Arch Trading Corp. v. Republic of Ecuador
839 F.3d 193
| 2d Cir. | 2016Background
- Five British Virgin Islands corporations (plaintiffs) allege that Ecuadorian agencies unlawfully seized 133 companies they owned in Ecuador in 2008 and seek >$1 billion in U.S. courts.
- Plaintiffs sued the Republic of Ecuador, Corporación Financiera Nacional (CFN), and Fideicomiso AGD-CFN No Más Impunidad (the Trust) in SDNY in 2013.
- Defendants invoked the Foreign Sovereign Immunities Act (FSIA); plaintiffs rely on the FSIA’s takings/expropriation exception, 28 U.S.C. § 1605(a)(3).
- §1605(a)(3)’s second prong requires (inter alia) that the agency/instrumentality be “engaged in a commercial activity in the United States.” Plaintiffs attempt to attribute U.S. commercial acts of various separate entities to CFN and the Trust.
- The district court dismissed for lack of subject matter jurisdiction; the Second Circuit affirmed because plaintiffs failed to overcome the Bancec presumption of separateness by showing CFN/Trust exercised "significant and repeated control" over the U.S.-active entities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1605(a)(3)’s takings exception applies because the alleged taking violated international law | Plaintiffs: their seized property was taken in violation of international law | Defendants: takings involved Ecuadorian nationals (act-of-state/own-nation rule) and thus don't violate international law | The court assumed the international-law precondition is relevant but decided other grounds dispositive (jurisdictional failure under prong 2) and did not resolve act-of-state question |
| Whether CFN/Trust are "engaged in a commercial activity in the United States" under §1605(a)(3) | Plaintiffs: impute U.S. commercial activities of CFN-/Trust‑owned or -controlled subsidiaries (e.g., banks, insurers, TV stations) to CFN/Trust | Defendants: CFN/Trust have no U.S. contracts, offices, investments, or operations; activities cited are of separate entities | Held: Plaintiffs failed to show CFN/Trust themselves engage in U.S. commercial activity because they did not rebut the Bancec presumption of separateness |
| Whether the Bancec presumption of separate juridical status should be applied or easily disregarded | Plaintiffs: Bancec inapplicable or should yield because dispute involves instrumentalities vs. non-sovereign entities | Defendants: Bancec presumption applies; corporate separateness must be respected absent extensive control or fraud | Held: Bancec presumption applies; plaintiffs did not meet the high bar (no evidence of significant and repeated control or fraud) |
| Whether denial of jurisdictional discovery or an evidentiary hearing was erroneous | Plaintiffs: discovery/hearing could reveal facts rebutting Bancec and show U.S. commercial activity | Defendants: plaintiffs lacked a reasonable basis for discovery; allegations were conclusory | Held: District court did not abuse discretion in denying jurisdictional discovery or an evidentiary hearing; plaintiffs offered no targeted discovery plan and relied on conclusory declarations |
Key Cases Cited
- First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (establishes Bancec presumption of juridical separateness)
- EM Ltd. v. Banco Cent. de la República Argentina, 800 F.3d 78 (2d Cir. 2015) (clarifies test: sovereign must exercise "significant and repeated control" over instrumentality’s day-to-day operations)
- Zappia Middle East Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247 (2d Cir. 2000) (discusses Bancec presumption and burden to rebut)
- Kensington Int’l Ltd. v. Itoua, 505 F.3d 147 (2d Cir. 2007) (FSIA jurisdictional-review and consideration of extrinsic materials)
- Cargill Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012 (2d Cir. 1993) (defendant’s prima facie FSIA status and burden-shifting)
- Dole Food Co. v. Patrickson, 538 U.S. 468 (rejects categorical collapse of subsidiaries into parent for FSIA purposes)
- Agudas Chasidei Chabad of U.S. v. Russian Fed’n, 528 F.3d 934 (D.C. Cir. 2008) (treats commercial-activity definitions under FSIA; applied takings exception analysis)
- Kirschenbaum v. 650 Fifth Ave. & Related Props., 830 F.3d 107 (2d Cir. 2016) (articulates Bancec exceptions: extensive control or fraud)
- McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346 (D.C. Cir. 1995) (example where Bancec presumption was rebutted due to state control over routine business decisions)