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Article: November 2020: Coronavirus-Related Cases Test Boundaries of Foreign Sovereign Immunity

November 17, 2020

Following the spread of the coronavirus pandemic to the United States (“U.S.”), a series of lawsuits have been filed in U.S. courts against the Chinese government, seeking compensation for the pandemic’s impact on U.S. individuals and businesses.  Over the last nine months, at least 24 such cases have been filed, including cases filed by the States of Missouri and Mississippi.  Eight of these lawsuits have already been dismissed, mostly on routine procedural grounds such as failure to prosecute or failure to state a recognizable claim.  The remaining 16 lawsuits and any future ones face inherent challenges as China enjoys sovereign immunity under the Foreign Sovereign Immunity Act (“FSIA”), which normally denies U.S. courts jurisdiction over these cases unless a specific exception applies.  In addition, most of these lawsuits, which are filed as putative class actions, are unlikely to pass the class certification stage in any event.

That said, some of the lawsuits advance novel theories regarding sovereign immunity and it cannot be ruled out that some of them or portions thereof might survive immunity review.  Additionally, in light of several bills introduced by members of Congress aiming at stripping China of sovereign immunity, there is a possibility that these or similar civil lawsuits might one day be able to proceed.  In the unlikely case that a judgment (including possibly a default judgment) is issued against the Chinese government, the prevailing plaintiffs might seek to execute on the assets of not only the Chinese government, but also Chinese state-owned-enterprises in the U.S. or other jurisdictions.  

I. Overview of Lawsuits & Legislative Attempts

At least 24 lawsuits have been filed against China for damages associated with the coronavirus pandemic.  Except the lawsuits filed by Missouri, Mississippi and several individual prisoner actions, the vast majority of the cases have been putative class actions, which purport to represent an extremely large group of individuals or entities who have suffered injury from the pandemic.  

In light of the legal obstacles to bringing suit against a sovereign defendant, Republican lawmakers and the occasional Democratic lawmaker in both the Senate and the House have introduced bills aiming to strip China of its sovereign immunity under the FSIA for its actions relating to the outbreak of the pandemic.  While the fate of such bills and how they might affect the COVID-19 lawsuits, if at all, is highly uncertain, it is not the first time that the U.S. Congress has tried to restrict the principle of sovereign immunity through legislation targeting specific states—Congress previously amended the FSIA to allow September 11 victims to sue Saudi Arabia.

II. Service

None of the plaintiffs of the COVID-19 lawsuits against China have managed to effectuate service, which is the first hurdle for the lawsuits to proceed.  In several of the cases, service packages have been delivered to the Hague Service Convention handling office in Beijing.  However, significant delays have been reported by the service vendors involved due to closure of that office during the height of the pandemic and a resulting backlog of service requests.  See, e.g., Alters v. People’s Republic of China, No. 1:20-CV-21108 (S.D. Fla., filed Mar. 12, 2020), Dkt. No. 123 at 1 ¶ 2; see also Aharon v. Chinese Communist Party, No. 9:20-CV-80604 (S.D. Fla., filed Apr. 7, 2020), Dkt. No. 35 at 4 ¶ 4.  None of these service packages are as yet reported as having been delivered to the defendants involved. 

The means by which service is attempted is a critical issue.  According to the Federal Rules of Civil Procedure, service on a foreign state, political subdivision thereof (e.g. the Wuhan Municipal Government), or agency or instrumentality thereof (e.g. the Wuhan Institute of Virology) must be done in accordance with the FSIA, which in turn requires service in accordance with any applicable international convention, which for China and the United States means the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, otherwise known as the Hague Service Convention.  Zhang v. Inc., 932 F. Supp. 2d 561, 564-65 (S.D.N.Y. 2013) (explaining the application of the rules for a foreign state defendant, and holding that the Hague Service Convention governs service on the People’s Republic of China).  Under the text of that Convention and the reservations and declarations China lodged upon ratifying it, the only proper method of service on any Chinese defendant is by forwarding required process documents to the Chinese Ministry of Justice’s Division of Judicial Assistance (the handling office in Beijing) for forwarding onto the defendants in question.  

Notably, the Hague Service Convention allows a country to reject a request for service if it deems that compliance would infringe upon its sovereignty or security.  U.S. courts have held that they lack authority to review a foreign country’s decision to reject fulfilling service under the Convention and that such issues should be addressed through diplomatic channels.  See Inc., 932 F. Supp. 2d, 566 (which involved a request to serve process on the Chinese government and Baidu in relation to alleged freedom of speech violations—the presiding court honored certificates of rejection issued by Chinese Ministry of Justice, and held that it lacked authority to review the appropriateness of their issuance); see also Davoyan v. Republic of Turkey, No. CV 10-05636 DMG SSX, 2011 WL 1789983, at *2 (C.D. Cal. May 5, 2011).

However, under Article 15 of the Hague Service Convention, if proper service is attempted, but no proof of service is obtained after six months despite attempts to follow up, a court can still proceed with adjudicating the merits of a lawsuit.  Under the FSIA, if service through the methods outlined in an applicable international convention is impossible, a U.S. court may order other methods of service, which in practice have included service by publication, delivery to a U.S.-based representative of a defendant, and even email.  In other words, though the plaintiffs are unlikely to be able to complete service under the Hague Service Convention given likely Chinese objections on sovereignty or security grounds, it is possible that they might, upon exhausting the convention’s procedures, convince a U.S. court to allow them to serve the defendants in other ways.  

III. Sovereign Immunity

If and when service is effectuated, or indeed in parallel to attempts at service, the COVID-19 lawsuits must clear the jurisdictional thresholds outlined under the FSIA, regardless of whether China enters an appearance in these actions.  Courts “have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party.”  Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006).  

“Under the [FSIA], a foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state.”  Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993) (holding that Saudi Arabia was shielded by sovereign immunity because the action at issue did not qualify as “based upon a commercial activity” under the FSIA); see 28 U.S.C. § 1604.

The FSIA specifies a set of exceptions in 28 U.S.C. §§1605, 1605A, 1605B and 1607.  Of these, the coronavirus-related lawsuits have alleged the commercial activity, tortious act, and state sponsorship of terrorism exceptions.  The exceptions alleged in the complaints are unlikely to succeed as the law currently stands, but there remains the possibility that Congress might amend the FSIA to create a carve-out for coronavirus-related lawsuits.

First, the “commercial activity” exception applies to “actions based upon commercial activities of the foreign sovereign carried on in the United States or causing a direct effect in the United States.  Verlinden B.V., 461 U.S. at 488-89; § 1605(a)(2).  In addition, “an effect is ‘direct’ if it follows ‘as an immediate consequence of the defendant’s ... activity.’”  Id., at 618.  Most of the coronavirus complaints do not specifically allege what activities purportedly form the basis for this exception.  See, e.g., Complaint ¶ 18, Alters v. People’s Republic of China, No. 20 Civ. 21108 (S.D. Fla., filed Mar. 13, 2020).  Even the lawsuits that do plead such activities, the alleged activities do not appear to be commercial or to have directly caused the coronavirus outbreak in the U.S.  See, e.g., Complaint ¶ 40, Missouri v. People’s Republic of China, No. 20 Civ. 99 (E.D. Mo., filed Apr. 21, 2020) (China’s operation of its healthcare system, commercial research on viruses, operation of media platforms, and restriction on exports of medical equipment).  Additionally, though some of the activities alleged relate to hording of personal protective equipment or other similar consumer protection or antitrust law violations, see, e.g., Complaint ¶¶ 118-127, State of Mississippi v. People’s Republic of China, No. 1:20-CV-168 (S.D. Miss., filed May 12, 2020)—a creative attempt to find some form of commercial activity—there are no pleaded facts to indicate the government defendants were involved or that the government defendants did anything but exercise powers that they alone as a sovereign state entity possess and which all private parties lack.

Second, the FSIA contains a “noncommercial torts” exception which allows plaintiffs to seek money damages “against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state . . . .”  28 U.S.C. § 1605(a)(5).  But for this exception to apply, the entire tort (both tort and injury) must have occurred within the U.S.  See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 439-41 (1989) (noncommercial torts exception does not cover tort committed outside U.S. territory even if it may have effects in the U.S); Doe v. Fed. Democratic Republic of Ethiopia, 851 F.3d 7, 8 (D.C. Cir. 2017) (“The noncommercial-tort exception abrogates sovereign immunity for a tort occurring entirely in the United States.”).  Here, the alleged tortious acts, such as the leakage of virus, see, e.g., Complaint ¶ 52, State of Missouri v. People’s Republic of China, No. 20 Civ. 99 (E.D. Mo., filed Apr. 21, 2020), are clearly activities outside the U.S. and therefore do not qualify for the noncommercial tort exception.

Third, a couple of the lawsuits also rely on the international-terrorism exception created by the Justice Against Sponsors of Terrorism Act (“JASTA”), which deprives a foreign state of immunity in cases alleging foreign state involvement in an act of international terrorism that occurs in the U.S.  28 U.S.C. § 1605B; see, e.g., Complaint ¶ 4, Buzz Photos v. People’s Republic of China, No. 20 Civ. 656 (N.D. Tex., filed Mar. 17, 2020).  To qualify for this exception, plaintiffs must at least establish the existence of “an act of international terrorism in the United States,” among other elements.  28 U.S.C. § 1605B; In re Terrorist Attacks on Sept. 11, 2001, 298 F. Supp. 3d 631, 642 (S.D.N.Y. 2018).  However, the lawsuits’ bare-bone allegations that the pandemic is a result of a leakage from a Chinese biological weapons facility would neither qualify as an alleged “act of international terrorism” or an act that occurred in the U.S.  

Notwithstanding the above, there remain a couple of possibilities that might eventually allow plaintiffs to circumvent the FSIA’s immunity provisions.  First, as the States of Missouri and Mississippi have done in their lawsuits, and so too some other plaintiffs, see, e.g., Aharon v. Chinese Communist Party, No. 9:20-CV-80604 (S.D. Fla., filed Apr. 7, 2020); Ruocchio v. People’s Republic of China, No. 1:20-CV-7053 (S.D.N.Y., filed Aug. 31, 2020), one possibility is to list the Chinese Communist Party as a co-defendant and try to argue that it as a non-state entity does not fall within the scope of sovereign immunity.

A second possibility is that the Congress might amend the FSIA to add an exception that would allow lawsuits against the Chinese government for coronavirus-related lawsuits to proceed.  Indeed, several Republican lawmakers and the occasional Democrat lawmaker have introduced bills to this end.  Ten such bills have been introduced to Congress since early April, each purporting to carve out specific exceptions to immunity in order to allow civil plaintiffs to sue the Chinese government for the COVID-19 pandemic.  None of these bills, however, has as yet been able to gain sufficient bipartisan support to be passed.  The bill that has proceeded furthest is the Civil Justice for Victims of COVID Act, which Senator Martha McSally sponsored along with seven other Republican senators and introduced it into the Senate on July 20, 2020.  This bill was raised at the Senate Judiciary Committee and then reported for consideration by the full Senate on July 30, 2020.  No progress, however, has occurred since.  But eventual passage of one of these bills or a future similar bill is not entirely outside the realm of possibility.  For example, Congress enacted JASTA in September 2016 “in part to allow suits against Saudi Arabia for the September 11 attacks.”  In re Terrorist Attacks on Sept. 11, 2001, 298 F. Supp. 3d at 642; see also 162 Cong. Rec. S6166–03 (daily ed. Sept. 28, 2016) (statement of Sen. Richard Blumenthal) (“If the Saudi Government had no involvement in 9/11, it has nothing to fear.  But if it was culpable, it should be held accountable.  That is the basic principle of [JASTA].”).  The enactment of JASTA occurred despite opposition and an initial veto from the Obama Administration.