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Eleventh Circuit Court of Appeals rules that state-controlled foreign bank was not entitled to statutory sovereign immunity from lawsuit in the United States, citing commercial activity exception in Foreign Sovereign Immunities Act

On December 4, 2020, in R&R International Consulting, LLC, v. Banco Do Brasil, S.A., No. 19-12466, the Eleventh Circuit Court of Appeals ruled that a U.S. district court erred in declining to exercise subject matter jurisdiction in a lawsuit filed by a Florida corporation against a Brazilian bank arising from the bank’s refusal to allow the redemption of its bonds.  The defendant claimed that subject matter jurisdiction did not exist because of the bank’s immunity from U.S. jurisdiction under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1603(a), (b)(2), arguing that the bank qualified for the statutory immunity because the government of Brazil owned 52.2 percent of its shares, making the bank by definition a “foreign state” under the Act.  However, the Act also includes a commercial activity exception, which provides for jurisdiction in three different circumstances: if “the action is based upon a commercial activity carried on in the United States by the foreign state”; if it is based “upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere”; or if it is based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” 28 U.S.C. § 1605(a)(2). The Eleventh Circuit concluded that the third circumstance applied because the bank’s refusal to honor the redemption of the bonds at its Miami branch caused a direct effect in the United States.  Although the district court consequently erred in ruling that subject matter did not exist, the Eleventh Circuit affirmed the district court’s ruling in the alternative that the lawsuit was barred by the statute of limitations.

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