The Permanent Mission of India v. City of New York - Oral Argument

Argument of John J.P. Howley

Chief Justice Roberts: We'll hear argument first this morning in case 06-134, The Permanent Mission of India to the United Nations et al. vs. The City of New York.

Mr. Howley.

Mr. Howley: Mr. Chief Justice and may it please the Court.

These are tax enforcement lawsuits.

If jurisdiction existed, the only issue a court would decide is whether a tax is owed.

This type of case did not fall within any real property exception to sovereign immunity before Congress passed the Foreign Sovereign Immunities Act and Section 1605(a)(4) of that act did not create a new exception where none had otherwise existed.

Congress chose--

Justice Scalia: Of course you could say the same thing if the mission here sold its property to someone and someone was claiming the right to possess the property by reason of the sale.

And you could come up and say this is simply, simply a case deciding the, the ultimate issue of whether the sale occurred or not.

Mr. Howley: --Uh--

Justice Scalia: But it would clearly come within the property right exception, wouldn't it?

You... you don't go one step back to look at the transaction that created the, the right in real property assuming the right in real property exists.

Mr. Howley: --Actually, Justice Scalia, I believe that if you had a dispute over what happened with the sale of property that it would fall within the based upon commercial activities exception in 1605(a)(2).

Justice Scalia: Let's assume that, let's assume that exception didn't exist.

Mr. Howley: Okay.

Justice Scalia: And you had nothing but the real estate exception.

You would come in and say this ultimately relates to not who owns the real estate but whether there was a proper contract or not.

And I... frankly we wouldn't accept that.

Mr. Howley: No.

And I think that's a very different case from what we have here because in that case the issue for the Court to decide is which of the parties has the right, has the title in the real property.

That is not in issue here.

The City of New York does not seek title in this property.

Their action is to declare the validity of a tax lien and the issue in an action to declare the validity of a tax lien is whether the tax is owed and whether it has been paid.

That is the issue that's presented to the Court.

Justice Ginsburg: But what New York is seeking is an interest in land and a lien is an interest in the land.

It runs with the land, doesn't it?

Mr. Howley: I... I... yes.

I acknowledge that there are some similarities between a lien and a right in property.

For example, that it runs with the land.

But there are dissimilarities that are far more numerous and far more significant.

Unlike rights and property a lien does not give the lien holder any right to own, access, possess, cross over, collect rents from, exclude or any other right in the property.

Justice Scalia: Can't he force a sale of the property to collect the lien?

Mr. Howley: This action does not.

Justice Scalia: I understand that this action does not because of the sovereign immunity.

But... but we are talking about what the nature of a lien is.

In an ordinary case cannot a lien holder force a sale of the property so that he can get out the money represented by his lien?

Mr. Howley: Yes.

If the lien holder commences an action to foreclose on the property, then a consequence of that could be the sale of the property.

Justice Scalia: Well, how can he commence an action to foreclose on the property unless he in any ordinary sense of the term has an interest in the property?

Mr. Howley: I do not dispute that a lien holder has an interest, a security interest in the property.

But Congress did not write in Section 1605(a)(4) all interests that are in issue in property.

Congress in fact had the European Convention in front of it which said rights, interests and obligations in property.

Congress chose language from the European Convention elsewhere but did not choose that language here.

Congress said only rights in property.

Justice Scalia: You're distinguishing between rights in property and interests in property?

I would think that every right in property is an interest in property and vice versa.

Mr. Howley: No.

I do not believe so, Justice Scalia.

There... there... there has to be a reason why Congress chose language verbatim from the European Convention in other sections of the statute such as the counterclaim exception, but in this exception said we are not taking interest and obligations from the European Convention, we are only saying rights.

And this Court--

Justice Ginsburg: The counterclaim sounds to me very much like it comes straight out of the Federal Rules, not out of any convention.

It's the same transaction and occurrence, right?

Mr. Howley: --Yes.

Yes.

The, the counterclaim exception--

Justice Ginsburg: Well, that's exactly what it says in the Federal Rules about compulsory--

Mr. Howley: --Yes, but Congress said, in the House report Congress refers to the European Convention as the source for the counterclaim exception in the Foreign Sovereign Immunities Act so Congress said we are taking this from the European Convention.

This... this language also--

Justice Scalia: Congress didn't really say it.

I mean the committee said it to be precise.

Mr. Howley: --Yes, that's absolutely correct, Justice.

Justice Scalia: Good.

Justice Breyer: What was your distinction between a mortgage and a tax lien?

Mr. Howley: I don't think there is a distinguished, a distinction between a mortgage and a tax lien.

Justice Breyer: Well, so think they can't enforce mortgage under this?

That is to say the bank can't; it's not an interest of property in mortgage?

Mr. Howley: No.

But Congress, Congress passed another exception here, 1605(a)(2) that said actions based upon commercial activity provide an exception to sovereign immunity and these exceptions have to be read together.

They have to be read--

Justice Breyer: That's, that's where it's hard for me because a purchase money mortgage, you sell the real estate.

Ordinary secured interest in mortgage is secured interest by a lender is normally viewed as an interest in property, I think.

I mean is there, is there any law anywhere that says that isn't an interest in property?

Mr. Howley: --Well, actually there is.

In the, in... when the United States waived immunity from suit concerning real property it limited its waivers to liens and mortgages and not rights in property.

And so there has been distinctions made between mortgage liens and liens on the one hand and rights in property on the other.

Justice Kennedy: Well, on that point in some jurisdictions and perhaps you can tell me about New York, I had thought and correct me if I'm wrong, that tax liens have a superior status to other liens in that they are an, an interest or an estate in the property as opposed to an attachment.

Is it not true?

And I don't, and I'm not talking just about order of priority for creditors.

I'm talking about the superiority insofar as being or not being an interest in property.

Mr. Howley: Well, yes.

It is superior to other types of liens.

Justice Kennedy: Yes.

Mr. Howley: It is an interest, a security interest in the property, but it is not a right in the estate of the property, and it doesn't give any type of the possession and ownership rights that every other right in property gives.

Justice Kennedy: Is there New York law to that effect?

Mr. Howley: Yes, there is.

And we have cited it in our brief.

The Respondent has attempted to distinguish it, because a Court of Claims jurisdictional act was passed that deemed a lien an interest in property for purposes of jurisdiction in the New York Court of Claims but the essential nature of a lien is not, under New York law, a right in the estate.

Justice Kennedy: Because I had... I had thought that it is an estate in land in at least some jurisdictions.

And Justice Breyer was asking about the same thing.

In other words, there are liens... there are liens and liens.

There are different kinds of liens.

Mr. Howley: There appears to be in different jurisdictions, different treatments of liens.

Chief Justice Roberts: Well, that brings up the basic question I have, is this a question of State law or Federal law?

Mr. Howley: This is a question of Federal law.

This Court has held--

Chief Justice Roberts: So even if you have different rules in different States, there is going to be one rule under Federal law under 1605(a)(4)?

Mr. Howley: --Yes, that is correct, Mr. Chief Justice.

And this Court held in Saudi Arabia against Nelson and Argentina against Weltover that the exception language... they are dealing with the commercial activities exception... must have the meaning that Congress understood the restrictive theory of sovereign immunity to require at the time it passed the statute.

And so when defining what a right in immovable property in issue means, we have to give that the meaning that the restrictive theory of sovereign immunity required at the time in 1976.

And in 1976, no court here in the United States or anywhere in the world had held that sovereign immunity was abrogated merely by having a statutory lien on the property.

Justice Souter: Had the State Department taken a position at that point, at the time the Act was passed?

Mr. Howley: There is... not to my knowledge.

There is vague language in the testimony in the House report, general language about 1605(a)(4) relating to real property disputes, but there is not precise language about whether liens are or liens are not--

Justice Ginsburg: --There was nothing vague about the State Department's brief in the Englewood case.

Mr. Howley: --No, there is not, Justice Ginsburg.

But they lost in Englewood.

They lost and the Englewood Court relied on a D.C. Circuit decision.

And I believe that the Solicitor General will say that they have reconsidered their position, they have reconsidered Article 29 of the European Convention, which they relied on heavily in the Englewood brief.

Justice Ginsburg: But anyway, at a time closer to the passage of the Act, the State Department was taking the position that a lien was an interest in land.

Mr. Howley: Yes, that is correct.

But they have since decided that that position was wrong.

Chief Justice Roberts: Well, they just may be more sympathetic to India and Mongolia than they were to Libya.

Justice Scalia: That's not beyond the realm of the conceivable, is it?

Mr. Howley: It's not beyond the realm of the conceivable.

Justice Breyer: But I take it there has never been a case in the history of the world you'll tell me where a lender or bank or anybody who loaned money to build an embassy has ever brought a case against the owner of the embassy, the sovereign, and won under anything like this exception, because they can't sue them.

Mr. Howley: Not that we're aware of, and not that we've seen--

Justice Breyer: Ever.

And there is none the other way, where they said you couldn't sue them.

Mr. Howley: --Yes.

Justice Breyer: Okay.

So why do people lend money to build embassies?

Mr. Howley: Well, because once you lend money and you engage in commercial activity, if the claim is based upon the commercial activity, Congress had provided a separate section, 1605(a)(2) that protects the American citizen who has lent money to an embassy.

Justice Breyer: And how did it work before 1605 was passed, how did they used to build, in the 19th century, embassies, if you know.

Mr. Howley: I don't know about 19th century embassies.

I do know that since the Tate letter, which predates the Foreign Sovereign Immunities Act, there has been a commercial activity exception here in the United States.

Justice Scalia: Why isn't buying land that you're not using for your embassy itself, or for the residence of the ambassador, but buying and occupying that land which subjects yourself to real estate taxes on that land, why isn't that a commercial activity?

Mr. Howley: Well, this Court held in Saudi Arabia against Nelson that it's not just engaged in, related to commercial activity, but the cause of action, the claim has to be based upon commercial activity.

Justice Scalia: So the Indian embassy could own real estate throughout New York City, which it wouldn't have to pay taxes on?

Or if it didn't, nothing could be done about it?

Mr. Howley: It depends on the use they put that property to.

Justice Scalia: Why?

No.

You're saying, you're saying it's not a commercial activity.

I mean--

Mr. Howley: The mere ownership of the land is not--

Justice Scalia: --It depends upon the use, and the use in this case is not... is not the embassy itself or the residence of the ambassador.

I mean, they could use a piece of property for anything.

Mr. Howley: --As long as it's not commercial activity, it would not be taxed and--

Justice Scalia: But the buying and occupying of it is commercial activity.

Mr. Howley: --Well, the buying of it, if the claim is based upon the buying of the property, under Saudi Arabia against Nelson, then the commercial activities exception would apply.

But the mere ownership of the property is not commercial activity.

Justice Kennedy: Why isn't it commercial activity for New York to say, we provide garbage services, electric services, et cetera.

Mr. Howley: Well, separate and apart from the jurisdictional issue, the Vienna Conventions do say that if there are fees for services provided, such as garbage collection, water, those types of services, then there is no immunity from the fees for those services.

And those fees should be paid.

The separate issue of whether that's commercial activity, it may be.

It doesn't matter whether the city provides a service such as water, or a private entity provides a service such as water.

That may be commercial activity.

Justice Kennedy: But they pay fees and New York taxes.

Suppose New York doesn't have fees.

Suppose they say, we'll just do this out of our property tax.

Mr. Howley: Well, no, that does not... on the substantive issue of whether it's immune under the Foreign... under the Vienna Conventions, a tax is immune.

They are immune from a tax, but they're not immune for a fee for service.

That is how the Vienna Conventions--

Justice Ginsburg: And in reality, you will never get there, because the Vienna Convention deals with the substantive liability... you're talking about jurisdiction.

On your theory, you would never get to the fee for picking up the garbage, because you wouldn't have any jurisdiction.

Mr. Howley: --No, Justice Ginsburg, not at all.

That's not my position.

Let me make my position clear.

If there is a fee for service provided, such as garbage collection, or provision of water, that would fall under the commercial activities exception.

But if there is a tax, unless the activity at issue and the cause of action at issue is based upon the commercial activity, there is no jurisdiction.

This does not mean--

Justice Ginsburg: The commercial activity, it's applied to that same building that you say can't be... it can't be any suit for taxes.

Mr. Howley: --Yes.

There cannot be a suit for taxes.

There could be a suit for specific fees for services rendered.

But--

Justice Ginsburg: Even... even if this, the building were only the mission and the representative, the minister to the U.N., even then--

Mr. Howley: --Yes.

Justice Ginsburg: --the water of a municipal service, garbage collection, could be charged.

Mr. Howley: Yes, Justice Ginsburg, just as if the Indian mission went out to a private water company and said, please supply me with water, the private water company could sue, based on commercial activity, to collect for the water it had provided.

It doesn't matter if it's the city.

Justice Ginsburg: Well, it's the city.

Not a private company, the city itself.

Mr. Howley: The nature of the activity doesn't change just because it's the city providing the water as opposed to a private entity providing the water.

We have to look at the nature of the activity.

Justice Scalia: Of course, this isn't a suit for the taxes.

I mean, we are not talking about a suit for the taxes.

Mr. Howley: We are here--

Justice Scalia: We are talking about a declaration as to the interest in the land.

Mr. Howley: --No.

No, Justice Scalia.

Absolutely not.

Joint Appendix page 78 is the city's amended complaint.

And even in their foreclosure claim, even in their foreclosure claim, what they ask is for a judgment of foreclosure directing that the Defendant pay the amount of taxes, interest and other charges due.

They are not asking for an interest in the property.

All this case is about is money.

It's not about rights in the property.

And there is a very big problem with allowing a claim for money to become a right in property merely by having a local law passed that converts the claim into a lien.

The City of New York tomorrow could pass a law that said, if you don't pay your parking tickets, that is automatically converted into a lien on the property.

And then while we can't sue you for the parking tickets, we have created a right in your property.

Justice Ginsburg: You could easily say there has to be a relationship to the property itself.

Mr. Howley: Well, that's not... that's not what the City's position is.

The City's position is a lien is an interest in property and falls within the statute.

And Congress didn't write in the statute arising out of, related to.

It said, rights in the property are an issue.

So if under the City's theory, if they passed a lien law tomorrow converting all parking tickets into liens on property, then their position is they could sue us for parking tickets.

And if there are no further questions, I will reserve the rest of my time.

Argument of Sri Srinivasan

Chief Justice Roberts: Thank you, Mr. Howley.

Mr. Srinivasan.

Mr. Srinivasan: Thank you, Mr. Chief Justice, and may it please the Court:

An action to determine whether property taxes are owed is not a case in which rights of immovable property are an issue, and it's not transformed into such a case by attaching a lien, and recharacterizing the case as one to determine the validity of the lien.

And I'd like to begin by picking up, Justice Ginsburg, on the question you just asked, because I think it's very important to emphasize that under Respondent's lien-based theory, that theory has the potential largely to eviscerate the other exceptions in the FSIA in the following sense: Respondent's theory doesn't turn in any way on the nature or source of the debt that's secured by the lien.

So under Respondent's view, the fact that this case involves a debt that arises out of property taxes is largely beside the point.

The load bearing weight of that theory rests entirely on the supposed effects of the lien on the property.

And so for example, you could have a case in which a commercial activity is brought into play, where the plaintiff sues a foreign sovereign for commercial activity that occurs--

Justice Scalia: That's always brought up to answer the problem, well, you know... let me give you a case in which it obviously is not a commercial activity, but it seems to me that the... that the lien interest has to be honored.

Let's suppose that there is an American who is very friendly to and sympathetic with the Indian government, and gives them real estate, not a commercial activity, he gives them real estate in which to house the employees in... in their mission.

However, he retains an interest in that real estate.

He retains a lien on the real estate, to have money paid to him at some point.

He is not willing to give the full amount of the property, but most of it.

And he retains a lien.

Now, under your theory, that lien would not be enforceable, is that right?

Mr. Srinivasan: --Well, the lien wouldn't constitute a right in the property, and that's consistent with what... the way this Court has always described liens.

As we point out in pages 21 and 22 of our brief, the Court has said--

Justice Scalia: Enforceable or not.

Mr. Srinivasan: --The lien would not be enforceable against a foreign sovereign, because... at least with respect to the immovable property.

Justice Scalia: That seems very strange to me.

Mr. Srinivasan: We are only talking about--

the immovable property exception.

And with respect to that exception, this Court has expounded that a lien on land constitutes no property or right in the land itself.

And it said that on more than one occasion.

Chief Justice Roberts: I thought that the Department submitted a good brief on this issue, but in 1985.

What do you do with all the arguments... I'm looking at page 12 of your brief in the Englewood case, which you argued that these liens were interests in property.

Are those arguments no longer valid?

Mr. Srinivasan: Well, we, of course, reviewed our position in that case, and we have come to the conclusion that it was incorrect.

And in the Englewood case, that argument was the third argument in the brief.

The first two arguments in the brief were more along the lines of the Court of Appeals decision.

Justice Kennedy: Well, what about the argument that it was an interest in property.

The brief was very clear that it is an interest in property, and that a tax lien is almost sui generis, in that it is an estate in the property.

Mr. Srinivasan: I don't--

Justice Kennedy: It survives bona fide... it survives bona fide purchaser without notice?

Chief Justice Roberts: The other reasons you gave, the holder of a lien can bring an action to enjoin waste, holders of liens are entitled to compensation if eminent domain is exercised.

All of those reasons are still as valid as they were in 1985.

Mr. Srinivasan: --Well, let me try to take up some of those in order.

First with respect to the question of whether holders of a lien are entitled to compensation in eminent domain, we don't take issue with the proposition that a lien is property.

A lien is property, but the question under the statute is whether a lien confers a right in the underlying immovable property.

And so in an eminent domain proceeding it may just be that just compensation is owed to a lien holder because to the extent that the eminent domain proceeding takes that lien there's compensation owed for that property.

But that doesn't--

Justice Scalia: What property is it a right in if not the immovable property?

Mr. Srinivasan: --Well, it's--

Justice Scalia: And it follows that immovable property and when the immovable property disappears the lien disappears.

You know, if it's blown away or flooded, it's now in the Atlantic; the lien is--

gone.

Mr. Srinivasan: --Well, I think--

JUSTICE SCALIA: But otherwise wherever the property goes the lien follows it.

How can you say that that's not an interest in the property?

Well, I don't think it's a right in property, Justice Scalia.

The lien is a species of property, of intangible personal property, in the same sense that a cause of action would be, because after all what a lien is is essentially at bottom a claim.

Chief Justice Roberts: Well, how can the, how can the lien holder then bring an action to enjoin waste of the immovable property?

Mr. Srinivasan: Well, a lien holder can bring an action to enjoin waste, but it's important to understand what interest the lien holder is protecting in that situation.

An action for waste by a lien holder is to protect the security interest.

It's different from an action for waste by someone who holds a right in the property.

And New York law appears to recognize this because New York I think has two species of waste actions, one brought by a security interest holder and one brought by the holder of property rights.

There's a case, Travelers Insurance, in which the Second Circuit reviewed New York law in this matter... it's at 14 F. 3d 114... and describes how there's two species of waste actions depending on which sort of plaintiff you have in issue.

And that recognizes that the interest, if you will, that a lien holder has in the property, is different from a right in the property.

Justice Breyer: What about paragraph 3 just after paragraph 2 in the complaint?

Paragraph 3 asks the court to bar and forever foreclose the defendants from all right, interest, claim, etcetera in the parcel.

Well, what about that?

What they're asking, I just heard it.

So what's the answer to that?

They seem to be saying, we have the right to the parcel, you the defendant have no right to the parcel.

Mr. Srinivasan: Well, I don't... you'd have to ask Respondent's counsel exactly what they mean by--

that.

Justice Breyer: Well, I did in part, so he can answer.

Mr. Srinivasan: Because Respondents have--

repeatedly indicated in this case and in the court of appeals and in this Court that they can't foreclose on the property and so they've abandoned any claim for foreclosure.

And a foreclosure action wouldn't result in the property being deeded to Respondent.

It would be put up for sale and a third party would purchase it.

So I'm not... I can't tell you exactly what that paragraph means.

Justice Ginsburg: In a very practical way, you're expressing that right means ownership means ownership.

But the title is certainly impaired by this lien.

India could not turn around and sell it to anyone without doing something to discharge the, lien right?

Mr. Srinivasan: Well--

Justice Ginsburg: So the title is certainly clouded by this lien.

Mr. Srinivasan: --Well, I think liens generally constitute clouds on title, but the fact that something's a cloud on title doesn't make it a right in the property.

And I could give you one other example.

Justice Scalia: It doesn't have to be a right in the property.

If you look at it from the owner's point of view, it is a cloud on the owner's title in the property.

It affects the owner's title.

Even if you assert that it doesn't give any title to the lien holder, it impairs the title of the property owner.

And that's all that's required, as I read the title, in which rights in immovable property are an issue, and here the question is whether the, the mission's right to the property is, is impaired by this lien.

Mr. Srinivasan: I think our arguments apply equally both to the lien holder and to the property owner, Justice Scalia, in the following sense, that with respect to both of them a lien... the lien doesn't affect rights of possession, it doesn't affect the right to exclude others, which this Court has characterized as the most fundamental of property rights.

It doesn't affect the right to receive income from the property.

Justice Scalia: It affects the right to convey the property free and clear, which is an enormous right that goes along with the real estate.

Mr. Srinivasan: Well, it has a practical consequence on conveyance because it, as Justice Ginsburg said, amounts to a cloud on title.

But there are other instruments that result in a cloud on title but that wouldn't be considered rights in property.

One example would be a contract, a purchase option contract to purchase property.

The holder of a purchase option wouldn't be considered to have a right in the property unless and until the option was exercised.

At least that's the general rule, even though the purchase contract in a sense constitutes a cloud on the title in the same way that a lien might constitute a lien on the title.

Justice Ginsburg: How long did the United States take the opposite position and when did it change?

Mr. Srinivasan: I'm sorry?

Justice Ginsburg: How long did the United States adhere to the position that's reflect in the Englewood brief and when did it change?

Mr. Srinivasan: Well, I'm not aware that we took the position before the Englewood brief, so I think that would be 1985.

And I don't think we've had occasion to revisit that position until this case.

And let me point out with respect to the Englewood brief, the first two points made in that brief were along the lines of the court of appeals reasoning in this case, which was to the effect that a statute that refers to a right in immovable property encompasses obligations arising out of immovable property.

And Respondent doesn't attempt to defend that position, but that's the predicate on which our Englewood brief rested.

And so we think there's good cause for us to revisit our position from that case.

Now, with respect to the question of whether a lien establishes rights in property, which is now the focus of Respondent's argument, I would point out that in other areas of the law the Court has looked to questions concerning whether there is a right to exclude others, whether there is a right to obtain income from the property, whether there is a right to assert possession of the property.

That's, for example, the types of considerations this Court takes into account in the tax area in assessing whether a Federal tax lien can attach to a property by virtue of the fact that there is a right to property at stake.

And we think the same sorts of consideration should inform the Court's assessment of the immovable property exception in this case.

Justice Scalia: What about an easement?

That doesn't involve any of those things.

You can't exclude people and so forth.

Mr. Srinivasan: Well, an easement I think would qualify as a right in property because at least your standard easement would provide a right of access to the property by a thoroughfare.

And so both sides would be affected in their use of the property in that sense.

Argument of Michael A. Cardozo

Chief Justice Roberts: Thank you, Counsel.

Mr. Cardozo.

Mr. Cardozo: Mr. Chief Justice and may it please the Court:

There are three reasons this case puts in issue rights in immovable property: First, the plain language of the statute; second, the statute's purpose and legislative history; and third, international practice as it existed in 1976.

Justice Scalia: Mr. Cardozo, before you go any further, I had been under the impression from your brief that you're not trying to enforce anything against, against India or against the mission.

You just said you wanted a declaratory judgment that the lien is a valid lien.

But, but here it is in your complaint you're asking for foreclosure.

Which, which is it?

Mr. Cardozo: Justice Scalia, we know that Section 1610 would preclude us from actually foreclosing.

We're not allowed to do that.

There's no question about that.

Justice Scalia: You just asked for it to scare them?

Was that it?

Mr. Cardozo: No.

We do want, as the discussion preceding me highlighted, we do want to get in and take what we think is, as a practical matter, is our property.

But we can't.

We understand that.

So what we're, what we're saying in our complaint in paragraph 3, as Justice Breyer pointed out, is we would like to bar them from holding title.

But as we quickly conceded as soon as we filed the action, we can't foreclose because of the provisions of Section 1610.

But it doesn't mean that the fact that we can't foreclose doesn't mean that we don't have a right in property.

Let me give you a very good illustration.

If there is a possessory dispute, someone, an embassy, rented premises and agreed that if they didn't pay the rent they would lose their ability to continue to occupy the premises and they failed to pay rent, that's a title dispute.

The person who rented the property would bring a suit saying: I have a right to get back into my property and there is clearly a right in property in Section 1605.

I can't believe that Congress said, that Congress intended to say, well, you can bring an action for nonpayment of rent and seek possession except for 1610, that's okay.

There's jurisdiction in an action for rent, but if you want possession of property because you haven't paid your taxes, and of course you still can't foreclose, there's no jurisdiction.

That doesn't make any sense.

Justice Scalia: Well, but they'll say as was their response to a lot of hypotheticals, the commercial act exception covers that.

Mr. Cardozo: Your Honor, it may or may not cover the commercial act exception.

And going back to a question that Justice Breyer asked, there are, there are cases, not in the United States, but... and we're citing some of them in footnote 24 in the red brief... that when someone, not the commercial property exception, someone lent money to, to build an embassy and they defaulted on the mortgage, the German court said jurisdiction.

It's not a question of enforcement, but jurisdiction.

The reason for this is if you first look at the language of the statute, the language of the statute doesn't say only certain kinds of rights.

It says all rights in property if they're in issue.

We believe that we have a right in the Indian and Mongolia premises.

We--

Justice Breyer: The problem that actually is bothering me with your side of the case which I find difficult is, suppose I accept this principle that you have.

All right, it seems to me anything at all can be reduced to a lien, any judgment, at least certainly slip and fall cases and you didn't keep the ice up in front and I want $4 million damages plus 300 million in punitives and where it is I have a lien against the embassy here.

And I can't think of a distinction once I go down your road.

I mean, he at least has an absolute distinction which I can see, but once I go down your road where is the stopping place?

What's the principle?

Mr. Cardozo: --Let me try, Justice Breyer.

First of all, if there was a judgment on that hypothetical tort action that you just mentioned, if there were a judgment you wouldn't have gotten the judgment in the first place unless you had originally come within--

Justice Breyer: I'm imagining a city or Belarus or someplace where what they do is they say slip and fall on ice... you know, you get a lien against the property prior to... okay.

I mean, it's easy to imagine that kind of thing.

Mr. Cardozo: --Yes.

Justice Breyer: And in a range of subject matters.

So I'm looking to what the stopping place is once I start down your road.

Mr. Cardozo: And the stopping place I think is a Federalism concept and a due process concept, because as this Court has held in a number of cases, there's a real due process question if liens are created with no concern about the effect on the defendant.

You have to take a look at the interest of the so-called plaintiff and you have to find whether there is a relationship between the lien and the underlying claim.

Now--

Justice Scalia: Why didn't you just say... you know, if you're worried about the malevolence of countries to make all sorts of stuff liens, I guess if they're malevolent enough they can make all sorts of stuff easements, which, which the other side says is undoubtedly a property interest.

So they could say that, you know, if you're held liable the court can give you an easement over the property of, of the defendant worth so much money.

And that would undoubtedly be enforceable.

Mr. Cardozo: --Justice Scalia, they did say that and certainly if an easement is a right in property, either because of the hypothetical you just gave or a traditional easement, there is nothing different with a tax lien.

In fact, a tax lien is a much greater interest.

Justice Breyer: I still have my question because I'm not world about malevolence, is that I don't carry around in my head all of the possible things that might be liens against property.

And so maybe my imagination is wrong, but I want to know are you are arguing that every lien against the property is in fact a right in property which allows a lawsuit, or are you arguing that there is some distinction between some and the other.

And I noticed that the Restatements and others are trying to distinguish between whether the lien in question grows out of the property or it doesn't grow out of the property, which I find possibly hard to work with and so I want to know how you see it.

Mr. Cardozo: And what I see, Justice Breyer, is when you take a look at the cases in this Court such as Connecticut against Doehr and the other cases which put limits, the constitutional limits on liens, of course if a State passed a statute that runs afoul of the various due process concerns that this Court has articulated that is certainly one check that we have.

Justice Ginsburg: Well, let's take the parking ticket that your colleague raised, that New York would make a parking ticket a lien, unpaid parking ticket a lien on all, all property.

Mr. Cardozo: Justice Ginsburg, I think that would be a hard question, but if it does not run afoul of the constitutional concerns that I just articulated and it was a lien applicable not just of course to foreign sovereigns, but to any unpaid parking ticket--

Justice Ginsburg: Yes, yes.

Mr. Cardozo: --I think that then that would come within the immovable property exception.

Justice Souter: So the only thing they would have to do I suppose... you've mentioned the due process point... would be to perhaps give a hearing before the lien was declared and that would be enough?

Mr. Cardozo: I think, I think it certainly would, Justice Souter, if in fact there was a hearing.

Justice Souter: Well, provided that, provided notice of hearing was offered, the parking ticket lien would be in the same position as this lien, right... the hearing.

Mr. Cardozo: I think that's right.

I think that's right.

And so--

Justice Kennedy: And under New York law does property, do property tax liens have some superior status?

Are they distinct under New York law from other liens?

Mr. Cardozo: --Well, they're... as tax liens you may get into a priority fight in a bankruptcy context.

Justice Kennedy: Without reference to priority.

Mr. Cardozo: I don't believe that they would have any different lien, any different status, although my colleague corrects me and says that yes, tax liens... tax liens do have in certain circumstances a greater priority.

It's hard to think through exactly where that issue would be.

Justice Kennedy: I... I had thought they had a greater priority and that they even survived purchase from bona fide sellers.

Mr. Cardozo: That certainly, that is certainly true and a property... excuse me for interrupting... a tax lien would run forever with no time limit, for example, whereas a mechanics lien has a statutory time on it.

If you got into a dispute about those two liens obviously the tax lien would have... would have priority.

Justice Stevens: May I ask... may I ask this question?

Suppose another jurisdiction had a tax system which was just a little different from New York's and didn't provide for a lien until after a suit had been brought and there had been a failure to pay or had to get a judgment first.

On that case, that jurisdiction could not enforce this tax law?

Mr. Cardozo: That is correct, Justice Stevens.

Justice Stevens: And don't you think it's sort of a strange way to define a tax immunity, by... by, by describing the... the interest in immovable property?

Mr. Cardozo: Well, we start off with the statutory language and the statutory language says right in property.

We are not talking about the abstract right to tax.

Justice Stevens: But, but the basic issue in final analysis is whether they have to pay their taxes, isn't it?

Mr. Cardozo: I'm sorry.

Justice Stevens: The ultimate issue is whether they have to pay their taxes.

Mr. Cardozo: The ultimate substance... underlying substantive issue is that but... and of course, the State Department even today says these taxes should be paid.

But the jurisdictional issue is whether there is a right in property.

And so if you just... if you don't create a lien, if a particular State did not create a lien, that would not give you the right, which is what the statute, statutory language says.

Justice Scalia: Do you know any States that don't?

Isn't it fairly standard?

For--

Mr. Cardozo: I believe... I believe it is fairly standard, Justice Scalia.

Justice Scalia: --Yeah.

Mr. Cardozo: I... there may be one out of 50 States that, that don't say this.

I think--

Justice Souter: May, may I just ask, for a kind of a footnote kind of question?

I mean you referred again to the text.

And if we are going to go on a very strict reading of the text as I understand it, you don't have to claim a right in property, you have to have a claim in... in which someone's rights in immovable property are in issue.

So whether the, the... and so long as you create a cloud on the title, however that cloud is classified, it puts in issue the title of the named title holder, so that the debates about the distinction between a lien and easement and so forth is essentially irrelevant as long as it's a cloud on the title.

If we are going to be that, if we are going to be literal, isn't that so?

Mr. Cardozo: --I, I agree with that.

And here today the right that India and Mongolia claim in their property is in issue, because we say you do not have the full right to your property and if this lien runs long enough, it's going to wipe out the value of their property completely.

And all the statute, the statute doesn't say as the European Convention says the foreign sovereign's right in property.

The statute says either... in effect, either side's right in property.

Justice Souter: Yeah.

Mr. Cardozo: And I think we can also get a great deal of help by looking--

Justice Scalia: The... the... the European, the European treaty looks at it from the other side, you're saying.

It looks at it from the foreign sovereign side.

Mr. Cardozo: --The European Convention phrased differently looks at it from both sides, Justice Scalia, which is why they needed the words obligation.

If you look at Article 9 of the European Convention it first talks about the foreign sovereign's right or interest in property, and then it says

"or the foreign sovereign's obligations arising out of that property. "

That's a different phrase than the FSIA which doesn't use the word foreign sovereign; it says "its" rights in property have to be an issue.

So you didn't need to encompass all the language of the European Convention.

Justice Scalia: Would the obligations arising out of the property in the European Convention include the obligation to pay taxes, property taxes?

Mr. Cardozo: It would include a controversy over that absolutely.

And let, let me talk about the international practice because we should take a look at international practice to... to guide us.

What was the practice in 1976?

Well, first of all we know that the restatement second and comment in paragraph 68 says disputes over rights or interest in property.

And the restatement third, which was concededly a few years after the 1976 adoption of the statute, makes it perfectly clear.

It says it explicitly.

But where did the restatement--

Justice Scalia: This says what explicitly?

Mr. Cardozo: --Says that there is jurisdiction over tax claim.

Section 455 of... of restatement third.

Chief Justice Roberts: Over tax liens or claims?

Mr. Cardozo: Over tax claims.

Excuse me, Chief... Mr. Chief Justice.

Chief Justice Roberts: And you don't go that far.

Mr. Cardozo: That... we don't have to go that far because we believe we, as a... we have a right in property arising from the lien.

Now let's look at the foreign cases before we get to the European Convention and we cite a number of them in footnote 24.

There is for example the case I referred to in response to Justice Breyer, a suit over a mortgage.

A suit over a mortgage.

It's not the commercial exception; a suit over a mortgage.

There is a case in England in 1975 which analyzes broadly what's the meaning of this real property exception.

And that case in England which we cite says a security interest, a suit over security interest for a mortgage, there is jurisdiction within the immovable property exception.

There is a large number of cases.

You look at the Harvard Review of 1932, the status of the law at that time, extensive review of all the relevant cases, says the same thing.

Then that brings us to the European Convention which was adopted shortly before the FSIA and which the State Department told Congress was consistent with the FSIA.

Justice Kennedy: Is this the Vienna Convention?

Mr. Cardozo: Pardon me?

No, the European Convention.

Justice Kennedy: European Convention.

Mr. Cardozo: Right.

And the European Convention in Article 9 as I say has a very broad immovable property exception.

I'm not looking just at the language.

I'm looking at what does this convention reflect as far as international practice was at the time?

And that practice at the time as reflected by the convention, as reflected by these cases, all say that there is a very broad immovable property exception that should cover this kind of dispute.

Now let me make one, one or two final points.

If this--

Chief Justice Roberts: Well, the... the convention used language quite different than that was used by Congress.

So I'm not quite sure how that international practice reflected in or arising out of the convention is terribly pertinent.

Mr. Cardozo: --I'm not, Mr. Chief Justice, I'm not talking just about the language.

I'm talking about the European, the international practice as reflected by that convention because the 1976 legislative history of the FSIA says we are trying to conform United States practice into the, the practice that is followed internationally.

And I--

Chief Justice Roberts: And in some cases they used language directly from the convention and in this case they didn't so it seems to me a particularly ill-advised source for looking for what they were trying to do.

Mr. Cardozo: --Then I would say where did they get that source from?

And that's where I cite the, first the international cases themselves which reflect as of 1976 the same philosophy reflected by the European Convention.

There is no question that the wording is different.

I'm not, I'm not disputing that.

What I'm saying is that wording conveys an intent from the international point of view to have the broad parameters of an international, of an immovable property exception and that was consistent with the international cases that have been decided at that time.

Justice Stevens: Did their practice draw a distinction between occupied by the ambassador himself and property occupied by employees of the embassy?

Mr. Cardozo: As a substantive matter, Justice Stevens, the answer to that question is of course yes.

Because the Vienna convention in Article 20... 23 says that the premises of... of the mission may not be, may not be taxed.

And then you look at Article 1 to look at what is the meaning of premises of the mission and they talk about where the business of the mission is conducted, or where the ambassador resides.

It doesn't talk about the rest of the employees.

And since 1952, the State Department even before the Vienna convention and subsequent has been advising missions in New York, it's on their web site today that they must pay taxes on staff housing.

Justice Scalia: Can I ask you what, what do you get out of this case?

You've withdrawn your claim for judgment of foreclosure.

What are you going to get out of it?

Declaratory judgment that they owe the taxes?

I'm not sure they have ever contested that they don't owe taxes.

Mr. Cardozo: Oh yes I think if you look, if you look at the Petitioners' brief I think they do contest that they, that they have to pay the tax.

But what we'll get out of this is the following.

First of all, start with the fact that the statute says you can bring an action in this jurisdiction even if you can't execute.

We have the State Department telling us, the Solicitor General telling us in their briefs, footnote 17, that countries pay lawful taxes.

So if we can get, if we can proceed to judgment and get that, and get that declaration, we believe based upon what the Solicitor General has said they will pay their taxes.

Justice Scalia: Yeah, but--

Mr. Cardozo: In addition--

Justice Scalia: --You say he is wrong about a lot of other stuff.

[Laughter]

Why do you believe him about that?

Mr. Cardozo: --And the... the reason I believe him about that is that Congress has passed a law that says if you don't pay your taxes reflected by a judgment, whatever the amount of that tax is, you're going to lose 1110 percent of your foreign aid.

And so I believe we are going to get a lot out of that.

Justice Breyer: Can I... can I can ask you to go back for a second to where I'm getting myself into a muddle here.

I'm still now being very, very literal.

I think you're very literal and you say it says, a case in which is involved rights to property.

And you say, but this is a right to property in this case; if I win this case then I have a right to sell that house.

Therefore, I have a right in property.

Now, if that's the reasoning why doesn't that apply to every case where a State might say if you win this case you can sell his house?

I mean, I can easily imagine a tort case, a contract case where a State would say, you win, you can sell their house to collect the judgment.

Mr. Cardozo: And--

Justice Breyer: So I'm still back in a different route at where I'm having the problem, which is a problem of distinguishing in principle between either your absolute principle, "do it", his absolute principle, "don't do it", or something in the middle.

Mr. Cardozo: --And I think the something in the middle, Justice Breyer, is if you're talking about a prejudgment lien which I think is your hypothetical.

It's--

Justice Breyer: The hypothetical was doing away with the prejudgment lien.

I would say the exact same words apply with just as much force if there is no prejudgment lien because a suit without a lien the State were to say, you win this tort claim, you can go sell this property to collect the judgment, is a suit in which there is at issue your right to sell his property, just as there is here.

Mr. Cardozo: --But Justice, Justice Breyer, in that hypothetical, you don't have a right in property until you win the case.

Justice Breyer: Do you?

Mr. Cardozo: We have, we have a, there is an in issue today our right to property and I believe that that is a distinction and I believe also... and of critical importance.

Justice Scalia: Well, wait a minute.

But the... the embassy has rights in it when the case is brought, even before the final judgment.

So you know, let's give the devil his due.

It would be a case in which rights in immovable property are in issue.

Mr. Cardozo: And if--

Justice Scalia: You want to look at it from the embassy side too so--

Mr. Cardozo: --Yes.

And if you want to look at it from the embassy side under my theory, their right... under my lien their rights are an issue today.

And under Justice Breyer's hypothetical if it meets the other due process concerns which I think under that hypothetical would raise a number of interesting ones--

Justice Scalia: --Well, that's your big defense.

To do that they would have to do it for everybody' they would have to do it for Joe Sixpack as well as for the embassy, right?

Mr. Cardozo: --That's right.

That's right.

Justice Souter: Is it only the case that the, that the only instances in which, consistent with the Foreign Sovereign Immunities Act the State could say you get the house, would be instances of litigation arising out of commercial activity?

Mr. Cardozo: Yes.

That is... that is... that is correct.

Because it's only in the commercial activities exception can you execute and then only in certain limited circumstances--

Justice Souter: Yeah.

Mr. Cardozo: --And you can execute unless the premises are not being used for the purposes of the mission.

Justice Kennedy: Now... now I take it you under New York law and the law of most jurisdictions, the tax lien becomes a lien against the property before any judicial proceedings.

Mr. Cardozo: That is correct.

Justice Kennedy: Just because they are unpaid.

And this is probably a question more for them than for you, but as you understand their position, if you put a lien on the property for unpaid taxes, are they entitled to demand its removal?

Mr. Cardozo: Of course they can.

And in fact the Republic of Argentina case--

Justice Kennedy: You mean of course they can under their view?

Mr. Cardozo: --No.

They can bring an action to quiet title.

They can bring an action--

Justice Kennedy: No.

No.

No.

Mr. Cardozo: --I'm sorry.

Justice Kennedy: Excuse me.

Can they demand that that lien be released--

Mr. Cardozo: They can demand it.

Justice Kennedy: --No, no.

--because it violates the Foreign Sovereign Immunities Act?

Is it their position that you have no right at all even to notice a lien against the property?

Mr. Cardozo: Well, I haven't heard their articulation of that position, but they certainly could write--

Justice Kennedy: It would seem to me to follow from what they're saying.

Mr. Cardozo: --I think it may.

I think they certainly have a right to ask us to reconsider and make the various arguments on the merits to us.

There are cases preceding the Foreign Sovereign Immunities Act where a country felt the lien was invalid and brought a lawsuit.

Justice Kennedy: My hypothetical is can they demand that the lien be removed solely because of the Foreign Sovereign Immunities Act.

Mr. Cardozo: They could demand that, but I don't that the Foreign Sovereign Immunities Act answers the underlying substantive question.

You'd have to look at the Vienna Convention as well as New York law to answer that question, because all the Foreign Sovereign Immunities Act is talking about is the jurisdictional issue, not the substantive issue.

And let me just point out that if we, if we can't bring this lawsuit to have, to try to foreclose or at least to have a declaration of our rights, this lawsuit can't be brought anywhere.

No place in the world can New York City have a conclusion as to who owns this property.

That is absolutely inconsistent with the underlying immovable property exception and the local action rule, which says that land... that a sovereign has a prim evil interest in its land, it has the right to adjudicate its property.

Justice Kennedy: With reference to the offset of foreign aid, could that offset be made under the controlling statutes just based on your lien, or do you have to have a judgment first?

Mr. Cardozo: No.

The statute talks about a judgment.

It can't just be that.

So finally, even though we cannot execute on our property... on the judgment, it has a major impact, this case has a major impact on what we can do.

If we can't do it there's no other place for our problems to be resolved.

I urge that the decision below be affirmed.

Thank you.

Justice Souter: May I ask you a question in your remaining time.

With respect to the statute that authorizes the, the charge against foreign aid, would that statute have any application except either in a commercial case or a case like yours?

Mr. Cardozo: Theoretically it would have an application in a counterclaim situation as well--

Justice Souter: Okay.

Mr. Cardozo: --Justice Souter.

I think those are the three things.

Of course, you don't need that statute for the commercial exception because you can execute.

Justice Souter: That's right.

You can go directly.

Mr. Cardozo: Right.

Justice Souter: So in practical terms, with the possible exception of a counterclaim, the foreign aid setoff would simply apply to a case like this, then?

Mr. Cardozo: That's right.

And Justice Souter, while certainly the Congress that passed those statutes was not the Congress that passed the FSIA, there is, certainly should be an effort to harmonize what the Congress has done.

Justice Souter: I was going to say, if you deny all the statutes you've got to--

Mr. Cardozo: That is obviously the way to reconcile these statutes.

Justice Scalia: What do you do with traffic tickets?

They've built up.

You know, there's $100,000 owing in traffic tickets by some embassy.

How do you get a judgment that that is owing?

Mr. Cardozo: You can't get a judgment that that is owing.

Justice Scalia: So you can't use even the foreign aid gimmick to--

Mr. Cardozo: Not unless, unless the statute is changed, Justice Scalia, which we have from time to time tried to persuade Congress to do.

Justice Ginsburg: Foreign aid--

Chief Justice Roberts: Unless New York law is changed and you pass something saying you get a lien on property if you have delinquent property, parking tickets.

Mr. Cardozo: That is right, and that would get us right back into the--

Justice Ginsburg: --I thought that the Federal, the 100 percent withholding, relates to taxes?

Mr. Cardozo: --Yes.

Justice Ginsburg: Taxes, not for parking tickets or anything else.

Mr. Cardozo: Yes, Justice Ginsburg, it does.

It relates to unpaid property, unpaid property taxes.

It doesn't apply to unpaid parking tickets.

Thank you very much.

Rebuttal of John J.P. Howley

Chief Justice Roberts: Thank you, Counsel.

Mr. Howley, you have two minutes remaining.

Mr. Howley: Thank you, Mr. Chief Justice.

Article 29 of the European Convention expressly excludes any intent to create an exception for tax claims.

That was the international practice at the time.

What we have here is a bootstrap and I refer to the Court to its decision in Ministry of Defense of Republic of Iran against Elahi, where this Court said that when you have an action to impose a lien, it is analyzed as an attachment under Section 1609-1610 of the Foreign Sovereign Immunities Act.

And what the Foreign Sovereign Immunities Act says is you cannot use an attachment to get jurisdiction where jurisdiction otherwise does not exist.

Justice Kennedy: Do you take the position that it's improper even to notice the property with the lien?

Mr. Howley: Under New York law, yes, and we have Chief Judge Fulbright for a unanimous--

Justice Kennedy: I mean, let's assume that you owe the taxes.

Mr. Howley: --Well, we say that there's no right to impose the lien because the Vienna Convention and New York law prohibit the taxation of the property and you cannot impose the lien to collect something that you're not entitled to.

And this is a dispute that has historically been resolved through diplomacy, not in the courts, because the fact is whatever happens in this case to India and Mongolia is likely to happen to the United States around the world and that's a foreign policy question for the State Department to decide.

Justice Scalia: You mean we'll have to start paying our taxes around the world?

Mr. Howley: I'm afraid so, Justice Scalia.

Justice Scalia: Is that a real problem for us?

I don't think so.

Mr. Howley: I am afraid so.

Thank you very much.

Chief Justice Roberts: Thank you, Counsel.

The case is submitted.