Characterizing Nationalizations For Purposes of The Foreign Sovereign Immunities Act and The Act of State Doctrine

Fordham International Law Journal Volume 6, Issue 3 1982 Article 1 Characterizing Nationalizations For Purposes of The Foreign Sovereign Immunities Act and The Act of State Doctrine George Kahale, III∗ ∗ Copyright c 1982 by the authors. Fordham International Law Journal is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/ilj Characterizing Nationalizations For Purposes of The Foreign Sovereign Immunities Act and The Act of State Doctrine George Kahale, III Abstract This article will review the traditional approach to nationalization and assess the new theories in light of the FSIA [the Foreign Sovereign Immunities Act of 1976], Alfred Dunhill, Inc. v. Republic of Cuba, 425 U.S. 682 (1976) [Dunhill], and recent case law. CHARACTERIZING NATIONALIZATIONS FOR PURPOSES OF THE FOREIGN SOVEREIGN IMMUNITIES ACT AND THE ACT OF STATE DOCTRINE George Kahale, III* INTRODUCTION Prior to the Supreme Court's decision in Alfred Dunhill, Inc. v. Republic of Cuba' and the passage of the Foreign Sovereign Immunities Act of 19762 (FSIA), the sovereign character of acts of nationalization was rarely disputed. 3 Since the FSIA and Dunhill, however, new theories have been developed which characterize nationalization as a commercial act or an act in connection with a commercial activity. 4 The issue goes to the heart of both the FSIA's commercial activity exception to immunity 5 and the act of state doctrine" in nationalization cases. This Article will review the traditional approach to nationalizations and assess the new theories in light of the FSIA, Dunhill and recent case law. I. OVERVIEW OF SOVEREIGN IMMUNITY AND ACT OF STATE DOCTRINE A. Sovereign Immunity Sovereign immunity is an internationally recognized doctrine under which the courts of one state will decline to exercise jurisdiction over another state without its consent. 7 Although most nations give effect to some form of sovereign immunity, the precise circum- * Partner, Curtis, Mallet-Prevost, Colt & Mosle, New York. B.A. 1971, Hunter College; J.D. 1974, New York University School of Law. 1. 425 U.S. 682 (1976). 3 2 2. Pub. L. No. 94-583, 90 Stat. 2891 (1976) (codified at 28 U.S.C. §§ 1330, 13 2(a)( )(4), 1391(f), 1441(d), 1602-1611 (1976)). 3. See inJra text accompanying notes 28-43. 4. See infra text accompanying notes 44-84. For purposes of this Article, no distinction is made between the terms "nationalization" and "expropriation." 5. See 28 U.S.C. § 1605(a)(2) (1976). 6. See infra text accompanying notes 15-24. 7. H.R. REP. No. 1487, 94th Cong., 2d Sess. 8-9, reprintedin 1976 U.S. CODE CONG. & AD. NEws 6604, 6606-07 [hereinafter cited as HousE REPORT]. See Jet Line Servs., Inc. v. M/V Marsa El Hariga, 462 F. Supp. 1165, 1168-69 (D. Md. 1978). 392 FORDHAM INTERNATIONAL LAW JOURNAL [Vol. 6:391 stances under which immunity is granted vary from country to country. 8 At first, the absolute theory of immunity prevailed, affording foreign states immunity from all suits.' With the increasing participation of states in commercial activities, a trend developed toward restricting the scope of state immunity to suits based on sovereign acts. 0 The United States formally adopted the "restrictive theory" of sovereign immunity in 1952.11 Yet, despite consensus as to the principle, there remained substantial uncertainty as to the outcome of any given case, largely due to the absence of a consistent method 8. See HOUSE REPORT, supra note 7, at 9. See also State Immunity Act, 1978, ch. 33; European Convention on State Immunity, May 16, 1972, Europ. T.S. No. 74, reprintedin 11 I.L.M. 470 (1972). 9. See The Schooner Exchange v. M'Faddon, 11 U.S. (7 Cranch) 116 (1812). Although most Western nations long ago adopted the restrictive theory, the absolute theory of sovereign immunity retained its vitality in the United Kingdom until the passage of the State Immunity Act. HousE REPORT, supra note 7, at 8. 10. Victory Transp. Inc. v. Comisaria Gen. de Abastecimientos y Transps., 336 F.2d 354, 360 (2d Cir. 1964) (restrictive theory is designed "to accommodate the interest of individuals doing business with foreign governments in having their legal rights determined by the courts, with the interest of foreign governments in being free to perform certain political acts without undergoing the embarassment or hindrance of defending the propriety of such acts before foreign courts"), cert. denied, 381 U.S. 934 (1965). See also HousE REPORT, supra note 7, at 6-7. 11. This position was adopted by the Department of State in the "Tate Letter." Letter from Jack B. Tate, Acting Legal Advisor, Dep't of State, to Philip B. Perlman, Acting Attorney General of the United States (May 19, 1952), reprinted in 26 DEV'T ST. BULL. 984 (1952). Prior to the FSIA, the State Department played a central role in the sovereign immunity decision-making process. See HOUSE REPORT, supra note 7, at 6-7; Sovereign Immunity Decisions of the Department of State (M. Sandler, D. Vagts & B. Ristau eds.) in 1977 DIGEST OF UNITED STATES PRACTICE IN INTERNATIONAL LAW 1017 app. (J. Boyd ed. 1979). Foreign governments had the option of petitioning the State Department for suggestions of immunity. The Department's decisions on such petitions were held binding upon the courts. See Republic of Mex. v. Hoffman, 324 U.S. 30, 34-36; Ex parte Republic of Peru, 318 U.S. 578, 588 (1943). Although the State Department adopted the restrictive theory of immunity from suit in the Tate Letter, it continued to adhere to the absolute theory of immunity from execution. HousE REPORT, supra note 7, at 8. The latter remained in effect until the passage of the FSIA, which liberalized the rules with respect to execution on the property of a foreign state. 28 U.S.C. §§ 1609-1611 (1976). There are still certain circumstances under which suit may be brought against a foreign state but a judgment may not be executed. See Kahale & Vega, Immunity and Jurisdiction: Toward a Uniform Body of Law in Actions Against Foreign States, 18 COLUM. J. TRANSNAT'L L. 211, 221-22 (1979). Compare 28 U.S.C. § 1605(a)(2) (1976) (jurisdictional immunity denied if suit based on commercial activity having specified contacts with the United States) with 28 U.S.C. § 1610(a)(2) (1976) (where jurisdiction is based on commercial activity provision, immunity of foreign government's property from execution denied only where property is used for commercial activity upon which the claim is based). 1983] CHARAC TERIZING NATIONALIZATIONS for distinguishing between acts jure gestionis (private or commercial acts) and acts jure imperii (sovereign acts) .12 In 1976, Congress codified the restrictive theory in the FSIA and selected the "nature of the act" test for determining whether a particular act constitutes "commercial activity."' 3 Section 1605(a)(2) of the FSIA, the commercial activity exception to the FSIA's general rule of jurisdictional immunity for foreign states, denies such immunity i (...truncated)