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MUSOPOLE v. SOUTH AFRICAN AIRWAYS

October 29, 2001

ANNIE KAMPENYA MUSOPOLE, PLAINTIFF,
v.
SOUTH AFRICAN AIRWAYS (PTY.) LIMITED, A/K/A SOUTH AFRICAN AIRWAYS A/K/A SOUTH AFRICAN AIR, DEFENDANTS.



The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.

MEMORANDUM OPINION

Plaintiff Annie Kampenya Musopole filed this action in New York State Supreme Court alleging various contract and tort claims against South African Airways Ltd. ("SAA") as a result of an incident that occurred at John F. Kennedy International Airport in which an SAA employee allegedly harassed and intimidated plaintiff and prevented her from boarding her SAA flight to Malawi. Defendant removed the action to this Court under 28 U.S.C. § 1441(d), alleging foreign sovereign status under the Foreign Sovereign Immunities Act ("FSIA").*fn1 Currently before the Court is plaintiff's motion to remand the action to state court on the ground that SAA is not a "foreign state" within the meaning of the FSIA.

Jurisdictional Facts*fn2

SAA is a corporation organized under the laws of South Africa.*fn3 Eighty percent of its stock is owned by Transnet Ltd., also a South Africa corporation, the shares of which are controlled by South Africa's Minister for Public Enterprises.*fn4 Transnet, prior to its incorporation in 1990, was the South African government's Railways and Harbors Administration.*fn5 In addition to SAA, Transnet operates six other transport businesses within South Africa, including the railroads, a high-pressure pipeline and the major ports, as well as related and support businesses.*fn6

Discussion

Section 1441(d) of the Judicial Code allows a "foreign state," as defined by the FSIA,*fn7 sued in a state court to remove the action to federal court.*fn8 Section 1603(a) of the FSIA states that the term "foreign state" "includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b)."*fn9 As SAA is not itself a sovereign nation, the question here is whether it is "an agency or instrumentality" of South Africa, a term defined in 28 U.S.C. § 1603(b) as an entity

"(1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof and (3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created under the laws of any third country."*fn10

The parties agree that SAA meets the first and third prongs of this clause — that is, that it is a separate legal person and that it is neither a citizen of a State of the United States nor created under the laws of any third country. The disagreement concerns the second prong. And even here the dispute is narrow. The parties agree, at least tacitly, that SAA is neither an organ nor a political subdivision of South Africa. The only point of difference is whether a majority of its shares is owned by a foreign state or political subdivision thereof — in the context of this case, whether Transnet is a foreign state or political subdivision thereof or, to put it more generally, whether a second-tier subsidiary of a foreign state — that is, a majority-owned subsidiary of a majority-owned subsidiary, the latter of which concededly is an "agency or instrumentality" of a foreign state — itself is an "agency or instrumentality" of a foreign state. The issue thus presented raises a troublesome problem of statutory construction that has divided the courts, including this one, that have considered it.*fn11

The linguistic argument in favor of jurisdiction is that (1) the first-tier subsidiary is an "agency or instrumentality" of the foreign state by virtue of the foreign state's direct ownership of a majority of the first-tier subsidiary's shares, (2) because the first-tier subsidiary is an "agency or instrumentality" under Section 1603(b), it is a "foreign state" as defined in Section 1603(a), and (3) the first-tier subsidiary's ownership of a majority of the shares of the second-tier subsidiary makes the latter an "agency or instrumentality" of the first-tier subsidiary and therefore makes the latter a "foreign state."

Were this the unequivocal import of the statutory language, the Court would be obliged to hold that SAA is a "foreign state" within the meaning of the pertinent statutes and find jurisdiction here. But the statute is not clearly drafted and, as the Ninth Circuit has pointed out, this argument takes some liberties with the statutory language.*fn12

To begin with, Section 1603(a) provides that "a foreign state includes an agency or instrumentality, not that it is an agency or instrumentality or that it is defined as an agency or instrumentality."*fn13 Thus, the equation of an "agency or instrumentality" with "foreign state" in step (2) of the argument outlined above is not the inevitable result of a literal reading of the statute.

Next, the first clause of Section 1603(b)(2) makes a political subdivision of a foreign state an "agency or instrumentality" of that state. By the same reasoning that would treat a first-tier subsidiary as an "agency or instrumentality" of the state as a "foreign state," this clause would equate a "political subdivision" of the state as a "foreign state." But if a political subdivision were the statutory equivalent of a "foreign state," the phrase "or political subdivision" in Section 1603(b) would be superfluous. In consequence, the use of "political subdivision" in Section 1603(b) suggests that a second-tier subsidiary is not a "foreign state."

Finally, if Congress intended that an "agency or instrumentality" of a foreign state within the meaning of Section 1603(b) be indistinguishable from a "foreign state" for purposes of Section 1603(a), it is difficult to see why Section 1603(b)(2) does not refer to an "agency or instrumentality" as one whose ownership of the majority of the shares of another company would render that company itself an "agency or instrumentality" of a foreign state.*fn14 In other words, if Congress had intended a second-tier subsidiary to be a "foreign state" within the meaning of Section 1603(a), a much clearer way to express that thought would have been for the second clause of Section 1603(b)(2) to read "or a majority of whose shares or other ownership interest is owned by a foreign state or an agency or instrumentality or political subdivision thereof . . ." The omission of the italicized words or their substantial equivalent thus leaves the literalist approach to the statute somewhat less than conclusive.

Where, as here, the statutory language leaves considerable doubt as to Congress' intention, it is appropriate to look to the legislative history and ...


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