Recent Decision On Sovereign Immunity Highlights Need For Advance Planning When Transacting With Foreign Sovereign Entities

On December 1, 2015, the United States Supreme Court issued its decision in OBB Personenverkehr AG v. Sachs,¹ which presented a seemingly simple question: When do commercial activities in the United States strip foreign states and state-owned entities of sovereign immunity and subject them to jurisdiction in U.S. courts? The answer, according to the Court, is that they are subject to U.S. jurisdiction only when the plaintiff's claim is "based upon" commercial activity in the United States. This decision reversed an en banc decision of the U.S. Court of Appeals for the Ninth Circuit and made it more difficult to sue foreign sovereigns and state-owned entities in U.S. courts. This was less of a jurisprudential revolution than a simple reminder that when U.S. individuals and companies transact business with foreign sovereigns, proactive negotiation of arbitration clauses, forum selection clauses, or investment treaty planning is a paramount element of risk mitigation.