OSS Nokalva, Inc. v European Space Agency, United States Third Circuit decision, 617 F.3d 756 (3d Cir. 2010)
Relevance of the case
In this case, the US Court of Appeals for the Third Circuit rejected the long-held assumption that international organizations are entitled to absolute immunity under the domestic International Organizations Immunities Act (IOIA). The court applied the same concept of restrictive immunity to international organizations as has been developed and applied to sovereign states. This case therefore has important implications for the evolution of immunities of international organizations over time.
I. Facts of the case
OSS Nokalva, Inc. (‘OSSN’) is a software and technology service company based in New Jersey. Headquartered in Paris, the European Space Agency (ESA) is an international organization composed of eighteen member states created to further space research and technology in Europe. Between 1996 and 2004, ESA and OSSN executed four sets of Licensing and Software Maintenance Agreements with the goal of helping ESA develop its own software. A forum selection clause in later agreements stated that disputes would be subject to the jurisdiction of New Jersey courts or the Federal court for the district of New Jersey.
Alleging that ESA had violated their Agreements by distributing OSSN software to third parties and by failing to provide adequate compensation, OSSN filed suit in the Superior Court of New Jersey, which was then removed to the United States District Court for the District of New Jersey at the request of ESA. ESA then moved to dismiss the case for lack of subject-matter jurisdiction, claiming that it was granted absolute immunity under the IOIA. The IOIA is a federal statute, enacted in 1945, which grants certain designated international organizations (of which ESA is one) ‘the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organizations may expressly waive their immunity for the purpose of any proceedings or by the terms of any contract’.1
The District Court denied ESA’s motion to dismiss after making a determination that ESA was entitled to absolute immunity but had expressly waived its immunity in the Agreements. ESA appealed the decision. OSSN cross appealed the decision that ESA was entitled to absolute immunity in the first place.
II. The legal question
This case looks at the evolution of the immunities of international organizations over time. At the time the IOIA was enacted, states enjoyed ‘virtually absolute’ immunity and, by the statute, international organizations were given the same immunities as states. However, the immunities of states have since been modified and restricted, most notably by the 1976 Foreign Sovereign Immunities Act 28 U.S.C. § 1605(a)(2), which stated that immunity would not be granted in situations ‘in which the action is based upon a commercial activity carried 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’.
The legal question raised by this case is: does the language of the IOIA allow for the incorporation of subsequent changes to sovereign state immunity thereby conferring a restrictive, not absolute, immunity upon international organizations?
A federal statute enacted in 1945, the international organizations Immunities Act, 22 U.S.C. § 288, etseq. (‘IOIA’), applies to those international organizations which the President designates as entitled to the benefits of the Act. See 22 U.S.C. § 288. The IOIA provides that designated international organizations, to the extent consistent with the instruments creating them, have the capacity to enter into contracts. Id. § 288a(a)(i). The IOIA also provides that designated organizations ‘enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organizations may expressly waive their immunity for the purpose of any proceedings or by the terms of any contract.’ Id. § 288a(b). ESA’s predecessor was designated as an international organization by President Johnson in 1966. See Exec. Order No. 11,318, 31 Fed.Reg. 15307 (Dec. 5, 1966), as amended by Exec. Order No. 11,351, 32 Fed.Reg. 7561 (May 22, 1967), superceded by Exec. Order No. 11,760, 39 Fed.Reg. 2343 (Jan. 17, 1974), as amended by Exec. Order No. 12,766, 56 Fed.Reg. 28463 (June 18, 1991).
The ESA Convention (‘Convention’) governs ESA’s policies, procedures, and internal rules. A council of representatives (‘Council’) from ESA’s member states oversees its governance. The Convention provides that ESA is immune from ‘jurisdiction and execution,’ except to the extent that it shall, by decision of the Council, have expressly waived such immunity in a particular case; the Council has the duty to waive this immunity in all cases where reliance upon it would impede the course of justice and it can be waived without prejudicing the interests of the Agency[.]
Convention, Annex I, Art. IV f 1(a).
In its complaint, OSSN asserts that ESA: (1) breached the Agreements by distributing OSSN software to third parties; and (2) failed to compensate OSSN for certain software, as well as for the distribution of OSSN’s software to third parties. As a result, OSSN filed contract claims as well as claims for unjust enrichment, conversion, negligence, collection of debt payable, and a claim asserting that ESA ‘tortiously and unlawfully interfered with [OSSN’s] customer relationships and prospective economic advantage [...]’ App. at 33-37.
ESA moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(1), contending that the District Court lacked subject matter jurisdiction because the IOIA grants it absolute immunity. OSSN countered first that ESA’s immunity is not absolute and does not bar suit in this case, and alternatively, that even if ESA’s immunity is absolute, it waived such immunity both by the Convention and by ESA’s execution of the Agreements with the aforementioned forum selection clauses.
The District Court denied ESA’s motion to dismiss. The Court relied primarily on a decision of the United States Court of Appeals for the District of Columbia, Atkinson v. Inter-American Development Bank, which held that the Inter-American Development Bank, a financial institution designated as an international organization under the IOIA, was entitled to ‘virtually absolute’ immunity, ‘contingent only upon the State Department’s making an immunity request to the court [...]’ 156 F.3d 1335, 1340 (D.C.Cir.1998) (quoting Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983)). Following that reasoning, the District Court found ‘that ESA[, like the Inter-American Development Bank,] is entitled to absolute immunity’ pursuant to the IOIA.App. at 14.
Nevertheless, the District Court continued, ‘[a]n international organization’s absolute immunity [. ] is subject to [. ] limitation [by] [. ] express waiver by the international organization [...]’ App. at 14 (citing Mendaro v. World Bank, 717 F.2d 610, 613-14 (D.C.Cir. 1983)). Focusing on the language in the Convention stating that ‘the Council has the duty to waive [. ] immunity in all cases where reliance upon it would impede the course of justice and it can be waived without prejudicing the interests of the Agency,’ App. at 15 (quoting Convention, Annex I, Art. IV f 1(a)), the District Court denied ESA’s motion to dismiss on the ground that ESA waived its immunity for ‘both the contract and tort claims’ brought by OSSN, App. at 22. The District Court reasoned that although such non-specific waivers are disfavored, a waiver of immunity here ‘would provide ESA with [a] corresponding benefit [...].’ App. at 16. Such benefit, decided the District Court, is ‘the ability to participate in the international commercial marketplace.’ App. at 21. ESA appeals that decision. OSSN cross appeals the finding that ESA is entitled to absolute immunity.
It is an accepted tenet of appellate jurisdiction that we ‘may affirm a judgment on any ground apparent from the record, even if the district court did not reach it.’ See Kabakjian v. United States, 267 F.3d 208, 213 (3d Cir.2001) (citing Resolution Trust Corp. v. Fidelity and Deposit Co. of Maryland, 205 F.3d 615, 635 (3d Cir.2000)). We cannot accept the District Court’s decision that ESA is entitled to absolute immunity and therefore need not address whether ESA waived its immunity. We believe there is a more generally applicable basis on which to decide the relevant issue, and proceed therefore to discuss OSSN’s cross-appeal.
We begin with an analysis of the IOIA. That Act provides that international organizations such as ESA ‘shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments [...]’ 22 U.S.C. § 288a(b) (emphases added). As the text makes clear, ‘Congress was legislating in shorthand, referring to another body of law—the law governing the immunity of foreign governments—to define the scope of the new immunity for international organizations.’ Atkinson, 156 F.3d at 1340. The effect of ‘legislating in shorthand’ was to link the immunity of international organizations to that of foreign governments. As a ‘reference statute,’ it raised whether the IOIA should be understood to codify for international organizations the extent of immunity that foreign governments enjoyed in 1945 when the IOIA was enacted, or whether it should be understood to require incorporation of subsequent changes in the law of foreign sovereign immunity. See id. The D.C. Circuit in Atkinson, and the District Court in reliance thereon, took the former view, determining that the IOIA provided that international organizations were to have indefinitely the same level of ‘virtually absolute’ immunity as foreign sovereigns enjoyed in 1945—later changes to foreign sovereign immunity notwithstanding. Id. at 1340 (quoting Verlinden, 461 U.S. at 486, 103 S.Ct. 1962).
Even if the Atkinson court were correct that foreign sovereigns always enjoyed absolute immunity in 1945, and we recognize that there may be some question about that proposition, it does not follow that subsequent changes to the extent of immunity accorded to foreign sovereigns should not be reflected in the immunity to which international organizations are entitled under the IOIA. The language of the IOIA suggests the contrary.
The most important change to the immunity of foreign sovereigns occurring since 1945 was the enactment of the Foreign Sovereign Immunity Act of 1976 (‘FSIA’). See 28 U.S.C. §§ 1330, 1602, etseq. That Act affords foreign governments immunity from the jurisdiction of United States courts, see id. § 1604, except in specific circumstances, including those:
(1) in which the foreign state has waived its immunity either explicitly or by implication [...] [and] (2) in which the action is based upon a commercial activity carried 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 effect in the United States[.]
Id. § 1605(a)(1)-(2) (emphasis added).
ESA points to nothing in the statutory language or legislative history that suggests that the IOIA provision delegating authority to the President to alter the immunity of international organizations precludes incorporation of any subsequent change to the immunity of foreign sovereigns. Indeed, ESA acknowledged at oral argument that the State Department has expressed support for OSSN’s contention that the same restrictive immunity conferred on foreign governments in the FSIA should be applied to ESA. The State Department’s view was reflected in a 1980 letter, where a State Department Legal Adviser wrote ‘The [FSIA] amended [U.S.] law by codifying a more restrictive theory of immunity subjecting foreign states to suit in U.S. courts [...] By virtue of the FSIA [...] international organizations are now subject to the jurisdiction of our courts in respect of their commercial activities [...]’ Letter from Roberts B. Owen, Legal Adviser, State Department, to Leroy D. Clark, General Counsel, Equal Employment Opportunity Commission (June 24, 1980) (emphasis added), reprinted in Marian L. Nash, Contemporary Practice of the United States Relating to International Law, 74 Am. J. Int’l L. 917, 917-18 (1980). The State Department’s direct pronouncement of IOIA immunity is persuasive, particularly because the State Department played an important role in drafting the IOIA. See OSSN Br. at 47 n. 6 (citing Letter from Harold D. Smith, Director, Bureau of the Budget, to James Francis Byrnes, Secretary of State, (Nov. 6, 1945), H.R.Rep. No. 1203 at 7).
ESA’s contrary position leads to an anomalous result. If a foreign government, such as Germany, had contracted with OSSN, it would not be immune from suit because the FSIA provides that a foreign government involved in a commercial arrangement such as that in this case may be sued, as ESA acknowledged at oral argument. We find no compelling reason why a group of states acting through an international organization is entitled to broader immunity than its member states enjoy when acting alone. Indeed, such a policy may create an incentive for foreign governments to evade legal obligations by acting through international organizations. See Steven Herz, International Organizations in U.S. Courts: Reconsidering the Anachronism of Absolute Immunity, 31 Suffolk Transnat’l L.Rev. 471, 521-22 (2008). For these reasons, we conclude that ESA is not entitled to immunity as it stood for foreign sovereigns in 1945.
As noted, the FSIA grants foreign governments immunity from the jurisdiction of United States courts, except when, inter alia, ‘the action is based upon a commercial activity carried on in the United States [...]’ 28 U.S.C. § 1605(a)(2). It is undisputed that the Agreements at issue here constituted such ‘commercial activity’ and, because we construe the IOIA to incorporate the exceptions to immunity set forth in the FSIA, we will affirm the District Court’s order denying ESA’s motion to dismiss.
When this case came before the US Third Circuit, it had been presumed by the court below that the ESA held absolute immunity under the domestic IOIA albeit an immunity that had been waived by ESA’s actions. This followed from a long line of case history supporting absolute immunity. The Third Circuit has offered the first challenge to this assumption, determining that the IOIA did not grant absolute immunity to international organizations, only restrictive immunity. The court made its determination by analogizing the immunities of international organizations to the immunities enjoyed by sovereign states. This analysis is fitting because the immunities of international organizations, enshrined in international organization charters, conventions, headquarter agreements, and domestic legislation, were originally formulated by borrowing from the law that gave immunity to states. As Charles Brower writes, although this case has the appearance of a landmark decision, ‘it may have few practical effects on immunities determinations even if widely followed’.
Sovereign state immunity developed from an earlier era in which actual sovereigns agreed not to prosecute each other without express consent. Over time this concept of immunity transferred from the person of the sovereign to the state itself. The IOIA was enacted in 1945, the same year as the UN Charter, when international organizations were in their infancy. In the wake of two World Wars, countries recognized the need for co-operation in order to build peace. The newly formed international organizations were considered fragile, and this conception of them was the primary motivator behind the development of protection for international organizations in the form of privileges and immunities. Granting international organizations immunities helped them evolve and become functional actors on the world stage; supporting whatever was ‘necessary for the fulfillment of [their] purposes’.    When the IOIA was enacted, states enjoyed absolute immunity." By virtue of the new statute that granted them ‘the same immunity from suit and every form of judicial process as is enjoyed by foreign governments’, so did international organizations. In 1976, the Foreign Sovereign Immunities Act 28 U.S.C. § 1602 et seq. (1979) (FSIA) was passed, which allowed that foreign states would not be immune to actions that were based on commercial activity conducted in the US or that concerned property rights involving the US. Sovereign states no longer benefitted from absolute immunity under US law." What this meant for international organizations depended on the intent of Congress as interpreted from the wording of the IOIA. The D.C. Circuit Court determined that the intent was to give international organizations the same immunity as was enjoyed by foreign governments at the time the IOIA was adopted, holding that any subsequent limitations to state immunities should not be applied to international organizations."
As the Nokalva decision suggests, this meant that international organizations were given greater immunity than states. The Third Circuit foresaw a problem with this as a matter of principle: states would have greater immunity acting through an international organization than acting alone. This might encourage states to form and act through international organizations in order to get around their legal obli- gations. That the Third Circuit could make this prediction belies a fundamental shift in the understanding of international organizations: they are no longer fledgling enterprises in need of protection but powerful international actors in their own right.
To date, the Nokalava case has not driven a significant shift in the law: in US jurisprudence, the Third Circuit remains an outlierd Courts in several European countries have declined to analogize international organization and state immunity, upholding the absolute character of the former/ In general, national courts base the immunities of international organizations on their founding treaties and headquarter agreements between the organization and the state/ This is true even in the US, where the Second Circuit has found the debate over absolute and restrictive immunity inapplicable to the UN, which the court determined is governed by the UN’s own Convention on Privileges and Immunities/ However, in keeping with the IOIA’s linkage of international organization immunities to the immunities of states, international organizations may be following in states’ footsteps. Two centuries ago, it was deemed ‘incompatible with [the] dignity’ of a state to subject it to a domestic legal process/ Today, numerous disputes involving states and ‘the reinforcement of the principle of legality’ have produced an entirely different outlook.  As international organizations have grown in power and influence this has led to a similar increase in disputes. In the absence of effective alternative mechanisms for dispute resolution, the scope of immunity of international organizations will become increasingly restricted/i
-  Professor of Law, Seton Hall Law School. Thanks to Amy Cuzzolino for her excellent assistance inpreparing this commentary.i cf. 22 U.S.C. § 288a(b).
-  The district court relied primarily on Atkinson v Inter-American Development Bank, 156 F.3d 1335(D.C. Cir. 1998), in which the three-judge panel (including now Chief Justice of the United States SupremeCourt John Roberts) had held that the Inter-American Development Bank was ‘entitled to “virtuallyabsolute” immunity’ under the IOIA. Immunity was limited only by situations in which internationalorganizations are obligated to waive their immunity so as not to ‘impede the course of justice’.
-  The D.C. Circuit has seen the majority of legislation regarding the immunities of international organizations, many of which are headquartered in Washington, D.C. See Broadbent v. Org. of Am. States, 628F.2d 27 (D.C. Cir. 1980) which first raised the debate over absolute versus restrictive immunity; Mendarov World Bank, 717 F.2d 610 (D.C. Cir. 1983); Atkinson, 156 F.3d 1335; Vila v Inter-American InvestmentCorp., 570 F.3d 274 (D.C. Cir. 2009).
-  E.g., the Convention on the Privileges and Immunities of the United Nations, 13 February 1946, 1UNTS 15.
-  E.g., G.L. Rios & E.P. Flaherty, ‘International Organization Reform or Impunity? Immunity Is theProblem’, (2010) 16 ILSA Journal of International & Comparative Law 433, 436.
-  cf. C. Brower, ‘United States’, in A. Reinisch, (ed.), The Privileges and Immunities of InternationalOrganizations in Domestic Courts (Oxford, Oxford University Press 2013), p. 319.
-  cf. Rios and Flaherty (n. 5), p. 435; quote from U.N. Charter art. 105(1).
-  cf. S. Herz, ‘International Organizations in U.S. Courts: Reconsidering the Anachronism of AbsoluteImmunity’, (2008) 31 Suffolk Transnational Law Review 471, 488.
-  cf E. Gaillard and I. Pingel-Lenuzza, ‘International Organisations and Immunity fromJurisdiction: To Restrict or to Bypass’, (2002) 51 International and Comparative Law Quarterly 1.
-  cf. Rios and Flaherty (n. 5), p. 454.
-  How absolute state immunity was at the time is debated by some scholars. See Herz (n. 8), p. 502.Prior to the drafting of the IOIA, the Supreme Court opined that the immunities of foreign governmentsshould be determined not by the courts but by the executive and legislative branches. See Republic ofMexico v Hoffman, 324 US 30 (1945).
-  12 FSIA was the codification of more than a decade of state practice of not recognizing immunity forthe private acts of foreign sovereigns. See Letter from Jack B. Tate, Acting Legal Advisor to the Dep’t ofState, to Philip B. Perlman, Acting Att’y Gen., 19 May 1952, in 26 Dep’t St. Bull. 969 (1952).
-  The Nokalva court pointed to statements by officials from the State Department indicating that subsequent changes to state immunity should also apply to international organizations. The Court foundthis persuasive as ‘the State Department played an important role in drafting the IOIA’. OSS Nokalva vEuropean Space Agency, 617 F.3d 756, 764 (3d Cir. 2010).
-  cf. OSS Nokalva v European Space Agency, 617 F.3d at 764. In this regard, there is an interesting analogy with regards to the responsibility of international organizations, and the fear that states may avoid responsibility by acting through the corporate form.
-  See Price v Unisea, Inc., 289 P.3d 914, 920 (Alaska 2012), ‘This new interpretation contradicts theprecedent established by Atkinson, and we decline to follow it.’; Lempert v Rice, 956 F. Supp. 2d 17, 25(D.D.C. 2013), ‘Plaintiff’s heavy reliance on case law outside of this Circuit is misplaced.’; Garcia v Sebelius,867 F. Supp. 2d 125, 141 (D.D.C. 2012) The Circuit has held that ‘Congress’ intent’ in regards to the IOIA‘was to adopt th[e] body of law only as it existed in 1945—when immunity of foreign sovereigns wasabsolute’.
-  Consortium X v Switzerland, Switzerland Federal Supreme Court, 2 July 2004, ILDC 344 (CH 2004);Firma Baumeister Ing. Richard L. v O, Austrian Supreme Court, 14 December 2004, ILDC 362 (AT 2004).See also Beer and Regan v Germany, App. No. 28934/95, 18 February 1999 and Waite and Kennedy vGermany, App. No. 26083/94, which held that the ESA’s immunity against suit in Germany did not violate the ECHR.
-  cf. C. Ryngaert, ‘The Immunity of International Organizations Before Domestic Courts: RecentTrends’, (2010) 7 International Organizations Law Review 121, 125.
-  cf. Brzak v United Nations, 597 F.3d 107 (2d Cir. 2010).
-  The Schooner Exchange v McFaddon, 7 Cranch 116 (1812).
-  cf. Gaillard and Pingel-Lenuzza (n. 9), p. 2.
-  cf. ibid., p. 4.