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Sovereigns In The American Courtroom:

June 4, 2015 • GLOBAL ECONOMY, CRITICAL ANALYSIS, SPECIAL FEATURES, International Law, Americas, Unprotected Post

What Tools Do Judges Have In The United States To Compel Compliance When A Foreign Sovereign Behaves Badly?

By Theresa Bowman and Charles Camp

As the world grows ever smaller, business relationships with governmental entities worldwide increasingly defy traditional assumptions and expectations as to the privileges and protections afforded by sovereignty.

 

Decades ago, the United States Congress decided that when a foreign state enters into a certain set of designated circumstances, such as the entry into American commerce as a private actor would, the sovereign can likewise be treated as a private actor when it enters an American courtroom.  While sovereigns still benefit from broad immunity from lawsuits, the Foreign Sovereign Immunities Act or the FSIA – the product of Congress’s desire to lend consistency to determinations of foreign sovereignty – carves out a set of circumstances in which sovereign immunity falls away.

The drama of a courtroom verdict in civil cases is widely overstated in popular culture.  When the gavel falls and a lucky plaintiff receives a significant monetary award, the celebration can be short-lived.  The victory is frequently only the beginning of a second, winding road toward actual collection of that award.  In litigation involving foreign sovereigns, the collection phase is notoriously complex.  Many sovereigns or sovereign entities refuse, for a variety of reasons, to participate fully in the underlying litigation.  This practice leads to a relatively high incidence of default judgments against countries, with those sovereigns only becoming more actively involved when the plaintiff attempts to collect an award by freezing or seizing foreign-held assets.

As a result, judges who find themselves with sovereigns in their courtrooms in recent years are increasingly being asked to impose traditional post-judgment remedies against foreign states, as they would any other party, in order to compel compliance.

How is the judge’s toolbox limited or changed when it is a sovereign in the courtroom?  The answer to this question has been borne out in recent years by the examination of a court’s power to hold a sovereign in contempt.

The power of courts to punish contempt of court is a cornerstone of courts’ power in American jurisprudence “[f]rom our common-law ancestors forward.”1

Many courts have observed that the power of a court to enforce and protect its orders is virtually boundless.  “The inherent powers of federal courts are those that are necessary to the exercise of all others.”2

So wide-reaching are the courts’ inherent powers in this arena, “[b]ecause of their very potency, inherent powers must be exercised with restraint and discretion.”3

The idea of an American court holding a foreign sovereign in contempt is not a popular one.  Some suggest that the power and practice of American courts to issue contempt rulings against foreign sovereigns violates customary international law.  The United Nations Convention on Jurisdiction Immunities of States and Their Property, on its face, prohibits contempt rulings.  The Convention states that “no fine or penalty shall be impose on [a] State by reason of [its] failure or refusal” to comply with a court order.  While the Convention may, indeed, be considered a reflection of international legal norms, the message it broadcasts in the United States especially, is weak at best.  The Convention never entered into force and the United States has never been a signatory.

When it comes to the imposition of contempt, or even a contempt sanction, American courts have almost universally held that the FSIA is not an obstacle.

In 2007, the United States Court of Appeals for the Seventh Circuit rejected the argument that “the FSIA does not authorize federal district courts to enter monetary contempt sanctions against foreign sovereigns.”4

The Seventh Circuit noted that “[n]othing in the text of the FSIA comes close to suggesting that the FSIA was designed to abrogate or limit [the] essential power” of the court to hold a party, even a country, in contempt.5

In 2011, the D.C. Circuit confronted the argument that because the court may not be able to enforce a civil contempt award, the court should not issue one.  In that case, the Court noted, “[i]t is unclear whether the government is contending that the district court lacked the power under the FSIA to issue the contempt order, or only that equitable considerations counsel restraint, or both.”6 However, the court found that “[the] contention that whether the court can enforce its contempt sanction is irrelevant to the availability of a contempt order is consistent with the statutory scheme.”7

When it comes to the imposition of contempt, or even a contempt sanction, American courts have almost universally held that the FSIA is not an obstacle.

In response to concerns related to diplomacy and the international legal principle of comity, the court observed that, “[a]lthough it may be true, as the government contends, that at least several countries have explicitly prohibited monetary sanctions against a foreign state for refusal to comply with a court order, that seems quite irrelevant because our Congress has not.”8
The court further noted that it could not see “how the United States would be harmed if it were found in contempt under reciprocal circumstances. The broad, generic argument that the government offers here seems to us to be appropriately presented to Congress — not us.”9

The court observed that “[w]e do recognize that there could be circumstances in which particular pressing foreign policy concerns involving a defendant country could affect a court’s decision,” but all the same reasoned that because “the FSIA does not abrogate a court’s inherent power to impose contempt sanctions on a foreign sovereign,” the court’s inherent power to impose such sanctions must be intact even in the sovereign context.10

Still, the prospect of enforcing court-imposed contempt has prompted some skittishness.  Both the D.C. Circuit and the Seventh Circuit stopped short of explicitly green-lighting the inherent power of the court to enforce a contempt award, however much the reasoning behind imposing contempt in the first place supports enforcing contempt awards.
If the FSIA does not abrogate a court’s inherent power to impose contempt sanctions in the absence of a statutory exception to liability, why then should the imposition of enforcement measures be treated any differently?

The question is one of positive vs. negative interpretation.  Is an explicit exception to general immunity positively required to cover each order in the judge’s toolbox? Or is the absence of any prohibition or limitation enough to conclude that Congress did not mean to harness the court’s treatment of a foreign sovereign except as provided for by the FSIA.  While the precedent points to a reading of the statute as a comprehensive text, thereby alluding to a negative interpretation, the meaning is clouded somewhat by the setup of the FSIA itself.  The act does not carve out positive areas into which courts may not tread.  To the contrary, the act positively identifies only the areas in which courts are allowed to treat sovereigns as they would any other party.

For now, the lone voice on the other side of this approach is the Fifth Circuit.  In reviewing garnishments of payments owed to the Republic of Congo, the Fifth Circuit noted that the contempt order, as written, did not fall within the provisions of the FSIA. In 2006, the Court explained their approach by observing that “[a] review of the relevant sections, § 1610 and § 1611, shows that they do not present a situation in which the order could stand. Those sections describe the available methods of attachment and execution against property of foreign states. Monetary sanctions are not included. Therefore, in issuing the contempt order, the district court relied on an erroneous conclusion of law. As such, the court abused its discretion, and the contempt order is vacated.”11

The FSIA, reasoned the Fifth Circuit, deals with a country’s jurisdictional immunity from suit (in plain terms, its immunity from having to defend a lawsuit in the first place) and immunity from enforcement (its ability to have court-imposed obligations be forcibly satisfied through sovereign assets) in completely separate sections, and with substantively different exceptions.  Because the Fifth Circuit found that the FSIA did not provide for monetary sanctions as an “available method[…] of attachment and execution against property of foreign states[,]” any such attachment and execution could not be allowed.12

While the Seventh Circuit has indicated that they may not agree with the Fifth Circuit’s approach from 2006, they have sidestepped any head-long collision by finding that any argument regarding the enforceability of a contempt award against a foreign sovereign is irrelevant to the propriety of a contempt award itself.

“We would need much more clear guidance from Congress than we have before we could conclude that a court had no jurisdiction to entertain contempt proceedings in an action brought under the FSIA for which subject matter jurisdiction has been established.”13

Generally speaking, it is a hallmark of American jurisprudence that there should be no right given by a court without a possible remedy. Unfortunately, however, Courts have found that a sovereign may be found liable and have a judgment entered against them, but have no exceptions available to a plaintiff for collecting that award.

Courts have found that a sovereign may be found liable and have a judgment entered against them, but have no exceptions available to a plaintiff for collecting that award.

Courts will likely continue to sidestep the apparent circuit split as long as they can draw a line in the sand between the imposition of contempt awards and the enforcement of contempt awards.  Because it is well-established, if not entirely fair, that the FSIA can grant a plaintiff a right against foreign sovereign under 1605 for which there is not remedy under 1610, courts have avoided the apparent anomaly of the Fifth Circuit’s reasoning in Af-Cap by stating that a court’s power to impose even monetary sanctions is not diminished even if the Fifth Circuit’s view of the ability to enforce that sanction were foreclosed.

Last year, the Supreme Court offered up a glimpse of how it might treat the question of a court’s ability to enforce its own contempt awards.  In Republic of Argentina v. NML Capital, the Court returned to the text of the FSIA as the comprehensive set of principles by which the courts should decide a state’s immunity and had this to say: “…. any sort of immunity defense made by a foreign sovereign in an American court must stand on the Act’s text.  Or it must fall.”14

In other words, if the challenged procedure or ruling of the lower court would be allowed to stand against a regular, non-sovereign party, and if the FSIA does not expressly demand any deviation, the court would have the power to treat a foreign sovereign as it does any other party.  In that case, since the Federal Rules of Civil Procedure would allow discovery against the regular defendant or judgment debtor and the FSIA did not positively or expressly say otherwise, Argentina was not immune from having to disclose its worldwide assets. 

The Fifth Circuit decision, which predates the Argentina ruling by several years, thus appears to be an outlier.  While courts have gone out of their way to avoid passing judgment upon the Fifth Circuit’s approach, the direction of the Supreme Court’s reasoning in Argentina would certainly suggest that the enforcement of a contempt award, absent any input from Congress to the contrary, will indeed be a powerful part of the judge’s toolbox going forward.

About the Authors
charles-campCharles Camp teaches international negotiations at the George Washington University Law School and is an international lawyer with over thirty years experience representing foreign and domestic clients in international litigation, arbitration, negotiation, and international debt recovery. In 2001, Mr. Camp opened the Law Offices of Charles H. Camp, P.C. to focus on effective, personalised representation in complex, international matters.
theresa-HeadshotTheresa Bowman is an associate at the Law Offices of Charles H. Camp, P.C., practicing in the areas of international commercial disputes and arbitration. Before her current post, Ms. Bowman, a graduate of the George Washington University Law School and President of its Student Bar Association, completed a post-graduate fellowship as a judicial law clerk for the Honorable Reggie B. Walton, District Court Judge for the District of Columbia.

References
1. Autotech Techs. LP v. Integral Research & Dev. Corp., 499 F.3d 737, 744 (7th Cir. 2007)
2. Primus Automotive Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) (Internal quotation marks omitted).
3. Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991).
4. Autotech, 499 F.3d at 744.
5. Autotech, 499 F.3d at 744.
6. FG Hemisphere Assocs., LLC v. Democratic Rep. of Congo, 637 F.3d 373, 377 (D.C. Cir., 2011).
7. Id. at 377.
8. Id. at 380.
9. Id.
10. Id.
11. Af-Cap, Inc. v. Rep. of Congo, 462 F.3d 417, 428 (5th Cir. 2006).
12. Id.
13. Autotech, 499 F.3d at 745.
14. Republic of Argentina v. NML Capital, 134 S. Ct. 2250, 2256 (2014)

 

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