United States Court of Appeals for the Fifth Circuit, Case Number 20-20471, Decision Date: 13 September 2021, Rehearing Denied: 10 November 2021. Petition DENIED: 28 March 2022
1. Whether a foreign state that makes a legal claim to a yacht, participates extensively in the sale of the yacht, and stands to benefit financially from that sale has engaged in "commercial activity" within the meaning of the Foreign Sovereign Immunities Act ("FSIA").
2. Whether a foreign state claiming immunity under the FSIA or its adversary bears the ultimate burden of proof on the question of immunity.
The Court should grant certiorari to resolve two different splits created by the Fifth Circuit's decision in this case, and to correct a published precedent that is bad for American business, contrary to the intent of Congress, and harmful to the institutional interests of the federal judiciary.
Two questions lie at the core of this case. Does a foreign state that files a legal claim to property and actively assists a commercial partner in selling that property engage in "commercial activity" within the meaning of the exceptions to sovereign immunity set forth in the Foreign Sovereign Immunities Act ("FSIA")? Or is the "commercial" nature of the foreign state's actions somehow negated because the state's partner arguably plays a more prominent role in the property's sale?
The clear and obvious answers to these questions are "yes" and "no," respectively. By way of analogy, it is indisputably true that local counsel defending a lawsuit is engaged in the practice of law, even though a different attorney is serving as lead counsel. An assistant football coach who helps prepare a gameplan for his team is engaged in coaching, even though the head coach has the final say on the team's strategy. A resident physician who cares for a patient is practicing medicine, even though an attending may bear ultimate responsibility for the patient's care. Likewise, it is irrefutable that Nigeria's filing of a legal claim to property in this case and its extensive participation in the sale of that property constituted "commercial activity," despite the fact that another party--the United States government--played a leading role in the sale.
But, inexplicably, the Fifth Circuit in this case concluded otherwise, and in doing so, defied logic, the text of the FSIA, and the decisions of its sister circuits. Under the FSIA, the property of a foreign state is immune from attachment unless, among other requirements, the state has used the property for "commercial activity." Although Nigeria acted as a private, commercial actor when it made a legal claim to a yacht and then participated extensively in the yacht's sale, the Fifth Circuit concluded that Nigeria's actions did not constitute "commercial activity" because the United States government had ultimate authority over certain aspects of the sale.
In effect, the Fifth Circuit engrafted a limitation on the meaning of "commercial activity" in the FSIA that confines the scope of that term to only those transactions in which a foreign state is the sole or leading player on its side of a deal. Not only does this novel limitation find no support in the text of the statute, it creates a split with other circuits, which have recognized the irrefutable proposition that a foreign state's "commercial activity" does not lose its "commercial" character merely because another party has played a more prominent role in a transaction.
Compounding its flawed interpretation of the statute, the Fifth Circuit also split with its own precedent and that of almost every other circuit when, without discussion or analysis, it allocated the ultimate burden of proof to ENPH to negate Nigeria's claim of sovereign immunity. Indeed, even though Nigeria had detailed its own extensive commercial activities in filings with the district court, the Fifth Circuit concluded that ENPH was required to make some additional showing to prove what Nigeria had already admitted. If a foreign state's own admissions do not satisfy the novel burden imposed by the Fifth Circuit, it is unclear what evidence could do so.
The upshot of the Fifth Circuit's decision is that it allows Nigeria, as that sovereign has done in other cases involving American creditors, to continue to evade enforcement of a multi-million dollar arbitration award obtained by ENPH and confirmed in federal court. The patent unfairness of this is underscored by Nigeria's disclosure in district court that the proceeds from the yacht's sale will be distributed by Nigeria, working with the United States, to the people of Nigeria.
The lesson for foreign states after the Fifth Circuit's published decision is clear: by allowing a third party to be the face of its commercial transactions, a foreign state can successfully evade attachment of property used by the state, to carry out commercial activity that benefits the state. This newly fashioned loophole will make it more difficult for American companies to enforce judgments and arbitration awards against foreign states and is directly contrary to the intent of Congress, which enacted and later amended the FSIA to facilitate the enforcement of such judgments and awards. Foreign states also should be concerned by the Fifth Circuit's Opinion, as increased barriers to the enforcement of judgments and arbitration awards may well deter American companies from contracting with foreign states.
This case also cries out for review by this Court because the Fifth Circuit's decision is harmful to the judiciary as an institution and the public's perception of it. The authority of the courts to enforce their judgments is a necessary and fundamental component of the power conferred on the courts by the Constitution. But here, despite Nigeria's broad waiver of sovereign immunity and its indisputable involvement in "commercial activity,"
the Fifth Circuit held that the courts of this nation are powerless to enforce a hard-earned judgment rendered against Nigeria by a U.S. district court and affirmed by the D.C. Circuit. For a branch of government whose authority stems in large part from the soundness of its judgments and the public's willingness to respect and follow its decisions, the Fifth Circuit's published decision sends a troubling signal that ENPH's judgment and many others sought to be enforced against foreign states are meaningless.
For all of these reasons, the Court should grant certiorari and hear this case.