Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
Text Size:  A  A  A
Print Print
  1. The “Act of State Doctrine” is a doctrine developed through caselaw, executive-branch actions, and, more recently, federal legislation. The doctrine limits the ability of U.S. courts, in certain instances, from determining the legality of the acts of a sovereign state within that sovereign’s own territory.
  2. The Act of State doctrine’s applicability has been limited since 1990 (see below). However, there still may be instances in which the Act of State doctrine applies to limit the power of a U.S. court to pass on a particular issue, even where the court otherwise has plenary jurisdiction over the dispute under the FSIA. Thus, although related, the FSIA and Act of State doctrines require separate analyses.
  3. Limited Applicability of the doctrine
    1. Although older caselaw suggested that the doctrine applied more broadly, in 1990, the Supreme Court strictly limited its application to cases in which a court is required to squarely determine the legality of a sovereign state’s official acts under that sovereign’s own laws. W.S. Kirkpatrick Co. v. Environ. Tectonics Corp., Int’l, 493 U.S. 400 (1990).
    2. In Kirkpatrick, the Court reconfirmed that “Courts in the United States have the power, and ordinarily the obligation, to decide cases and controversies properly presented to them.” Id. at 409.
    3. To the extent that a case involves the “official act of a foreign sovereign,” the Act of State doctrine applies only when a U.S. court must declare such official act “invalid, and thus ineffective as ‘a rule of decision for the courts of this country.’” Id. at 405.
      1. The fact that the issues in the U.S. proceeding may touch on or relate to the acts of a sovereign state are not enough to oust U.S. courts of jurisdiction.
      2. The fact that the issues may be embarrassing to a sovereign is not enough to warrant application of the Act of State doctrine.
      3. Nor is it enough that the facts to be found in the U.S. proceeding would also establish that a sovereign’s acts were illegal. For example, in Kilpatrick, the Court held that the Act of State doctrine was not applicable even though the plaintiff intended to show that the defendant had acquired its contract with the Nigerian government through bribery, which everyone agreed was unlawful under Nigerian law.
      4. The Act of State doctrine merely requires that, to the extent that a U.S. proceeding involves the acts of a sovereign taken within its own territory, those acts shall “be deemed valid” under the sovereign’s own law. Kilpatrick, 493 U.S. at 409.
  4. Burden of Proof: the party asserting the Act of State doctrine bears the burden of proving its applicability. Daventree Ltd. v. Republic of Azerbaijan, 349 F.Supp.2d 736, 754 (S.D.N.Y. 2004).
  5. Defense is treated as a “substantive” defense, not jurisdictional. “As a substantive rather than a jurisdictional defense, the Act of State doctrine is more appropriately raised in a motion for summary judgment than in a motion to dismiss.” Daventree, 349 F.Supp.2d at 755.
  6. Limited to Official Acts Within the Sovereign’s Territory
    1. The doctrine applies only to the “official” or “public” acts of a sovereign. E.g. Kilpatrick, 493 U.S. at 409-10
      1. Typically, “official” acts include passage of laws, decrees, creation of government agencies, military actions, police actions, etc. that are both official and governmental in nature.
      2. Isolated acts of an official may or may not be “official” acts depending on whether the official was authorized to act for and “bind” the state. Elements to examine (or prove) include clear authorization for the act or ratification by a governing body.
      3. Whether the action is uniquely governmental in nature or could just as easily be performed by a private actor also is a factor to consider. See, e.g., Malewicz v. City of Amsterdam, 2007 WL 1847851 D.D.C. June 27, 2007) (acquisition of painting by City official not a public act for purposes of Act of State doctrine). See also discussion infra re: Commercial Activity exception to doctrine.
      4. Interpretation of law by an official, for example, might not be an “official act.” In re Riggs Nat’’l Corp. v. Comm’n of IRS, 163 F.3d 1363 (D.C. Cir. 1999).
      5. Repudiation of a debt might not be an “official act” depending on whether it reflects a sovereign decision or policy to repudiate a class of debts or flows from seizure of property by a sovereign. Alfred Dunhill v. Cuba, 425 U.S. 682, 694 (1976).
    2. The doctrine also applies only where the act in question took place within the sovereign’s own territory. Acts outside the territory – e.g. tort in the U.S. or seizure of property outside the sovereign’s territory – are subject to ordinary choice of law principles.
    3. Practice Tip: The location of intangible property (e.g. debts) can involve considerable dispute both legally and factually. Considerations include the connection of the debt to any particular locale, the place and currency of payment, governing law provisions in the instruments, etc.
  7. Exceptions to Act of State doctrine
    1. Even where otherwise applicable under Kilpatrick’s limitations, the Act of State doctrine has certain exceptions based in case law, executive actions, and federal legislation.
    2. Treaties: Because the Act of State doctrine is, in some sense, a choice of law issue, it will not apply where a U.S. court can look to a treaty or other “unambiguous agreement regarding controlling legal principles.” Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964); American Intern. Group, Inc. v. Islamic Republic of Iran, 493 F. Supp. 522, 525 (D.D.C. 1980) (the doctrine does not apply where a treaty establishes applicable rule of law).
    3. State Department Intervention: In certain instances, the State Department may indicate, by letter to the Court, that U.S. interests favor or disfavor application of the Act of State doctrine to a particular case or issue affecting a group of cases. The use and effect of such letters are sometimes referred to as the Bernstein and reverse-Bernstein exceptions – the former involving a letter indicating that the doctrine (otherwise applicable) should not apply and the latter involving a statement that, in the view of the State Department, courts should presume that the doctrine does not apply to certain categories of cases unless the State Department affirmatively says so.

      Practice Tip: Counsel may want to consider whether and when to seek the views of the State Department in connection with Act of State issues, although the role of such letters is unclear post-Klipatrick since that case stresses the Article III duties of the federal courts.

    4. Commercial Activity: Just as the FSIA has an exception for commercial actions, so too certain cases indicate that there is a “commercial activity” exception to the Act of State doctrine (or, alternatively, that a commercial action is not an “official,” governmental action to which the doctrine applies).
      1. The Supreme Court has not squarely passed on the issue. Kirkpatrick, 493 U.S. at 404-05 (“some Justices have suggested” a possible exception for commercial activity, but finding it unnecessary to consider the question to resolve the case); Alfred Dunhill v. Cuba, 425 U.S. 682, 695 (1976) (plurality opinion of White, J., adopting commercial activity exception). The state of the law concerning this exception varies from jurisdiction to jurisdiction:
      2. Actions that are “commercial-not governmental, and are not immune under the act of state doctrine.” U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004) (citing Lyondell-Citgo Refining, LP v. Petroleos de Venezuela, S.A., 2003 WL 21878798, at *8-9 (S.D.N.Y. Aug.8, 2003) (declining to apply the act of state doctrine where parties' contract made transactions commercial, as opposed to governmental)).
      3. Recognizing that acts non-governmental in nature do not trigger the doctrine. See, e.g., Malewicz v. City of Amsterdam, 2007 WL 1847851 (D.D.C. June 27, 2007) (acquisition of painting by City official not a public act for purposes of Act of State doctrine).
      4. “The act of state doctrine does not cover private and commercial acts of sovereign states.” Government of Dominican Republic v. AES Corp., 466 F.Supp.2d 680, 695 (E.D.Va. 2006.).
      5. “The Supreme Court requires a balancing approach when commercial conduct is involved and the act of state doctrine is alleged. Oceanic Exploration Co. v. ConocoPhillips, Inc., 2006 WL 2711527 (D.D.C. Sept. 21, 2006) (citing Banco Nacionale de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964). “It is necessary to balance a judiciary's interest in hearing a case involving a commercial activity with its desire to avoid matters of foreign affairs controlled by the executive or legislative branches. When balancing, a court is to be mindful that the decision to deny judicial relief to a party should not be made lightly.” Id. (citation omitted).
      6. No commercial activity exception to doctrine. Glen v. Club Mediterranee, S.A., 450 F.3d 1251, 1254 n.2 (11th Cir. 2006)
    5. Arbitration exception: The Federal Arbitration Act expressly provides that “[e]nforcement of arbitration agreements ... shall not be refused on the basis of the Act of State doctrine.” 9 U.S.C.A. § 15. This provision applies equally to actions brought under the New York and Inter-American Conventions. Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 367 (S.D.N.Y. 2005).
    6. Hickenlooper Amendment (Expropriations in Violation of International Law)
      1. In Sabbatino, the Supreme Court held that the Act of State doctrine barred U.S. courts from holding invalid an official act of expropriation by a sovereign state within the sovereign’s own territory.
      2. In response, Congress passed the so-called “Hickenlooper Amendment,” 22 U.S.C. § 2370(e)(2), which generally provides that the Act of State doctrine shall not apply to claims concerning alleged expropriations in violation of international law, “including principles of compensation.”
      3. The Hickenlooper Amendment can be overcome by executive-branch intervention, however.

< Previous Section