Shoe on other foot as US claims sovereign immunity in foreign court for firing Malaysian embassy worker

The U.S. Embassy in KL commemorates flight MH17 in 2014.
(Embassy photo, public domain, via Flickr)

Malaysian courts have been wrestling with the big bear of foreign sovereign immunity in an ursa minor case arising from the dismissal of a security guard from the U.S. Embassy in Kuala Lumpur.

As a torts and comparative law teacher, I'm interested in how courts manage foreign sovereign immunity. But most of the cases I read are about foreign-state respondents in U.S. courts. I suppose the inverse, the United States as respondent in a foreign court, happens often. But it doesn't often make my newsfeed.

Well, this story did. The shoe is on the other foot with the United States seeking to evade the hearing of an employment grievance in Malaysian courts.

Consistently with international norms, in the United States, the Foreign Sovereign Immunities Act (FSIA) (on this blog) generally codifies sovereign immunity for foreign states in U.S. courts. But an exception pertains for "commercial activity." 

The commercial exception, also consistent with international norms, only makes sense. When a foreign country is acting like any other commercial actor, say, buying toilet paper for the mission restroom, it should not be able to claim sovereign immunity to override its obligation to pay for the toilet paper (contract), nor to escape liability for its fraud in the transaction (tort). Sovereign immunity is rather reserved for when a state acts as a state, doing things only states can do, such as signing treaties and, however unfortunately, waging war—usually.

The exception is easier understood in the abstract than in application. In a case bouncing around the Second Circuit, and reaching the U.S. Supreme Court in 2018 on a related but different question, Chinese vitamin makers claim immunity from U.S. antitrust law. The respondent makers say that they are agents of the Chinese state insofar as they are compelled by Chinese economic regulations to fix prices. U.S. competitors see the cut-rate pricing as none other than anti-competitive commercial activity. The question arises under trade treaty, but the problem is analogous to the FSIA distinction.

Also regarding China, the commercial activity exception was one of the ways that state lawsuits against the People's Republic over the coronavirus pandemic tried to thread the needle on sovereign immunity. In the lawsuit filed in 2020 by the State of Missouri against the PRC filed in 2020, the Missouri Attorney General characterized the Chinese lab in Wuhan as a commercial healthcare enterprise. The district court disagreed in July, and the AG is appealing.

In the Malaysian case, according to the allegations, the U.S. Embassy gave no reason when it terminated a security guard in 2008 after about a decade's service. The security guard probably would not be owed any explanation under U.S. law. But the Malaysian Industrial Relations Act is not so permissive, authorizing complaints to the labor authority upon dismissal "without just cause or excuse."

The opinion of the Malaysian Court of Appeal in the case hints at some bad blood in the workplace and a bad taste left in the mouth of the dismissed guard: "He said he had been victimised by another staff named Rama who had tried to tarnish his good record as he had raised the matter of unreasonable management of the security post.... He said he could not believe that the US Embassy that is recognised the world over as the champion of human rights could have done this to a security guard like him."

Inexplicably, "a long languishing silence lasting some 10 years" followed the administrative complaint, the Court of Appeal observed. "Nobody involved and interested in this case heard anything from anyone. It is always difficult to interpret silence. That silence was broken with a letter from the DGIR [labor authority] calling for a conciliation meeting [in] September 2018.... There was no settlement reached.

"Unbeknown to the workman, the Embassy had [in] March 2019 sent a representation to the DGIR arguing that sovereign immunity applied and that the matter should not be referred at all to the Industrial Court." The United States thereafter succeeded in having the case removed to the Malaysian high court, a general-jurisdiction trial court.

The high court dismissed the case on grounds of U.S. foreign sovereign immunity. The Court of Appeal reversed, holding that the case should not have been removed. The Court of Appeal remanded to the Industrial Court, a specialized labor court, to take evidence on the immunity question. The Malaysian Federal Court recently affirmed the remand, lawyers of Gan Partnership in Kuala Lumpur have reported (Lexology subscription).

Like the FSIA, Malaysian law on foreign sovereign immunity distinguishes commercial activity, jure gestionis, from state action, jure imperii. The dismissed guard argues that his was a simple employment contract, so the United States was acting in a commercial capacity and is not entitled to sovereign immunity. The United States argues that the security of its embassy is a diplomatic matter entitled to the exercise of sovereign discretion.

The case in the Court of Appeal was Letchimanan v. United States (May 18, 2021). Gan Khong Aik and Lee (Ashley) Sze Ching reported the Federal Court affirmance to the International Law Section of the American Bar Association for Lexology on August 30 (subscription). Khong Aik and Sze Ching wrote about the Court of Appeal decision, United States v. Menteri Sumber Manusia (Minister of Human Resources) Malaysia, in July 2021 (Lexology subscription), and with Foo Yuen Wah, they wrote about the high court decision in August 2020 (Lexology subscription).

Tort-contract distinction cannot block damage multiplier, Mass. high court holds in lease dispute

Photo by Yonkers Honda CC BY-SA 2.0 via Flickr

A landlord may not rely on a limitation-of-liability provision in a commercial lease to evade a damage multiplier under Massachusetts consumer protection law, the Supreme Judicial Court ruled in January, regardless of whether the case is characterized as tort or contract.

The dispute arose between plaintiff-tenant Majestic Honda and its LLC landlord, owned by Alfredo Dos Anjos. Majestic accused the defendant of bad-faith lease termination, and the trial court agreed.

Massachusetts General Laws chapter 93A, under which Majestic brought its case, is a famously potent statutory remedy. Ostensibly its section 11 is a consumer protection law like any of the unfair trade practices prohibitions found throughout the states. But the statute has been read broadly in Massachusetts to operate at or beyond the margins of what lawyers usually regard as "consumer protection."

Moreover, section 11 authorizes double and treble damage awards upon "willful or knowing" misconduct. Massachusetts does not recognize punitive damages at common law, only by statute. Chapter 93A also has a four-year statute of limitations, sometimes an advantage to plaintiffs over the usual Massachusetts limitations period of three years for most tort actions.

Thus, as a result of permissive construction and powerful incentives for plaintiffs, chapter 93A is invoked frequently in what would be merely common law tort cases in other states, even to the exclusion of the common law claim in Massachusetts. Chapter 93A also is used in public enforcement, as in the Attorney General's present litigation to hold Big Oil accountable for climate change.

Tort and contract claims can be subsumed into the same 93A framework, blurring the classical distinction. The distinction is especially weak in product liability cases, in which Massachusetts plaintiffs almost always rely on 93A, in part because the commonwealth has recognized strict product liability as an extension of quasi-contractual warranty rather than as an evolution of common law negligence.

I am not a Massachusetts lawyer, and I am careful to disclaim to my 1L torts students that I am not well versed in 93A practice. It is its own field and cannot be folded into tort fundamentals. But, I admonish, they should endeavor to learn more if they intend to practice tort litigation in Massachusetts. My supremely talented colleague Professor Jim Freely once regularly taught a 93A course, but I don't think it's been offered since he was drafted (no pun intended) into the legal skills program.

Insofar as section 93A's damage multiplier is punitive in nature, it should not be disclaimable by a tort defendant, else the legislature's intended deterrent effect would be rendered moot. Upon this logic, the Massachusetts Appeals Court looked in past cases to discern whether the plaintiff's claim analogized more closely to tort or contract, to determine whether a limitation-of-liability provision should be allowed to nullify extraordinary statutory damages.

In fairness to the Appeals Court, the Supreme Judicial Court did roughly the same thing in 2018 when it applied a statute of repose for tort claims arising from real property to a 93A action, even though 93A itself has no repose period; three justices dissented from that ruling.

Here, the analogical approach is wrong, the Supreme Judicial Court decided unanimously. The court wrote, per Justice Scott Kafker, "Because G. L. c. 93A establishes causes of action that blur the distinction between tort and contract claims, incorporating elements of both, we do not adopt this formulation." The court further explained,

Our cases have also pointed out that a c. 93A claim is difficult to pigeonhole into discrete tort or contract categories, as c. 93A violations tend to involve elements of both tort and breach of contract, blurring the lines between the two. As we explained in [prior cases], "[t]he relief available under c. 93A is 'sui generis,'" being "neither wholly tortious nor wholly contractual in nature." Hence, a "cause of action under c. 93A is 'not dependent on traditional tort or contract law concepts for its definition.'"

After all, the court reasoned, the legislative intention to deter willful or knowing misconduct is not a function of whether the wrong is a tort or a breach of contract.

At a theoretical level, the vast gray area of 93A in Massachusetts law might have broader implications for the classical distinction between tort and contract, namely, whether the distinction will or should persist at all in contemporary common law. Massachusetts 93A practice might prove instructive as courts in many common law jurisdictions, such as Canada, reconsider the vitality of the so-called "economic loss rule," a historic marker of the tort-contract distinction that forbade tort actions in the absence of physical injury or damage.

The case is H1 Lincoln, Inc. v. South Washington Street, LLC, No. SJC-13088 (Mass. Jan. 24, 2022).

International arbitration, U.S. common law collide in skilled student note

I have been remiss not to mention earlier an incisive work on arbitration law by Chad Yates, '19. "Manifest Disregard in International Commercial Arbitration: Whether Manifest Disregard Holds, However Good, Bad, or Ugly" is available online from 13:2 UMass Law Review.  Here is the abstract.

Manifest disregard is a common law reason for not enforcing an arbitration award. This principle applies when the arbitrator knew and understood the law, but the arbitrator disregarded the applicable law. Presently, the United States Supreme Court has not made a definite decision on whether manifest disregard is still a valid reason for vacating the award (known as “vacatur”), and the Court is highly deferential to arbitrator decisions. Consequently, the lower courts are split on the issue. For international commercial arbitration awards, manifest disregard can only apply to a foreign award that is decided under United States law or in the United States. This Note will argue that manifest disregard should still apply to arbitration awards. However, arbitration contract clauses would be improved with the addition of language for appeals based upon manifest disregard to an arbitration appeals tribunal. The customary goal of arbitration is to provide a confidential, cost effective and expedited resolution of contract disputes. Therefore, an arbitration contract clause requiring that an appeals tribunal decide all manifest disregard questions would further these traditional arbitration goals.

Mr. Yates excelled in my 1L Torts class two years ago and also in Comparative Law (co-taught by the better regarded Dean Peltz-Steele).  I admit that my delay in reading this article is owed to my own shortcoming, as I suffer from commercial legis MEGO disorder.  I nevertheless recognize this article as well worth the, uh, investment, especially if commercial arbitration is your jam. Moreover, I am hopeful that Chad will get around to publishing some of the excellent research he's done on India in comparative law.  You can get a flavor of that work from his January entry on the UMass Law Review blog, "Comparative Law for India: The U.S. Digital Media Sales Company’s Destination for Business Process Outsourcing."  See also more on the blog.

A shout out of gratitude to Perry S. Granof, of Granof International Group, contributor of the chapter, "Introduction to Alternative Dispute Resolution in International Business Transactions," to the book, Resolving Insurance Claim Disputes Before Trial (ABA TIPS 2018).  The consummate colleague and an exceptional lawyer, Perry generously lectured my Comparative Law class via Zoom, on the subject of international arbitration, and fueled Chad's interest in the area.