The Commercial Activity Exception

• Author: Ernesto Sanchez
• Pages: 127-149

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THE COM M E RC I A LAC T I V IT Y

EXC EP T I ON

§ 10.1 INTRODUCTION

e crux of the restrictive approach to foreign sovereign immunity, as Chapter 1 has described,

is to allow suits against foreign sovereign defendants that arise from typically commercial

activities.1 Likewise, the FSIA’s commercial activity exception remains “the most signicant of

the FSIA’s exceptions,”2 encompassing a wide array of areas such as general contract liability,

employment cases, insurance matters, securities fraud, and sovereign debt defaults.

e exception specically encompasses (1) commercial activity in the United States; (2) acts

in the United States connected to a foreign sovereign defendant’s commercial activity else-

where; and (3) acts abroad in connection with a foreign sovereign defendant’s commercial activ-

ity elsewhere that cause a direct eect in the United States. In either of these instances, the

exception may be invoked “onlywhen a [foreign sovereign defendant’s individual ocials or

agents] have actual authority” to act on its behalf.3

§ 10.2 PERTINENT STATUTORY TEXT

28 U.S.C. § 1603(d) provides:

A “commercial activity” means either a regular course of commercial conduct or a par-

ticular commercial transaction or act. e commercial character of an activity shall be

determined by reference to the nature of the course of conduct or particular transaction or

act, rather than by reference to its purpose.4

1. See generally infra Pt. I, Ch. 1, §1.3(2).

2. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 611 (1992).

3. Allfreight Worldwide Cargo, Inc. v. Ethiopian Airlines Enterprises, 307 Fed. App’x. 721, 724 (4th Cir. 2009); see

also Dale v. Colagiovanni,443 F.3d 425, 429 (5th Cir.2006) (holding “that an agent’s acts conducted with the apparent

authority of the state is insucient to trigger the commercial exception to FSIA”); U.S. Fidelity and Guaranty Co. v.

Braspetro Oil Services, Co., 199 F.3d 94, 98 (2d Cir.1999) (under certain circumstances, acts of state’s “alter ego” may

be attributed to state in determining whether FSIA commercial activity exception applies, and, in particular, corporate

form may be disregarded where corporate entity is so extensively controlled by its owner that principal-agent relation-

ship arises, where corporate form is interposed to defeat legislative policies, or where recognition of corporate form

would result in fraud or injustice); In re Estate of Ferdinand E. Marcos Human Rights Litigation, 978 F.2d 493, 497

(9th Cir. 1992) (actual authority required to apply commercial activity exception); Servaas Inc. v. Republic of Iraq, 686

F. Supp. 2d 346, 356-58 (S.D.N.Y. 2010) (Ministry of Industry of the Republic of Iraq was alter ego of Republic of

Iraq for FSIA jurisdictional purposes where Ministry’s contract with U.S. contractor required that the Ministry receive

approval from “the appropriate governmental authority of Iraq” before the agreement could be nalized, such approval

was conrmed, and Central Bank of Iraq established a line of credit at an American bank branch through which the

Ministry paid contractor), a ’d, 2011 WL 454501.

4. 28 U.S.C. § 1603(d).

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28 U.S.C. § 1603(e) continues:

A “commercial activity carried on in the United States by a foreign state” means com-

mercial activity carried on by such state and having substantial contact with the United

States.5

28 U.S.C. § 1605(a)(2) then sets forth the actual commercial activity exception:

A foreign state shall not be immune from the jurisdiction of courts of the United States or

of the States in any case . . . in which the action is based upon a commercial activity car-

ried on in the United States by the foreign state; or upon an act performed in the United

States in connection with a commercial activity of the foreign state elsewhere; or 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 eect in the United States . . .6

§ 10.3 COMMERCIAL ACTIVITIES IN THE UNITED STATES

e commercial activity exception’s rst prong encompasses “commercial activity carried on in

the United States” by a defendant covered by the FSIA.7 Chapter 3 has already described the

FSIA’s denition of “the United States.”8 Knowing how to apply this rst prong, then, only

requires understanding of what constitutes a “commercial activity” and “substantial contact with

the United States.”

(1) What Is A Commercial Activity?

In accordance with the restrictive approach to foreign sovereign immunity, an activity is com-

mercial “when a foreign government acts, not as a regulator of a market, but in the manner of

a private player within it.”9 e FSIA states that the “nature of the [regular commercial] course

of conduct or particular [commercial] transaction or act,” rather than their purposes will deter-

mine their commercial character.10 e U.S. Supreme Court has consequently provided that

“the restrictive theory of foreign sovereign immunity would not bar a suit based upon a foreign

state’s participation in the marketplace in the manner of a private citizen or corporation.”11

What distinguishes a commercial activity from a governmental activity, the Court continued,

was not “whether the foreign government is acting with a prot motive or instead with the aim

of fullling uniquely sovereign objectives,” but “whether the particular actions that the foreign

5. Id. § 1603(e).

6. Id. § 1605(a)(2).

7. Id.

8. See supra Pt. II, Ch. 3.

9. Weltover, 504 U.S. at 614.

10. 28 U.S.C. § 1603(d).

11. Weltover, 504 U.S. at 614.

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