Merlini v. Canada: The "Commercial Activity" Exception to the Foreign Sovereign Immunities Act

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In Merlini v. Canada, the First Circuit dealt with an interesting case involving a clerical employee of the Canadian embassy who was injured on the job. After numerous twists and turns in her attempt to get worker's compensation coverage for her injury, she ultimately sued the country of Canada, asserting that because it did not have worker's compensation coverage under Massachusetts law, she could recover from it directly. Canada argued that it was immune from suit under the Foreign Sovereign Immunities Act ("FSIA"). 

This case implicates the "Commercial Activity" to the FSIA, which provides that a foreign state is subject to jurisdiction in the United States in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state. This exception is not focused on a profit motive, but instead subjects foreign sovereigns to US jurisdiction where they are conducting the type of activities in which private parties in commerce engage. By contrast, where countries are engaging in essentially sovereign activities, the "Commercial Activity" exception will not apply.

The issue in Merlini was whether the nature of the case was commercial or sovereign. The plaintiff argued that it was either about her employment or the accident leading to her injury, and relied upon a long line of cases establishing that the employment of clerical employees fits squarely within the "Commercial Activity" exception. By contrast, Canada argued that the case was about its sovereign decision not to purchase worker's compensation insurance in Massachusetts.

The First Circuit concluded that the emphasis of the case was on the employment relationship, which was a standard commercial activity, and not on the sovereign decision. Further, the Court found that the decision whether to provide worker's compensation or "go bare" was the same one that private businesses regularly make. The Court refused to look at Canada's motive behind the acts in determining whether the exception applies. This is in line with other cases, such as ones involving Argentinian bonds, where the courts have held that a sovereign decision not to pay bonds does not render the foreign state immune to suit on what were otherwise standard bonds similar to any other commercial bonds.

Notably, however, there was a very strong dissent by Judge Lynch in the case, and the First Circuit divided 3-3 on whether to take the case up en banc, with two judges writing a dissent from the denial and urging the Supreme Court to grant review of the case. So there may be more ahead for this case with important implications for the "Commercial Activity" exception. 

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