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D.C. Circuit Court of Appeals Affirms Dismissal Under Foreign Sovereign Immunities Act of Claims Against Ukraine by Ukrainian Nationals and Their American Business Partners

The United States Court of Appeals for the District of Columbia (“the D.C. Circuit”) recently affirmed the dismissal of claims brought against the Ukrainian government by Ukrainian nationals and their American business partners in the case of Ivanenko v. Yanukovich. The D.C. Circuit held that U.S. courts lacked subject matter jurisdiction over Ukraine in the case because Ukraine has sovereign immunity under the Foreign Sovereign Immunities Act (“FSIA”) and none of the exceptions under the FSIA abrogated Ukraine’s sovereign immunity.

Plaintiffs in the case are the Ukrainian owners of an automobile import business, the business itself, and their American business partner Alamo Group, Inc., (“Plaintiffs”). In 2004 Plaintiffs were notified that the Ukrainian government had approved the construction of railway through Plaintiffs’ property. Several years of unsuccessful litigation and negotiation in Ukrainian courts ultimately resulted in Plaintiffs’ property, including buildings, equipment, computers, and vehicles, being completely demolished by the Ukrainian government in 2012. Plaintiffs’ land was ultimately not used for a railway, but was instead given to a relative of the Director General of the Ukraine South-Western Railway to build a private sports facility.

Plaintiffs brought claims under the Racketeer Influenced and Corrupt Organizations Act, as well as claims for wrongful expropriation, fraud, abuse of process, and conversion, which were dismissed by the District Court for the District of Columbia, on the grounds that Ukraine was entitled to sovereign immunity under the FSIA. Plaintiffs appealed, but the D.C. Circuit affirmed dismissal.

The D.C. Circuit held that none of Plaintiffs’ asserted three exceptions to Ukraine’s sovereign immunity under the FSIA were applicable. First, the D.C. Circuit rejected Plaintiffs’ contended expropriation exceptions. The FSIA’s expropriation exception did not apply to the Ukrainian Plaintiffs’ claims because the Ukrainian government took the property of its own citizens. Thus, the Ukrainian Plaintiffs’ claims were barred by the domestic takings rule, which provides that a foreign state’s seizure of its own citizens’ property within its territory does not violate international law. The D.C. Circuit also rejected application of the expropriation exception to the American Plaintiff on the ground that it failed to show that the property take is now “owned and operated” by an instrumentality of Ukraine, as required under the FSIA. See 28 U.S.C. § 1605(a)(3). The American Plaintiffs’ property (computers, equipment, vehicles and their parts) had all been destroyed and, therefore, were not “owned or operated” by Ukraine.

The D.C. Circuit went on to reject Plaintiffs’ second asserted FSIA exception, the commercial activity exception. Plaintiffs claimed the U.S. courts had jurisdiction over Ukraine under the commercial activity exception, which permits suits against a foreign sovereign if the claims are based on acts “in connection with a commercial activity of the foreign state.” See 28 U.S.C. § 1605(a)(2). The FSIA in part defines “commercial activity” as relating to the nature of the state’s actions at issue. As a private company could not take the property of another company, unlike a sovereign which can take the property of its citizens, Ukraine’s taking of Plaintiffs’ property was not in the nature of a private, commercial actor, but, instead, in the nature of a sovereign. Therefore, the D.C. Circuit held, the commercial activity exception did not apply.

Finally, the D.C. Circuit rejected Plaintiffs’ third claimed exception, that the Ukrainian government had waived immunity. Plaintiffs argued Ukraine had waived immunity in one of two ways: by entering into a bilateral investment treaty with the United States in 1994 or by a 2016 decree by Ukraine’s then-president authorizing the Ukrainian Ministry of Justice to litigate claims brought by Ukrainian nationals in foreign courts. The D.C. Circuit rejected both of these arguments, finding no clear and unambiguous waiver language in either the treaty or in the presidential decree.

Thus, having rejected all Plaintiffs’ asserted exceptions to Ukraine’s immunity under the FSIA, the D.C. Circuit held Ukraine was immune from suit, and that the case had been properly dismissed.

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