Permanent Mission of India to the United Nations v. City of New York

Brief Fact Summary. When New YORK City (City) (P) sought declaratory judgments for tax liens it had on buildings owned by India (D) and Mongolia (D) which were valid to the extent the building were used to accommodate diplomatic employees, India (D)and Mongolia (D) contended that they were immune under the Foreign Sovereign Immunities Act from New York City’s suit.

Synopsis of Rule of Law. A foreign government is not immunized from a lawsuit to declare the validity of tax liens on property held by the sovereign for the purpose of accommodating its employees as stated under the Foreign Sovereign Immunities Act of 1976 (FSIA).

Facts. Part of the buildings owned by Mongolia (D) and India (D) in New York City (City) (P) were used to accommodate its lower-level diplomatic employees. The New York law stipulates that real property owned and used exclusively by foreign government ambassadors or ministers plenipotentiary to the United Nations, is exempt from taxation.
The City (P) however continually levied property taxes against India (D) and Mongolia (D) for the portion of the diplomatic office building which was being used by its lower-level employees and their families as their residence. Due to the operation of the state law, the default taxes were converted into tax liens held by the City (P) against the properties.
A state-court suit was initially filed by the City (P) and this sought declaratory judgments to establish the liens’ validity. When the defendants began to argue that they were immune under the FSIA, which is “the sole basis for obtaining jurisdiction over a foreign state in federal court”, the case was transferred by the government (P) to the federal court.
By relying on a FSIA exception withdrawing a foreign state’s immunity from jurisdiction where “rights in immovable property situated in the United States are in issue”, the district court disagreed but the court of appeals affirmed on the ground that the “immovable property” exception was applicable, and thus, the district court had jurisdiction over the City’s (P) suits. Certiorari was however granted by the U.S. Supreme Court.

Issue. Is a foreign government immunized from a lawsuit to declare the validity of tax liens on property held by the sovereign for the purpose of accommodating its employees as stated under the Foreign Sovereign Immunities Act of 1976 (FSIA)?

Held. (Thomas, J.) No. A foreign government is not immunized from a lawsuit to declare the validity of tax liens on property held by the sovereign for the purpose of accommodating its employees as stated under the Foreign Sovereign Immunities Act of 1976. A foreign state is presumed to be immune from suits as stipulated under the FSIA unless a specific exception applies. The statute’s text is the court’s starting point in determining the immovable property exception scope.

Dissent. (Stevens, J). the validity of the City’s (P) lien is not what this particular case is all about. The case is primarily concerned about a foreign sovereign’s tax liability. Congress could well have said as much if it had intended to waive sovereign immunity in tax litigation.

Discussion. Both defendants would have still be immunized against any form of foreclosure even if the tax lien in this case was declared valid. However, once a court has declared property tax liens valid, foreign sovereigns would traditionally concede and pay. This is one benefit which the City (P) would have gained for having the liens validated. If per adventure the sovereign did not obey the court to pay, such a sovereign would have experienced a reduction in foreign aid been extended to it by the United States by 110 percent of the outstanding debt, and this would make liens enforceable against subsequent purchasers.