Foley Hoag Secures Victory for Ecuador in Lawsuit Alleging Violations of International Law

On October 14, 2016, a unanimous panel of the United States Court of Appeals for the Second Circuit affirmed the dismissal of an action against Ecuador that challenged the seizure of 133 companies in Ecuador in 2008. The case arose from the failure of Filanbanco, once the largest Ecuadorian bank. Two brothers, Roberto and William Isaias, were executives of the bank. After the bank failed, leaving a shortfall to depositors, an agency of Ecuador seized the companies, which ultimately were owned by members of the Isaias family.

In 2013, five British Virgin Islands holding companies, all owned directly or indirectly by members of the Isaias family, brought an action against Ecuador and two of its agencies or instrumentalities in the United States District Court for the Southern District of New York. The plaintiffs alleged that they owned the 133 companies and that the companies had been expropriated in violation of international law. The Ecuadorian governmental defendants moved to dismiss, including for lack of jurisdiction under the U.S. Foreign Sovereign Immunities Act (“FSIA”). The District Court granted the motion to dismiss in 2015. The plaintiffs appealed.

In its recent opinion, the Second Circuit agreed with the District Court that there was no jurisdiction over this dispute in United States Courts. In determining that the plaintiffs had failed to satisfy the FSIA’s “expropriation exception,” the Second Circuit found that the plaintiffs had not demonstrated that the Ecuadorian agencies or instrumentalities in question engaged in commercial activity in the United States. There was thus no jurisdictional nexus with the United States. As the Second Circuit observed, this was “a dispute with vanishingly thin, if any, connection to the United States.”

The Foley Hoag team included Andrew Schwartz, Janis Brennan, Christopher Escobedo Hart, Julia Amrhein, Alberto Wray, and Nicholas Renzler.

The case is Arch Trading Corp. v. The Republic of Ecuador, No. 15-2065(L) (2d Cir. Oct. 14, 2016). The Second Circuit’s opinion is linked here.