Saturday, June 30, 2007

Permanent Mission of India to the U.N. v. City of New York: The State as Private Actor in a World of Private Actors

In a little noticed case decided June 14, 2007, the American Supreme Court held that the U.S. Foreign Sovereign Immunities Act of 1976, 28 U.S.C. Section 1604 et seq. ("FSIA"), does not immunize a foreign government from a lawsuit to declare the validity of tax liens on property held by the sovereign for purposes of housing employees. Permanent Mission of India to the United Nations v. City of New York, No. 06-134 (argued April 24, 2007, decided June 14, 2007). A majority of the American Supreme Court used the occasion for an interpretation of a rather technical part of the FSIA to give notice of a broader and perhaps surprising approach to a (merely) statutorily derived sovereign immunity of foreign states--one which runs counter to the increasingly broad construction of a constitutionally derived sovereign immunity of states within the federal system. The case appears to deepen a jurisprudence that increasingly treats state actors like other juridical persons (corporations, and other associations) in their relationships within the territory of other sovereigns. This leveling of states, not just amongst themselves, but between states, as such, and other entities (and individuals) suggests a wider ambit for the application of an increasingly global (and transnational ) jurisprudence in which states are becoming just another actor, like individuals and entities that more or less freely move among political communities.

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).

On one level, the case presented a fairly straightforward issue of statutory interpretation. Justice Thomas, writing an opinion joined by the Chief Justice and Justices Scalia, Kennedy, Souter, Ginsburg and Alito, applied a fairly straightforward, if narrow, textualist analysis of the provision to determine the extent of its coverage. Id., slip op. at 4-5. Thomas looked first to the text of the exception. He chose to presume a broad interpretation of the provision--
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.
He could have adopted a more conservative approach to the exception from immunity: reading the overarching grant of immunity from suit broadly and the exceptions, including that in Section 1604(a)(4) narrowly as a derogation from the general rule. In that case, of course, the question would be whether the text of the statutory exception specifically provided for suits seeking to test the validity of tax liens, a specific exception nowhere found in the statute.
Ironically, this was the position of Justice Stevens in dissent.

"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.

But this more conservative approach would have run counter to the broader jurisprudential objective of this opinion--the treatment of foreign states like any other non-state actor, and the reduction of state sovereignty in effect while appearing to preserve its form.

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.
Justice Thomas could have ended there. But he didn't. And what he wrote next provides the most interesting, and perhaps the most important, part of the opinion. Justice Thomas sought to support his interpretation of the exception to foreign sovereign immunity by reference to "two well-recognized and related purposes of the FSIA: adoption of the restrictive view of sovereign immunity and codification of international law at the time of the FSIA’s enactment." Id., slip op. at 5. For the majority, the foundation of the restrictive theory of sovereign immunity is essentially simple, and derives from a communication from the executive branch now over half a century old: "the immunity of the sovereign is recognized with regard to sovereign or public acts (jure imperii) of a state, but not with respect to private acts (jure gestionis)." Id., at 711." Id., slip op. at 5-6, quoting in part Letter from Jack B. Tate, ActingLegal Adviser, U. S. Dept. of State, to Acting U. S. Attorney General Phillip B. Perlman (May 19, 1952) (Tate Letter), reprinted in 26 Dept. of State Bull. 984 (1952), and in Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U. S. 682, 711, 712 (1976) (App. 2 to opinion of the Court). This public/private divide forms the cornerstone of, and thus the boundary around, the special status of a state as a sui generis form of artificial personality.
In systems in which the family of states collectively define the outer boundaries of power, such a restriction should be fairly narrowly read. If one starts with the presumption that states are not essentially corporations with special rights (sometimes), then the restrictive theory of sovereign immunity ought not restrict overmuch. Too great a restriction would have the effect of reducing the sovereign to corporation, and thus subject to power either by other corporations (in horizontal relationships governed by the law of contract) or by other special entities when they act within the now narrow band of sovereign (special) authority governed by international law. The result is perverse, in a way--while adhering to the formal distinctions between state and non-state actor, thew effect substantially guts the differences between states, as a class of legal actor, and other juridical persons (or even individuals). In this realm of substantive horizontal legal equivalence, power passes form states to transnational systems.
This was the point raised by Justice Stevens in dissent. "Diplomatic channels provide the normal method of resolving disputes between local governmental entities and foreign sovereigns. . . . The fact that the immunity is the product of comity concerns rather than a want of juridical power. . . does not detract from the important role that it performs in ordering our affairs." Id., Stevens, J., dissenting, slip op. at 1 (citing, in part, Verlinden B. V. v. Central Bank of Nigeria, 461 U. S. 480, 486 (1983). But now, sovereigns are reduced from special actors within a community of equals above non-state actors, to just another special form of juridical personality (one with certain privileges) within the territory of others. Disputes between sovereigns are no longer the subject of horizontal relations among them, but of the same sort of administrative treatment any state reserves for its own subjects before its courts. And it is that reduction--rather than the specifics of the immunity at issue--that is most troublesome for Justice Stevens.

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.
Just like any other corporation engaged in private business activity. And that, precisely, is the majority's point--states can be no different than Coca-Cola or Pepsico. As Justice Thomas emphasizes, "property ownership is not an inherently sovereign function." Id., slip op. at 6 (citing, quite (over)broadly it seems, Schooner Exchange v. McFaddon, 7 Cranch 116, 145 (1812)). And the property exceptions to immunity in both the Restatement (Second) of Foreign Relaitons Law of the United States Section 68 (1965) at 205 and Art. 31(1) of the Vienna Convention on Diplomatic Relations, Apr. 18, 1961, [1972] 23 U. S. T. 3227, T. I. A. S. No. 7502 , were read as supporting that result.
The result is not in itself remarkable. As Justice Thomas himself was surprisingly willing to suggest, foreign tribunals have come to similar conclusions on the basis of the application of similar principles. Id., slip op. at 8 (citing 1957 Y. B. Int’l L. Comm’n 94–95 (402d Meeting, May 22, 1957), Deputy Registrar Case, 94 I. L. R. 308, 312-313 (D. Ct. The Hague 1980) and Intpro Properties (U. K.) Ltd. v. Sauvel, [1983] 1 Q. B. 1019, 1032–1033). The interesting point is the accumulating effect of this decision on the position of the state in a transnational context. The prince, as sovereign, has come a long way since the early 19th century. No longer is it the exceptional case where the prince "may be considered as so far laying down the prince, and assuming the character of a private individual," Schooner Exchange v. McFaddon, 7 Cranch 116, 145 (1812). In a world in which goods, services and people increasingly move freely across borders, where states and economic, social, cultural and religious entities originating therein, engage in business and corporations assume the role of sovereigns abroad, it seems that the prince is becoming far more the individual and far less the sovereign outside the borders of her own realms. In such an order of things, law, as the majority demonstrated, goes transnational.

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