Court: Foreign country protection limited

By MICHAEL KIRKLAND, UPI Legal Affairs Correspondent   |   April 22, 2003 at 11:29 AM   |   0 comments

WASHINGTON, April 22 (UPI) -- The Supreme Court ruled 7-2 Tuesday that a foreign country must directly own the majority of a business in order for the company to enjoy the foreign state's protection under federal law.

The ruling came in a case involving Israel and a suit filed in Hawaii.

The Foreign Sovereign Immunities Act gives "foreign states" a number of procedural protections in U.S. courts and any foreign corporations largely owned by a foreign state also share in those protections.

The case is described as "one front in a broad litigation war" between foreign banana workers from Costa Rica, Ecuador, Guatemala and Panama and major fruit growers and chemical manufacturers.

At the heart of the dispute is the use of the chemical dibromochloropropane, or DBCP pesticide, in the workers' countries. DBCP was used from the late 1960s through the 1970s to control nematodes -- tiny wormlike parasites that live in soil and attack the roots of plants. Its use was discontinued after studies showed it was linked to health risks.

Foreign workers filed dozens of DBCP suits in several states, including Hawaii. Some were settled, but the vast majority were moved to federal court because foreign nationals were involved.

In Hawaii, Dole Food Co. and the other defendants "impleaded," or yanked two Israeli firms, called the "Dead Sea Companies," into the case. The Israeli companies reportedly supplied some of the DBCP.

Once the Israeli firms had been drawn into the case, however, Dole and the other firms moved to have the suit switched from state to federal court, contending that the Israeli firms were "instrumentalities" of a foreign state.

Attorneys for the banana workers argued that for the Dead Sea Companies to enjoy the immunity of a foreign state, they had to be directly owned by that state.

Instead, the Israeli companies were controlled by the state of Israel through holding companies.

A federal judge agreed that the Dead Sea Companies were foreign "instrumentalities," but a federal appeals court reversed.

The Supreme Court agreed to review the case, but limited the dispute to two questions: Whether a corporation is an "agency or instrumentality" if a foreign state owns a majority of the shares of a corporate enterprise that in turn owns a majority of shares of the corporation; and whether a corporation is an "agency or instrumentality" if a foreign state owned a majority of the shares at the time of the events giving rise to the suit, but the foreign state does not own a majority of those shares at the time someone files the suit.

Tuesday, the court majority said the foreign state itself, not holding companies, must own a majority of a company's stock if the firm is to be considered an instrumentality under the FSIA.

"The Dead Sea Companies say that the state of Israel exercised considerable control over their operations, notwithstanding Israel's indirect relationship to those companies," Justice Anthony Kennedy wrote for the majority.

"They appear to think that, in determining instrumentality status under the Act, control may be substituted for an ownership interest," the justice added. "Control and ownership, however, are distinct concepts."

The terms of the FSIA "are explicit and straightforward," he said: Ownership is required.

As for the second question, Kennedy said, the law also explicitly uses the present tense when talking about proof of instrumentality -- which means a foreign state must own a majority of company shares at the time a suit is filed, not when an action occurs that gives rise to the suit.

Justice Stephen Breyer, joined by Justice Sandra Day O'Connor, dissented in part.

Breyer cited the law's phrase "other ownership interest" to say that an indirect ownership might meet the FSIA requirement.

The combined case before the court consisted of two petitions. In one, the majority affirmed the lower court. In the other, the Supreme Court dismissed a petition by Dole and the other companies because it did not specifically seek review of the appeals court's ruling on the federal common law of foreign relations.

"Common law" is based on court precedents. "Statutory" law is based on statutes enacted by legislatures.

--

(No. 01-593 and 594, Dole et al vs. Gerardo Dennis Patrickson et al.)

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