Second Circuit holds management company’s claim against
Indonesian state‑owned social security insurer under Foreign Sovereign
Immunities Act failed to abrogate insurer’s sovereign immunity where plaintiff
could not show its negligent supervision claim based on act done in connection
with Defendant’s commercial activity
Anglo‑Iberia Underwriting Management Company and Industrial
Re International, Inc. (“Anglo‑Iberia”) sued P.T. Jamsostek (Persero)
(“Jamsostek”), an Indonesian state‑owned social security insurer, and the
Republic of Indonesia (“Indonesia”) claiming Jamsostek’s negligent supervision
of its employees enabled one of them, Prio Adhi Sartono, to commit commercial
reinsurance fraud against Anglo‑Iberia while he was in Colorado pursuing a
Jamsostek‑sponsored MBA. The U.S. District Court for the Southern District of
New York dismissed Anglo‑Iberia’s negligent supervision claim on the ground no
subject matter jurisdiction existed under the Foreign Sovereign Immunities Act
(“FSIA”), 28 U.S.C.A. § 1602 et seq. Anglo‑Iberia appealed to the Second
Circuit.
A foreign state, or an agency or instrumentality of a foreign
state, is immune from federal court jurisdiction unless a specific exception to
the FSIA applies. 28 U.S.C.A. §§ 1603(b), 1604. The so‑called “commercial
activity” exception abrogates immunity in cases where the action is based on
“[1] a commercial activity carried on in the United States
by the foreign state; or upon
[2] an act performed in the United States in connection with
a commercial activity of the foreign state elsewhere; or upon
[3] an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”
[3] an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”
28 U.S.C. § 1605(a)(2).” [175]
On appeal, the parties presumed Jamsostek’s or Indonesia’s
entitlement to sovereign immunity; the only issue was whether the exception
applied, thus subjecting them to federal court jurisdiction. Under the second
clause of the exception, Anglo‑Iberia argued that its negligent supervision
claim was based on (1) the acts Jamsostek performed in the U.S. by supervising
and administering its job training program with Sartono and other employees in
connection with its employment of Sartono and the other alleged wrongdoing
employees at its commercial offices in Indonesia conducting insurance business
and (2) Anglo‑Iberia’s act of depositing reinsurance premiums in a New York
bank and Jamsostek’s commercial activity in supervising its employees in
Indonesia.
Under the third clause, Anglo‑Iberia claimed Jamsostek’s
negligent supervision of its employees in Indonesia and Monaco in connection
with Jamsostek’s commercial activity in Indonesia caused a direct effect in the
U.S. to enter the reinsurance transactions with Jamsostek’s employees and incur
financial losses in the United States. [176]
The Second Circuit rejects both arguments, affirming the
district court’s dismissal of Anglo‑Iberia’s claim. The Court begins its
analysis by noting that under both the second and third clauses of the
exception, Anglo‑Iberia had the burden of showing that its negligent
supervision claim was grounded on an act done “in connection with a commercial
activity” of Jamsostek and Indonesia; therefore, should Anglo‑Iberia fail to
establish a “commercial activity,” then arguing a “connection” necessarily also
would fail.
In its second‑clause analysis, the Court considers case
precedent on construing “commercial activity” under the FSIA:
“In Republic of Argentina v. Weltover, 504 U.S. 607, 112
S.Ct. 2160, 119 L.Ed.2d 394 (1992), the Supreme Court explained that a foreign
state engages in commercial activity ‘when a foreign government acts, not as a
regulator of a market, but in the manner of a private player within it,’” [176]
The Court stresses that what matters is the type of action by which a private
party engages in commerce, rather than the motive or purpose behind it. In
looking to whether Jamsostek’s actions performed in its role as Indonesia’s
default health insurer were the type by which a private party engages in
commerce, the Court finds that:
“[T]he nature of Jamsostek’s hiring, supervision, and
employment of Sartono and other employees is directly concerned with
‘employment in the provision of a governmental program of health benefits
through collection of employer contributions and payroll deductions’ and that
‘such employment is by nature non‑commercial.’ [again citing Weltover]. Despite
Anglo‑Iberia’s argument to the contrary, to hold otherwise and look only to the
fact of employment for purposes of our “commercial activity” analysis would
allow the exception to swallow the rule of presumptive sovereign immunity
codified in the FSIA.” [178] Here, the Court states, Jamsostek’s actions are
sovereign in nature.
The Court then explains Anglo‑Iberia’s third‑clause failure
to show a nexus between Jamsostek’s alleged negligent supervision and its
alleged commercial activity. The Court notes that the statutory term “in
connection” as used in the FSIA “is a term of art” and that as such acts are
deemed to be “in connection” with commercial activity only where a “substantive
connection” or “causal link” exists between them and the commercial activity.
The Court reasons:
“Here, we cannot conclude that Jamsostek’s alleged negligent
supervision of Sartono and his colleagues was ‘in connection with’ its
provision of basic health insurance in Indonesia. The commercial reinsurance
scheme that is said to have injured Anglo‑Iberia was Sartono’s alone and wholly
unrelated to any negligent supervision by Jamsostek with respect to its
insurance activities in Indonesia.” [179]
Citation: Anglo‑Iberia Underwriting Mgmt. Co. v. P.T.
Jamsostek (Persero), 600 F.3d 171 (2d Cir. 2010).
**** Mr. Richard Ehrlich is a specialist in Corporate, Estate and Personal Financial Planning in Florida. In the course of his career, he has prepared hundreds of estate plans and helped hundreds of small businesses navigate the various issues involving insurance, retirement and employee retention. He has helped numerous families deal with the difficulties of taking care of elderly relatives and assisted with all of their long-term planning and long-term care needs. Finally, he has helped investors with their losses in unsuitable investments. LinkedIn Profile: https://www.linkedin.com/in/richard-ehrlich-777b513/; Attorney Profile: http://www.eldercounsel.com/profile/richard-ehrlich-ehrlich-law-center-pa/; Attorney Profile: https://solomonlawguild.com/richard-ehrlich%2C-esq; Attorney News: https://attorneygazette.com/richard-ehrlich%2C-esq#c35a1098-f039-43ab-b0dc-06cff6dabf61
