In early June, the Second Circuit issued two decisions interpreting the “commercial-activity” exception to the FSIA immunity.  In Pablo Star Ltd. v. Welsh Gov’t, plaintiffs were successful in claiming the exception.  In Barnet Revocable Tr. v. Ministry of Culture & Sports of the Hellenic Republic, however, the Court found that the exception does not apply.  We discuss below the key facts and arguments that led to two opposite outcomes.

The Foreign Sovereign Immunities Act or FSIA provides that “a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States,” subject to several enumerated exceptions.  28 U.S.C. § 1604.    Section 1605 of the FSIA contains the commercial-activity exception, which provides that:

A foreign state shall not be immune from the jurisdiction of courts of the United States … in any case … in which the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States[.]

In June 8, 2020 decision in Pablo Star Ltd. v. Welsh Gov’t, the first clause of the commercial-activity exception was at issue.  No. 19-1262-CV, 2020 WL 3041261 (2d Cir. June 8, 2020).  In that case, the Welsh Government was accused in copyright violations when it used certain photographs to promote tourism to Wales.  The allegedly infringing materials were distributed in New York.

The Welsh Government argued that it was acting as a sovereign government to promote Welsh culture and tourism.  The Second Circuit, however, agreed with the District Court that the commercial-activity exception precluded the Welsh Government from claiming FSIA immunity.  The Court noted that although the purpose or the reason of the activity was to enhance the image of the country and the prosperity of its citizens, the activity of promoting tourism is of nature that is performed by private-sector businesses, including “[a]irlines, travel agents, hotels, operators of theme parks, and sponsors of arts festivals”:

All that distinguishes their advertising from that of the Welsh Government here is that their ultimate purpose is indeed profit — the airline hopes that if you are excited by its television commercial about the pleasures to be had at a destination to which it flies, you may be motivated to buy a ticket on one of its flights — while the Welsh Government’s reasons for promoting particular touristic activities is not. But…the lack of a profit motive is irrelevant to the determination of whether the activity is “commercial” for purposes of the FSIA.

One day after its decision in Pablo Star, the Second Circuit issued a decision in Barnet  (No. 19-2171-CV, 2020 WL 3053385 (2d Cir. June 9, 2020)).  In that case, the activity at issue was Greece sending a letter to Sotheby’s in New York and asserting ownership in a figurine that was about to be auctioned.  The District Court concluded that “a letter claiming ownership was an act that a private party may typically undertake in the marketplace” and, therefore that act was “commercial and therefore not sovereign.”

The Second Circuit, however, overturned the District Court’s decision finding that here at issue is the third clause of the commercial-activity exception or the so-called “direct-effect clause,” which applies when a suit seeks relief for an “act” that a foreign state undertakes “in connection with a commercial activity.”  As a result, the Court found that:

Greece undertook the act of sending the letter in connection with its claim of ownership over the figurine pursuant to its patrimony laws. Identifying the activity in connection with which the letter was sent, as the statute requires, reveals its sovereign nature: Greece has claimed ownership over the figurine by adopting legislation that nationalizes historical artifacts and by enforcing those patrimony laws.

Conclusion

Pablo Star and Barnet were issued within a day from each other but reached opposite conclusions.  It might be surprising as both activities, enhancing image of the country and preserving country’s heritage are similar in nature.  However, these two cases highlight the Second Circuit’s nuanced approach to interpretation of the “commercial-activity” exception and its different clauses.