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Arch Trading Corp. v. The Republic of Ecuador

United States District Court, S.D. New York

May 28, 2015

THE REPUBLIC OF ECUADOR, a sovereign nation; the FIDEICOMISO AGD-CFN NO MAS IMPUNIDAD, an agency or instrumentality of 'THE REPUBLIC OF ECUADOR; and CORPORACION FINANCIER A N AC ION A L, an agency or instrumentality o/THE REPUBLIC OF ECUADOR, Defendants.


PAUL A. CROTTY, United States District Judge:

Arch Trading Corp., Arvin Properties Inc., Hezer Holdings Inc., Madec Limited, and Osis International Corp. (collectively, "Plaintiffs") bring this action against the Republic of Ecuador ("Ecuador"), the Fideicomiso AGD-CFN No Mas Impunidad ("Fideicomiso"), and Corporation Financiera Nacional ("CFN") (collectively, "Defendants") seeking damages arising from Defendants' expropriation of Plaintiffs' property located in Ecuador, allegedly in violation of international law. All acts of expropriation took place in Ecuador; no acts of expropriation occurred here in the United States. Defendants argue they are immune from suit under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1604, and move to dismiss the action. For the reasons below, the Court GRANTS Defendants' motion to dismiss.


Plaintiffs are companies that are owned by Ecuadorian citizens and incorporated in the British Virgin Islands. Collectively, Plaintiffs own 133 subsidiaries-each located in Ecuador- which were expropriated.[1] Compl. ¶¶ 16-17. Plaintiffs allege that on July 8, 2008, Ecuador's AGD[2] seized their Ecuadorian-based subsidiaries without providing compensation. Id. at ¶ 68. Moreover, Plaintiffs allege that Ecuadorian courts were ousted of jurisdiction to hear challenges.[3]Id. at ¶ 74. As a result of the seizures, Plaintiffs allege their subsidiaries are now under the control of the Ecuadorian Government in the Fideicomiso trust, [4] and are operated by the trust's sole trustee, CFN.[5]

On June 26, 2013, Plaintiffs initiated this action against Fideicomiso, CFN, and the Republic of Ecuador, alleging violations of the American Convention of Human Rights, customary international law, and the international law of diplomatic protection. Id. at ¶¶ 82-84. On September 5, 2014, Defendants moved to dismiss on the following grounds: (1) lack of subject-matter jurisdiction; (2) lack of personal jurisdiction; (3) improper venue; (4) res judicata; (5) statute of limitations; (6) the Act of State doctrine; and (7) failure to state a claim upon which relief can be granted.


Defendants raise three jurisdiction-based defenses: lack of subject-matter jurisdiction under Fed.R.Civ.P. 12(b)(1); lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2); and improper venue under Fed.R.Civ.P. 12(b)(3). Defendants also have merits-based defenses under Fed.R.Civ.P. 12(b)(6). Since jurisdiction-based defenses are threshold issues, however, they "should be addressed in the first instance by the District Court." Cent. States Se. & Sw. Areas Health and Welfare Fund v. Merck-Medco Managed Care, 433 F.3d 181, 203 (2d Cir. 2005).

I. Plaintiffs Lack Subject-Matter Jurisdiction

A. Legal Standard

Generally, foreign governments and their agencies and instrumentalities are entitled to sovereign immunity under FSIA, unless an exception applies. In determining whether an exception applies, the Court should be most hesitant to find jurisdiction where the foreign entities have no connection with the United States. Recently confronted with a similar issue, the United States Court of Appeals for the Eleventh Circuit noted the "trend in recent Supreme Court cases" as signaling "the Supreme Court's reluctance to allow international law claims based on occurrences between foreign citizens on foreign soil to proceed in U.S. courts." Mezerhane v. Republica Bolivariana de Venezuela, ___ F'.3d ___, ____, No. 13-14953, 2015 WL 2117109, at *4 (11th Cir. May 7, 2015); accord Sosa v. Alvarez-Machain, 542 U.S. 692, 727 (2004) ("It is one thing for American courts to enforce constitutional limits on our own State and Federal Governments' power, but quite another to consider suits under rules that would go so far as to claim a limit on the power of foreign governments over their own citizens, and to hold that a foreign government or its agent has transgressed those limits."); see also Kiobel v. Royal Dutch Petroleum Co., ___ U.S. ___, 133 S.Ct. 1659 (2013). In other words, what happens in Ecuador should stay in Ecuador.

Ecuador, CFN, and Fideicomiso are each classified as a "foreign state" under FSIA § 1603(a) and are immune from jurisdiction, except as otherwise provided. See FSIA § 1603(a) (including "agenc[ies] or instrumentalities]" within the definition of a "foreign state"). Accordingly, subject-matter jurisdiction is governed by 28 U.S.C. § 1330(a), which confers jurisdiction "whenever a foreign state is not entitled to immunity either under the substantive provisions of FSIA §§ 1605-1607, or under any applicable international agreement." Cargill Intern. S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993); accord Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 439 (1989) ("[T]he FSIA provides the sole basis for obtaining jurisdiction over a foreign state in federal court").

Questions of FSIA subject-matter jurisdiction are resolved through a three-part burden shifting framework. Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230, 242 (2d Cir. 2002). First, the defendant must make a prima facie showing that it is a foreign state, thereby becoming "presumptively immune from the jurisdiction of United States courts; unless a specified exception applies." Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Next, the plaintiff must "sufficiently alleg[e] or proffer[] evidence" of a FSIA exception. Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 (2d Cir. 2001); accord City of New York v. Permanent Mission of India to the United Nations, 446 F.3d 365, 369 (2d Cir. 2006) ("The party seeking to establish jurisdiction bears the burden of producing evidence establishing that a specific exception to immunity applies."). Finally, if the plaintiff satisfies its burden of production, the defendant bears "[t]he ultimate burden of persuasion by a preponderance of the evidence" that the FSIA exception does not apply. Virtual Countries, 300 F.3d at 242.

In applying this burden-shifting framework, courts "may look beyond the pleadings, to the evidence properly before it, and assess the substance of the allegations 'to determine whether one of the exceptions to the FSIA's general exclusion of jurisdiction over foreign sovereigns applies.'" Mortimer Off Shore Sen's., Ltd. v. Fed. Republic of Germany, 615 F.3d 97, 105 (2d Cir. 2010) (quoting Robinson, 269 F.3d at 140) (justifying ...

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