SCOTUS Explains Interplay Between IOIA and FSIA in Litigation Against International Organizations

On February 27, the U.S. Supreme Court reversed a ruling of the U.S. Court of Appeals for the District of Columbia Circuit and held that international organizations, such as the World Bank, while being protected by the International Organizations Immunities Act of 1945 (IOIA), are not absolutely immune from lawsuits filed in federal court because the protections afforded by the IOIA are tempered by the 1976 Foreign Sovereign Immunities Act (FSIA). The case is Jam, et al. v. International Finance Corp.

International Finance Corporation (IFC) is an international organization headquartered in the U.S. (and 184 nations are currently members of the organization) that provides development loans to projects to be constructed in poor or developing countries, including a coal-fired power plant in Gujarat, India. The IFC audited the project, and following the release of the audit, the petitioners in this case, many local residents, filed a lawsuit against the IFC alleging that pollution from the plant was contaminating much of the local environment. The causes of action included trespass, negligence, nuisance and breach of contract.

Both the U.S. District Court and Court of Appeals held that IFC was entitled to the same “virtual absolute immunity” enjoyed by foreign governments when IOIA was enacted, and dismissed the lawsuit.

In an 8 to 1 decision, the Supreme Court has now reversed the Court of Appeals, ruling that the immunities embedded in IOIA have been modified by FSIA. Since 1952, it has been U.S. policy that a foreign government may be subject to a lawsuit in connection with a commercial, non-governmental activity that has a sufficient nexus with the U.S., and this policy, described as the “restrictive theory of sovereign immunity” was codified in the FSIA.

The Supreme Court confirmed that insofar as these changes apply to foreign governments, they also perforce apply to international organizations such as the IFC. The Supreme Court doubts that this ruling will result in a plethora of litigation that will inhibit the work of these organizations. It notes the Government, at oral argument, expressed the view that this kind of lending activity would not be a “commercial activity” with sufficient nexus to the U.S. to be successfully challenged in a U.S. court.