As discussed in Proskauer's report, " 2009 Trends and Developments in International Legal Practice," some of the top Trends affecting international businesses are the legal and practical challenges that arise in dealing with sovereign entities in deals and in litigation. 2008 saw dynamic developments in sovereign immunity, asset recovery, and the intersection of commercial and foreign policy interests.
On January 9, 2009, the U.S. Supreme Court granted review in yet another case potentially affecting all of these issues. In Republic of Iraq v. Beaty, the Court will be asked to decide whether Iraq is entitled to sovereign immunity against tort claims brought by U.S. citizens for alleged "personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, [or] hostage taking" committed by Iraq or one of its agents. Iraq argues that it has immunity from such claims by virtue of a Presidential Determination issued by President Bush pursuant to the Emergency Wartime Supplemental Appropriations Act, 2003 ("EWSAA"), which provides, in part, that "the President may make inapplicable with respect to Iraq section 620A of the [FAA] or any other provision of law that applies to countries that have supported terrorism." 117 Stat. 579. The D.C. Circuit rejected the argument based on a prior decision (Acree v. Republic of Iraq, 370 F.3d 41 (2004)), holding that the President lacks authority under the EWSAA to exempt Iraq from the provisions of the Foreign Sovereign Immunity Act ("FSIA") that give U.S. federal courts jurisdiction over such claims (28 U.S.C. § 1605(a)(7)).
Beaty potentially has both narrow and broad legal implications for international businesses. It also underscores the critical need to plan for sovereign immunity and asset protection issues in structuring transactions that involve (or potentially involve) sovereign states and their agents.
The case will decide the legal issue of whether Iraq is amenable to suit in the U.S. for such tort claims. Although Beaty and similar cases now coming to trial concern conduct under the prior Iraqi regime, neither the Presidential Determination nor the issues presented are necessarily limited to past conduct. The timing of this issue is critical because, with the transition to Iraqi self-governance, U.S. and multinational businesses operating in Iraq will be working more and more directly with and for the Iraqi government on sovereign or quasi-sovereign projects. This raises the risk for the private entity to be named as a co-defendant on tort claims alleged against the current Iraqi government, including claims of liability for "aiding and abetting" human rights violations. (See discussion in 2009 Trends 2009, I.B, Extending/Contracting U.S. Personal and Subject Matter Jurisdiction and in our prior Client Alert Businesses Ask Supreme Court To Limit "Aiding and Abetting" Liability for Foreign Government Violations of International Law). If Iraq is immune from suit, the case against the private entity may be subject to dismissal under Rule 19 in accordance with the recent U.S. Supreme Court decision in Republic of Phillipines v. Pimentel, __ U.S. __, 128 S. Ct. 2180 (2008) (discussed in 2009 Trends, III.B, Expanding Immunity to Non-Sovereigns and Commercial Enterprises).
The issue of potential exposure under U.S. law is in addition to the dramatically increased exposure that U.S. military contractors now face under Iraqi law under the new Status of Forces Agreement ("SOFA") between the U.S. and Iraq. Besides stripping away basic criminal and civil immunities that relevant Security Council resolutions and CPA Order 17 had previously granted to contractors working in support of Coalition efforts in Iraq, the SOFA also requires multinational corporations to rely heavily on Iraq's judicial system to resolve complicated commercial and criminal disputes that might arise should they continue to do business in Iraq. Although the Iraqi Government temporarily extended existing contractor immunities beyond their January 1, 2009 expiration date, it is only a matter of time before this extension expires and U.S. contractors will have to cope with Iraqi civil and criminal legal norms while supporting U.S. operations in Iraq.
Beaty also potentially will address the broader legal issue of whether and how Congress grants authority to the President to limit the jurisdiction of the U.S. federal courts, here under the FSIA. In a concurring opinion in the prior Acree decision, Chief Justice John Roberts (then a Judge of the D.C. Circuit Court of Appeals) opined that Congress had given the President sweeping authority to exempt Iraq from any statute affecting terrorist states, including statutes affecting federal court jurisdiction. Whether the Supreme Court now adopts that broad reading of Congressional intent is a key issue for U.S. and international businesses seeking to embrace – or avoid – U.S. jurisdiction.
Finally, regardless of which way it is decided, Beaty highlights the importance of planning for sovereign state issues in structuring deals. For example, as discussed in Proskauer's e- Guide, Proskauer on International Litigation and Dispute Resolution, whether Iraq (or any other sovereign entity) is entitled to immunity, that immunity can be waived by express agreement. 28 U.S.C. § 1605(a)(1). (The more "explicit" the waiver, the better, although the Second Circuit Court of Appeals ruled yesterday that a general waiver of sovereign immunity will be enforced to waive U.S. FSIA immunity even where the contract otherwise indicates an intent to submit to jurisdiction outside the U.S. See Capital Ventures Int'l. v. Rep. of Argentina, __ F. 3d __, 2009 WL 71465 (2d Cir. Jan. 13, 2009)). To the extent that conduct and claims may implicate not only sovereign immunity but the "Act of State" doctrine (also discussed in the Guide), attention should be paid to indemnification provisions to protect against creatively alleged claims aimed at the "private" half of a public-private venture. And to the extent that plaintiffs are able to obtain a monetary judgment against a sovereign, the Guide explains that they can potentially enforce that judgment against sovereign assets located anywhere in the world. Those assets could include, for example, planes or other tangibles to be delivered to a sovereign (an issue that arose when Kuwait, obtained a judgment against Iraq in Britain for human rights violations arising out of Saddam's invasion of Kuwait and sought to enforce that judgment in the U.S. and Canada in 2008 against the new Iraqi government), monetary assets located in the U.S., and payments owed to a sovereign (an issue currently being reviewed by the U.S. Supreme Court in a separate case, Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Elahi, 07-615).
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