by David Ritter
On February 27, 2019, the Supreme Court decided Jam v. International Finance Corp. a decision that may hasten the ability of human rights groups and others to bring suits against international organizations and their counter-parties. The case also provides a lesson in the application of sovereign immunity, and establishes that general counsel need to be fully cognizant of the importance of textualism when advising clients as to the effect of U.S. law.
Jam involved the International Finance Corp. (the IFC), a member of the World Bank Group, and perhaps the largest institution providing private sector loans for projects in developing countries. One of the projects financed was a coal-fired power plant in an impoverished area in India. People living near the plant, including the eventual plaintiff, complained that the power plant polluted the land, air and water. Ultimately, the plaintiffs sued the IFC in Washington, D.C.
Historically, the United States granted foreign sovereigns complete immunity from suit in U.S. courts. Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 486, 103 S. Ct. 1962, 1967 (1983) (citing The Schooner Exchange v. M'Faddon, 7 Cranch 116 (1812)). Against this backdrop and after World War II, Congress drafted the International Organizations Immunities Act of 1945 (the "IOIA") to provide international organizations the same privileges and immunities as foreign governments. 22 U.S.C. §288a(d). In the wake of the destruction after World War II, the United States and its allies formed many international and multi-lateral organizations with missions to stabilize the economies of countries, rebuild nations, and promote international peace and security. The IOIA would provide immunity to the organizations to perform their missions.
In 1952, the State Department adopted a more restrictive approach to sovereign immunity, limiting immunity to sovereign acts, and exempting commercial acts. Under this approach the executive branch had leeway in making immunity determinations, and the courts deferred to the executive branch's determinations. As a result, the decision as to whether to grant immunity was sometimes seen as more of a political decision rather than a legal one. In 1976 Congress passed the Foreign Sovereign Immunities Act (the FSIA), which provided that the judicial branch would make determinations as to whether immunity would apply and whether property could be levied against a foreign sovereign. 28 U.S.C. § 1602. The FSIA codified the State Department's restrictive approach, providing a general grant of immunity to foreign states, and creating a number of exceptions, including a "commercial activity carried on in the United States" or an act outside the United States "in connection with a commercial activity of the foreign state elsewhere." 28 U.S.C. § 1605(a)(2). At that time, Congress did not change the IOIA, which simply recognized that international organizations would be entitled to the same immunity as foreign governments.
The problem for the IFC and other international organizations is that part of their purpose is to engage in arguably commercial activities,—i.e. the type of activity by which a private party engages in trade or commerce. Without immunity from commercial activities, which existed at the time the IOIA was enacted, these international organizations essentially are subject to suit in the United States and elsewhere for many of their activities. Several cases against international organizations in the last ten years were ultimately dismissed. The Supreme Court granted cert as it conflicted with OSS Nokalva, Inc. v. European Space Agency, 617 F. 3d 756 (3rd. Cir. 2010) holding that immunity under the IOIA did not exist.
Justice Roberts authored the Supreme Court’s 7-1 decision in favor of the plaintiffs. Jam a win for textualism. The Court rejected the purpose driven interpretation that Justice Breyer favored and found that the natural language of the statute should apply. Accordingly, the language in the IOIA, written at a time when foreign sovereigns enjoyed complete immunity from suit, could not remain static when foreign sovereign immunity was dynamic and changing.
While the Supreme Court recognized that other protections existed for international organizations, the commercial activities exception to immunity will make these organizations vulnerable to suit, will require them to devote resources to the defense of such lawsuits, and will make the executives subject to second-guessing with a focus on liability. Certainly, without immunity, accountability of international organizations may increase as a result of threat of suit. Further, counter-parties who contract with such organizations may also be exposed to liability in their dealings with the international organizations, and may be required to analyze their liability exposure.
The breadth of the Court's decision remains to be seen, and whether it will adversely affect the ability of international organizations to pursue their missions. Lawyers who practice in this area should be keenly aware that the Supreme Court will consider the text and natural language of a statute regardless of the purpose of the language when written.
David Ritter, of Spencer Ritter, can be reached at firstname.lastname@example.org.