SCOTUS: Rail Company Selling Tickets In U.S. Entitled To Foreign Immunity

Neil Bardack
December 18, 2015

In reversing the Ninth Circuit, the United States Supreme Court in the unanimous decision of OBB Personenverkehr AG v. Sachs, 136 S.Ct. 390 (12/1/15) clarified what is required to establish a claim against a foreign entity that would not be barred by sovereign immunity under the Foreign Sovereign Immunities Act ( 28 U.S.C. section 1605 (a)(2)) (“Act”). Under the Act, a foreign state is immune from the jurisdiction of the courts of the United States or individual States, unless the action is based upon commercial activity carried on in the United States by the foreign state.

In this case, plaintiff Sachs, a California resident, bought a Eurail pass for rail travel in Europe from a Massachusetts-based travel agency. Ms. Sachs was injured in a train station in Austria. The railway was treated as an agency of a foreign state. Plaintiff sued under theories of negligence and strict liability, but the gravamen of the suit was the conduct of the railway at the site of the injury.

The Northern District Court dismissed the action under the Act finding the commercial activity exception to the Act did not apply. The Ninth Circuit en banc reversed on the grounds that the ticket sale by a travel agency constituted commercial activity in the United States by a foreign state; and as the suit was based upon that activity, it was a necessary element of each of plaintiff’s causes of action.

The Supreme Court, disagreed and reversed, holding that where an action is based upon a particular conduct that occurs outside of the United States, that conduct is the gravamen of the suit; commercial activity cannot be established where the injurious conduct occurs in a foreign jurisdiction.

This was the theory of her case before the Supreme Court, where Sachs sought to argue that the marketing and sale of the Eurail pass on behalf of the OBB (a number of railways throughout Europe) constituted an enterprise tantamount to substantial contact within the United States because the passes were marketed and sold all over the United States, and were thus commercial activity under the Act. The high court held that this new theory was forfeited by not having been raised below but did point out that there could be domestic conduct with respect to different types of commercial activity that could play a more significant role in avoiding immunity in a domestic court.

The takeaway from this case is that factual pleading is more important than theories under the Act. Ms. Sachs’s claim was always a personal injury case that occurred as a result of conduct in Austria, irrespective of what conduct occurring in the United States that got her to the train. Tortious actions are typically local unless there is conduct that occurs within the United States, such as fraud or contract disputes that, if established factually, could be an extension of the harm.