The Act of State Doctrine and Foreign Sovereign Immunities Act of 1976: Can They Coexist?

Maryland Journal of International Law Volume 13 | Issue 2 Article 4 The Act of State Doctrine and Foreign Sovereign Immunities Act of 1976: Can They Coexist? Ifeanyi Achebe Follow this and additional works at: http://digitalcommons.law.umaryland.edu/mjil Part of the International Law Commons Recommended Citation Ifeanyi Achebe, The Act of State Doctrine and Foreign Sovereign Immunities Act of 1976: Can They Coexist?, 13 Md. J. Int'l L. 247 (1989). Available at: http://digitalcommons.law.umaryland.edu/mjil/vol13/iss2/4 This Article is brought to you for free and open access by DigitalCommons@UM Carey Law. It has been accepted for inclusion in Maryland Journal of International Law by an authorized administrator of DigitalCommons@UM Carey Law. For more information, please contact . THE ACT OF STATE DOCTRINE AND FOREIGN SOVEREIGN IMMUNITIES ACT OF 1976: CAN THEY COEXIST? IFEANYI ACHEBE* INTRODUCTION ................................... I. PURPOSE OF THIS ARTICLE ......................... DEFINING THE ACT OF STATE DOCTRINE ............. A. B. II. SOME EARLY AND RECENT EVIDENCE OF THE PROBLEMS A. B. C. D. E. III. IV. The Problem at the United States Supreme Court L evel . .. .. .. .. ..... ... .. .. . .. .. .. .. .. . . .. . .. . Views from the Second Circuit Cases ............ (i) Anticipatory Repudiation ............ (ii) International Agreements ............ Views from the Third Circuit .................. Views from the District of Columbia Circuit ..... Views from the Ninth Circuit .................. VIEWS FROM THE THIRD WORLD ...................... THE FOREIGN SOVEREIGN IMMUNITIES ACT (1976) A. B. V. V I. Distinguishingan Act of State .................. Distinguishing Absolute Sovereignty ............. Jurisdiction.................................. Commercial Exception ........................ .... 247 250 250 251 253 256 2 56 260 267 267 271 272 274 278 280 283 285 A N ALYSIS ........................................ 288 C ONCLUSION ..................................... 296 INTRODUCTION Long before the passage of the Foreign Sovereign Immunities Act of 1976 1 (F.S.I.A), the United States Supreme Court in Underhill v. Hernandez,2 had established an "absolute" view of the act of state doctrine by holding that United States courts could not question the act of a foreign government. In that decision, on a United States citizen's suit for illegal detention by a Venezuelan revolutionary leader, the Court said in effect that each nation must respect the independence of other * B.A., J.D., Howard University; Assistant Professor of Law and Business at Lehigh University, Bethlehem, Pennsylvania. 1. 28 USC § 1330 (1976). 2. Underhill v. Hernandez, 168 U.S. 250 (1897). Since the founding of the Nation, the U.S. has respected the act of state doctrine. It was simple, unqualified, and known as the classic formulation. (247) 248 MD. JOURNAL OF INTERNATIONAL LAW & TRADE [Vol. 13 sovereign nations; the courts of one country may not judge another gov- ernment's acts performed within the confines of its territory. 3 Instead, claims arising from such acts were to be addressed diplomatically. 4 In establishing this act of state doctrine, the Court made it clear that acts of a foreign sovereign are simply not for the courts to question.5 Hence, the "absolute" view. With few exceptions, the Court has rigidly adhered to this doctrine.' Consistent with this stance, the Supreme Court responded to the charged political and economic deterioration of United States-Cuba re- lations in the 1960's, 7 by further elaborating on the doctrine and its underlying policy in Banco Nacional de Cuba v. Sabbatino.8 This case grew out of a controversy over the Sugar Act. As a result of an admix- ture of events, including land reform policies in Cuba, the United States had suddenly decided to reduce its import quota of Cuban sugar under the Sugar Act. Cuba found the reduction inimical to its eco- nomic interest and reacted with a rash of expropriations of sugary-carrying vessels in its territory. Cuba also expropriated an Americanowned subsidiary, Compania Azucarera-Vertientes-Camaguey de Cuba (C.A.V.) which was incorporated under the laws of Cuba and in the sugar brokerage business. The C.A.V. shipped sugar to the United States where 90 percent of its shareholders resided." When the American shareholders sued, alleging lack of compensation and violation of international law, the district court held that the Cuban Law 851 violated international law in several respects. The court said the 3. Id. at 252. 4. Id. 5. Id. 6. In Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845, 860 (2nd Cir. 1962) for the first time in the history of the United States, the well settled principle seemed inadequate. See Reeves, The Sabbatino Case: The Supreme Court of the United States Rejects a Proposed New Theory of Sovereign Relations and Restores the Act of State Doctrine, 32 FORDHAM L. REV. 631, 639 (1964). 7. See Reeves, supra, note 6 at 636-37, on America's dissatisfaction with Cuban Agrarian land Reform of 1959. That reform led to declining sugar production. Fearing that the large pledge of sugar to Russia, combined with declining production, might cause Cuba to default on its quota to the U.S. Congress granted to the President the power to reduce the sugar quota of Cuba. The President acted the same day; also on the same day the Cuban government promulgated a bitterly worded anti-American confiscatory law (no. 851), now known as the "nationalization law." Thus, many private companies were then taken over including the broker-dealer Farr, Whitlock and Company, a partnership with its principal office in New York, the respondent in Sabbatino. 8. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964). 9. Banco Nacional de Cuba v. Sabbatino, 193 F.Supp. 375 (S.D.N.Y., 1961). 1989] FSIA OF 1976 expropriation a) was motivated by retaliatory and not by a public purpose b) discriminated against American nationals c) failed to provide adequate compensation for the seizure. The issue on appeal in Sabbatino was whether the act of state doctrine was applicable when the act in question violated international law. In an attempt to state the doctrine definitively, the Supreme Court held that: The Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the tak- ing violates customary international law. 10 Under severe criticism from various pressure groups, 1 Congress immediately expressed its disapproval of this case in the second Hickenlooper Amendment (Hickenlooper II) of the Foreign Assistance Act and since maintained that position in its amendments to the Foreign Sovereign Immunities Act (FSIA). Since Sabbatino, commentators have compl (...truncated)