International Judicial Monitor
Published by the International Judicial Academy, Washington, D.C., with assistance from the
American Society of International Law

Spring 2012 Issue

General Principles of International Law

The Act of State Doctrine

Carolyn A. DubayBy: Carolyn A. Dubay, Associate Editor, International Judicial Monitor

At the height of the Cold War, and in the aftermath of the Cuban Missile Crisis and the failed Bay of Pigs invasion, the Supreme Court was asked to wade into the legality of Cuba’s actions in nationalizing its sugar industry and expropriating domestic sugar refineries and related business concerns, including those owned by American investors.  Rather than decide whether Cuba’s expropriation of private assets without compensation violated international law, in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), the Supreme Court decided instead that the “act of state doctrine” barred judicial review of the official actions of foreign governments taken within their own territory where those actions were consistent with the internal law of that nation.  The doctrine is not a form of official immunity, but instead is a jurisprudential rule of decision to be applied in cases directly implicating the legality under international law of a specific foreign law or government action.  Since Sabbatino, there are two significant elements that must be satisfied for the act of state doctrine to apply:  (1) an official government action that is authorized and legal under the law of that nation; (2) the conduct itself must occur in the sovereign territory of that government. 

The jurisprudential source of the act of state doctrine has evolved through American history.  Beginning with Chief Justice Marshall’s opinion in The Schooner Exchange v. McFaddon, 11 U.S. 116 (1812), and in later cases such as Underhill v. Hernandez, 168 U.S. 250 (1897) and Oetjen v. Central Leather Co., 246 U.S. 297 (1918), the act of state doctrine was considered to be required by international comity.  The Sabbatino decision eschewed the comity approach and framed the issue as one of separation of powers.  The Supreme Court reasoned that judges should not make judgments on the propriety of foreign official acts taking place outside the United States because such decisions would interfere with the Executive Branch’s exclusive authority to conduct foreign policy. 

Much of the litigation involving the act of state doctrine involves the inquiry into whether the government conduct at issue was an authorized official government act.  The doctrine does not apply if the government or its officials took action that was illegal under its national law.  For example, in Kirkpatrick & Co. v. Environmental Tectonics Corp., 493 U.S. 400 (1990), the Supreme Court held that the act of state doctrine did not apply to preclude suit against Nigerian officials where they were alleged to have taken bribes in violation of Nigerian law.  The application of the act of state doctrine quickly becomes muddled, however, where the foreign government engages in commercial or other activities that are not illegal or unauthorized under domestic law, but also are not wholly governmental in nature.  In Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682 (1976), the Supreme Court held that the act of state doctrine did not apply to conduct of the Cuban government in repudiating certain commercial obligations where no Cuban statute, official decree, or executive order was offered into evidence to establish that the Cuban government had officially repudiated its debt obligations.  In the further plurality opinion in Dunhill, however, four justices agreed that:

In their commercial capacities, foreign governments do not exercise powers peculiar to sovereigns. Instead, they exercise only those powers that can also be exercised by private citizens. Subjecting them in connection with such acts to the same rules of law that apply to private citizens is unlikely to touch very sharply on "national nerves."

More recent cases have echoed the sentiment in Dunhill that purely commercial actions of foreign governments doing business in their own jurisdictions do not implicate foreign policy or act of state concerns.  This issue was addressed most recently in McKesson Corp. v. Islamic Republic of Iran, 672 F.3d 1066 (D.D.C. 2012).  The plaintiff alleged that after the Islamic Revolution in Iran, the Iranian government expropriated its interest in an Iranian dairy and withheld dividend payments. Rather, the heart of the dispute was the actions of the government officials as majority shareholders and members of the board of directors, making the suit more akin to a shareholder dispute than a challenge to a sovereign government action in violation of international law.

In addition to the “official action” requirement, the act of state doctrine applies only to government action to seize property or other assets within its own sovereign territory.  For example, in Agudas Chasidei Chabad of U.S. v. Russian Federation, 528 F.3d 934 (D.C. Cir. 2008), the D.C. Circuit rejected Russia’s act of state defense to a claim brought by a Jewish religious corporation claiming Russian officials had illegally confiscated certain collections of Jewish religious books and other documents in the aftermath of World War II.  The court held that the act of state doctrine did not apply to the taking of the Jewish records where such documents were confiscated in Poland, outside the expropriator's sovereign territory. 

The legacy of Sabbatino is the lingering question of what rights and remedies are available in the United States to address the illegal government taking of private property abroad.   Sabbatino itself contained some limiting language on the act of state doctrine.  First, the Court indicated that its decision was based on the expropriation of private property that violated only customary international law; such takings might be actionable if they occur in violation of a treaty or international agreement. This language has opened the door to debate on the existence of a “treaty exception” to the act of state doctrine, although the Supreme Court has not yet specifically addressed this issue.  Second, Sabbatino also avoided expressly deciding the validity of the so-called "Bernstein exception" to the act of state doctrine (named after a decision in the Second Circuit).  Under the Bernstein exception, a court may determine the legality of the foreign expropriation if the Executive indicates to the court that it does not oppose such judicial consideration.  Post-Sabbatino, status of the Bernstein exception remains in flux, especially after the plurality decision in the Supreme Court’s decision in First National City Bank v. Banco Nacional de  Cuba, 406 U.S. 759 (1972), urged adoption of the exception, but six justices refused to embrace the notion of dispositive deference to the Executive branch in expropriation cases.

Besides the potential exceptions to the act of state doctrine through treaty language or executive deference, legislative efforts to overturn Sabbatino have created additional avenues for relief for illegal foreign expropriation.  Political outrage following the Sabbatino decision resulted in passage of a statute known as the Second Hickenlooper Amendment, codified at 22 U.S.C. § 2370(e)(2).  The statute provides that United States courts may not apply the act of state doctrine to bar cases involving claims of title or other rights associated with property expropriated in violation of international law.  The scope of the statute has been limited, however, in subsequent court decisions finding that many actions of foreign governments in expropriating private property do not violate international law.  The Hickenlooper statutory exception has therefore been applied most often in cases where there is a claim of title to property (or the proceeds from the sale thereof) located in the United States.  The Second Hickenlooper Amendment can also be overcome by an express representation by the Executive branch that the act of state doctrine should apply in a particular case. 

Another exception to the act of state doctrine involves arbitration of expropriation claims.  Under the Federal Arbitration Act, 9 U.S.C. § 15, “[e]nforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State doctrine.” This exception is commonly applied in arbitrations arising under foreign investment agreements. 

Finally, the Foreign Sovereign Immunities Act contains an expropriation exception, codified at 28 U.S.C. § 1605(a)(3), which provides that cases may proceed against foreign states involving allegations that property was “taken in violation of international law.” The FSIA expropriation exception only applies, however, where (1) the property in question is located in the United States in connection with the foreign state’s commercial activities in the United States; or (2) the property is owned or operated by an instrumentality of the foreign state and such enterprise is engaged in a commercial activity in the United States.  Although the interplay of the FSIA and the act of state doctrine can be confusing, the FSIA’s limitation to property located in the United States or owned by a foreign government entity doing business in the United States differs from the requirements of the act of state doctrine.  The act of state doctrine, as noted above, does not apply when the expropriation occurs outside the territorial limitations of the foreign state and only applies to actions taken pursuant to an official government decree, statute or order.

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© 2012 – The International Judicial Academy
with assistance from the American Society of International Law.

Editor: James G. Apple.
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