A Primer on the Act of State Doctrine

The act of state doctrine is a federal common law doctrine providing that courts in the United States will not question the validity of an official act of a recognized foreign government fully performed within its own territory. The doctrine is often applied in cases like Banco Nacional de Cuba v. Sabbatino (1964) to require the recognition of foreign expropriations. But it is not limited to expropriation cases and has been used more recently to shield foreign state-owned companies from liability under U.S. antitrust law.

Unlike foreign sovereign immunity, the act of state doctrine is not jurisdictional. It does not prevent a U.S. court from deciding a case but rather provides a rule of decision—that the court must treat the foreign act of state as valid. As Section 441 of the Restatement (Fourth) of Foreign Relations Law explains in Comment a, the act of state doctrine “operates as a special choice-of-law rule” that “precludes a court from denying effect to an official act on the ground that the act violates the public policy of the forum.”

Development of the Doctrine

The act of state doctrine is commonly traced to the U.S. Supreme Court’s decision in Underhill v. Hernandez (1897), where the Court said that “the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.” In subsequent cases like Oetjen v. Central Leather Co. (1918) and Ricaud v. American Metal Co. (1918), the court described the act of state doctrine as based on international comity and made clear that the doctrine is not jurisdictional but rather goes to the merit of the case.

In Sabbatino (1964), the Supreme Court held that the act of state doctrine required U.S. courts to recognize the validity of Cuba’s expropriation of U.S.-owned property even if the taking violates customary international law. Sabbatino was a diversity case, and state law substantive law would thus generally have applied under Erie Railroad Co. v. Tompkins (1938). Instead, the Court created one of its few enclaves of federal common law based on separation-of-power principles, particularly the idea that courts should not interfere with the conduct of foreign relations. The Court reasoned that questioning the validity of a foreign government’s official acts within its own territory might cause friction or conflict. The Court also made clear that, as a rule of federal common law, the act of state doctrine binds state courts as well as federal courts.

The Supreme Court’s most recent act-of-state decision is W.S. Kirkpatrick & Co. v. Environmental Tectonics, International (1990), in which the Court unanimously held that the doctrine did not apply to a case alleging that the defendant paid bribes to Nigerian officials to obtain a government contract. “The act of state doctrine does not establish an exception for cases and controversies that may embarrass foreign governments,” the Court wrote, “but merely requires that, in the process of deciding, the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid.” In Kirkpatrick, the validity of the government contract was not at issue, so the doctrine did not apply.

Defining the Doctrine

The act of state doctrine applies only to foreign official acts. The Supreme Court has provided limited guidance on what constitutes an “act of state,” holding in Alfred Dunhill of London, Inc. v. Republic of Cuba (1976) that the refusal by agents of the Cuban government to refund moneys mistakenly paid was not an act of state. Lower courts have held that decisions about how to exploit natural resources are acts of state even when made by state-owned companies but that actions taking control of a company’s board of directors are not. Lower courts have also held in human rights cases that violations of jus cogens norms cannot be considered acts of state. Finally, the act of state doctrine does not apply to the recognition and enforcement of foreign court judgments, topics governed instead by state law.

The act of state doctrine also requires that the government taking the act be recognized by the United States at the time of suit. Applying this rule, one court has held that the doctrine did not apply to a decree issued by the unrecognized “Federal Republic of Yugoslavia.”

The act of state doctrine applies only to foreign official acts fully performed a foreign state’s own territory. Thus, although the doctrine applies to expropriations of property within the foreign state’s borders, it does not apply to the expropriation of bank accounts held in the United States.

Finally, as noted above, the Supreme Court held in Kirkpatrick that the doctrine applies only when a case requires a U.S. court to pass on the “validity” of a foreign act of state. Lower courts have extended the doctrine to cases where the foreign act of state is alleged to violate U.S. antitrust law.

Exceptions

U.S. courts have recognized a “treaty exception” to the act of state doctrine in cases where a treaty provides a clear rule for a court to apply. Courts have also recognized that a foreign government may waive the act of state doctrine, either by agreement or by failing to raise the issue in a timely manner.

In Dunhill (1976), the Supreme Court split four to four on whether to recognize a commercial activities exception to the act of state doctrine that would parallel the commercial activities exception to foreign sovereign immunity. Lower court decisions have rejected a commercial activities exception to the doctrine, although in some cases the fact that the act is commercial may exclude it from being considered an “act of state” in the first place.

The Second Circuit has recognized an exception—known as the “Bernstein exception,” after the leading case—that allows the executive branch to waive the act of state doctrine in specific cases. Although six members of the Supreme Court expressed opposition to this exception on separation of powers grounds in First National City Bank v. Banco Nacional de Cuba (1972), they did so in separate opinions that did not constitute a majority opinion. The Court declined to endorse or reject the Bernstein exception in Sabbatino and Kirkpatrick.

In the Second Hickenlooper Amendment, 22 U.S.C. 2370(e)(2), Congress created an exception to the act of state doctrine for expropriations in violation of international law, intended to reverse the Supreme Court’s decision in Sabbatino. Some courts have read the Hickenlooper Amendment narrowly to apply only when the expropriated property or its proceeds are present in the United States, but other courts have rejected this limitation.

Federal Common Law

In Sabbatino (1964), the Supreme Court made clear that the act of state doctrine is not required by international law. Instead, the Court treated the doctrine as a rule of federal common law. Giving the act of state doctrine this status has two important implications. First, the act of state doctrine is binding on state courts, as Sabbatino made clear. Second, the act of state doctrine is subject to modification by Congress, as in the Hickenlooper Amendment.

Some other countries have their own act of state doctrines, but they differ from the act of state doctrine in the United States. The United Kingdom’s act of state doctrine, for example, sometimes applies to acts taken outside a foreign state’s own territory but also contains a public policy exception. Countries are free to adopt or reject such doctrines, and to shape them as they wish, because the act of state doctrine is based on international comity rather than being required by international law.