Alfred Dunhill of London, Inc. v. Republic of Cuba
Docket: 73-1288
Court: Supreme Court of the United States; May 24, 1976; Federal Supreme Court; Federal Appellate Court
The Court, led by Mr. Justice White, addresses whether the respondents' failure to return funds mistakenly paid to Alfred Dunhill of London, Inc. for cigars from expropriated Cuban businesses constitutes an “act of state” by Cuba that would prevent a judgment against them. The relevant context is detailed in prior cases including Menendez v. Faber, Coe, Gregg, Inc. and F. Palicio y Compania, S. A. v. Brush. In 1960, the Cuban Government confiscated the assets of five major cigar manufacturers, all owned by Cuban nationals, who subsequently fled to the U.S. The Cuban Government appointed "interventors" to manage these businesses, which continued to ship cigars to U.S. importers, including Dunhill.
The litigation arose when former owners pursued claims against the importers for trademark infringement and the purchase price of cigars bearing their trademarks. Following other related litigation, the interventors and the Republic of Cuba intervened in these actions, seeking approximately $700,000 from the importers for shipments post-intervention. At the same time, the importers owed $477,200 for pre-intervention shipments, which they mistakenly paid to the interventors.
The District Court, referencing the “act of state” doctrine reaffirmed in Banco Nacional de Cuba v. Sabbatino, upheld the Cuban confiscation's validity regarding Cuban nationals' property within Cuba, allowing interventors to collect post-intervention debts. However, for pre-intervention debts, the Court concluded that U.S. courts do not recognize foreign confiscations affecting property in the U.S. without compensation, thus ruling that the former owners, not the interventors, were entitled to collect these amounts from the importers.
Importers initially believed they had fully discharged trade debts by making payments to the interventors, which they later claimed were made in error. They sought to recover these payments from the interventors through set-off and counterclaim. The District Court ruled that the importers had no right to the payments due to a prior confiscation ruling from 1960, and that any obligation to repay was a quasi-contractual debt situated in Cuba, which the interventors claimed was protected as an act of state. The District Court rejected this, determining that the repayment obligation was located in the United States and not affected by Cuban actions, and that there was no formal act of state repudiating such obligations.
The importers were entitled to set off their mistaken payments against the amounts owed for post-intervention purchases. While Faber and Saks were satisfied with this set-off, Dunhill had a greater claim of $148,000 against the interventors than the $93,000 owed for post-intervention shipments, leading them to seek full judgment against the interventors. The Court of Appeals upheld the importers' right to recover pre-intervention accounts receivable and acknowledged the quasi-contractual obligation for repayment but diverged from the District Court by asserting that this obligation had a situs in Cuba and was repudiated through the interventors’ official conduct, deeming it an act of state.
Despite recognizing the act of state doctrine, the Court of Appeals confirmed that the importers could recover amounts due via set-off. However, it reversed the District Court's judgment regarding Dunhill’s claim, limiting their recovery to the amount owed, which prompted Dunhill to file a petition for certiorari.
The Court granted the petition in 416 U.S. 981 (1974) and requested the parties to address whether the statement by Cuba's counsel regarding Dunhill's unjust-enrichment claim constituted an act of state. After two arguments, the Court found no evidence of an act of state related to the obligation of interventors to return mistakenly paid funds. Consequently, the Court reversed the Court of Appeals' judgment, which had determined that interventors were not entitled to pre-intervention accounts due to the 1960 confiscation and had no right to retain mistakenly paid monies. The Court noted that while the Court of Appeals highlighted the interventors' failure to return the funds as a potential repudiation of their obligations, it disagreed with this characterization. The Court emphasized that the interventors bore the burden of proving any act of state related to their refusal to repay, and their claim of ownership over the accounts did not equate to sovereign authority to repudiate debts. The Court drew a parallel to the case of The “Gul Djemal,” where a ship's master could not assert sovereign immunity based solely on his commercial role. Thus, the Court concluded that the interventors' refusal to repay did not adequately establish an act of state defense, as their authority was purely commercial, not sovereign.
Underhill v. Hernandez and related cases do not compel a different outcome in the current matter. Previous decisions recognized certain acts as public acts of sovereign authority worthy of judicial respect, but in this case, the evidence presented does not support such a conclusion. The only evidence suggesting a sovereign act was a statement from the interventors’ counsel denying liability, which merely reiterated their legal stance and lacked substantive proof of a sovereign act. No official Cuban government documents were submitted to demonstrate a repudiation of obligations or a sovereign decision to confiscate funds owed to foreign creditors. Even assuming the Court of Appeals' perspective that Cuba acted to confiscate funds and repudiate debts, the petitioner, supported by the United States, argues that the act of state doctrine should not extend to the repudiation of commercial obligations by a foreign sovereign. The distinction between governmental acts and private commercial actions is well-established in legal precedent. Historical cases affirm that when a government engages in trade, it relinquishes its sovereign status in those transactions and assumes the role of a private entity. This principle has been consistently upheld, establishing a constitutional boundary between a state's governmental functions and its commercial activities. The Solicitor General's amicus brief reinforces the view that repudiations of commercial debts by foreign sovereigns should not be deemed acts of state in U.S. courts.
The letter from the Department of State dated November 26, 1975, supports the Solicitor General's brief, asserting that the Dunhill case does not present an act of state question since it pertains to commercial, not public, actions. The act of state doctrine traditionally prevents courts from adjudicating the legality of foreign state actions that could embarrass the Executive Branch in foreign relations. However, the Department of State indicates a shift from past views, specifically since 1952, when the U.S. adopted a restrictive approach to sovereign immunity. This approach grants immunity only for public governmental actions, not for commercial activities, thereby allowing courts to adjudicate commercial liabilities without hindering foreign relations. The repudiation of a foreign government's commercial debt cannot be classified as an act of state under this doctrine, as it would grant unwarranted immunity that contradicts established U.S. policy. Previous rulings, such as Berizzi Bros. Co. v. S. S. Pesaro, have been undermined by more recent cases (Ex parte Peru and Mexico v. Hoffman), which emphasize that judicial actions involving foreign state vessels must not embarrass the Executive. Hence, courts should exercise jurisdiction in commercial disputes to uphold the rights of those engaged in international commerce.
The judicial branch of the U.S. government defers to the political branch regarding matters of sovereign immunity, avoiding actions that could conflict with executive decisions. Courts do not have the authority to deny recognized immunities or create new ones not acknowledged by the government. Judicial seizure of property belonging to friendly states is viewed as a significant affront, and therefore, courts must respect executive determinations of immunity, particularly in international relations. The excerpt references a shift in U.S. policy rejecting sovereign immunity for foreign governments in commercial dealings, a stance supported by increasing international acceptance and the necessity for fair legal recourse in international trade. Recent lower court rulings have moved away from the precedent set by Berizzi Bros. Co. v. S. S. Pesaro, aligning instead with the restrictive theory of sovereign immunity, which is now considered the prevailing legal standard in the United States. This theory recognizes that as foreign governments engage more in international commerce, ensuring accountability in their dealings is crucial for protecting private business interests and promoting fair trade. The risk of offending foreign sovereignty is reduced when dealing with commercial activities rather than governmental acts.
Foreign governments, when acting in commercial capacities, do not possess sovereign powers unique to them but instead operate under the same legal frameworks applicable to private citizens. This alignment with private law is less likely to provoke national sensitivities. The judiciary is better positioned to adjudicate areas of international law that are well-defined and consensual, focusing on applying established principles rather than balancing national interests or international justice. While there is insufficient consensus on international law regarding governmental powers like military actions or expropriations affecting foreign nationals, clearer rules exist for international commercial transactions.
The doctrine of sovereign immunity, while not invoked in this case, underscores that the commercial obligations of foreign governments can be adjudicated in U.S. courts with proper jurisdiction. The U.S. does not recognize a foreign government's repudiation of a commercial obligation as an act of state that warrants immunity from judicial scrutiny. The court will not extend the act of state doctrine to actions by foreign sovereigns conducted in commercial contexts. The specific act in question, related to Cuba’s cigar business operations for profit, does not qualify as an act of state. Therefore, the prior decision is reversed.
Additionally, the Department of State has expressed the importance of the Supreme Court reconsidering its holding in Banco Nacional de Cuba v. Sabbatino in the ongoing case of Alfred Dunhill of London, Inc. v. The Republic of Cuba, emphasizing the implications for U.S. foreign policy.
The Dunhill case does not present an act of state question, as it pertains to commercial rather than public acts. Since 1952, the Department of State has maintained that the commercial activities of foreign states do not warrant sovereign immunity, indicating that adjudicating commercial liability does not interfere with foreign relations and aligns with international law on sovereign immunity. Should the Court reconsider the Sabbatino ruling, several factors merit consideration. After the 1964 Sabbatino decision, the Department of State communicated its stance on act of state adjudications to U.S. courts. In the remand of Sabbatino, the Executive Branch opted not to invoke the Hickenlooper Amendment, concluding that applying the act of state doctrine was not necessary for U.S. foreign policy. Consequently, the district court in Banco Nacional de Cuba v. Farr ruled that a Cuban confiscation decree violated customary international law. Additionally, in First National City Bank v. Banco Nacional de Cuba, the Department informed the Supreme Court that foreign relations did not necessitate the application of the act of state doctrine to block a counterclaim linked to the original foreign state claim, which was based on a pre-existing relationship. The Department’s position echoed prior advice in Bernstein v. N. V. Nederlandsche Amerikaanshe, suggesting that the act of state doctrine was inapplicable in specific cases. These instances indicate a trend where foreign relations considerations do not necessitate the act of state doctrine, allowing U.S. courts to evaluate acts of state on their merits under international law, a practice observed in other jurisdictions without apparent diplomatic repercussions. The current case aligns with Bernstein, Farr, and First National City Bank, and the Department believes adjudicating the legality of any state act under relevant international law would not hinder foreign policy. Overall, the Department's experience does not support the assumption that adjudicating foreign state acts according to international law would disrupt foreign relations.
If the Court decides to overrule the Sabbatino decision, acts of state may be subject to adjudication in U.S. courts under international law without causing embarrassment to U.S. foreign policy. The Department of State has reconsidered the practice of granting immunity to foreign governments in U.S. courts without their consent and concluded that immunity should no longer apply in specific cases. Two main theories of sovereign immunity exist: the classical or absolute theory, which prevents a sovereign from being sued without consent, and the newer restrictive theory, which allows for immunity regarding public acts but not private acts. There's consensus that immunity should not apply to cases involving real property (with some exceptions) or the disposition of deceased individuals' property. The absolute theory has been predominantly upheld in the U.S. and several other countries, while the restrictive theory is gaining traction, particularly in the Netherlands, where lower courts have begun applying it. Other nations, like Germany and France, have shifted from the classical to the restrictive theory in recent decades, indicating a broader acceptance of the latter approach in international law.
Rumania, Peru, and possibly Denmark are identified as adhering to the classical theory of sovereign immunity, yet there is a notable shift towards the restrictive theory among influential civil law writers and lower courts. In civil law jurisdictions, the opinions of writers significantly impact legal development, with lower courts showing a trend towards the restrictive theory, contrary to common law's precedence-based approach. Notably, ten of the thirteen countries supporting the classical theory have ratified the Brussels Convention of 1926, waiving immunity for government-owned merchant vessels. The United States, while not a party to the Convention, has adopted a policy of not claiming immunity for its public merchant vessels, indicating a practical relinquishment of a key aspect of classical theory immunity.
The text highlights that, apart from the United Kingdom, support for absolute sovereign immunity is waning, with the Soviet Union and its allies being notable exceptions. British authorities are reportedly recognizing the shortcomings of the absolute theory and may be open to reform. The text argues that the U.S. practice of granting sovereign immunity to foreign governments is inconsistent with its own legal practices, which allow for suit in cases involving contracts and torts, as well as its policy regarding merchant vessels abroad.
In light of the increasing commercial activities of governments, the Department of State plans to adopt a restrictive approach to sovereign immunity requests from foreign governments, understanding that executive policy influences judicial outcomes. The Department will keep informed about all immunity requests and its responses to them.
Additionally, the excerpt references a legal case involving prior owners suing importers and the Republic of Cuba, where the interventors were entitled to proceeds from sales made to American buyers after intervention, although trademark litigation by the prior owners was allowed to proceed.
Interventor-respondent Pinera succeeded the original interventora for five tobacco companies involved in this lawsuit. For clarity, those representing the tobacco businesses are referred to as "interventors." The District Court found sufficient evidence that the interventors received payments from the importers and ruled against the importers' claim for repayment exclusively in pesos. The Court of Appeals upheld these findings and dismissed the importers' argument that the Hickenlooper Amendment prevented the interventors from using the act of state doctrine. The current litigation focuses on two key questions: whether statements by counsel for the Republic of Cuba regarding the non-honor of a counterclaim constitute an act of state, and if such a doctrine is exempted under specific precedents when the counterclaim does not exceed the net balance owed by the importers to Cuba. Additionally, there are petitions concerning the interventors' claim to $477,000 in accounts receivable and the importers' challenge to a judgment against them. The act of state doctrine, rooted in the principle that one sovereign state must respect the actions of another within its territory, remains central to the case, with the Court of Appeals ruling that the intervention did not extend to accounts receivable not in Cuba at the time of intervention. A dissenting opinion highlighted a statement made during closing arguments that suggested the Cuban government claimed the funds after they arrived, but this was not an official representation of a second act of state.
Counsel argues that their in-court statements are merely positions in litigation and not proof of any claims, highlighting that if such statements were considered proof, the petitioner would have the right to cross-examine counsel under oath. The Court of Appeals rejected the legal argument that the arrival of Dunhill’s money in Cuba automatically converted the account receivable from an intangible to a tangible asset, asserting that the original intervention did not seize these receivables even when paid by Dunhill. It emphasized that without evidence, one cannot infer from Cuba's seizure of assets from its nationals that it intended to discriminate against U.S. companies or seize their money. Respondents contended that no international law issue was raised since all actions of the Cuban sovereign were directed at its own nationals and denied any intent to divest Dunhill of its ownership. The dissent inaccurately cited counsel's remarks regarding Cuba's refusal to comply with a foreign court's obligation as an act of state. This assertion was dismissed as it lacked basis, given respondents never acknowledged any obligation to Dunhill. Additionally, references to historical cases demonstrate that a consul's immunity cannot be claimed by someone engaged in commercial activities without clear authority. The discussion includes a precedent where a military commander’s actions, representing a revolutionary authority, were not subject to judicial scrutiny due to his recognized role.
The dissent argues that Cuba's refusal to return Dunhill's money constitutes an exercise of sovereign power, equating it to the original expropriation of the cigar businesses. However, it is asserted that this debt arose from commercial transactions conducted by Cuba’s agents, contrasting it with typical expropriations of foreign assets. Dunhill continued purchasing cigars from the interventora, aware that this entity would receive payment. The case parallels scenarios where a buyer overpays for goods from a foreign government-run business, a common occurrence in international trade. The dissent also claims sovereign immunity does not impede a counterclaim related to the same transaction involving a foreign state. Repudiation of a commercial debt by a sovereign is deemed not to qualify as an act of state, and thus the court does not address the State Department's alternative stance. The letter asserts that overturning the Sabbatino precedent would not adversely affect U.S. foreign policy, although this issue need not be resolved. The Berizzi Bros. Co. v. The Pesaro case is referenced, where immunity was granted to a foreign government-owned merchant vessel despite the State Department's stance against such immunity. The court finds no compelling reason to grant immunity in this case, particularly given the State Department's lack of recognition. Justice Frankfurter noted that the decision in Berizzi was made without input from the State Department regarding its foreign policy, and contemporary international conferences have supported the view against immunity for commercial ships owned by foreign governments.
The excerpt highlights the significant increase in government involvement in ordinary merchandising activities, particularly through the operation of state-owned commercial ships since World War I. Historically, foreign governments rarely engaged in trade using their ships, which were mostly designated for public or military purposes. The expansion of state-owned commercial vessels raises questions regarding the continuation of sovereign immunity for these ordinary trading ships. Key concerns include whether it is appropriate for a sovereign to compete in commercial markets and the implications of potential negligence by government-operated vessels that may cause damage to foreign ships. The author argues that courts should maintain jurisdiction over cases involving foreign government-owned vessels unless explicitly directed otherwise by the relevant government authorities, thereby ensuring judicial responsibility aligns with foreign relations policy. The excerpt also references various international legal cases related to these principles across multiple jurisdictions, illustrating the global relevance of the issues discussed.
Certain aspects of international law have a more significant impact on national interests than others. Issues with lesser implications for foreign relations provide a weaker basis for restricting authority to the political branches. The dissenting opinion distinguishes between the doctrines of sovereign immunity, which grants a sovereign exemption from lawsuits due to its status, and the act of state doctrine, which directs courts on applicable law. While these doctrines may yield different outcomes in specific cases, their application requires balancing the potential harm to foreign policy—primarily managed by the Executive Branch—against the denial of justice to private parties and the adverse effects on international trade.
The State Department has determined that, in commercial matters, the necessity for merchants to have their rights resolved in court outweighs potential foreign policy injuries. This perspective aligns with the jurisdictional challenges of sovereign immunity and extends to the act of state doctrine. Since the First National City Bank decision, the State Department has maintained that courts may hear counterclaims against foreign states if they arise from the same transaction as the foreign state's claim. Such adjudications do not present foreign relations issues, as illustrated by a German court's refusal to recognize a foreign state's expropriation violating international law if the case has substantial ties to Germany.
Braden Copper Co. v. Le Groupement d’Importation des Métaux establishes that sovereign immunity does not protect a state trading company involved in the marketing of expropriated copper. In Compagnie Française de Crédit et de Banque v. Consorts Atard, the French Court of Appeal ruled that foreign expropriation decrees are not recognized in France unless they are accompanied by prompt, adequate, and effective compensation. Similarly, Crédit Foncier d’Algerie et de Tunisie v. Narbonne asserts that acts of expropriation require equitable compensation to be recognized in France. The Austrian Supreme Court, in a decision from 1965, stated that expropriation without compensation violates international law, though it does not allow recovery against purchasers of expropriated property. In N. V. Assurantie Maatschappij v. P. T. Escomptobank, the court rejected the act of state defense in cases of international law violations. Historical British cases, such as Banco de Vizcaya v. Don Alfonso de Borbon y Austria and Republic of Peru v. Peruvian Guano Co., highlight that British courts would not recognize Peruvian laws that annulled prior government actions, reinforcing the principle of international law's primacy over local laws.
