International Law - Core Characteristics Test Determines "Agency or Instrumentality" Status for Takings Exception to Foreign Sovereign Immunity Act

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INTERNATIONAL LAW--CORE CHARACTERISTICS TEST DETERMINES "AGENCY OR INSTRUMENTALITY" STATUS FOR TAKINGS EXCEPTION TO FOREIGN SOVEREIGN IMMUNITY ACT--Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2006).

The Foreign Sovereign Immunity Act (FSIA) is the only source of jurisdiction over a foreign state in a United States court. (1) Under the FSIA, "foreign state[s are] presumptively immune from the jurisdiction of United States courts; unless a specified exception applies." (2) In Garb v. Republic of Poland, (3) the Second Circuit Court of Appeals considered whether the Ministry of the Treasury of Poland was an "agency or instrumentality" of a foreign state such that the takings exception to the FSIA would apply and expose the Ministry to suit. (4) The court determined that the takings exception did not apply and dismissed the action. (5)

The plaintiffs in Garb were Polish Jews who fled their country to escape the atrocities of World War II. (6) Ultimately they returned to Poland and repatriated, but recovering ownership of property Jews lost during the war became a source of tension. (7) In nationalizing its land, Poland passed legislation that deprived many repatriated Polish Jews of the property they left behind upon fleeing. (8) The plaintiffs contended that the Polish government deliberately deprived them of their land in violation of international law. (9)

The plaintiffs brought suit in the United States against the Republic of Poland and its Ministry of Treasury, which managed and allegedly profited from the seized property. (10) The plaintiffs sought to rely on section 1605(a)(3), the takings exception to the FSIA, to obtain jurisdiction over Poland in the United States. (11) The defendants moved to dismiss for lack of subject matter jurisdiction, and the U.S. District Court for the Eastern District of New York granted their motion, holding that section 1605(a)(3) did not apply. (12) Ultimately, the Second Circuit Court of Appeals affirmed the district court's ruling, applied a "core characteristics" test, and held that because the Ministry was a "political subdivision" rather than an "agency or instrumentality" it was not amenable to suit under the takings exception to the FSIA. (13)

Historically, foreign states enjoyed absolute immunity from suit in U.S. courts. (14) Since 1976, the FSIA has eroded foreign states' immunity by giving U.S. courts subject matter jurisdiction in certain circumstances, principally when a foreign state acts in a private rather than public capacity. (15) Under the FSIA, foreign states are presumptively immune from suit, which means the plaintiff must establish an exception to the FSIA for a U.S. court to have jurisdiction. (16) One exception that centers around the public-private dichotomy is the takings exception embodied in section 1605(a)(3). (17) Under this exception, amenability to suit depends on whether an entity is an "agency or instrumentality" of a foreign state engaged in commerce in the United States. (18) The bulk of the analysis focuses on whether the entity is an "agency or instrumentality" or a "political subdivision," as the former can be sued while the latter cannot. (19)

Two tests have emerged for determining whether or not an entity is an "agency or instrumentality," which the FSIA vaguely defines as a "separate legal person." (20) Under the legal characteristics test courts balance three characteristics of legal status that are enumerated in the statute's legislative history, namely "whether ... the entity can sue and be sued in its own name, contract in its own name, or hold property in its own name." (21) The courts applying this test have reasoned that the statute is clear and that such a balancing test comports with the legislative intent. (22)

The core characteristics test is a categorical test that focuses on whether the entity's structure and function is predominantly commercial or governmental. (23) The Court of Appeals for the District of Columbia reasoned in Transaero, Inc. …