U. S. Supreme Court rules that FSIA does not immunize
foreign government from lawsuit to declare validity of New York city tax liens
on property held by that sovereign to house its lower‑level employees and their
families
New York law exempts from taxation all real property owned
by a foreign government when that state is using it solely for diplomatic
offices or quarters for ambassadors or ministers plenipotentiary to the United
Nations. For many years, Respondent (New York City) has levied property taxes
against Petitioners (the governments of India and Mongolia) for those parts of
their diplomatic office buildings used to house lower level employees and their
families.
The Permanent Mission of India to the United Nations
occupies a 26‑floor building in New York City that the Government of India
owns. The Mission uses several floors for diplomatic offices, but about 20
floors contain residential units for employees of the diplomatic mission and
their families. The employees – all of whom are below the rank of Head of
Mission or Ambassador – are Indian citizens who receive housing from the
Mission rent free.
Likewise, the Ministry for Foreign Affairs of the People’s
Republic of Mongolia occupies a six‑story building in New York City, which the
Mongolian Government owns. Certain floors of the Ministry Building include
residences for lower level employees of the Ministry and their families.
Petitioners have consistently declined to pay the taxes.
By operation of state law, the unpaid taxes eventually
transmogrified into tax liens held by the Respondent against the residential
properties. As of February 1, 2003, the Indian Mission owed about $16.4 million
in unpaid property taxes and interest, while the Mongolian Ministry owed about
$2.1 million. On April 2, 2003, Respondent filed suits in the New York state
courts seeking declaratory judgments to establish the validity of these tax
liens; Petitioners removed the cases to federal court pursuant to 28 U.S.C.
Section 1441(d), which provides for such removal by a foreign state or its
instrumentality. There they contended that they were immune under the Foreign
Sovereign Immunities Act of 1976 (FSIA), which is the sole basis for obtaining
jurisdiction over a foreign state in federal court. Argentine Republic v.
Amerada Hess Shipping Corp., 488 U.S. 428, 439.
The District Court disagreed, however, relying on an FSIA
exception to a foreign state’s immunity from federal jurisdiction where “rights
in immovable property situated in the United States are in issue.” 28 U.S. C.
Section 1605(a)(4). Reviewing the District Court’s interlocutory decision under
the “collateral order” doctrine, a unanimous panel of the Second Circuit
affirmed. It held that the “immovable property” exception applied, and thus
stripping the Petitioners’ of their general immunity from District Court
jurisdiction over the Respondent’s civil actions. The U. S. Supreme Court
granted certiorari on the following question: whether the FSIA immunizes a
foreign government from a lawsuit to declare the validity of tax liens on
property held by that sovereign to house its lower‑level employees and their
families. In a 7 to 2 vote, the Supreme Court answers in the negative.
Under the FSIA, a foreign state is presumptively immune from
suit unless a specific statutory exception applies. In assessing the scope of
the immovable property exception, the Court begins with the text of the
statute. Contrary to Petitioners’ claim, Section 1605(a)(4) does not expressly
limit itself to cases in which the specific right at issue is title, ownership,
or possession; nor does it specifically rule out cases where the validity of a
lien is at stake. On the contrary, it focuses more broadly on “rights in”
property.
At the time of the FSIA’s adoption, Black’s Law Dictionary
at 1072 (1) defined “lien” as a “charge or security or incumbrance upon
property,”, and (2) “incumbrance” as “[a]ny right to, or interest in, land
which may subsist in another to the diminution of its value,” id., at 908. New
York law’s definition of “tax lien” accords with these general definitions. The
practical effects of a lien support the treatment of liens as interests in
property. Since a lien on real property “runs with the land” and is enforceable
against later buyers, a tax lien inhibits a quintessential property ownership
right – the right to convey. Thus, a suit to establish the validity of a tax
lien linguistically involves “rights in immovable property.”
Two well‑recognized and related purposes of the FSIA
substantiate the majority’s reading of the text: (1) the modern adoption of the
restrictive view of sovereign immunity and (2) the codification of
international law at the time of the FSIA’s enactment.
“Until the middle of the last century, the United States
followed ‘the classical or virtually absolute theory of sovereign immunity,’
under which ‘a sovereign cannot, without his consent, be made a respondent in
the courts of another sovereign.’ Letter from Jack B. Tate, Acting Legal
Adviser, U.S. Dept. of State, to Acting U.S. Attorney General Phillip B.
Perlman (May 19, 1952) (Tate Letter), reprinted in 26 Dept. of State Bull. 984
(1952), and in Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S.
682, 711 (1976) (App. 2 to opinion of the Court). The Tate Letter announced the
United States’ decision to join the majority of other countries by adopting the
‘restrictive theory’ of sovereign immunity, under which ‘the immunity of the
sovereign is recognized with regard to sovereign or public acts (jure imperii)
of a state, but not with respect to private acts (jure gestionis).’ Id.”
“In enacting the FSIA, Congress intended to codify the
restrictive theory’s limitation of immunity to sovereign acts. Republic of
Argentina v. Weltover, Inc., 504 U.S. 607, 612 (1992); Asociacion de
Reclamantes v. United Mexican States, 735 F.2d 1517, 1520, (1984) (Scalia,
J.).”
“As a threshold matter, property ownership is not an
inherently sovereign function. See Schooner Exchange v. McFaddon, 7 Cranch 116,
145 (1812) (‘A prince, by acquiring private property in a foreign country, may
possibly be considered as subjecting that property to the territorial
jurisdiction, he may be considered as so far laying down the prince, and
assuming the character of a private individual’). In addition, the FSIA was
also meant ‘to codify ... the pre‑existing real property exception to sovereign
immunity recognized by international practice.’ Reclamantes, supra, at 1521
(Scalia, J.).”
“Therefore, it is useful to note that international practice
at the time of the FSIA’s enactment also supports the City’s view that these
sovereigns are not immune. The most recent restatement of foreign relations law
at the time of the FSIA’s enactment states that a foreign sovereign’s immunity
does not extend to ‘an action to obtain possession of or establish a property
interest in immovable property located in the territory of the state exercising
jurisdiction.’ Restatement (Second) of Foreign Relations Law of the United
States Section 68(b), p. 205 (1965). As stated above, because an action seeking
the declaration of the validity of a tax lien on property is a suit to
establish an interest in such property, such an action would be allowed under
this rule.” [2356‑57].
Citation: Permanent Mission of India to the United
Nations v. City of New York, 127 S. Ct. 2352, 75 U.S. L. W. 4433 (Sup. Ct. June
14, 2007).
**** Mr. William B. Blanchard (“Bill Blanchard”) is a Real Estate Attorney with offices in St. Charles and Oakbrook Terrace, Illinois. Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals. Mr. Blanchard is General Counsel for Gaia Title, Inc. a title insurance agency and settlement services provider. The Company is owned by real estate attorneys who demand exemplary title insurance services and accurate and efficient settlement services. As General Counsel he is responsible for title examination, commitment and policy review, escrow settlement supervision and regulatory review. - Attorney Profile: https://solomonlawguild.com/william-b-blanchard%2C-esq - Attorney News: https://attorneygazette.com/william-blanchard%2C-esq#40b43d7b-94b2-48d3-b055-1979a636f1e7
