Callejo v. Bancomer, S.A.: The Need for a Commercial Activity Exception to the Act of State Doctrine

Northwestern Journal of International Law & Business Volume 7 Issue 2 Fall Fall 1985 Callejo v. Bancomer, S.A.: The Need for a Commercial Activity Exception to the Act of State Doctrine Bryan J. Blankfield Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the International Law Commons, and the Jurisdiction Commons Recommended Citation Bryan J. Blankfield, Callejo v. Bancomer, S.A.: The Need for a Commercial Activity Exception to the Act of State Doctrine, 7 Nw. J. Int'l L. & Bus. 413 (1985-1986) This Note is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. NOTE Callejo v. Bancomer, S.A.: The Need for a Commercial Activity Exception to the Act of State Doctrine I. INTRODUCTION The ability of the United States courts to adjudicate claims against foreign sovereigns is limited by the Foreign Sovereign Immunities Act of 1976 ("FSIA")' and the act of state doctrine.2 The FSIA gives United States courts jurisdiction over foreign states when the action is based upon an act "in connection with a commercial activity of the foreign state elsewhere." 3 The act of state doctrine as traditionally defined, however, does not appear to encompass such a commercial activity exception.4 Since virtually any act of a foreign state may be defined as an act of state,5 traditional application of the act of state doctrine renders many claims nonjusticiable in United States courts.' 1 28 U.S.C. §§ 1330, 1332(a)(2)-(4), 1391(f), 1441(d), 1602-1611 (1982). See infra notes 42-45 and accompanying text. 2 The act of state doctrine is a common law rule precluding adjudication by a United States court of the legality of public acts of a foreign government carried out within its own territory. McCormick, The CommercialActivity Exception to ForeignSovereign Immunity and the Act of State Doctrine, 16 LAW & POL'Y INT'L Bus. 477, 478 (1984). See infra notes 46-57 and accompanying text. 3 28 U.S.C. § 1605(a)(2). See infra note 44 for the text of the statutory exception. 4 See infra notes 46-57 and accompanying text. 5 See H. KELSEN, PRINCIPLES OF INTERNATIONAL LAW 360 n.56 (R. Tucker ed. 1966) (any act may become a public act if it is undertaken by a state). 6 See McCormick, supranote 2, at 478. The foreign sovereign immunity and act of state doctrines address the same considerations of comity and separation of powers, yet they operate in different ways and serve different functions. Sovereign immunity shields the foreign sovereign and its agents from jurisdiction, while the act of state doctrine protects the sovereign's internal laws and proclamations from intrusive scrutiny. Braka v. Bancomer, S.A., 589 F. Supp. 1465, 1470 (S.D.N.Y. 1984), afJ'd, 762 F.2d 222 (2d Cir. 1985). See also Comment, Foreign Sovereign Immunity and the Northwestern Journal of International Law & Business 7:413(1985) The drafters of the FSIA considered the possibility that by permitting absolute immunity to be applied in instances where the FSIA precluded such immunity,7 the act of state doctrine might be used to frustrate the intent underlying the commercial activity exception of the FSIA.' This possibility, however, was dismissed 9 based on the Supreme Court's decision in Alfred Dunhillof London, Inc. v. Republic of Cuba.'° In Dunhill, a plurality of the Court held that the "concept of an act of state should not be extended to include the repudiation of a purely commercial obligation... ." ", Since Dunhill was decided before the FSIA was enacted, the drafters believed that the FSIA would preclude the application of the act of state doctrine where a foreign state's commercial acts were at issue. 2 Thus the legislative intent was that both the FSIA and the act of state doctrine be restricted by commercial acts of foreign 3 states.1 Recently, the Fifth Circuit in Callejo v. Bancomer, S.A. 14 examined Act of State: The Need for a Commercial Act Exception to the Commercial Act Exception, 17 U.S.F.L. REv. 763, 772-73 (1983) (discussing the independent but interrelated nature of the act of state and sovereign immunity doctrines). 7 The House Report states: The committee has been advised that in some cases, after the defense of sovereign immunity has been denied or removed as an issue, the act of state doctrine may be improperly asserted in an effort to block litigation.... The committee has found it unnecessary to address the act of state doctrine in this legislation since decisions such as that in the Dunhill case demonstrate that our courts already have considerable guidance enabling them to reject improper assertions of the act of state doctrine. H.R. REP. No. 1487, 94th Cong., 2d Sess. 6, 20 n.1, reprinted in 1976 U.S. CODE CONG. & AD. NEws 6604, 6619 n. 1 [hereinafter House Report]. 8 See infra note 44. 9 House Report, supra note 7, at 20 n.1, 1976 U.S. CODE CONG. & AD. NEws at 6619 n.l. 10 425 U.S. 682 (1976); see Carl, Suing Foreign Governments in American Courts: The United States Foreign Sovereign Immunities Act In Practice, 33 Sw. L.J. 1009, 1054 (1979) (Congress decided it was not necessary to address the act of state doctrine in view of Dunhill). 11 425 U.S. at 695. Because Dunhill was a plurality decision, it is disputed whether a commercial activity exception to the act of state doctrine was created or whether the Court merely failed to find that an act of state took place in Dunhill. See, eg., Cooper, Act of State and Sovereign Immunity: A FurtherInquiry, 11 Loy. U. CHi. L.J. 193, 205 (1980) (question of a commercial activity exception to the act of state doctrine remains unsettled); Mathias, Restructuring the Act of State Doctrine: A Blueprintfor Legislative Reform, 12 LAW & POL'Y INT'L BUS. 369, 385 (1980) (Dunhill did not create a commercial activity exception to the act of state doctrine); The Supreme Court1975 Term, 90 HARV. L. REV. 265, 266 (1976) (no resolution of the question of limiting act of state doctrine to noncommercial acts). For a detailed discussion of Dunhill, see infra notes 113-35 and accompanying text. 12 House Report, supra note 7, at 20 n.1, 1976 U.S. CODE CONG. & AD. NEWS at 6619 n.l: "[lilt appears that the [act of state] doctrine would not apply to the cases covered by H.R. 11315 [the FSIA], whose touchstone is a concept of 'commercial activity' involving significant jurisdictional contacts with this country." 13 See supra notes 7 & 12. 14 764 F.2d 1101 (5th Cir. 1985). Callejo v. Bancomer, S.A. 7:413(1985) the plurality's commercial activity exception in Dunhil,1 5 yet declined to decide whether to adopt the exception with respect to the act of state doctrine. 1 6 The court held that the defendant Mexican bank, by issuing certificates of deposit ("CDs"), was engaged in a commercial activity, thus invoking t (...truncated)