As we’ve previously written, complications arise for foreign sovereigns (States) and private companies when they structure commercial transactions. States prefer to hold as much of their immunities as is possible, while private companies prefer the State waive all immunities. This is particularly true with respect to execution on a judgment for breach of the agreement underlying the transaction. The latter is complicated because enforcement or execution immunities (garnishments or execution on assets to satisfy a judgement) are more narrow than jurisdictional immunities (haling the State into Court to obtain a judgment).
Many foreign missions reside in New York. And a recent New York state court decision highlights the complications arising from leases of real property made by a State and a private company. Although it does not address execution immunity, it highlights the issues that arise when arranging lease terms, preparing and serving civil actions, lease terms that in the court’s view operated as implied waivers of immunity, commercial activity exceptions to jurisdictional immunity, and contractual arrangements for service implied from the notice provisions of the lease. The case provides a reminder that foreign sovereign immunity issues can come up in many contexts, including otherwise “routine” disputes.
101-115 West 116th Street Corp. v. Consulate General of the Republic of Senegal, Index No. 154994/2020 (N.Y. Cty. Sup. Ct.) involved a dispute between a landlord and the Consulate General of the Republic of Senegal. The landlord and the Consulate entered into a lease for the second floor of a building on 116th Street in Manhattan. The landlord argued the Consulate held-over in the premises for several months after the lease ended, and asserted the Consulate failed to pay rent for those months pursuant to the terms of the agreement (which included a rent calculation for any hold-over period). The landlord eventually sued in New York state court for breach. The Consulate did not remove the case to federal court, and argued that it was immune from the Court’s jurisdiction under both the Foreign Sovereign Immunities Act (FSIA) and the Vienna Convention on diplomatic immunity. On summary judgment, the New York state court ruled in favor of the landlord, rejecting the Consulate’s various immunity defenses.[1]
The court began by noting the well-known rule that the FSIA “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country,” and that courts can exercise jurisdiction only if exceptions to immunity set forth in the FSIA are present.[2]
The court first addressed the Consulate’s threshold argument that the Consulate cannot be sued because it “is not a cognizable legal entity.” The Consulate argued that the landlord should have sued the Permanent Mission of the Republic of Senegal.[3] The court responded by noting case law that consulates general can be sued.[4] The court also did not accept the Consulate’s argument that the Vienna Convention on diplomatic immunity applied because the Convention applies only to individuals, not to the Consulate itself.[5]
Turning to the heart of the dispute – the lease — the court found that the Consulate had waived its immunity for two, independent reasons. First, the court found that the Consulate had impliedly waived its immunity in its lease with the landlord, which stated that the lease would be construed under New York law and that actions or proceedings arising out of the lease would be litigated only in federal or state courts located in New York City. The court held that “[t]his language illustrates defendant’s intent, by implication, to subject any dispute arising out of the Lease to adjudication in accordance with New York law in courts within the United States.”[6] The FSIA withdraws immunity under certain exceptions. This aligns with the theory of restrictive sovereign immunity, which, put briefly, derives from the difference between acts taken by a State in its sovereign capacity versus acts taken in the commercial market similar to a private actor. The court found that the Consulate was not immune because entering into a lease for property is a “commercial activity” and thus it concluded it fell under the commercial activity exception to the FSIA.[7]
The court also determined that a third FSIA exception relating to “immovable property” did not apply because the dispute related to unpaid rent, rather than to the property itself, but that was irrelevant because the other two exceptions applied.[8]
Finally, the court addressed the FSIA’s specific requirements for service of process on a sovereign entity. The FSIA prescribes the requirements for service on a State in terms different from the rules applicable to private parties. Among these provisions, the FSIA permits service by “any special arrangement for service between the plaintiff and the foreign state or political subdivision.” The Court construed the lease’s general notice provision – which covered routine notices about the lease – to be a “special arrangement”[9] that covered service of process, even though the provision did not mention service.
This New York state court decision provides a potentially useful summary of issues that can arise between foreign sovereigns and private contracting parties, as well as summarizing principles both parties should keep in mind when entering into contracts.
[1] Index No. 154994/2020, NYSCEF Doc. No. 37.
[2] Id. at 6 (internal quotation marks omitted).
[3] Id.
[4] Id. at 8-9.
[5] Id. at 9.
[6] Id. at 11-12.
[7] Id. at 12.
[8] Id.
[9] Id. at 13-16.
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