Brief Fact Summary. The contention between Dead Sea Bromine Co, andÂ Bromine Compounds Ltd (jointly, the Dead Sea Companies (D)) and others (Dole petitioners) (D) in a state-court tort action was that as subsidiaries of an instrumentality of Israel, they had the right to remove the case to federal district court under the Foreign Sovereign Immunities Act of 1976 (FSIA).
Synopsis of Rule of Law. (1) If a corporation is to be deemed an instrumentality of the states, the FSIA specifies that such a state must own majority shares of such corporation.
(2) At the time complaint is filed, instrumentality status under the FSIA is determined.
Issue. (1) If a corporation is to be deemed an instrumentality of the states, does the FSIA specifies that such a state must own majority shares of such corporation?
(2) At the time complaint is filed, is instrumentality status under the FSIA determined?
Held. (Kennedy, J) (1) Yes. If a corporation is to be deemed an instrumentality of the state, the FSIA specifies that such a state must own majority shares of such corporation. The 28 U.S.C. S1441 (d) governs the removal of actions against foreign states. Foreign state is defined by section 1603(a) to include its â€œinstrumentalityâ€, which in turn is defined in part as any entity â€œwhich is a â€¦. Corporat(ion)â€ whose shares are majority-owned by the foreign state, and that is not U.S citizen or created under the laws of a third country.
The determination of whether the Dead Sea Companies were an instrumentality of Israel was the issue in this case. As it was disclosed, the company was not a direct subsidiary of Israel but was separated from Israel by one or more intermediate corporate tiers. This implied that the company was just an indirect subsidiary of Israel. This scenario does not therefore fulfill the requirements of the FSIA which states that the state must possess â€œmajorityâ€ of the shares of the corporation to qualify for instrumentality status. What is statutorily required is direct ownership. The veil which separates corporations and their shareholders might be pierced in certain exceptional circumstances but the companies did not refer to any law or precedence for extending the doctrine so far that as a categorical matter, all subsidiaries are deemed to be the same as the parent corporation. Affirmed as to this issue.
(2) Yes. At the time complaint is filed, instrumentality status under the FSIA is determined. The FSIA requires the majority of shares to be â€œowned by a foreign Stateâ€. This particular clause is in present tense and it requires that instrumentality be determined at the time the action is filed. This implies that the companies were not entitled to instrumentality status even if their theory that such status could be conferred on a subsidiary were accepted because any relationship which was recognized under the FSIA between the companies and Israel had been cut off before the suit started. The court therefore affirmed to this issue. Affirmed.
Discussion. The Court was guided in this case by corporate principles. The court was able to determine that the fact that Israel exercised considerable control over the companies would not have changed the Court’s decision, since control and ownership are two vital concepts but it is majority ownership by a foreign state that is the benchmark of instrumentality status and not control.