USAA Cas. Ins. Co. v. Permanent Mission of Republic of Namibia

• Decision Date: 25 May 2012
• Docket Number: Docket No. 10–4892–CV.
• Parties: USAA CASUALTY INSURANCE CO., as subrogee of Robert Adelman, Plaintiff–Appellee, v. PERMANENT MISSION OF the REPUBLIC OF NAMIBIA, Defendant–Appellant, Ryback Development, Inc., Federation Development Corp., Defendants.
• Court: U.S. Court of Appeals — Second Circuit

681 F.3d 103

USAA CASUALTY INSURANCE CO., as subrogee of Robert Adelman, Plaintiff–Appellee,

v. PERMANENT MISSION OF the REPUBLIC OF NAMIBIA, Defendant–Appellant,Ryback Development, Inc., Federation Development Corp., Defendants.

Docket No. 10–4892–CV.

United States Court of Appeals, Second Circuit.

Argued: Dec. 6, 2011.

Decided: May 25, 2012.

Robert William Phelan, Cozen O'Connor, New York, NY, for Plaintiff–Appellee USAA Casualty Insurance Co.

Jay M. Levin (Carolyn P. Short, on the brief), Reed Smith LLP, Philadelphia, PA, for Defendant–Appellant Permanent Mission of the Republic of Namibia.

Before: CABRANES and WESLEY, Circuit Judges.¹

JOSÉ A. CABRANES, Circuit Judge:

The question presented is whether the Permanent Mission of the Republic of Namibia to the United Nations (“the Mission” or “Permanent Mission”) may be sued for the damage to an adjoining property caused by its alleged failure to comply with the New York City Building Code (“the Building Code”). ² The Mission brings this interlocutory appeal from a November 17, 2010 order of the United States District Court for the Southern District of New York (Laura Taylor Swain, Judge) denying it immunity under the Foreign Sovereign Immunities Act (“FSIA”),³ in the circumstances presented.

We affirm.

BACKGROUND⁴

At some point before the events that gave rise to this action, the Republic of Namibia made the decision to house the chancery, or base of operations, of its Permanent Mission to the United Nations in a Manhattan townhouse located at 135 E. 36th Street (the “Building”). The Mission commissioned extensive interior construction in order to render the Building suitable for a diplomatic mission. To perform the proposed construction, the Mission hired an independent general contractor, Federation Development Corporation (“Federation”), which in turn hired a subcontractor, Ryback Development, Inc. (“Ryback”) (together with Federation, the “Contractors”).

The townhouse adjoining the Building, 133 E. 36th Street, was then owned by Robert Adelman and insured by USAA Casualty Insurance Co. (“USAA”). The Building was separated from the Adelman townhouse by a brick and mortar party wall, upon which the support beams of the Adelman townhouse rested.

In early December 2008, Ryback employees began pouring a reinforced concrete wall in the interior of the Building, alongside the existing party wall. On December 15, as the concrete wall was being poured, the party wall collapsed, causing substantial damage to Adelman's property. Adelman filed an insurance claim with USAA, which paid Adelman $397,730 for his damages.

On April 21, 2010, USAA brought suit as Adelman's subrogee against the Contractors and the Mission (jointly, the “defendants”) in New York State Supreme Court.⁵ On May 26, 2010, the Mission removed the suit to federal court, and on July 8, 2010, with court approval, USAA filed an amended complaint (the “Amended Complaint”). The Amended Complaint alleged five counts against the Mission, its contractor, and its subcontractor: (1) negligence; (2) nuisance; (3) trespass; (4) ultrahazardous activity; and (5) res ipsa loquitur.⁶

In alleging that the Mission had committed a tort against Adelman, USAA relied primarily upon Section 3309.8 of the New York City Building Code. In pertinent part, that section states:

When any construction or demolition operation exposes or breaches an adjoining wall, including load bearing and non load-bearing walls as well as party walls and non party walls, the person causing the construction or demolition operation shall, at his or her own expense, perform the following: (1) Maintain the structural integrity of such walls, have a registered design professional investigate the stability and condition of the wall, and take all necessary steps to protect such wall.⁷

USAA alleged that the Mission had violated that section of the Building Code by, among other things, “failing to shore up the common wall.”

On July 28, 2010, the Mission moved to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1),⁸ arguing that the District Court lacked subject matter jurisdiction over the Mission because it is entitled to sovereign immunity under the FSIA. It also argued that the Amended Complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.⁹

On November 17, 2010, the District Court granted the motion to dismiss in part, denied it in part, and held that the Mission was not entitled to sovereign immunity.¹⁰ Reasoning that the Mission's case “falls squarely within the [tortious activity] exception” to the immunity from suit conferred by the FSIA, the Court held that “[t]he discretionary function provision of 28 U.S.C. § 1605(a)(5)” was “inapplicable to the instant claim.” ¹¹ Accordingly, the Court found that it had subject matter jurisdiction and denied the motion to dismiss pursuant to Rule 12(b)(1). ¹² With respect to the Mission's motion under Rule 12(b)(6), the District Court granted the motion to dismiss the Third (trespass) and Fourth (ultrahazardous activity) Counts of the Amended Complaint for failure to state a claim. It denied the motion to dismiss with respect to the First (negligence), Second (nuisance), and Fifth ( res ipsa loquitur ) Counts. The District Court's ruling on the Rule 12(b)(6) motion is not before us on appeal.

This appeal followed. The Mission argues on appeal that it is entitled to immunity under the FSIA from this “suit alleging vicarious liability for negligence of independent contractors who were hired to renovate a building to make it suitable for use as the Mission.” Br. of App't Permanent Mission of the Repub. of Namib. at 4.

DISCUSSION

A. Appellate Jurisdiction and Standard of Review

We have jurisdiction to hear this interlocutory appeal because the District Court's November 17, 2010 order denying, on the ground of sovereign immunity, the Mission's motion to dismiss the Amended Complaint is immediately appealable under the collateral order doctrine.¹³

We review “ de novo the district court's conclusions of law regarding jurisdiction under the FSIA.” ¹⁴ We also review de novo “ ‘a dismissal for lack of subject matter jurisdiction where the trial court dismissed on the basis of the complaint alone or the complaint supplemented by undisputed facts from the record.’ ” ¹⁵

B. The FSIA

The FSIA “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.” ¹⁶ “[A] foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception [to the FSIA] applies, a federal court lacks subject-matter jurisdiction over a claim against a foreign state.” ¹⁷ A foreign state's permanent mission to the United Nations is indisputably the “embodiment” of that state.¹⁸ Accordingly, as USAA concedes, the Mission is entitled to rely on the defense of sovereign immunity unless an exception to the FSIA applies.

USAA argues that three exceptions to the FSIA bestow subject matter jurisdiction over the Mission in this case: (1) the “tortious activity” exception,¹⁹ (2) the “commercial activity” exception,²⁰ and (3) the “immovable property” exception.²¹ Because we agree with the District Court that the tortious activity exception applies, we likewise do not address the applicability of the other two exceptions.

C. The Tortious Activity Exception

The tortious activity exception to the FSIA “permits courts to exercise jurisdiction over foreign sovereigns where the plaintiff seeks money damages ‘for ... damage to or loss of property, occurring in the United States and caused by the tortious act or omission of [the] foreign state....’ ” ²² In determining whether an alleged action is a tort within the meaning of this federal statute, “we have applied the law of the state in which the locus of injury occurred” ²³—in this case, New York. Accordingly, we first identify the act or omission complained of, and then address whether that act or omission is in fact tortious under the law of the State of New York. ²⁴

1. The Tortious Act or Omission

The omission alleged in this case is the Contractors' failure to “shore up” the party wall between the Mission's property and the adjoining townhouse, owned by Adelman.²⁵ We therefore turn to the question of whether that omission constitutes a tort under New York law. To answer that question, we must determine whether the duty imposed by the Building Code on the Mission, as landowner, was delegable to its contractors, who conducted the construction.²⁶ We hold that the Mission was under a nondelegable duty, pursuant to regulation, to ensure that the structural integrity of the party wall was maintained during construction.

a. The Mission Had a Duty to Ensure the Structural Integrity of the Party Wall

Section 3309.8 of the New York City Building Code imposes upon the “person causing ... construction” within a building the duty to “[m]aintain the structural integrity of [party walls],” and to “take all necessary steps to protect such wall[s].” ²⁷ Under New York law, it is well established that “the words [‘]person or persons causing[’] ... apply to the owner of the property who employs a third person” to conduct a construction project. ²⁸ The Mission is the owner of the property, and it employed the contractor who allegedly failed to shore up the party wall. Therefore, the regulation imposes its duty of care directly upon the Mission.²⁹

The failure to comply with a duty imposed by the Building Code is, at a minimum, evidence of negligence and can give rise to tort liability under New York law.³⁰ The alleged failure of the Mission to protect the party wall was a breach of the duty imposed upon it by the Building Code.

b. The Mission's Duty Was Not Delegable to its Contractors

Our determination that the Building Code imposes a duty of care directly upon the Mission does not end our inquiry. Although New York law...