Dole Food Co., et al. v. Patrickson, Gerardo / Dead Sea Bromine Co., Ltd., & Bromine Compounds Ltd. v. Patrickson, Gerardo, et a

Questions presented: (1) Whether a corporation is an "agency or instrumentality" if a foreign state owns a majority of the shares of a corporate enterprise that in turn owns a majority of the shares of the corporation? (2) Whether a corporation is an "agency or instrumentality" if a foreign state owned a majority of the shares of the corporation at the time of the events giving rise to litigation, but the foreign state does not own a majority of those shares at the time that a plaintiff commences a suit against the corporation?

BY: ANNE PICKERING, MEDILL NEWS SERVICE

Dibromochloropropane, or DBCP, is a toxic pesticide that was originally manufactured by Dow Chemical and Shell Oil. When inhaled or absorbed by the skin, DBCP can cause sterility, miscarriages, liver damage and cancer. It was banned in the United States by the U.S. Environmental Protection Agency in 1979 but continued to be shipped to countries outside the United States for use by fruit companies, among others, in Costa Rica, ecuador, Guatemala and Panama.

In 1997, a group of banana workers from Latin America filed a class action suit in state court in Hawaii against the Dole Food Company Inc., Dow Chemical Co. and other fruit and chemical companies, alleging that they have suffered injuries as a result of the use of DBCP that was sprayed on fields in their countries.

Dole Food Company brought two Israeli chemical companies, Dead Sea Bromine Company and Bromine Compounds Limited, which allegedly manufactured some of the DBCP, into the suit as third party defendants. Both Dole and the two companies sought to remove the case to federal court; Dole on federal question jurisdiction and the two Israeli companies under the Foreign Sovereign Immunities Act of 1976 (FSIA), which provides the sole basis for obtaining jurisdiction over foreign states in American courts.

During the period of time in which the use of DBCP occurred, the State of Israel did not itself own either of the two Dead Sea Companies, but it owned shares of other corporations that in turn owned shares of the companies. From 1968 to 1975, Israel owned the majority of shares of Dead Sea Works, Ltd., which owned a majority of the shares of Dead Sea Bromine Co. From 1975 to 1995, Israel owned a majority of the shares of Israel Chemicals, Ltd., which owned a majority of the shares of Dead Sea Works, Ltd., which in turn owned a majority of the shares of Dead Sea Bromine Co. And during much of this period, Dead Sea Bromine owned a majority of the shares of Bromine Compounds Ltd. By 1995, two years before the suit was brought, Israel had sold its majority interest in Israel Chemicals, Ltd., as part of its privatization efforts.

The suit is one of many that have been brought over the past 12 years by Latin American banana workers against the same group of defendants in several states.

According to the FSIA, an "agency or instrumentality of a foreign state" is defined as an entity "that is a separate legal person, such as a corporation, a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof."

The U.S. District Court in Hawaii ruled that the Dead Sea Companies were not an "agency or instrumentality" because they were not owned directly by Israel but indirectly through another company. However, the District Court said that the case should be in federal court citing "the federal common law of foreign relations." The judge then dismissed the case based on forum non conveniens, which means that the lawsuit can be more "conveniently" tried in the country where the damages occurred.

A unanimous 9th Circuit Court of Appeals panel reversed with instructions to send the case back to state court in Hawaii. The panel agreed with the district court that the Dead Sea Companies were not "agents or instrumentalities" because at the time of the suit, the Israeli government no longer had a majority interest in the stock of the parent corporation of the Dead Sea Companies. Judge Alex Kozinski wrote for the panel, "The Court nevertheless assumes for purposes of this case that the FSIA would grant federal jurisdiction over an entity that at the time of the tortious conduct was - but no longer is - a government instrumentality."

The courts opinion regarding whether the Dead Sea Companies were "instrumentalities" of the Israeli government was guided by its 1995 opinion in Gates v. Victor Fine Foods. In Gates, the court "held that under the FSIA, a corporation owned by an instrumentality of a foreign government is not itself an instrumentality of that government."

The Dead Sea Companies argued that they were "organs" of the Israeli government, created for the purpose of exploiting the natural resources of the Dead Sea. They noted that they were classified as "government companies" under Israeli law, which gave the government certain privileges reflecting its ownership stake. The government had the rightto approve the appointment of directors and officers, as well as any changes in the capital structure of the Companies, the Companies were obliged to present an annual budget and financial statement to various government ministries, and the government could constrain the use of the Companies' profits as well as the salaries of the directors and officers.

Nonetheless, the 9th Circuit panel was not persuaded. "Although Israeli law granted such authority directly to the Israeli government," Kozinski wrote, "it is not considerably different from the control a majority shareholder would enjoy under American corporate law."

The court found instead that the Dead Sea Companies "were not run by government appointees; their employees were not treated as civil servants; nor were the companies wholly owned by the government of Israel." Instead they were an independent commercial enterprise "heavily regulated, but acting to maximize profits rather than pursue public objectives."

Therefore the case did not belong in federal court and was ordered back to the Hawaii state court.

The Dole Food Company and the Dead Sea Companies each wrote certiorari petitions to the U.S Supreme Court urging the Court to take the case. The Court asked the Solicitor General to express the views of the United States in an amicus brief.

The Solicitor General recommended that the Court grant certiorari since the circuit courts are divided on the interpretation of the FSIA.

The government said that the 5th Circuit in its 2000 opinion in Delgado v. Shell Oil Co. said that the FSIA did not make a distinction between direct ownership of a corporation and indirect ownership nor did "the statute impose a requirement of direct ownership."

In 1996, the 7th Circuit in In re Air Crash Near Roselawn interpreted the FSIA to mean that once a parent corporation is determined to be an "agency or instrumentality," then every majority-owned subsidiary has the same status. The government said that the 7th Circuits interpretation "would provide potential immunity for every subsidiary in a corporate chain, no matter how far down the line."

The government said in arguing against the 5th and 7th Circuit Courts interpretation, "If Congress had intended that ownership by another agency or instrumentality would also suffice, it would have conferred 'agency or instrumentality' status on any entity a majority of whose shares...is owned by a foreign state or political subdivision or agency or instrumentality of a foreign state."

On June 28, 2002, the final day of the Supreme Court's 2001-02 term, the Court granted certiorari in the two cases, consolidated them for review, and limited review to the two questions mentioned above.

On April 22, 2003, the Court disposed of the two cases in different ways. It dismissed the case involving Dole Foods, and affirmed the 9th Circuit's decision against Dead Sea Bromine, reasoning that the corporation was not an instrumentality of a foreign state under the Foreign Sovereign Immunities Act of 1976 because the foreign state itself did not own a majority of the corporation's shares.

Writing for the Court, Justice Anthony Kennedy found that Israel did nothave direct ownership of shares in either of the Dead Sea Companies at any time pertinent to the case. As indirect subsidiaries of Israel, Kennedy wrote, the companies could not come within the statutory language granting instrumentality status to the entity.

The fact that Israel exercised considerable control over the companies may not be substituted for an ownership interest, the Court held, since control and ownership are distinct concepts, and it is majority ownership by a foreign state, not control, that is the benchmark of instrumentality status.

Attorneys: For Dole Food Company, et al.Robert Howard Klonoff Jones, Day, et al. 51 Louisiana Avenue, N.W. Washington, DC 20001202-879-3939For Gerardo Dennis Patrickson:Jonathan S. Massey 3920 Northampton St., NWWashington, DC 20015 202-686-0457For Gerardo D. Patrickson, et al.:Christian H. Hartley, Esq.Richardson, Patrick, Westbrook & Brickman, LLC174 East Bay StreetP.O. 879Charleston, South Carolina 29401843-727-6500 / 6564Michael J. Brickman Ness, Motley, et al. 28 Bridgeside Blvd. Mt. Pleasant, SC 29401For Dead Sea Bromine Co., Ltd., et al.:Peter R. Paden Robinson, Silverman, et al. 1290 Avenue of the Americas New York, NY 10104212-541-1080Other Attorneys: For the U.S. (amicus):THEODORE B. OLSONSolicitor General, Counsel of RecordROBERT D. MCCALLUM, JR.Assistant Attorney GeneralEDWIN S. KNEEDLERDeputy Solicitor GeneralJEFFREY P. MINEARAssistant to the Solicitor GeneralDOUGLAS N. LETTERH. THOMAS BYRON III