Juni 07. 2023
Recent Decision in Jones v. PGA Tour Sheds Light on the Limits of Foreign Sovereign Immunity
Executive Summary
Subscription facility lenders are rightfully interested in ensuring that capital commitments of foreign sovereign limited partners are enforceable, despite any available claim to sovereign immunity. A recent district court’s decision in Jones et al. v. PGA Tour, Inc. examined the “commercial activity” exception under the Foreign Sovereign Immunity Act (“FSIA”), which is the same exception the subscription facility lenders turn to when including foreign sovereign limited partners in subscription facility borrowing bases. In this Legal Update, we explore the impacts of this decision on the subscription facility market.
Background
The FSIA generally protects foreign sovereigns from the jurisdiction of US courts. The immunity extends to a “foreign state”—which includes political subdivisions, agencies, and instrumentalities of a foreign state.
For the FSIA to apply, the party seeking immunity must first establish a prima facie case, demonstrating that it is in fact a foreign sovereign. Once this is proven, the burden shifts to the party opposing immunity to prove by a preponderance of the evidence that an exception to sovereign immunity, such as the “commercial activity” exception, applies.
Whether a particular activity qualifies as “commercial” depends on the nature of the activity rather than its purpose. In other words, under the “commercial activity” exception—regardless of the intent of the foreign sovereign in engaging in a specific activity—if the conduct is the type of conduct private parties engage in for trade, traffic or commerce, the foreign sovereign will not be entitled to immunity.
What to Know
In Jones et al. v. PGA Tour, Inc., a California district court held that the Public Investment Fund of the Kingdom of Saudi Arabia (“PIF”) could not claim sovereign immunity from US court jurisdiction because it had participated in commercial activity. PIF was an investor in and operator of LIV Golf, which had sued PGA Tour, Inc. (“PGA”) alleging that PGA had committed antitrust violations, breached contracts and engaged in tortious conduct.
As part of the lawsuit, PGA submitted a subpoena to PIF requesting the production of documents and attendance for depositions. PIF opposed the request, claiming foreign sovereign immunity. After PGA filed a motion to compel compliance, the court denied PIF’s claim of sovereign immunity. Although PIF, as a sovereign wealth fund of the kingdom of Saudi Arabia, is considered a “foreign state,” the court found PIF’s conduct fell squarely within the commercial activity exception under FSIA.
The court’s decision affirmed the longstanding principle that foreign sovereigns are not immune from US court jurisdiction when engaged in commercial activities. While not directly on point, this decision can shed light on how a US court might interpret the “commercial activity” exception in private transactions—such as an investment in a private equity fund.
It should be noted, however, that PIF’s ownership and control over LIV Golf significantly exceeded the role of a limited partner in a commingled fund, so the ruling may have limited direct precedential value in the case of a non-controlling limited partner whose uncalled capital commitment is pledged in a subscription credit facility. Nonetheless, the ruling affirmed the general principle that foreign sovereign immunity does not extend to commercial activities, including investments in US assets.
The decision is also limited to immunity for foreign sovereigns under FSIA, not immunity for US states, which is governed by a different legal standard.
Next Steps
Although each determination of whether actions are “commercial activities” is a fact-specific assessment , subscription facility lenders can take comfort in a court’s willingness to deny immunity for foreign sovereigns that invest in US assets and engage in commercial activities.
Subscription facility lenders are rightfully interested in ensuring that capital commitments of foreign sovereign limited partners are enforceable, despite any available claim to sovereign immunity. A recent district court’s decision in Jones et al. v. PGA Tour, Inc. examined the “commercial activity” exception under the Foreign Sovereign Immunity Act (“FSIA”), which is the same exception the subscription facility lenders turn to when including foreign sovereign limited partners in subscription facility borrowing bases. In this Legal Update, we explore the impacts of this decision on the subscription facility market.
Background
The FSIA generally protects foreign sovereigns from the jurisdiction of US courts. The immunity extends to a “foreign state”—which includes political subdivisions, agencies, and instrumentalities of a foreign state.
For the FSIA to apply, the party seeking immunity must first establish a prima facie case, demonstrating that it is in fact a foreign sovereign. Once this is proven, the burden shifts to the party opposing immunity to prove by a preponderance of the evidence that an exception to sovereign immunity, such as the “commercial activity” exception, applies.
Whether a particular activity qualifies as “commercial” depends on the nature of the activity rather than its purpose. In other words, under the “commercial activity” exception—regardless of the intent of the foreign sovereign in engaging in a specific activity—if the conduct is the type of conduct private parties engage in for trade, traffic or commerce, the foreign sovereign will not be entitled to immunity.
What to Know
In Jones et al. v. PGA Tour, Inc., a California district court held that the Public Investment Fund of the Kingdom of Saudi Arabia (“PIF”) could not claim sovereign immunity from US court jurisdiction because it had participated in commercial activity. PIF was an investor in and operator of LIV Golf, which had sued PGA Tour, Inc. (“PGA”) alleging that PGA had committed antitrust violations, breached contracts and engaged in tortious conduct.
As part of the lawsuit, PGA submitted a subpoena to PIF requesting the production of documents and attendance for depositions. PIF opposed the request, claiming foreign sovereign immunity. After PGA filed a motion to compel compliance, the court denied PIF’s claim of sovereign immunity. Although PIF, as a sovereign wealth fund of the kingdom of Saudi Arabia, is considered a “foreign state,” the court found PIF’s conduct fell squarely within the commercial activity exception under FSIA.
The court’s decision affirmed the longstanding principle that foreign sovereigns are not immune from US court jurisdiction when engaged in commercial activities. While not directly on point, this decision can shed light on how a US court might interpret the “commercial activity” exception in private transactions—such as an investment in a private equity fund.
It should be noted, however, that PIF’s ownership and control over LIV Golf significantly exceeded the role of a limited partner in a commingled fund, so the ruling may have limited direct precedential value in the case of a non-controlling limited partner whose uncalled capital commitment is pledged in a subscription credit facility. Nonetheless, the ruling affirmed the general principle that foreign sovereign immunity does not extend to commercial activities, including investments in US assets.
The decision is also limited to immunity for foreign sovereigns under FSIA, not immunity for US states, which is governed by a different legal standard.
Next Steps
Although each determination of whether actions are “commercial activities” is a fact-specific assessment , subscription facility lenders can take comfort in a court’s willingness to deny immunity for foreign sovereigns that invest in US assets and engage in commercial activities.
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