FSIA Commercial-Activity Exception: Sovereign-Coerced Merger “Brokering” Is Not Commercial Activity

1. Introduction

Creditincome Limited v. The Swiss Confederation (2d Cir. July 16, 2026) addresses whether Switzerland may be sued in U.S. court for losses arising from the March 2023 rescue acquisition of Credit Suisse AG by UBS Group AG. Plaintiffs—beneficial owners of Credit Suisse Additional Tier 1 securities (“AT1s”)—alleged that Switzerland orchestrated (“brokered”) the takeover and, as part of that effort, ordered Credit Suisse to write down roughly $17.3 billion in AT1 liabilities to zero, wiping out Plaintiffs’ interests (including $372 million cleared through the Depository Trust Company in New York).

The core jurisdictional issue was whether Switzerland’s conduct fits the Foreign Sovereign Immunities Act (“FSIA”) commercial activity exception, specifically the “direct-effect clause,” which can permit suit for an act abroad taken “in connection with” a foreign state’s “commercial activity” abroad that causes a “direct effect” in the United States. See 28 U.S.C. § 1605(a)(2).

The district court dismissed for lack of subject matter jurisdiction, holding that the pleaded commercial activity—Switzerland’s “brokering” of the merger—was not “commercial” under the FSIA. The Second Circuit affirmed, emphasizing that Switzerland’s coercive directives and ordinance-making rendered the “brokering,” viewed as a whole, sovereign rather than commercial.

2. Summary of the Opinion

The Second Circuit held that Switzerland’s “brokering” of the UBS–Credit Suisse merger was not a “commercial activity” under the FSIA. Although some components—such as arranging loans and guarantees— might resemble private finance, Switzerland’s overall conduct was dominated by sovereign compulsion (directing Credit Suisse to merge) and sovereign lawmaking (emergency ordinances altering legal requirements and authorizing the AT1 write-down). Those sovereign features defeated Plaintiffs’ attempt to characterize the “brokering” as something “routinely performed by private parties like investment banks.”

Because Plaintiffs failed to satisfy the “commercial activity” element, the court affirmed dismissal on FSIA immunity grounds without reaching other elements (including “in connection with” and “direct effect”) or other defenses.

3. Analysis

A. Precedents Cited

1) Republic of Argentina v. Weltover, Inc.

Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992), is the opinion’s doctrinal anchor. Weltover frames “commercial” activity under the FSIA as conduct where a state acts “in the manner of a private player within” a market rather than “as regulator of a market.” It also emphasizes the statutory nature-not-purpose rule: courts assess the “nature” of the acts performed, not their governmental motive or policy objective. The Second Circuit used Weltover to test whether Switzerland’s “brokering,” in its totality, resembled private market behavior.

The panel also clarified a point about the district court’s reliance on Weltover’s phrasing that commercial activity involves “only those powers that can also be exercised by private citizens.” The Second Circuit cautioned against reading “only” to mean that any mixture of sovereign and commercial acts automatically makes the entire course of conduct non-commercial; nevertheless, it concluded that here the sovereign elements were sufficient to make the “brokering” non-commercial overall.

2) Pablo Star Ltd. v. Welsh Gov't

Pablo Star Ltd. v. Welsh Gov't, 961 F.3d 555 (2d Cir. 2020), supplied a key methodological point: applying the nature-not-purpose rule can depend on the level of generality and may require a “nuanced examination of the context of the acts involved.” The panel invoked Pablo Star to explain why Switzerland’s loans/guarantees cannot be evaluated in isolation; context—particularly coercion and ordinance-making—matters to characterizing the “brokering” as a whole.

3) Daou v. BLC Bank, S.A.L.

Daou v. BLC Bank, S.A.L., 42 F.4th 120 (2d Cir. 2022), was cited for the standard of review: FSIA jurisdictional legal conclusions are reviewed de novo. While not central to the merits, it underscores that immunity questions are treated as threshold jurisdictional determinations.

4) Hanil Bank v. PT Bank Negara Indon. (Persero)

Hanil Bank v. PT Bank Negara Indon. (Persero), 148 F.3d 127 (2d Cir. 1998), helped the court reject the notion that a financial instrument must be negotiable or tradeable to be “commercial.” The district court had reasoned that Switzerland’s support instruments were non-negotiable and available only to UBS/Credit Suisse; the Second Circuit deemed that distinction “unhelpful,” noting that direct, non-tradeable instruments (like letters of credit) can be commercial.

5) Attestor Master Value Fund LP v. Republic of Argentina

Attestor Master Value Fund LP v. Republic of Argentina, 113 F.4th 220 (2d Cir. 2024), was used to question whether sheer scale can convert financial transactions into non-commercial conduct. The panel noted that the Second Circuit has applied the commercial activity exception to enormous sums, making it difficult to treat size alone as dispositive of “nature.”

6) EM Ltd. v. Republic of Argentina

EM Ltd. v. Republic of Argentina, 473 F.3d 463 (2d Cir. 2007), was distinguished. EM Ltd. involved International Monetary Fund loans available only to sovereign states under a treaty regime. The court used EM Ltd. to show that Switzerland’s situation—emergency liquidity support in a bank crisis—did not neatly match IMF/treaty-based sovereign-only financing.

7) Anglo-Iberia Underwriting Management v. PT Jamsostek

Anglo-Iberia Underwriting Management v. PT Jamsostek, 600 F.3d 171 (2d Cir. 2010), was also distinguished as inapposite because it concerned whether employing public servants is commercial, not whether extending loans/guarantees is commercial.

8) Foremost-McKesson, Inc. v. Islamic Republic of Iran; Missouri ex rel. Bailey v. People's Republic of China; Garb v. Republic of Poland

Plaintiffs argued that coercion does not defeat commercial character, citing Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438 (D.C. Cir. 1990), and Missouri ex rel. Bailey v. People's Republic of China, 90 F.4th 930 (8th Cir. 2024). The Second Circuit was unpersuaded: Foremost-McKesson did not itself discuss coercion in the manner Plaintiffs suggested, and Bailey’s characterization of China’s factory takeovers as “private player” conduct was not adopted as Second Circuit law.

The panel instead reaffirmed its own circuit’s baseline that certain coercive takings are quintessentially sovereign, citing Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2006) (“Expropriation is a decidedly sovereign—rather than commercial—activity.”). While the court did not label Switzerland’s conduct an “expropriation,” Garb reinforced the broader principle: coercive, state-authority compulsion is typically sovereign in nature, not market participation.

B. Legal Reasoning

1) The pleaded “commercial activity” was narrow—and determinative

A critical move in the opinion is pleading discipline: the court treated Switzerland’s “brokering” of the takeover as the only pleaded “commercial activity” connected to the challenged write-down order. Plaintiffs could not salvage jurisdiction by arguing, at a high level of abstraction, that Switzerland engaged in “any” commercial transaction somewhere in the narrative. The jurisdictional inquiry is tethered to the specific commercial activity alleged to be “in connection with” the act sued upon.

2) Loans and guarantees: possibly commercial, but not enough

The panel gave Plaintiffs partial ground: Switzerland’s loans and guarantees were “arguably commercial,” especially because private actors can issue direct, non-tradeable instruments (Hanil Bank) and the enormous magnitude of obligations does not necessarily change their “nature” (Attestor Master Value Fund LP).

But the court treated that as non-dispositive because the relevant “commercial activity” was the overall “brokering,” not one strand of financing assistance viewed in isolation.

3) Coercion and compulsion: the “brokering” was not like an investment bank

The heart of the decision is that Switzerland did not simply facilitate or advise; it coerced. Switzerland allegedly:

  • decided early that only UBS could be a buyer;
  • demanded takeover preparations;
  • excluded Credit Suisse from negotiations while bargaining with UBS “on behalf of” Credit Suisse; and
  • ultimately conditioned emergency liquidity on a merger that was “not optional.”

The court concluded this peremptory posture was present “from the outset” and persisted through closing. That kind of mandatory direction—especially in the context of crisis measures for a systemically important bank—is a mode of action “only a sovereign could” employ, and therefore it defeats the characterization of the activity as market participation under Weltover.

4) Ordinance-making: unmistakably sovereign and structurally transformative

Switzerland’s emergency ordinances were treated as clearly sovereign acts: they created exceptions to bankruptcy priority rules, waived shareholder-approval requirements, authorized loss guarantees, and empowered regulators to order AT1 write-downs. Even if private dealmakers “seek accommodations,” Switzerland did not seek—it unilaterally decreed. The ordinances were not a minor garnish; they were integral, culminating measures that “totally negated” the resemblance of this deal to a privately brokered transaction, especially when layered atop coercion.

5) Holding: the “brokering,” taken as a whole, was non-commercial

Synthesizing these points, the court applied Pablo Star’s context-sensitive approach and held that, although some actions might resemble private finance, the dominant features—sovereign compulsion and lawmaking—rendered the “brokering” “fundamentally different” from “trade and traffic or commerce.” Accordingly, the FSIA commercial activity exception did not apply, and Switzerland remained immune.

C. Impact

1) Crisis-management mergers by states are likely insulated when coercion/lawmaking drives the outcome

The decision signals that when a sovereign orchestrates a financial-institution rescue through mandatory directives and emergency legal instruments, U.S. plaintiffs will face steep obstacles in characterizing that conduct as “commercial,” even if parts of the episode look like investment-banking activity (negotiations, financing packages, guarantees).

2) Plaintiffs must plead a commercial activity that truly resembles private conduct in its operative features

The court’s insistence that “brokering” was the only pleaded “commercial activity” underscores a practical litigation lesson: FSIA jurisdiction may turn on how precisely plaintiffs identify the relevant “commercial activity” and whether that activity, in context, is tainted (or transformed) by sovereign tools.

3) The court leaves open other FSIA elements—but narrows the gateway

Because the Second Circuit resolved the case at the “commercial activity” step, it did not decide whether the AT1 write-down caused a “direct effect” in the United States or whether the write-down order was sufficiently “in connection with” the asserted commercial activity. Future litigants may still contest those elements, but this opinion narrows the set of cases that can get that far where sovereign crisis powers are central.

4) Parallel foreign-law merits are not a substitute for U.S. jurisdiction

The opinion notes that other AT1 holders reportedly obtained a Swiss ruling that the write-down order was unlawful (Bundesverwaltungsgericht [BVGE] [Federal Administrative Court] Oct. 1, 2025, B-2334/2023 (Switz.)), but Plaintiffs missed the Swiss filing deadline. Regardless, a foreign illegality determination does not itself establish a U.S. FSIA exception; immunity remains a threshold jurisdictional barrier.

4. Complex Concepts Simplified

  • FSIA immunity: Foreign states are generally immune from being sued in U.S. courts unless a statutory exception applies.
  • Commercial activity exception (28 U.S.C. § 1605(a)(2)): Allows suit in certain cases where the state acts like a private market participant and the case has specified U.S. connections.
  • Nature vs. purpose (28 U.S.C. § 1603(d)): Courts focus on what the state did (e.g., issued a loan; passed a law; compelled a merger), not why it did it (e.g., to prevent a banking crisis).
  • “Private player” vs. “regulator” (Weltover): If the state is using powers unique to sovereignty—compulsory directives, emergency decrees, altering legal rules—it is generally acting as a regulator, not a private trader.
  • AT1 securities: Bank capital instruments designed to absorb losses in stress; their terms can permit write-downs under defined conditions. Here, Plaintiffs alleged the write-down violated contractual terms but occurred because regulators ordered it.
  • Subject matter jurisdiction: The court’s power to hear the case at all. Under FSIA, immunity usually means the court lacks subject matter jurisdiction.

5. Conclusion

Creditincome Limited v. The Swiss Confederation reinforces that the FSIA’s commercial activity exception does not apply merely because a sovereign’s conduct resembles deal-making or finance at the surface. Where the state’s conduct is defined by coercive control over a private actor and unilateral ordinance-making that restructures the legal landscape, the overall “course of conduct” will be treated as sovereign, not commercial, and U.S. courts will lack jurisdiction absent another FSIA exception.