Foreign Sovereign Immunities Act Exceptions

What are the exceptions under the Foreign Sovereign Immunities Act? A comprehensive guide for international litigants

The Foreign Sovereign Immunities Act (FSIA) stands as a formidable shield protecting foreign governments from being dragged into U.S. courts. But this shield isn’t impenetrable. Understanding when and how a foreign state can be sued in American courts is crucial for anyone engaged in international business, investment, or seeking redress for injuries caused by foreign governments.

Here, we will explore the major exceptions to sovereign immunity under the FSIA, explain how courts interpret and apply these exceptions, and discuss how understanding these critical carve-outs can help you determine whether your claim against a foreign state might succeed in U.S. courts.

What exceptions allow you to sue a foreign state? While the FSIA establishes a presumption of immunity for foreign states and their agencies or instrumentalities, Congress recognized that absolute immunity would be inappropriate in certain situations. The Act contains several carefully crafted exceptions that balance respect for foreign sovereignty with the need for accountability and remedies in specific circumstances.

1. Commercial activity exception – Commercial activity is the most frequently invoked exception to sovereign immunity and provides the basis for most lawsuits against foreign sovereigns and their agencies. This exception recognizes that when foreign states engage in marketplace activities, they should be treated like private actors. The FSIA provides three distinct bases for jurisdiction under this exception:
   • Commercial Activity in the U.S.: When the claim is based upon commercial activity carried on in the United States by the foreign state.
   • Acts in the U.S. Related to Foreign Commercial Activity: When the claim is based upon an act performed in the United States in connection with commercial activity of the foreign state elsewhere.
   • Foreign Acts with Direct Effects in the U.S.: When the claim is based upon an act outside the United States in connection with commercial activity elsewhere that causes a direct effect in the United States.
   Courts determine whether an activity is “commercial” by looking at its nature rather than its purpose. For example, a government’s issuance of bonds to investors would be considered commercial activity because private entities also issue bonds, regardless of whether the government did so to fund public services. In the landmark case Republic of Argentina v. Weltover, the Supreme Court held that Argentina’s issuance of bonds was commercial in nature, and when it defaulted on payments that were to be made in New York, this created a “direct effect” in the United States sufficient to trigger the exception. However, the Supreme Court has narrowed the “based upon” requirement in recent years. In OBB Personenverkehr AG v. Sachs, the Court ruled that a U.S. resident who purchased a Eurail pass in the U.S. but was injured in Austria could not sue the Austrian railway in U.S. courts, as the “gravamen” of her complaint was the accident in Austria, not the ticket purchase.
2. Non-commercial torts exception – Non-commercial torts provide another important exception to immunity. Under this provision, foreign states are not immune in cases where money damages are sought for personal injury, death, or property damage occurring in the United States caused by the tortious act or omission of that foreign state or its officials or employees acting within the scope of their employment. This exception was designed for straightforward domestic torts, such as:
   • Traffic accidents caused by embassy employees
   • Slip-and-falls on diplomatic properties
   • Damage to neighboring buildings during construction of diplomatic facilities
   For this exception to apply, courts have consistently ruled that the “entire tort” – both the tortious act and the resulting injury – must have occurred within the United States. For example, in a case involving alleged computer hacking, a court ruled that the exception did not apply because the programming and transmission of the spy software occurred abroad, even though the damage happened to a computer in the U.S. Importantly, this exception contains two significant carve-outs or “exceptions to the exception”:
   • The discretionary function exclusion preserves immunity for claims based on a foreign state’s policy decisions or judgments, even if discretion was abused.
   • The specific torts exclusion maintains immunity for claims arising from malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.
   These carve-outs significantly limit the scope of the non-commercial torts exception, reflecting Congress’s intent to provide remedies for ordinary accidents while respecting foreign states’ policy decisions and certain sensitive areas of law.
3. Expropriation exception – Expropriation refers to a government’s taking of property without adequate compensation. The FSIA strips immunity when rights in property taken in violation of international law are at issue, provided there’s a connection between the property and the United States. For this exception to apply, four elements must be met:
   • Rights in property are at issue
   • The property was “taken”
   • The taking violated international law
   • The property (or property exchanged for it) has the requisite connection to the United States
   Historically, this exception was understood to apply only to cases where a foreign government expropriated property owned by non-citizens without prompt, adequate, and effective compensation. Courts consistently held that “domestic takings” – where a government takes property from its own citizens – did not violate international law and thus did not trigger the exception. However, in recent years, courts have begun recognizing “genocidal takings” claims, where property was taken in the context of genocide or other mass human rights violations. The theory is that when property is taken as part of a genocide, the taking violates international human rights law even if the victims were citizens of the taking state. This expansion has been controversial. In 2021, the Supreme Court in Germany v. Philipp ruled that the FSIA does not allow Holocaust survivors or their heirs to sue Germany in U.S. courts for Nazi-era property seizures, reasoning that the domestic takings rule still applies even in the context of genocide.
4. Waiver exception – A foreign state is not immune when it has waived its immunity either explicitly or by implication. For a waiver to be effective, it must be clear and unambiguous. Explicit waivers typically appear in:
   • Contracts between foreign states and private parties
   • International agreements
   • Authorized declarations by government officials
   Courts generally construe explicit waivers narrowly, requiring clear evidence of the foreign state’s intent to submit to U.S. jurisdiction.
   Implicit waivers are recognized in only three limited circumstances:
   • When a foreign state agrees to arbitrate in the United States
   • When it agrees that U.S. law governs a contract
   • When it files a responsive pleading in a case without raising the sovereign immunity defense
   Importantly, a foreign state does not implicitly waive immunity by designating the law or courts of a third country as governing a contract. Nor does it waive immunity through litigation conduct short of a responsive pleading, such as filing a motion to dismiss or engaging in discovery. The FSIA also provides that when a foreign state files a lawsuit in U.S. courts, it waives immunity to certain counterclaims, including those arising from the same transaction or occurrence that is the subject of the foreign state’s claim.
5. Terrorism exception – Added to the FSIA in 1996 and substantially expanded in 2008, the terrorism exception allows victims of state-sponsored terrorism to sue designated foreign states for damages. Under this exception, foreign states lose immunity in cases seeking damages for personal injury or death caused by:
   • Acts of torture
   • Extrajudicial killing
   • Aircraft sabotage
   • Hostage taking
   • Provision of material support for such acts
   This exception is unique in that it limits both potential plaintiffs and defendants:
   • Plaintiffs must be U.S. nationals, members of the armed forces, or U.S. government employees or contractors
   • Defendant states must have been designated by the U.S. State Department as “state sponsors of terrorism” at the time of the act or as a result of the act
   Currently, only Cuba, Iran, North Korea, and Syria are designated as state sponsors of terrorism, though past designees like Iraq, Libya, and Sudan have also been sued under this exception. In 2016, Congress passed the Justice Against Sponsors of Terrorism Act, which modified the terrorism exception to allow suits against countries not officially designated as state sponsors of terrorism, enabling 9/11 victims’ families to sue Saudi Arabia. In Opati v. Republic of Sudan (2020), the Supreme Court held that the 2008 amendments to the terrorism exception, which allowed for punitive damages, applied retroactively to conduct that predated the amendments.

How do these exceptions affect international litigation? Understanding the FSIA exceptions is only the first step in successfully navigating litigation against foreign states. Several practical considerations significantly impact how these exceptions function in real-world cases.

1. Proving the exception applies is just the beginning
   Even if you can establish that an exception to immunity applies, you still need to prove your substantive claim. The FSIA is jurisdictional in nature – it determines whether a court can hear your case, not whether you’ll ultimately win. For example, in a commercial activity case, you must first show that the foreign state engaged in commercial activity with sufficient U.S. connections, and then prove all the elements of your underlying claim, such as breach of contract or fraud.
2. Execution immunity creates a second hurdle – Perhaps the most frustrating aspect of FSIA litigation is that even if you win a judgment against a foreign state, collecting on that judgment presents another challenge entirely. The FSIA provides a separate regime of immunity for the execution of judgments against foreign state property. This execution immunity is generally broader than jurisdictional immunity. As a result, it’s not uncommon for a plaintiff to successfully establish jurisdiction, win their case, but then be unable to enforce the resulting judgment against the foreign state’s property.
3. Courts balance competing interests – When applying FSIA exceptions, courts must balance several competing interests:
   • Providing remedies to injured parties
   • Respecting foreign sovereignty
   • Avoiding interference with U.S. foreign policy
   • Ensuring reciprocal treatment of the U.S. in foreign courts
   This balancing act often leads courts to interpret exceptions narrowly, particularly in politically sensitive cases. The Supreme Court has generally taken a cautious approach to expanding FSIA exceptions beyond their explicit statutory language.
4. Exceptions continue to evolve – The interpretation and application of FSIA exceptions continue to evolve through judicial decisions and legislative amendments. Courts regularly refine the boundaries of these exceptions, sometimes expanding them (as with “genocidal takings” cases) and sometimes contracting them (as in OBB Personenverkehr AG v. Sachs). Congress has also shown willingness to amend the FSIA in response to specific events or policy concerns, as it did with the terrorism exception after 9/11. Staying current with these developments is essential for anyone contemplating litigation against a foreign state.

Conclusion – The Foreign Sovereign Immunities Act creates a careful balance between respecting the sovereignty of foreign states and providing remedies to those harmed by foreign state actions. While the presumption of immunity remains strong, the exceptions discussed here provide important pathways to justice in specific circumstances.

Successfully navigating FSIA litigation requires a thorough understanding of these exceptions, their limitations, and how courts have interpreted them. The commercial activity exception remains the broadest and most frequently invoked, but each exception serves an important purpose in the overall scheme of the Act.

For those considering claims against foreign states, careful analysis of whether an exception applies should be the first step. Even when an exception does apply, litigants should be prepared for complex, lengthy proceedings and potential challenges in enforcing any judgment obtained.

The FSIA’s exceptions may not provide a remedy in every deserving case, but they represent an important recognition that foreign state immunity, while valuable, cannot be absolute in our interconnected world.