New York Court Rules on Proper Venue for Claims Brought Against Foreign Sovereigns
On 30 March 2018, the U.S. District Court for the Southern District of New York (the Court) handed down an interesting opinion on the issue of proper venue in relation to suing a foreign sovereign in a U.S. court.
The question of proper venue is distinct from that of jurisdiction which focuses on whether a particular court has authority to hear the case. Venue, however, deals with geographical location. Therefore, a court may have jurisdiction over a certain matter, yet be considered as an improper venue.
Choosing the proper venue is crucial in any action as a finding of improper venue can lead to burdensome and adverse consequences for the parties involved. For instance, the time spent on litigating the venue issue may render the claim time-barred due to the expiration of the statute of limitations and it will therefore be unable to move forward I another forum. At best, improper venue will lead to additional costs for the parties as a party will need to re-file and re-serve the defendant.
The case at hand concerned an action taken against the Government of Ukraine by a group of plaintiffs consisting of a Ukrainian automobile business, Luxexpress-II Ltd; its founders, Mr. and Mrs. Ivaneko; a U.S. supplier, Alamo Group Inc.; and the U.S. corporation Luxexpress 2016 Corp. (the Plaintiffs). The claims arose from Ukraine’s seizure of land and demolition of the Plaintiffs’ business equipment and property and the subsequent refusal to compensate the Plaintiffs. In response, the Plaintiffs filed claims for racketeering, fraud, abuse of process, theft, conversion, unjust enrichment and unlawful takings and wrongful expropriation before the Court. Ukraine sought to dismiss the claims, arguing, inter alia, that New York was not the proper venue.
The issue of venue in actions against foreign states under the Foreign Sovereign Immunities Act is governed by 28 U.S.C. § 1391(f) which enumerates three different provisions for deciding the proper venue. Firstly, venue may be established “in any judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated“. Secondly, for claims concerning maritime disputes, the proper venue is the district where the vessel or cargo is located. Finally, the U.S. District Court for the District of Columbia is always an appropriate venue.
In the present case, in order to establish that New York was the proper venue, the Plaintiffs relied on two claims. Firstly, it was submitted that Mr. and Mrs. Ivanenko were residents of New York and political refugees from Ukraine. The Court, however, dismissed this argument on the basis that the Plaintiffs failed to articulate the relationship between their resident and refugee statuses, on the one hand, and § 1391(f), on the other hand.
Secondly, the Plaintiffs contended that their contacts with New York demonstrated that it was a proper venue. In support of this, the Plaintiffs relied on three contacts: (i) the Defendant’s activity had a direct impact on the Plaintiffs’ businesses in New York; (ii) one of the Plaintiffs had to borrow money from a citizen based in New York; and (iii) Luxexpress 2016 Corp. is a New York corporation with its principal place of business in New York. Again, however, the Court dismissed these claims on the basis that the Plaintiffs’ contacts with New York were irrelevant to the venue analysis under § 1391(f).
The Court maintained that the relevant question was where the events or omissions “giving rise” to the Plaintiffs’ claims occurred or where the property at issue was located. Bearing this in mind, none of the submitted contacts with New York addressed either of these issues. The Court stated that the fact that the Defendants’ actions had a direct impact in New York did not inform where the Plaintiffs’ claims arose. Similarly, the fact that one of the Plaintiffs borrowed money from a New York citizen as a result of the Defendants’ actions was irrelevant to the question of where the claim arose. Furthermore, the fact that Luxexpress 2016 Corp. – an entity incorporated after the action was filed – is a New York corporation was irrelevant to the venue analysis. The Court noted, in that respect, that if this were so, any plaintiff could create a proper venue by merely incorporating a company in that district.
The Court concluded that New York was an improper venue on the basis that virtually all of the Defendants’ actions giving rise to the Plaintiffs’ claims occurred in Ukraine and all the property that is the subject of the Plaintiffs’ claims was or is located in Ukraine.
The potentially harsh consequences of a finding of improper venue were, however, mitigated by the fact that the Court relied on 28 U.S.C § 1406(a) (which allows a district court to transfer an action from an improper to a proper venue when it is considered to be in the interests of justice) in order to transfer the case to the U.S District Court for the District of Columbia on the basis that the Plaintiffs had “already expended significant resources in serving Ukraine and possibly the [i]ndividual [d]efendants, and dismissing the case would achieve nothing but delay“.