The American act of state doctrine.

Author:Harrison, John (American law professor)
Position:III. The Act of State Doctrine in the Lower Courts through V. The Act of State Doctrine's Place in Federal Law, with footnotes, p. 537-571

    As applied in Sabbatino and explained in Kirkpatrick, the act of state doctrine is reasonably clear and quite narrow in scope. When the doctrine is applied, American courts will accept as valid, and use as a rule of decision, a foreign sovereign's legal act performed in the other state's territory. They will do so without asking whether the foreign sovereign act violated some duty, and in particular will not ask whether it violated a duty imposed on the foreign state by international law.

    Despite that clarity in principle, the Court sowed the seeds of confusion. First, the terminology is potentially opaque. "Valid" has its technical meaning of legally operative, and "legal," when applied to a foreign sovereign act, has a restricted meaning of "valid." "Legal" does not mean "consistent with applicable duties"; "illegal" does not mean "inconsistent with such duties."

    Perhaps more important as a source of confusion is the inclusion of Underhill as a germinal case. Although Kirkpatrick assimilated it to a doctrine under which foreign sovereign acts are valid and provide a rule of decision, Underhill reads as if the Court did not reach the merits, which in fact it did not. Without proper regard to Kirkpatrick, one might thus regard Underhill as still standing for a principle of non-decision or abstention. And because Underhill was a tort case, one that did not overtly involve the legal effectiveness of a sovereign act, one might think that insofar as it states a rule of decision, that rule is one of legality in the sense of compliance with duty.

    As this Part will show, those seeds of confusion have borne fruit. In a number of cases decided after Kirkpatrick, lower courts have made both of the errors just described. They have understood the act of state doctrine as one of non-decision and have sometimes failed to resolve on the merits claims that should have been so resolved. They have also understood the doctrine as one attributing to foreign sovereign acts not validity, but compliance with applicable duties. Following that reasoning, they have decided claims on that ground that should have been adjudicated without that assumption.

    Part III.A discusses cases decided by the courts of appeals, reviewing where appropriate the opinions of both the trial and appellate courts. Part III.B treats several district court decisions that did not come before a court of appeals and that also apply a form of the act of state doctrine not found in the Supreme Court's precedents. (145)

    1. The Act of State Doctrine in the Courts of Appeals

      This Part deals with four court of appeals cases, from the Fifth, Ninth, and D.C. Circuits. In two of them, the court's misperception of the act of state doctrine led to an incorrect application. In one, the standard was incorrect but the result conformed to the Supreme Court's principles. In the other, the D.C. Circuit decided the case correctly under the doctrine, but used language that led district courts in that circuit to apply the wrong norm.

      1. Spectrum Stores v. Citgo

        Perhaps the most striking decision concerning the act of state doctrine is Spectrum Stores v. Citgo, (146) in which the Fifth Circuit held that the act of state doctrine barred a suit under the Sherman and Clayton Acts by private plaintiffs against non-state defendants. (147) Plaintiffs were American purchasers of petroleum products. Defendants were petroleum production firms, many of them owned by governments or by other corporations owned by governments. No sovereign was sued. (148) Sovereign decisions were involved in the case because the plaintiffs maintained that the defendants had conspired with OPEC member governments to restrict oil production and that the defendants thereby violated the Sherman Act and the Clayton Act. (149)

        The court of appeals described the act of state principle as a close relative of the political question doctrine, and said that it applied in Spectrum Stores because adjudication of the suit would "call into question the acts of foreign governments." (150) The court found that a judgment for plaintiffs would do that, and would require that it "sit in judgment of the acts of foreign sovereigns in their own territories," because "[t]he granting of any relief ... would effectively order foreign governments to dismantle their chosen means of exploiting the valuable natural resources within their sovereign territories." (151)

        That conclusion has no foundation in the act of state doctrine. Nothing in the plaintiffs' claim questioned the validity of foreign sovereigns' legal acts governing production of oil in their territories. The plaintiffs did not, for instance, ask that they be allowed to produce more oil in an OPEC country than that country permits; no plaintiff was subject to any such foreign law. The plaintiffs could have prevailed even if every sovereign decision by the OPEC countries was perfectly valid and effective in their territories. Even if they had to show an antitrust violation by a government in order to prevail, which they likely did not, the plaintiffs had no concern, for example, with whether individuals involved in oil production in Saudi Arabia were obliged to comply with the Saudi government's decisions concerning how much to produce. As far as it is possible to tell, the court simply assumed that the OPEC government decisions created binding obligations in the legal systems of the countries involved. Validity was not at issue.

        The court of appeals, moreover, went beyond overlooking the distinction between validity and breach of duty, a distinction it did not address. (152) It relied on the effect of a judgment on foreign oil production decisions even if that effect was mediated through a decree against non-governmental defendants. The court of appeals seems to have believed that the act of state doctrine bars relief against private defendants when that relief would have consequences similar to those of a judgment against a government, based on the conclusion that the government had violated a duty. Exactly how the Fifth Circuit came to that conclusion is not set out. It may have reasoned in two steps: first substituting violation of duty for invalidity in the act of state doctrine and then extending the principle to judgments that have the same practical effect. However the conclusion was reached, it is not consistent with the Supreme Court's cases. The act of state doctrine is not a bar on adjudication on the merits based on general concerns about disrupting U.S. foreign policy by showing disrespect to foreign sovereign acts. It is much more specific than that and is not a threshold limitation at all.

        The court of appeals' reasoning apparently rested on a broad reading of Underhill, which it quoted at the beginning of its act of state analysis, and its analogy with the political question doctrine. (153) As explained above, when considered as an act of state precedent, Underhill must be handled with care. In particular, it must be understood as a case about validity, as it is described in Kirkpatrick. Insofar as it is understood to set out a threshold bar on adjudication, Underhill is a case about the immunities of foreign officials for their official acts. As such, it has no bearing when the defendants are not governmental actors.

        While the Fifth Circuit did not explicitly say that plaintiffs could prevail only if they showed that governments violated a federal statute, the district court did so. (154) The district court's decision thus rested explicitly on an elision of the distinction between invalidity and violation of duty. The district court set out the analysis found in Kirkpatrick, but substituted illegality in the sense of violation of duty for invalidity in the sense of voidness. (155) The plaintiffs had taken care not to sue any sovereign. (156) That did not matter, the court found, because the actual defendants could have violated the antitrust laws only if the governments with which the cooperated did so:

        [A]n agreement by any defendant to assist the foreign sovereign members of the alleged conspiracy to reach and/or implement their crude oil production decisions could not constitute a violation of the Sherman Act unless entering such an agreement would also be a violation of the Sherman Act by the foreign sovereigns. (157) For that reason, the court could not decide the case "unless the court rules on the legality of the decisions and agreements reached by foreign sovereigns regarding the production of crude oil within their own territories." (158) A violation of the Sherman Act through production decisions and agreements would be a breach of duty under the act, a failure to comply with its ban on conspiracies in restraint of trade. The court was not using "legality" in the sense of validity. It never discussed the difference between invalidity and breach of duty.

        The district court, like the court of appeals, also appears to have regarded the act of state principle as a threshold rule that keeps courts from addressing the merits. Its discussion of the doctrine begins by quoting defendants' statement that the doctrine "bars claims that require a U.S. court to inquire into the validity of a foreign nation's sovereign acts[.]" (159) The court did not question that characterization, but assumed it to be correct in applying the doctrine. For example, later in the opinion, it explained that "the outcome of plaintiff's claims, if allowed to continue, would turn upon the legality" of sovereign acts. (160) Under Sabbatino, claims that turn on the legality of sovereign acts must be allowed to continue, on the assumption that the sovereign act in question was legally effective. Had a claim that turned on the validity of a sovereign act not been able to continue, Banco Nacional would not have been able to prevail, as it did in that case.

        Plaintiffs in Spectrum Stores stated causes of action under the Sherman and...

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