FSIA Exceptions Cannot Be Grounded on a U.S. Subsidiary’s Commercial Conduct Absent “Organ” Status or Direct Majority Ownership by the Foreign State

I. Introduction

In McDougall v. Saudi Arabian Oil Company (Saudi Aramco), the Fifth Circuit affirmed dismissal of Neil McDougall’s Texas fraud suit against Saudi Aramco for lack of subject-matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA). McDougall—a former Saudi Aramco employee recruited through Aramco Services Company (ASC), a Houston-based subsidiary—alleged Saudi Aramco (through its counsel in Saudi litigation) fraudulently withheld employment documents that he claimed were necessary to pursue benefits worth about $250,000. After unsuccessful attempts to obtain discovery in Texas (including a Texas Rule 202 petition), he sued for damages in Texas state court; Saudi Aramco removed to federal court and moved to dismiss.

The central jurisdictional question was whether McDougall plausibly pleaded an FSIA exception—primarily the commercial-activity exception and the expropriation exception—based on ASC’s alleged U.S.-based commercial and recruiting activities performed for Saudi Aramco.

II. Summary of the Opinion

The Fifth Circuit held that Saudi Aramco is a “foreign state” for FSIA purposes and therefore presumptively immune. McDougall failed to plead facts showing that ASC’s conduct in the United States could satisfy the shared statutory requirement that the relevant “commercial activity [be] carried on in the United States by the foreign state.” Because ASC was only a subsidiary of Saudi Aramco (not directly majority-owned by Saudi Arabia) and McDougall did not plead facts that ASC was an “organ” of Saudi Arabia, ASC’s U.S. activities could not be attributed as “commercial activity … by the foreign state” to invoke the exceptions he relied on. The court also rejected McDougall’s argument that the district court improperly applied a “minimum contacts” analysis, explaining that the “gravamen” inquiry is required under Supreme Court precedent for the commercial-activity exception and is distinct from minimum-contacts personal jurisdiction.

III. Analysis

A. Precedents Cited

  • Flores v. Pompeo, 936 F.3d 273 (5th Cir. 2019) and Robinson v. TCI/US W. Commc'ns Inc., 117 F.3d 900 (5th Cir. 1997)
    These cases supplied the standard of review and procedural posture: de novo review of a Rule 12(b)(1) dismissal and the accepted methods for resolving jurisdictional motions. Because the district court ruled on the pleadings alone, the Fifth Circuit accepted well-pleaded allegations as true.
  • Burnett Specialists v. Cowen, 140 F.4th 686 (5th Cir. 2025)
    Reinforced that, at the pleading-stage on a jurisdictional dismissal based on the complaint alone, allegations are construed in the plaintiff’s favor—yet the plaintiff must still plausibly allege facts bringing the case within an FSIA exception.
  • Janvey v. Libyan Inv. Auth., 840 F.3d 248 (5th Cir. 2016)
    The opinion’s doctrinal backbone. Janvey is cited for: (i) FSIA as the exclusive basis for jurisdiction over foreign states; (ii) the principle that if no exception applies there is no subject-matter or personal jurisdiction; and (iii) the framework for identifying “agency or instrumentality” status, including the critical distinction between direct majority ownership by the foreign state and indirect ownership through tiers of corporate parents.
  • Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428 (1989) and Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480 (1983)
    Anchored the proposition that the FSIA provides the “sole basis” for jurisdiction over foreign states and their instrumentalities and that immunity is the default rule absent a statutory exception.
  • Frank v. Commonwealth of Antigua & Barbuda, 842 F.3d 362 (5th Cir. 2016) and Saudi Arabia v. Nelson, 507 U.S. 349 (1993)
    These cases supplied the burden-shifting framework: the sovereign (or instrumentality) makes a prima facie showing of foreign-state status, triggering a presumption of immunity; then the plaintiff must plausibly plead an exception.
  • Al-Qarqani v. Saudi Arabian Oil Co., 19 F.4th 794 (5th Cir. 2021)
    Dispositive on Saudi Aramco’s status: the Fifth Circuit had already recognized “Saudi Aramco is a ‘foreign state’ for purposes of the FSIA.” That meant McDougall began the exception analysis from a presumption of immunity.
  • Dole Food Co. v. Patrikson, 538 U.S. 468 (2003)
    Provided the rule that indirect ownership is not enough for “majority-owned” instrumentality status: the foreign state must itself directly own a majority of the shares (or ownership interest). Ownership through a corporate parent “one or more tiers above the subsidiary” does not qualify. This foreclosed treating ASC as a foreign-state instrumentality merely because Saudi Arabia owns Saudi Aramco and Saudi Aramco owns ASC.
  • CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd., 145 S. Ct. 1572 (2025)
    McDougall invoked CC/Devas to argue the district court wrongly looked for “gravamen” conduct as if applying minimum contacts. The Fifth Circuit rejected this: CC/Devas addressed FSIA personal jurisdiction under § 1330(b) (automatic when an immunity exception applies and service is accomplished), not how to determine whether an exception applies for subject-matter jurisdiction under § 1330(a).
  • Sachs, 577 U.S. 27 (2015)
    Cited for the “gravamen of the suit” methodology under the commercial-activity exception—courts must identify the “particular conduct that constitutes the gravamen of the suit” to decide what the action is “based upon.” The Fifth Circuit used Sachs to explain that the district court’s focus on “gravamen” was not a minimum-contacts test but a required FSIA-exception inquiry.

B. Legal Reasoning

  1. FSIA immunity attached and set the burden.

    Because Saudi Aramco is a “foreign state” under the FSIA (per Al-Qarqani v. Saudi Arabian Oil Co.), it enjoyed a presumption of immunity. McDougall therefore had to plausibly plead facts bringing his claims within a statutory exception.

  2. The commercial-activity and expropriation exceptions both required U.S. commercial activity “by the foreign state.”

    The court emphasized the shared statutory phrase in §§ 1605(a)(2) and 1605(a)(3): “commercial activity carried on in the United States by the foreign state.” McDougall’s pleadings tied U.S.-based recruiting and other alleged business conduct to ASC, not to Saudi Aramco acting in the United States directly.

  3. ASC’s U.S. conduct could not satisfy “by the foreign state” unless ASC itself qualified as a foreign state (agency/instrumentality) for FSIA purposes.

    The opinion treated this as the gatekeeping issue: if ASC was not an agency or instrumentality of Saudi Arabia, then ASC’s U.S. conduct could not meet the “commercial activity … by the foreign state” requirement for the exceptions McDougall invoked.

  4. ASC was not “majority-owned” by the foreign state under Dole Food Co. v. Patrikson and Janvey v. Libyan Inv. Auth.

    The court applied the direct-ownership rule: Saudi Arabia directly majority-owns Saudi Aramco; Saudi Aramco (not Saudi Arabia) owns ASC. That “tiered” ownership cannot convert ASC into a “majority-owned” instrumentality of Saudi Arabia. Thus, “ASC is merely a subsidiary of [Saudi Aramco], and that is not sufficient.”

  5. McDougall failed to plead “organ” facts.

    The Fifth Circuit recited the Janvey “organ” factors—national purpose creation, active supervision, public-employee hiring/salaries, exclusive rights, and treatment under foreign law—and held McDougall pleaded none of them. That pleading failure alone prevented reliance on the commercial-activity or expropriation exceptions (as argued).

  6. The court did not reach other elements of the exceptions.

    Having found the “commercial activity … by the foreign state” requirement unsatisfied on McDougall’s own theory (ASC’s conduct), the court affirmed without analyzing whether the alleged fraud was “based upon” U.S. commercial activity or whether “rights in property taken in violation of international law” were truly “in issue.”

  7. Rejection of the “minimum contacts” complaint.

    The panel explained that the district court did not apply minimum contacts (the phrase never appeared). The district court’s “gravamen” inquiry tracked Sachs and was required for evaluating the commercial-activity exception, while CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd. addressed a different FSIA provision (personal jurisdiction under § 1330(b)).

C. Impact

  • Limits “bootstrapping” FSIA exceptions through U.S. subsidiaries.

    The opinion underscores a practical barrier for plaintiffs attempting to ground FSIA exceptions on the U.S. operations of a domestic subsidiary: unless the subsidiary itself qualifies as an “agency or instrumentality” of the foreign state (via direct majority ownership or “organ” status), the subsidiary’s U.S. commercial conduct will not satisfy statutory language requiring commercial activity “by the foreign state.”

  • Raises pleading expectations for “organ” allegations.

    Plaintiffs opposing immunity cannot rely on general statements that a subsidiary acts “on behalf of” a foreign state-owned enterprise. They must plead facts fitting the Janvey organ factors (creation for national purpose, active state supervision, etc.), or risk dismissal at the threshold.

  • Clarifies the distinct roles of “gravamen” analysis and minimum-contacts concepts in FSIA cases.

    The opinion reinforces that “gravamen” is part of the statutory “based upon” inquiry under the commercial-activity exception (Sachs), not a constitutional minimum-contacts test. Meanwhile, CC/Devas concerns when personal jurisdiction attaches once an exception applies and service is complete.

  • Practical consequences for employment-related disputes with foreign sovereign enterprises.

    Even when recruiting or HR processing occurs in the United States through a related entity, plaintiffs must connect the exception to commercial activity by the foreign state (or its qualifying agency/instrumentality) as defined by FSIA ownership/organ tests—not merely to the broader corporate group’s U.S. presence.

IV. Complex Concepts Simplified

FSIA (Foreign Sovereign Immunities Act)
A federal statute that generally makes foreign states (and certain state-owned entities) immune from suit in U.S. courts unless a specific statutory exception applies.
Subject-matter jurisdiction vs. personal jurisdiction under FSIA
Subject-matter jurisdiction asks whether the court has power over the type of case; under FSIA it depends on whether an immunity exception applies. Personal jurisdiction concerns power over the defendant; under FSIA, CC/Devas teaches it becomes “automatic” when an exception applies and service is properly made.
Commercial-activity exception (§ 1605(a)(2))
Removes immunity for certain claims “based upon” commercial activity, including commercial activity carried on in the United States by the foreign state.
Expropriation exception (§ 1605(a)(3))
Removes immunity in certain property-taking disputes involving takings “in violation of international law,” but (as invoked here) also requires a nexus to commercial activity carried on in the United States by the foreign state.
“Agency or instrumentality” and the direct ownership rule
Not every affiliated company counts as the foreign state. Under Dole Food Co. v. Patrikson, a subsidiary is not an instrumentality merely because it is owned by a parent that is owned by a foreign state; the foreign state must directly majority-own the entity (for “majority-owned” status).
“Organ” of a foreign state
A separate pathway to instrumentality status. Courts look for facts like creation for a national purpose, active state supervision, public-employee characteristics, exclusive rights, and how the entity is treated under foreign law.
“Gravamen of the suit”
The core conduct that actually forms the basis of the plaintiff’s claim. Under Sachs, courts identify that core conduct to decide whether a suit is “based upon” commercial activity for FSIA purposes.

V. Conclusion

The Fifth Circuit’s decision reinforces a strict, entity-specific approach to FSIA exceptions: where a plaintiff relies on U.S. commercial conduct performed by a domestic subsidiary, the plaintiff must plausibly plead that the subsidiary itself qualifies as a “foreign state” (agency or instrumentality) under the FSIA—through direct majority ownership by the foreign sovereign or through “organ” status supported by concrete facts. The opinion also clarifies that the “gravamen” inquiry demanded by Sachs is not a minimum-contacts test, and that CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd. does not alter how courts determine whether an FSIA immunity exception applies for subject-matter jurisdiction.