Second Circuit Rules on Meaning of “Immovable Property” Exception to the FSIA

by Roger Alford

The Second Circuit recently rendered an important decision on the meaning of the “immovable property” exception to the FSIA. The case of City of New York v. Permanent Mission of India involved the propriety of imposing real property taxes on the permanent mission of India. New York law exempts real property owned by a foreign government if it is used exclusively for diplomatic offices or for the quarters of high-ranking diplomats. The Indian Mission on East 43rd is a 26 floor complex in which the first six floors are used for diplomatic offices while the remaining 20 floors are used to house low-level employees of the mission. New York City has been taxing the Indian Mission for the use of the top 20 floors, and the Indian Mission has refused to pay these taxes, resulting in a claim for $16 million in unpaid taxes.
The Second Circuit addressed the “immovable property” exception (28 U.S.C. § 1605(a)(4)), which provides that a foreign state shall not be immune from jurisdiction in any case in which “rights in immovable property situated in the United States are in issue.” The question presented is whether this claim for taxes was a “right” that was “in issue.” In a case of first impression in the Second Circuit, the court held that it was. Here is an excerpt:

Ownership of property connotes a bundle of related rights and obligations defined by local property law. A foreign state cannot assume the benefits of ownership–including the right to exclude others from the property with the assistance of the local government and, significantly, the right to sue those who violate its rights– while simultaneously disclaiming the obligations associated with them. When owning property abroad, a foreign state must follow all the same laws that pertain to private owners of such property, except to the extent that it can point to specific exceptions in that country’s agreements with the United States, treaties, or other sources of law. This principle–when owning property here, a foreign state must follow the same rules as everyone else–long predated the restrictive theory of sovereign immunity and the FSIA. We see no evidence that the FSIA was meant to alter it. We conclude that the “immovable property” exception to foreign sovereign immunity should be construed to include any case where what is at issue is: (1) the foreign country’s rights to or interest in immovable property situated in the United States; (2) the foreign country’s use or possession of such immovable property; or (3) the foreign country’s obligations arising directly out of such rights to or use of the property.

UPDATE: A word about the building itself. It is one of the celebrated modern buildings in New York, included in the Galinsky travel pack of modern buildings in New York. More here about the architect and the architecture.

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