Damage Control: Suits Against Foreign Governments

This is the first post in a series on Damage Control, a limited-run series of comics  from Marvel about the eponymous construction company.  The series answers the question “who cleans up after the heroes and villains have finished fighting?” As you might imagine, it’s rife with legal issues.  Unfortunately, the first three volumes have not been collected as trade paperbacks, but you can start with the first issue here.  Today’s post actually comes from the second issue, which has a hilarious cover.

I. The Setup

The plot of the issue is pretty straightforward.  Damage Control handles reconstruction and repairs for villains as well as heroes, and Dr. Doom is a client. Unfortunately, his account is seriously in arrears, and so Albert Clearly, Damage Control’s comptroller, goes to the Latverian embassy in New York to collect. Once he arrives he is greeted by Count Gunter Flounder, who indicates that not only will Doom discontinue the use of Damage Control’s services but that they do not intend to pay the outstanding bill.  As such, “your only option would seem to be trying to sue a foreign government.”

As it happens, Flounder was apparently embezzling from Doom, not to mention hiding the fact that one of his buildings had been damaged. Doom fires Flounder (“I am nothing if not merciful”) and settles the account with a personal check.  But what if he hadn’t?  Could Damage Control have sued Latveria, assuming that their contract was with the country rather than Doom personally?

II. Suits Against Foreign Governments

Suing a foreign government in a United States court is possible, but it is difficult. The Foreign Sovereign Immunities Act establishes that foreign governments are immune from suit in US state and federal courts unless the claim falls within one of the exceptions in the Act.  The FSIA provides the sole basis for suing a foreign government in a US court.  See, e.g., Garb v. Republic of Poland, 440 F.3d 579, 581 (2d Cir. 2006).  So unless an FSIA exception applies, Damage Control is out of luck.  So what are those exceptions?

In general, the FSIA provides immunity for the public acts of foreign states but not for their private acts. The exceptions are listed in 28 U.S.C. §§ 1605, 1605A, but we are most interested in the commercial activity exception, since this is ultimately about a contract for services.

The first step is to determine whether the commercial activity was done with the  authority of the foreign state.  Some circuit courts have held that actual authority (as opposed to apparent authority) is required. See, e.g., Phaneuf v. Republic of Indonesia, 106 F.3d 302, 307 (9th Cir. 1997).  The Second Circuit, which includes  New York, has held that apparent authority may be sufficient. First Fidelity Bank, N.A. v. Government of Antigua & Barbuda–-Permanent Mission, 877 F.2d 189 (2d Cir. 1989).  Since Dr. Doom himself, the absolute monarch of Latveria, was apparently involved, actual authority seems a given, so the point is kind of moot.

The next step is to determine whether the case deals with commercial activity. In the words of the statute, whether “the action is based upon a commercial activity carried on in the United States by the foreign state.” 28 U.S.C. § 1605(a)(2).  The act further defines commercial activity as “[E]ither a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.”  28 U.S.C. § 1603(d).

The general rule is that an activity is commercial “when a foreign government acts, not as regulator of a market, but in the manner of a private player within it.” Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992).  With regard to contracts specifically,  “[T]he United States will be found to have had a substantial contact with that activity if substantial contractual negotiations occurred here or if substantial aspects of the contract were to be performed here.” Gibbons v. Udaras na Gaeltachta, 549 F. Supp. 1094, 1113 (S.D. N.Y. 1982); see also Transcor Astra Group S.A. v. Petroleo Brasileiro S.A.-Petrobras, 409 Fed. Appx. 787 (5th Cir. 2011).

In this case, Latveria contracted with a US company for commercial services to be provided within the United States, and I suspect that the contract was formed in the United States as well, or at least at the Latverian embassy in the United States. On that basis, the commercial activity exception would seem to apply, and Damage Control could have sued Latveria for breach of contract.

As an interesting side note, there would not be a jury trial.  Cases under the FSIA are virtually always bench trials.  The courts have held that a suit under the FSIA is not a suit at common law for Seventh Amendment purposes, and so there is no right to a jury trial. See, e.g. Kraikeman v. Sabena Belgian World Airlines, 674 F. Supp. 136 (S.D. N.Y. 1987).  This is because suits against foreign states were not available at common law at the time of the Seventh Amendment’s ratification in 1791.

I said FSIA cases are ‘virtually’ always bench trials because there appears to have been at least one exception, Martinelli v. Djakarta Lloyd P. N., 106 Misc. 2d 429 (N.Y. City Civ. Ct. 1980).  As in that case a foreign state can be sued in state court, though the FSIA gives foreign states the power to demand removal to federal court, where the case would be tried before a judge.  If a foreign state voluntarily stays in state court, it could be subject to a jury trial.

III. Conclusion

So although it might have been a difficult case (and an even more difficult collection process even if they won), Damage Control could probably have sued Latveria for breach of contract.  Damage Control, Inc. v. Kingdom of Latveria has a nice ring to it, don’t you think?