that does not fall within the commercial activity exception to the FSIA. If the claim is not based on commercial activity at all but is based on sovereign activity, that does not fall under the commercial activity exception to the FSIA. So there are lots of outs based on the text of the statute. And the IFC court in that case determined that, yes, there was commercial activity in the United States, but the claim wasn’t based on it. The claim was based on activity in India, which was the way they constructed the power plant and the way that they administered it and et cetera, et cetera, et cetera.
Harout Samra: Thank you, Eliot. So, Rick, same question with the clarification. I don’t know if you’d like to elaborate on that point.
Richard Herz: Yeah, sure. So that is what the DC Circuit said. It said that the claim is not based on what IFC did. It’s based upon what happened in India. There’s a couple of problems with that. First of all, the Supreme Court said that if you want to know what a claim is based upon, you look at the elements of the claim. And this is an ordinary tort claim. Ordinary tort claims, under all sorts of different theories, you can get liability over the person who is not the most direct cause of the harm. But the claim is -- in those circumstances, like aiding and abetting or negligence with respect to the conduct of another or conspiracy, the claim is based upon the conduct of the defendant. Right? You’re suing them for their own conduct.
So for example, if we had come in and said, “Well, IFC is liable because Coastal Gujarat, the company in India, did something wrong,” IFC would say, “No, you have got to show we did something wrong.” And that’s exactly their point. That’s what the claim is based upon. It’s based upon what IFC did. And what IFC did is commercial activity here in the United States. And just to show sort of the results that would be if you follow the DC Circuit’s approach -- if this power plant had been built in the United States and all other facts were the same, IFC would still be immune because the argument would be it’s not based on IFC’s conduct. It’s based upon Coastal Gujarat’s conduct. Right?
And that would mean that even though Coastal Gujarat built this plant—under my hypothetical—in the United States and IFC operated in the United States and it’s all commercial activity in the United States, they’d still be immune because the argument would be that it’s based upon somebody else’s conduct. And we think that just doesn’t make sense. You know, as I said, every court to look at this has always applied the based upon language as looking to the conduct of the sovereign defendant, not to somebody else’s conduct. And so, we’ll see what the Supreme Court does with it.
Harout Samra: Yeah. So we’ve got about ten minutes, and I have two questions, and then we have a couple questions as well that maybe we can use as a point to wrap up. But if anyone in the audience does have questions, please go ahead and submit them, and we will present them to the panel over the course of the next ten minutes. So first question is from Robert Fitzpatrick. And it’s, “What prevents an employment discrimination case in DC against one of the entities on behalf of an employee of the organization? What arguments should the employee’s lawyer be advancing to establish liability?” Rick, I don’t know if you want to take that, and Eliot, if you’d like to maybe respond.
Richard Herz: Well, there’s some -- so under the two ways to get to past immunity arguments—statutory and waiver—our argument -- I think the clearest-cut argument would be that they’ve waived immunity by the text of their own waiver provision. Now, under current DC Circuit law, that argument is foreclosed. But I think it’s clearly right. The DC Circuit thought it was right until it changed its mind. It’s an issue that clearly should be revisited by the Court en banc. Whether it’s commercial activity or not, there’s some case law, as I remember it—and I may be getting this wrong—that it depends on the nature of the employee, whether they’re a civil servant or not, whether the activity’s commercial. That’s not something I’m super focused on, and I’ll probably get it wrong if I try to expound on it. So I should probably leave it at that.
Harout Samra: Thank you, Rick. Eliot, would you like to address the point?
Eliot Pedrosa: So I’m not an employment lawyer, and if I was, I would be on the side that would not be offering people suggestions on how to craft their complaints against the defendant. But I will say that there is a line of cases that stands for the proposition that internal administration, which includes relations with employees of international organizations, is not commercial activity subject to the FSIA. And so, for example, employees – and the same thing with foreign sovereigns. For example, employees at consulates don’t get the protections of U.S. employment law. They’re subject to the laws of the countries from which they come and who’ve established those consulates.
Harout Samra: Thank you, Eliot. Another question from [foreign name 50:04]. And Eliot, I want to maybe start with you on this one, and Rick, if you want to chime in after. It sort of ties in with some of the table setting you did early on. And the question is, “Is sovereign immunity impacted by host country or trade agreements such as the new NAFTA?” Maybe not particular to NAFTA, but if you have anything you could say about the new NAFTA USMCA, feel free, but more broadly if you can address the topic.
Eliot Pedrosa: Well, I haven’t studied the new NAFTA or the immunity implications of it. Clearly, the modern trend in international trade law is to establish arbitration as a method of dispute resolution, including dispute resolution between private citizens and foreign sovereigns. And so, the World Bank Group includes ICSID, which is the International -- Harout, --
Harout Samra: Center for the Settlement of Investment --
Eliot Pedrosa: There you go.
Harout Samra: -- Disputes.
Eliot Pedrosa: The alphabet soup on that one eluded me -- which exists to resolve investor state disputes like the ones that could arise under NAFTA or any other trade agreement. And so, largely, those are taken out of the immunity framework because they’re handled by arbitration, and there are separate international conventions that govern the enforcement of arbitral awards, including in the investor state context.
Harout Samra: Rick, do you want to chime in on this topic, whether sovereign immunity is impacted by host country or trade agreements, such as, for example, USMCA or others.
Richard Herz: Yeah. I’m not a trade lawyer, so I really don’t know --
Harout Samra: Okay.
Richard Herz: -- of any effects. As far as we’re concerned, it’s governed by statute and by the waiver provision of the IFC or another organization’s own charter.
Harout Samra: Got it. So just in the last six or seven minutes that we have, I’d maybe want to give each of you three or four minutes to talk a little bit about where we go from here. The case is obviously ongoing. There may be other cases, Rick, that you’re aware of or that you’re litigating that we should keep an eye on. So if you want to maybe chime in first, Rick, where you see this going, how you see it developing, and other cases that our audience here should keep an eye on if they’re interested in this area.
Richard Herz: Sure. So for us, we’re litigating another case against the IFC where it funded a palm plantation in Honduras. It gave money to, basically -- the owner of this company was basically a thug who was stealing land from local people. They would have known that through a google search. And when they took this money to expand their palm plantation, they seized lots of campesinos’ land and murdered many, many dozens of people in the area. This is one of the most extreme—perhaps the most extreme—example of IFC misconduct or ineptitude out there. That case is being litigated in the District of Delaware, so it would go to the Third Circuit, which I would suggest might end up with a different ruling than the DC Circuit with respect to the IFC itself on both its waiver provision and what the FSIA means. It was actually a circuit split with the Third Circuit that we assume is what piqued the Supreme Court’s interest in Jam. And they came out the other way on the IOIA and whether that provides absolute immunity.
Just briefly, other cases to watch -- I mentioned the Exxon case also before the DC Circuit. We’ll see what they have to say about whether Exxon -- the extent to which they apply the same rule of only the most direct harm can be -- the government entity that caused the most direct harm can be sued. We’ll see if they apply the same rule there or if it comes out a little bit differently. And there’s another case also in the DC Circuit where an international organization is being sued by a number of doctors who were essentially trafficked by the government of Cuba to provide medical services abroad, another case that’s got the same issue of whether it has to be the most direct cause of the harm. And so, I’m looking forward to seeing what the DC Circuit has to say about those two cases.
Harout Samra: Fantastic. Thank you, Rick. Eliot, we’ve got about three or four minutes.
Eliot Pedrosa: Yeah. So the case I’m following is that last one that Rick mentioned. It’s Rodriguez v. The Pan American Health Organization, PAHO. PAHO is an affiliate of the World Health Organization, and it’s a class action on behalf of Cuban doctors who were trafficked by the communist regime in Cuba, as Rick mentioned. The named plaintiff in that particular case was trafficked by the Cuban regime to Brazil where she was essentially forced to work as slave labor by the Cuban government. The way the Cuban government does this is they control everything on the island, so they essentially coerce these doctors into leaving the island and going, in this case, to work in Brazil.
The Cuban government then charges the Brazilian government—in this case hundreds of millions of dollars over a span of several years during which the program was in place. It was in place by the prior Brazilian administration and was dissolved by the current Brazilian presidential administration. Cuban government charged hundreds of millions of dollars, kept about 90 percent of that money, and gives 10 percent to the doctors when they come back. While they are on mission, in this case in Brazil, they are essentially being watched by members of Cuban intelligence to make sure that they don’t say the wrong things or try to defect. They have to surrender their passports so they can’t move around. And they are essentially slave laborers with medical degrees working on behalf of the Cuban government.
The nexus to the Pan American Health Organization that brought multiple claims, one of them survived a motion to dismiss at the district court level, and that’s the one that’s on appeal now to the DC Circuit. And that claim is under the Trafficking Victims Protection Act, which creates a private right of action against a financial intermediary that facilitates a transaction by which a person is trafficked. And so, the district court—the District of DC—in that case, held that it was commercial activity because acting as a financial intermediary, which is what PAHO did—they collected the money from the Cuban government, and then they paid the money to the Brazilian government -- excuse me, I got that backwards -- collected the money from Brazil, paid it to Cuba, and then kept a five percent fee for their trouble.
The district court said that is commercial activity. And they said the claim is based upon it because it’s a statutory claim under a provision in U.S. law that creates a direct private right of action against a financial intermediary for facilitating a transaction in which a person is trafficked. So unlike the situation in Jam v. IFC, which is a common law negligence claim, here you have a statute that makes the commercial activity that PAHO engaged in the basis of the claim. So that was heard on oral argument by the DC Circuit on November 3. Anyone’s guess on how long it takes them to issue an opinion, but there’s certainly -- as the district judge in that case did, there’s certainly a basis to distinguish it from Jam v. IFC. And we’ll see whether or not the DC Circuit affirms the ruling of the district court that the Pan American Health Organization is potentially on the hook for facilitating human trafficking.
Harout Samra: Wonderful. Thank you, Eliot. There’s plenty, I think, for those who are interested in this topic to look out for, including some of your cases, Rick, as well as Eliot, the PAHO case that you mentioned. With that, I want to take a moment again to thank Eliot Pedrosa and Rick Herz, who really have been fantastic panelists today in this really very interesting discussion. I look forward to continuing to monitor this issue. I also want to take a moment to thank, of course, you, Guy, The Federalist Society, as well as the International and National Security Law Practice Group, and of course all of you who’ve attended today and who may be watching this at some point in the future. Thank you again. Guy.
Guy DeSanctis: Thank you. On behalf of The Federalist Society, I want to thank our experts for the benefit of their valuable time and expertise today, and I want to thank our audience for joining and participating. We also welcome listener feedback by email at [email protected] As always, keep an eye on our website and your emails for announcements about upcoming Teleforum calls and virtual events. Thank you all for joining us today. We are adjourned.
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