By Oksana Wright and Philip Langer

Law360 (May 14, 2020, 12:42 PM EDT) --

Oksana Wright

Philip Langer

The state of Missouri recently filed a lawsuit against China and Chinese governmental organizations alleging that the "COVID-19 pandemic is the direct result of a sinister campaign of malfeasance and deception carried out by defendants."[1] Several other states announced plans to file similar lawsuits.

Private plaintiffs who suffered injury and losses due to COVID-19 have also filed a number of class actions seeking damages against China. However, the lawsuits face an uphill battle as the Foreign Sovereign Immunities Act, or FSIA, provides broad immunities to foreign countries and related entities. This article will examine the exceptions to FSIA immunity that might apply, and recent cases in which plaintiffs were successful in claiming such exceptions.

According to the U.S. Court of Appeals for the Second Circuit's decision in Anglo-Iberia Underwriting Management v. P.T. Jamsostek, the FSIA "provides the sole basis for obtaining jurisdiction over a foreign state in federal court."[2] Generally, a foreign state is immune from federal court jurisdiction, unless a specific exception in the FSIA applies. If such an exception applies, then the foreign state does not have immunity against potential liability.[3]

In its complaint, Missouri claims application of two FSIA exceptions that would prevent China from claiming immunity. Those exceptions are known as the commercial activity exception and tortious activity exception.

Commercial Activity Exception

Missouri alleges that the following commercial activities of China fall within the FSIA exception: (1) operation of the health care system in Wuhan and throughout China; (2) commercial research on viruses by the Wuhan Institute of Virology and Chinese Academy of Sciences; (3) the operation of traditional and social media platforms for commercial gain; and (4) production, purchasing, and import and export of medical equipment, such as personal protective equipment, or PPE, used in efforts to battle COVID-19. All of these alleged acts took place outside of the U.S.

To establish a U.S. court's jurisdiction on that basis, the action that took place outside of the U.S. must (1) be taken in connection with a commercial activity of the foreign sovereign; and (2) cause a direct effect in the U.S.[4] The "commercial activity" is defined as "either a regular course of commercial conduct or a particular commercial transaction or act."[5]

To put it simply, in order to determine whether the commercial activity exception applies, the courts look at "whether it is clearly the type of activity that private persons can, and often do, engage in."[6] As a result, commercial transactions with private entities, actions involving financial instruments issued by national banks or tort actions against state airlines often fall within the exception.[7] To the contrary, the sovereign acts like the acts of eminent domain are not commercial in nature.[8]

Although Missouri's complaint offers a number of creative arguments, it is going to be a challenge to establish that the Chinese government's control over the health care system, media and local factories, including production and export of PPE, during the pandemic falls within the commercial activity exception. Those acts are rather similar to taking of property and nationalization, which are traditionally considered to be acts of a sovereign, as opposed to commercial activities that would strip China of its immunity.

Tortious Activity Exception

As an alternative to the commercial activity exception, Missouri also claims that China is immune under the FSIA's noncommercial tortious activity exception set forth at Title 28 of U.S. Code Section 1605(a)(5).

This exception strips a foreign state's FSIA immunity where a party seeks money damages for personal injury or death, or damage to or loss of property, that occurs within the U.S. and is caused by the tortious act or omission of an official or employee of the foreign state. However, this exception only applies if an official is acting within the scope of his or her employment, and is broadly inapplicable to any decisions, actions or inactions that are considered part of an official's discretionary functions.

The tortious activity exception has not been explored in depth within Missouri's district courts or the U.S. Court of Appeals for the Eighth Circuit. However, a snapshot of recent federal case law demonstrates that cases where this exception is invoked, and held applicable, are rare.

A couple of examples where the exception was held applicable were (1) where foreign state personnel within the U.S. engaged in the supervision of allegedly abusive priests;[9] and (2) where the foreign state failed to shore up a necessary party wall between the foreign state's property within the U.S. and an adjoining townhouse.[10]

Missouri is likely to encounter certain difficulties in invoking the tortious activity exception. For one, federal courts largely hold that in order for the exception to apply, it is not enough for the tort to cause harm within the U.S. The tortious activity itself must also have been committed in the U.S.

In fact, the Eighth Circuit has held expressly in a case filed against the Republic of Kenya that because "all the alleged torts would have occurred in Kenya rather than the United States, the tort exception does not apply."[11] Other appellate and district courts around the county have held the same.[12]

While in the complaint Missouri identifies several harms suffered within the U.S. resulting from China's alleged tortious acts and omissions, all of the alleged tortious acts and omissions themselves arguably occurred abroad, within China.

Another roadblock that Missouri may encounter is that the tortious activity exception does not apply to "any claim arising out of ... misrepresentation [or] deceit."[13] For example, in Nwoke v. Consulate of Nigeria, the U.S. District Court for the Northern District of Illinois recently held that the exception was not applicable because the plaintiff's claims against the foreign state centered around a purported fraud, which involves misrepresentation and deceit.[14]

Missouri's claims, by their terms, stem from an alleged "campaign of deceit, concealment, misfeasance, and inaction." Therefore, the court might find that the tortious activity exception is inapplicable on this ground alone.

Conclusion

The FSIA provides broad immunities to foreign countries and related entities and requires plaintiffs to establish specific circumstances in order to claim application of a narrow exception. If a plaintiff fails to establish an applicable exception, the dispute will likely be left outside of the legal arena and subject to political warfare, thereby fulfilling the purpose of the FSIA.[15]

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Oksana Wright is a partner and Philip Langer is an associate at Fox Rothschild LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See https://ago.mo.gov/docs/default-source/press-releases/2019/prc-complaint.pdf?sfvrsn=86ae7ab_2.

[2] Anglo-Iberia Underwriting Mgmt. v. P.T. Jamsostek , 600 F.3d 171, 174-75 (2d Cir. 2010).

[3] 28 U.S.C. § 1606.

[4] Petersen Energia Inversora S.A.U. v. Argentine Republic & YPF S.A. , 895 F.3d 194, 204 (2d Cir. 2018).

[5] 28 U.S.C. § 1603.

[6] Barnet v. Ministry of Culture & Sports of the Hellenic Republic , 391 F. Supp. 3d 291, 300 (S.D.N.Y. 2019) (an action may proceed against Greek Ministry because it was asserting its property rights in the disputed piece of art). 

[7] Lin Zhang v. Air China Ltd. , 866 F. Supp. 2d 1162, 1164 (N.D. Cal. 2012) (Air China's failure to provide oxygen services during the flight falls within the commercial activity exception).

[8] Beg v. Islamic Republic of Pakistan , 353 F.3d 1323, 1326 (11th Cir. 2003).

[9] O'Bryan v. Holy See , 556 F.3d 361, 386 (6th Cir. 2009).

[10] USAA Cas. Ins. Co. v. Permanent Mission of Republic of Namibia , 681 F.3d 103, 108–09 (2d Cir. 2012).

[11] Cmty. Fin. Grp., Inc. v. Republic of Kenya , 663 F.3d 977, 982 (8th Cir. 2011).

[12] See O'Bryan v. Holy See , 556 F.3d 361, 382 (6th Cir. 2009) ("We join the Second and D.C. Circuits in concluding that in order to apply the tortious act exception, the "entire tort" must occur in the United States ."); Jones v. Petty–Ray Geophysical, Geosource, Inc. ,954 F.2d 1061, 1065 (5th Cir. 1992) (same); Democratic Nat'l Comm. v. Russian Fed'n , 392 F. Supp. 3d 410, 428 (S.D.N.Y. 2019) (same); In re Chinese-Manufactured Drywall Prod. Liab. Litig. , 168 F. Supp. 3d 918, 934–35 (E.D. La. 2016) (same); Lin v. United States , 177 F. Supp. 3d 242, 258 (D.D.C. 2016) (same).

[13] 28 U.S.C. § 1605(a)(5). 

[14] 2018 WL 1071445, at *4 (N.D. Ill. Feb. 27, 2018).

[15] A number of senators have proposed certain amendments to FSIA, which would subject China to liability related to COVID-19. See https://www.washingtonpost.com/nation/2020/04/22/missouri-lawsuit-china/ ("A bill by Sens. Marsha Blackburn (R-Tenn.) and Martha McSally (R-Ariz.) would amend the FSIA to allow lawsuits against any foreign state that "discharges a biological weapon." Sens. Tom Cotton (R-Ark.) and Josh Hawley (R-Mo.) have filed similar legislation, creating avenues for Americans to sue China or foreign entities for failures or deceit during public health emergencies.")

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