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Sachs v. Republic of Austria

United States Court of Appeals, Ninth Circuit

December 6, 2013

Carol P. SACHS, Plaintiff-Appellant,
REPUBLIC OF AUSTRIA; OBB Holding Group; OBB Personenverkehr AG, Defendants-Appellees.

Argued and Submitted En Banc March 21, 2013.

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Geoffrey Becker, Becker & Becker, Lafayette, CA, for Plaintiff-Appellant.

Juan C. Basombrio, Dorsey & Whitney LLP, Irvine, CA, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of California, Vaughn R. Walker, District Judge, Presiding. D.C. No. 3:08-cv-01840-VRW.



GOULD, Circuit Judge:

We must decide whether a resident of the United States has a domestic forum in which to bring a claim against a foreign common carrier, operated by a foreign sovereign entity, that sells tickets through a third-party agent or subagent in the United States. Carol P. Sachs filed a complaint against OBB Personenverkehr AG (OBB) in the United States District Court for the Northern District of California. Sachs sought damages for traumatic injuries that she sustained while trying to board an OBB train in Innsbruck, Austria.

The district court granted OBB's motion to dismiss for lack of subject-matter jurisdiction, concluding that OBB, as an instrumentality of the Republic of Austria, was immune from suit under the Foreign Sovereign Immunities Act of 1976 (FSIA). On appeal, Sachs argues that under the first clause of the FSIA's commercial-activity exception, the district court has subject-matter jurisdiction over her claims. We agree. A foreign-state owned common carrier, such as a railway or airline, engages in commercial activity in the United States when it sells tickets in the United States through a travel agent regardless of whether the travel agent is a direct agent or subagent of the common carrier. Under the FSIA, federal courts of the United States will have subject-matter jurisdiction over actions against a foreign sovereign common carrier that engages in commercial activity of this kind as long as the plaintiff's claims are based upon that activity.


OBB Personenverkehr AG is a separate legal entity wholly owned by OBB Holding Group, a joint-stock company created by the Republic of Austria. OBB Holding Group is wholly owned by the Austrian Federal Ministry of Transport, Innovation, and Technology. OBB's main function is to operate passenger rail service within Austria. Like many of its counterparts in other European countries, OBB is a member of the Eurail Group, which is an association organized under Luxemburg law. According to OBB, Eurail Group is responsible for marketing and selling rail passes. Eurail passes are marketed to non-European residents, as they cannot be used by residents of Europe and nearby countries.

In early March 2007, Sachs purchased a four-day Eurail pass from the Rail Pass Experts (RPE) for travel in Austria and the Czech Republic. RPE is located in Massachusetts, but Sachs bought the Eurail pass online through the RPE website. Sachs's Eurail pass listed various disclaimers, including that " the issuing office is merely the intermediary of the carriers in Europe and assumes no liability resulting from the transport." The Eurail pass also stated that it is " non-transferable and only

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valid upon presentation of a passport or a valid travel document replacing the passport."

In late April 2007, Sachs arrived in Innsbruck, Austria, and presented her Eurail pass to OBB to purchase a couchette reservation for her trip from Innsbruck to Prague. Although Sachs would have been able to board the train to sit in an unassigned seat with the Eurail pass that she bought from RPE, she paid the 30.90 fee to upgrade her pass and reserve a couchette bed. The Eurail pass required customers to pay separately for upgrades of this kind.

When Sachs tried to board the train, she fell between the tracks. Her legs were crushed by the moving train. As a result of these injuries, both of Sachs's legs were amputated above the knee. Sachs alleges that OBB caused her injuries by negligently moving the train while she attempted to board. OBB disputes this allegation, claiming that the train was already moving when Sachs tried to board.

Sachs filed suit against OBB in the United States District Court for the Northern District of California.[1] Her complaint asserts claims for negligence; strict liability for a design defect; strict liability for failure to warn about a design defect; breach of implied warranty of merchantability; and breach of implied warranty of fitness. To support these claims, Sachs alleges (a) that she purchased the Eurail pass through OBB's agent Eurail and the American-based company RPE; (b) that through the Eurail pass OBB agreed to provide railway transportation to Sachs during her April 2007 visit to Austria; and (c) that OBB, as a common carrier, owed her a duty of " utmost care."

OBB filed a motion to dismiss on June 21, 2010, arguing that it was entitled to sovereign immunity under the FSIA. In the alternative, OBB also argued that Sachs's complaint should be dismissed for forum non conveniens, lack of personal jurisdiction, and international comity. After a hearing and supplemental briefing on the motion, the district court granted OBB's motion to dismiss for lack of subject-matter jurisdiction on foreign-sovereign-immunity grounds. Sachs v. Republic of Austria, No. C 08-1840 VRW, 2011 WL 816854, at *4 (N.D.Cal. Jan. 28, 2011) (unpublished). The district court concluded that Sachs had not shown a connection between OBB and RPE sufficient to create a principal-agent relationship. As a result, the district court found that RPE's commercial activity in the United States could not be imputed to OBB. Sachs timely appealed.

A divided three judge panel of this court affirmed. Sachs v. Republic of Austria, 695 F.3d 1021, 1029 (9th Cir.2012). The majority of judges agreed on result but not reasoning. Relying on our previous decision in Doe v. Holy See, 557 F.3d 1066 (9th Cir.2009) (per curiam), the majority opinion concluded that RPE's sale of the Eurail pass could not be imputed to OBB for purposes of establishing jurisdiction under the FSIA's commercial-activity exception. Sachs, 695 F.3d at 1025-26. The concurrence agreed that the district court properly dismissed the case for lack of subject-matter jurisdiction, but it argued that Holy See was inapposite because that case addressed a different exception under the FSIA. Instead, the concurrence argued that Sachs's claim failed under Sun v. Taiwan, 201 F.3d 1105 (9th Cir.2000), because

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Sachs did not allege facts sufficient to show that her claims were " based upon" the sale of the Eurail pass in the United States. Sachs, 695 F.3d at 1029-30 (quoting 28 U.S.C. § 1605(a)(2)). The dissent explained that both Holy See and Sun were distinguishable from Sachs's case and that the plain language of the FSIA permits jurisdiction over OBB. Id. at 1032-33.

We ordered rehearing en banc to clarify whether the first clause of the FSIA commercial-activity exception applies to a foreign sovereign when a person purchases a ticket in the United States from a travel agency for passage on a commercial common carrier owned by that foreign state.


We review de novo the district court's determination of immunity under the FSIA. Embassy of the Arab Republic of Egypt v. Lasheen, 603 F.3d 1166, 1170 (9th Cir.2010). A defendant asserting foreign sovereign immunity " may make either a facial or factual challenge to the district court's subject matter jurisdiction." Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir.2012), cert. denied, __ U.S. __, 134 S.Ct. 64, 187 L.Ed.2d 27 (2013). A facial challenge argues only that the facts as alleged in the complaint are insufficient to state a claim. Id. A factual challenge disputes the truth of the allegations that would otherwise be sufficient to invoke federal jurisdiction. Id.

OBB's challenge is factual. OBB submitted documentary evidence and a declaration to prove OBB's status as an agency or instrumentality of the Austrian government and to dispute the truth of Sachs's allegations that RPE sold the ticket as an authorized agent of OBB. Sachs submitted her own declaration and evidence to support her claim of jurisdiction under the FSIA's commercial-activity exception. When the district court relies on such evidence for its decision, we generally treat the jurisdictional attack as factual. See Holy See, 557 F.3d at 1073. For such a factual challenge, we must determine (1) whether Sachs has carried her burden to prove, by offering evidence, that the commercial-activity exception to foreign sovereign immunities applies and (2) whether OBB has carried its burden to prove, by showing a preponderance of evidence, that the exception is not applicable. See Terenkian, 694 F.3d at 1131-32.


The doctrine of foreign sovereign immunity has its roots in the common law, tracing back to the Supreme Court's decision in Schooner Exchange v. McFaddon, 11 U.S. 116, 7 Cranch 116, 3 L.Ed. 287 (1812), which extended " virtually absolute immunity to foreign sovereigns as ‘ a matter of grace and comity.’ " Samantar v. Yousuf, 560 U.S. 305, 311, 130 S.Ct. 2278, 176 L.Ed.2d 1047 (2010) (quoting Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983)). After Schooner Exchange, federal courts routinely deferred to the State Department on whether to assume jurisdiction over an action against a foreign sovereign or its instrumentality. Republic of Austria v. Altmann, 541 U.S. 677, 689, 124 S.Ct. 2240, 159 L.Ed.2d 1 (2004).[2] In 1952, the State Department adopted a " restrictive" theory of sovereign immunity. Samantar, 560 U.S. at 312, 130 S.Ct. 2278.

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The restrictive theory of sovereign immunity recognizes that sovereigns are immune " with regard to sovereign or public acts ( jure imperii ) of a state, but not with respect to private acts ( jure gestionis )." Altmann, 541 U.S. at 690, 124 S.Ct. 2240 (internal quotation marks omitted). This shift was based on the philosophy that where foreign sovereigns engage in commercial dealings there is " a much smaller risk of affronting their sovereignty." Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 703, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976) (plurality).

In 1976, Congress codified the State Department's restrictive theory of sovereign immunity in the FSIA, which established a comprehensive " set of legal standards governing claims of immunity in every civil action against a foreign state or its political subdivisions, agencies, or instrumentalities" and shifted the primary responsibility for determining immunity to the federal courts. Altmann, 541 U.S. at 691, 124 S.Ct. 2240 (quoting Verlinden B.V., 461 U.S. at 488, 103 S.Ct. 1962). The FSIA establishes a presumption of immunity for foreign states but carves out specified exceptions to that grant of immunity. Id. The FSIA exceptions are " the sole basis for obtaining jurisdiction over a foreign state in [U.S.] courts." Peterson, 627 F.3d at 1122 (quoting Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989)).

The exception relevant to this appeal is the first clause of the commercial-activity provision, which provides that a foreign state is amenable to suit where the plaintiff's action is " based upon a commercial activity carried on in the United States by the foreign state." 28 U.S.C. § 1605(a)(2).[3] This clause has two parts: (1) the foreign sovereign must have carried on commercial activity within the United States; and (2) the claim must be based upon that activity.

As for the first part, commercial activity occurs when a foreign state acts as a private player within the market or exercises powers that can also be exercised by private citizens. Terenkian, 694 F.3d at 1132. Commercial activity can be " either a regular course of commercial conduct or a particular commercial transaction or act." Id. (quoting 28 U.S.C. § 1603(d)). " In determining whether an act or activity is commercial, we must look to its nature, not its purpose." Siderman de Blake v. Republic of Arg., 965 F.2d 699, 708 (9th Cir.1992). To be " ‘ carried on in the United States' " there must be " substantial contact" between the commercial act and this country. Terenkian, 694 F.3d at 1132 (quoting 28 U.S.C. § 1603(e)).

As for the second part, " based upon" means " those elements of a claim that, if proven, would entitle a plaintiff to relief." Id. (quoting Saudi Arabia v. Nelson, 507 U.S. 349, 357, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993)). That is, the commercial activity that occurs within the United States must be connected with the conduct that gives rise to the plaintiff's cause of action. Id. at 1132-33; see also Am. W. Airlines, Inc., v. GPA Grp. Ltd., 877 F.2d 793, 796 (9th Cir.1989).


Two main issues are raised on appeal: (1) whether the sale of the Eurail pass, as

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the underlying commercial activity,[4] can be imputed to OBB for purposes of establishing that OBB carried on commercial activity in the United States; and, if so, (2) whether Sachs's claims are " based upon" that commercial activity as required by the commercial-activity exception. The parties agree that OBB is an agency or instrumentality of the Republic of Austria and that it qualifies as a foreign state for purposes of the FSIA. They also agree that the sale of a Eurail pass constitutes a commercial activity under the FSIA. We must first determine if there is a relationship between OBB and RPE sufficient to impute RPE's commercial act within the United States to OBB. If we conclude such a relationship exists, then we must determine if there is a nexus between Sachs's claims and the underlying commercial activity sufficient to show that the claims of Sachs are " based upon" the commercial activity.


The first clause of the commercial-activity exception gives United States courts subject-matter jurisdiction over any case against a foreign state or its instrumentality " in which 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). To apply this exception to Sachs's claims against OBB, there must be a sufficient connection between OBB and RPE's sale of a Eurail pass within the United States to support the conclusion that OBB " carried on" commercial activity within the United States. Id. We conclude that there is.

The plain text of the FSIA indicates that the first clause of the commercial-activity exception encompasses situations in which a foreign state carries on commerce through the acts of an independent agent in the United States. The FSIA defines " commercial activity carried on in the United States by a foreign state" as " commercial activity carried on by such state and having substantial contact with the United States." Id. § 1603(e). This definition requires two elements to establish that a foreign state carried on commercial activity in the United States: (1) that the foreign state carries on commercial activity and (2) that commercial activity has " substantial contact" with the United States. See Nelson, 507 U.S. at 356, 113 S.Ct. 1471 (establishing that jurisdiction requires a plaintiff's action to be " ‘ based upon’ some ‘ commercial activity’ by [a foreign state] that had ‘ substantial contact’ with the United States" ).


The FSIA's legislative history shows that Congress intended the commercial-activity exception to be read broadly to " include not only a commercial transaction performed and executed in its entirety in the United States, but also a commercial transaction or act having a ‘ substantial contact’ with the United States." H.R.Rep. No. 94-1487, at 17 (1976). Notably, neither the statute nor the legislative history defines how the commercial activity within the United States must be " carried on" but both suggest that " the ‘ carried on by’ requirement can be interpreted in light of broad agency principles."

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Mar. Int'l Nominees Establishment v. Republic of Guinea, 693 F.2d 1094, 1105 (D.C.Cir.1983). Under traditional agency principles, the foreign state may engage in commerce in the United States indirectly by acting through its agents or subagents. See Phaneuf v. Republic of Indon., 106 F.3d 302, 307-08 (9th Cir.1997) (establishing that a foreign state can conduct commercial activity through its agents). As long as the agent or subagent acts with actual authority, those acts can be imputed to the foreign state. Id.

The Second Circuit and the D.C. Circuit have both applied this principle of imputing the acts of a subagent to a foreign state under the first clause of the commercial-activity exception.[5] Both have applied the commercial-activity exception where the commercial act in the United States was that of a travel agent acting for the foreign sovereign. In Barkanic v. General Administration of Civil Aviation of the Peoples Republic of China (CAAC), the Second Circuit concluded that the first clause of the commercial-activity exception applied to the Chinese airline CAAC based on the sale of a plane ticket in the United States by a third-party agent. 822 F.2d 11, 13 (2d Cir.1987). CAAC had entered into an agreement with Pan American

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World Airways whereby Pan American would act as a general sales agent for CAAC in the United States. Id. at 12. The tickets in question were not purchased directly through Pan American but through Pan American's agent, Vanslycke & Reeside Travel, Inc. Id. Similarly, in Kirkham v. Socié té Air France, the D.C. Circuit applied the commercial-activity exception to a suit against Air France which was based on the sale of airline tickets through a D.C. travel agency for travel in France. 429 F.3d 288, 290, 293 (D.C.Cir.2005). Because Congress passed the FSIA to promote uniformity in the treatment of foreign sovereign immunity, and because we think that Congress intended to permit suit in the United States against foreign sovereign common carriers that sell tickets in the United States through agents, we see no compelling reason to create a split with our sister circuits. See Kelton Arms Condo. Owners Ass'n. v. Homestead Ins. Co., 346 F.3d 1190, 1192 (9th Cir.2003) (When a law is " best applied uniformly, ... we decline to create a circuit split unless there is a compelling reason to do so." ).

Sachs's claim is no different in substance, for purposes of assessing sovereign immunity, from those analyzed by our sister circuits. Like the travel agents in Kirkham and Barkanic, RPE is a subagent of OBB through Eurail Group. Under traditional theories of agency, RPE's act of selling the Eurail pass to Sachs within the United States can be imputed to OBB as the principal. Where a common carrier authorizes a travel intermediary to " issue tickets on its behalf and to collect and hold customer payment, the intermediary acts as the [carrier's] agent." Restatement (Third) of Agency § 3.14 cmt. c (2006). Here, Eurail Group markets and sells rail passes for transportation on OBB's rail lines, making Eurail Group an agent of OBB. Eurail Group enlists subagents, like RPE, to sell and market its passes worldwide. Eurail Group's use of these subagents establishes a legal relationship between OBB (the principal) and RPE (the subagent): " As to third parties, an action taken by a subagent carries the legal consequences for the principal that would follow were the action instead taken by the appointing agent." Restatement (Third) of Agency § 3.15 cmt. d (2006). OBB admits as much in describing the relationship between OBB and RPE: " you have the operator, you have a separate legal entity, then you have a marketing arm, then you have a general agent."

OBB argues that even if an agency relationship exists between it and RPE, RPE still lacked actual authority to sell the Eurail pass. We disagree. RPE's authority to sell the Eurail pass derives from the original authority that OBB granted to Eurail Group to market and sell passes for transportation on its rail lines. Indeed, Andreas Fuchs, a member of the Board of Management of OBB, conceded in his declaration that this Eurail pass entitled Sachs to board the train in Innsbruck. Moreover, RPE's actual authority to sell the Eurail pass can be inferred from OBB's sale of the couchette bed upgrade to Sachs. Sachs could purchase the couchette upgrade only if she had a valid Eurail pass. Otherwise, she would have been required to purchase an entirely new ticket, not just an upgrade. If RPE had impermissibly sold the ...

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