The dispute giving rise to the case centered on the tax status of a portion of buildings, one of which was owned by the government of India and the other by the government of the Republic of Mongolia, both of which were used, in part, to house some of its "lower level" diplomatic staff. Id., slip op. at 1-2. New York exempts from taxation property owned by a foreign government "if it is “used exclusively” for diplomatic offices or for the quarters of a diplomat “with the rank of ambassador or minister plenipotentiary” to the United Nations. N. Y. Real Prop. Tax Law Ann. §418 (West 2000)." Id., slip op. at 2. On the basis of this provision, the City of New York levied property tax on a portion of the buildings used to house lower level Indian and Mongolian diplomatic staff. By 2003, the City of New York claimed that India owed "about $16.4 million in unpaid property taxes and interest, and the Mongolian Ministry owed about $2.1 million." Id., slip op. at 2. Both governments refused to pay on the grounds that their property interests were immune from assessment. In 2003 the City of New York filed suit in federal court seeking declaratory judgments to establish the validity of the liens. The suits could accomplish little more than this because the FSIA does not permit actions to enforce foreclosure proceedings against states. See Id., slip op. at 2 and note 1. The City noted that an inability to foreclose on the lien did not reduce the necessity of the action for three reasons: (1) sometimes governments paid upon the granting of declaratory relief, (2) sometimes federal law permitted collateral action to be taken against a foreign government that refused to pay (the majority opinion noted that under the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2006, §543(a), 119 Stat. 2214 the federal government could reduce a country's foreign aid by 110% of a valid court judgment, and (3) the liens could be enforced against subsequent purchasers (and thus effectively would have to be paid as part of any transaction in the property). See Id., slip op. at 2 and note 1. The governments of India and Mongolia argued that the FSIA immunized them from suit in federal court (28 U.S.C. Section 1604). The City of New York argued that the federal courts had jurisdiction under an exception to the general immunity presumption under section 1605(a)(4) (where “rights in immovable property situated in the United States are in issue”") ( Id., slip op. at 3).
Contrary to petitioners’ position, §1605(a)(4) does not expressly limit itself to cases in which the specific right at issue is title, ownership, or possession. Neither does it specifically exclude cases in which the validity of a lien is at issue. Rather, the exception focuses more broadly on “rights in” property. Id., slip op. at 4.
"None of those exceptions pertains, or indeed makes any reference, to actions brought to establish a foreign sovereign’s tax liabilities. Because this is such an action, I think it is barred by the general rule codified in the FSIA. . . . Given the breadth and vintage of the background general rule, however, it seems to me highly unlikely that the drafters of the FSIA intended to abrogate sovereign immunity in suits over property interests whose primary function is to provide a remedy against delinquent taxpayers." Id., Stevens, J., dissenting, slip op. at 1-2.
Having determined that the provision did not expressly exclude tax lien actions, Justice Thomas then looked to the original understanding of the terms used in the exception at the time of its enactment. Having consulted the 4th edition (1951) and 8th edition (2004) of Black’s Law Dictionary for the meaning of the terms "lien" and the earlier edition for the meaning of the term "incumbrance", along with the statutory definition of "1072 (4th ed. 1951) (lien), the definition of "tax lien" under New York State law, and discussion of the interests of a lien holder in property (citing United States v. Security Industrial Bank, 459 U. S. 70, 76 (1982), a case interpreting the federal Bankruptcy Code), Justice Thomas concluded that the "practical effects" of these definitions bear out that a "tax lien thus inhibits one of the quintessential rights of property ownership—the right to convey. It is therefore plain that a suit to establish the validity of a lien implicates “rights in immovable property.”" Id., slip op. at 4-5.
A whole host of routine civil controversies, from sidewalk slip-and-falls to landlord-tenant disputes, could be converted into property liens under local law, and then used—as the tax lien was in this case—to pierce a foreign sovereign’s traditional and statutory immunity. In order to reclaim immunity,foreign governments might argue in those cases—just as the Governments of India and the People’s Republic of Mongolia tried to argue here—that slip-and-fall claims,even once they are transformed into property liens, do not implicate "rights in immovable property." But the burden of answering such complaints and making such arguments is itself an imposition that foreign sovereigns should not have to bear. Id., Stevens, J., dissenting, slip op. at 2-3.