Dole Food Company v. Patrickson
538 U.S. 468 (2003)
Procedural History:
Appeal from judgment denying removal to federal district court to foreign corporations impleaded in a state-court tort action.
Overview:
Dead Sea Bromine Co. and Bromine Compounds, Ltd. (collectively, the Dead Sea Companies (D)), which were impleaded by Dole Food Company and others (Dole petitioners) (D) in a state court tort action, contended that as subsidiaries of an instrumentality of Israel they were entitled to remove the case to federal district court under the Foreign Sovereign Immunities Act of 1976 (FSIA).
-Farm workers (P) filed a state-court action against Dole Food Company and others (Dole petitioners) (D), alleging injury from chemical exposure. The Dole petitioners (D) impleaded Dead Sea Bromine Co. and Bromine Compounds, Ltd. (collectively, the Dead Sea Companies (D)).
-As to the Dead Sea Companies (D), the court of appeals rejected their claim that they were instrumentalities of a foreign state (Israel) as defined by the FSIA, and that they were therefore entitled to removal to federal district court. The court instead ruled that a subsidiary of an instrumentality is not itself entitled to instrumentality status.
-The U.S. Supreme Court granted certiorari.
Issue:
(l) Under the FSIA, must a state own a majority of the shares of a corporation if the corporation is to be deemed an instrumentality of the state?
(2) Is instrumentality status under the FSIA determined at the time the complaint is filed?
Rule:
(1) under the FSIA, a state must own a majority of shares of a corporation if the corporation is to be deemed an instrumentality of the state
(2) instrumentality status of the FSIA is determined at the time the complaint is filed.
Analysis:
Under corporate law principles, which the Court looked to in this case, the fact that Israel might have exercised considerable control over the Dead Sea Companies (D) would not have changed the outcome of the Court’s decision, since control and ownership are distinct concepts, and it is majority ownership by a foreign” state, not control, that is the benchmark of instrumentality status.
Outcome:
-Under the FSIA, a state must own a majority of the shares of a corporation if the corporation is to be deemed an instrumentality of the state. Removal of actions against foreign states is governed by 28 U.S.C. § 144l(d). Section 1603(a) of the FSIA defines “foreign state” to include its “instrumentality,” which in turn is defined, in part, as any entity which is a corporation whose shares are majority-owned by the foreign state, and that is not a U.S. citizen or created under the laws of a third country. Thus, the issue is whether the Dead Sea Companies (D) were an instrumentality of Israel. Israel did not have any direct ownership of shares in these companies, which were separated from Israel by one or more intermediate corporate tiers. Therefore, the Dead Sea Companies (D) were only indirect subsidiaries of Israel. They do not satisfy the FSIA requirement that the state own a majority of the shares of the corporation to qualify for instrumentality status. Only direct ownership satisfies the statutory requirement. In issues of corporate law structure often matters.
-The statutory reference to ownership of “shares” shows that Congress intended coverage to turn on formal corporate ownership. As a corporation and its shareholders are distinct entities, a corporate parent that owns a subsidiary’s shares does not, for that reason alone, own or have legal title to the subsidiary’s assets; and, it follows with even greater force, the parent does not own or have legal title to the subsidiary’s subsidiaries. The veil separating corporations and their shareholders may be pierced in certain exceptional circumstances, but the Dead Sea Companies (D) refer to no authority for extending the doctrine so far that, as a categorical matter, all subsidiaries are deemed to be the same as the parent corporation. Affirmed as to this issue.
-(2) Yes. Instrumentality status under the FSIA is determined at the time the complaint is filed. The plain language of FSIA § 1603{b)(2), which requires that a corporation show that it is an entity «a majority of whose shares … is owned by a foreign state,” and is expressed in the present tense, requires that instrumentality status be determined at the time the action is filed. Here, any relationship recognized under the FSIA between the Dead Sea Companies (D) and Israel had been severed before suit was commenced, so the companies would not be entitled to instrumentality status even if their theory that such status could be conferred on a subsidiary were accepted. Affirmed as to this issue. Affirmed.
538 U.S. 468 (2003)
Procedural History:
Appeal from judgment denying removal to federal district court to foreign corporations impleaded in a state-court tort action.
Overview:
Dead Sea Bromine Co. and Bromine Compounds, Ltd. (collectively, the Dead Sea Companies (D)), which were impleaded by Dole Food Company and others (Dole petitioners) (D) in a state court tort action, contended that as subsidiaries of an instrumentality of Israel they were entitled to remove the case to federal district court under the Foreign Sovereign Immunities Act of 1976 (FSIA).
-Farm workers (P) filed a state-court action against Dole Food Company and others (Dole petitioners) (D), alleging injury from chemical exposure. The Dole petitioners (D) impleaded Dead Sea Bromine Co. and Bromine Compounds, Ltd. (collectively, the Dead Sea Companies (D)).
-As to the Dead Sea Companies (D), the court of appeals rejected their claim that they were instrumentalities of a foreign state (Israel) as defined by the FSIA, and that they were therefore entitled to removal to federal district court. The court instead ruled that a subsidiary of an instrumentality is not itself entitled to instrumentality status.
-The U.S. Supreme Court granted certiorari.
Issue:
(l) Under the FSIA, must a state own a majority of the shares of a corporation if the corporation is to be deemed an instrumentality of the state?
(2) Is instrumentality status under the FSIA determined at the time the complaint is filed?
Rule:
(1) under the FSIA, a state must own a majority of shares of a corporation if the corporation is to be deemed an instrumentality of the state
(2) instrumentality status of the FSIA is determined at the time the complaint is filed.
Analysis:
Under corporate law principles, which the Court looked to in this case, the fact that Israel might have exercised considerable control over the Dead Sea Companies (D) would not have changed the outcome of the Court’s decision, since control and ownership are distinct concepts, and it is majority ownership by a foreign” state, not control, that is the benchmark of instrumentality status.
Outcome:
-Under the FSIA, a state must own a majority of the shares of a corporation if the corporation is to be deemed an instrumentality of the state. Removal of actions against foreign states is governed by 28 U.S.C. § 144l(d). Section 1603(a) of the FSIA defines “foreign state” to include its “instrumentality,” which in turn is defined, in part, as any entity which is a corporation whose shares are majority-owned by the foreign state, and that is not a U.S. citizen or created under the laws of a third country. Thus, the issue is whether the Dead Sea Companies (D) were an instrumentality of Israel. Israel did not have any direct ownership of shares in these companies, which were separated from Israel by one or more intermediate corporate tiers. Therefore, the Dead Sea Companies (D) were only indirect subsidiaries of Israel. They do not satisfy the FSIA requirement that the state own a majority of the shares of the corporation to qualify for instrumentality status. Only direct ownership satisfies the statutory requirement. In issues of corporate law structure often matters.
-The statutory reference to ownership of “shares” shows that Congress intended coverage to turn on formal corporate ownership. As a corporation and its shareholders are distinct entities, a corporate parent that owns a subsidiary’s shares does not, for that reason alone, own or have legal title to the subsidiary’s assets; and, it follows with even greater force, the parent does not own or have legal title to the subsidiary’s subsidiaries. The veil separating corporations and their shareholders may be pierced in certain exceptional circumstances, but the Dead Sea Companies (D) refer to no authority for extending the doctrine so far that, as a categorical matter, all subsidiaries are deemed to be the same as the parent corporation. Affirmed as to this issue.
-(2) Yes. Instrumentality status under the FSIA is determined at the time the complaint is filed. The plain language of FSIA § 1603{b)(2), which requires that a corporation show that it is an entity «a majority of whose shares … is owned by a foreign state,” and is expressed in the present tense, requires that instrumentality status be determined at the time the action is filed. Here, any relationship recognized under the FSIA between the Dead Sea Companies (D) and Israel had been severed before suit was commenced, so the companies would not be entitled to instrumentality status even if their theory that such status could be conferred on a subsidiary were accepted. Affirmed as to this issue. Affirmed.
No comments:
Post a Comment