Act of State Doctrine Application

Act of State Doctrine Application in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): A. Iran argues that the act of state doctrine prohibits United States courts from adjudicating this dispute. But the Supreme Court has explained that the act of state doctrine applies only “when a court must decide—that is, when the outcome of the case turns upon—the effect of official action by a foreign sovereign.” Kirkpatrick, 493 U.S. at 406; see also, e.g., Sabbatino, 376 U.S. at 401 (“The act of state doctrine in its traditional formulation precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.”).

The district court determined that this litigation does not turn on the validity of Iran's currency control restrictions, but turns instead on the acts of Pak Dairy's board of directors. Given that determination, there is no occasion to apply the act of state doctrine in this case because the conduct of Iran's representatives on Pak Dairy's board of directors cannot fairly be characterized as the sort of “official action by a foreign sovereign,” Kirkpatrick, 493 U.S. at 406, or the “public acts [of] a recognized foreign sovereign power,” Sabbatino, 376 U.S. at 401, to which the act of state doctrine applies.

McKesson has characterized its claim as one for expropriation, but this is not a typical case of a foreign government acting in its sovereign capacity to take private property for a public purpose. As this Court explained, this case instead concerns claims that Iran's representatives on the Pak Dairy board of directors “cut off the flow of capital and other material to McKesson, froze out McKesson's board members, and stopped paying McKesson's dividends.” McKesson HBOC, Inc. v. Islamic Republic of Iran, 271 F.3d 1101, 1103 (D.C. Cir. 2001) (McKesson III), cert. denied, 537 U.S. 941 (2002), vacated in part on other grounds, 320 F.3d 280 (D.C. Cir. 2003). Those facts identify a pattern of conduct by representatives of the government of Iran that cannot properly be deemed the public or official acts of the sovereign government itself.

Iran's conduct had none of the hallmarks of official government action in the sovereign realm. Iran did not pass a law, issue an edict or decree, or engage in other formal governmental action explicitly taking McKesson's property for the benefit of the Iranian public. Instead, Iran's representatives on the board of directors exercised their corporate authority to deny McKesson its rights and dividends. The conduct of a majority shareholder exercising its power through the board of directors of a corporation to deny a minority shareholder the right to participate in and profit from its investment is not an official sovereign act. There is no indication—in light of the district court's rejection of Iran's currency controls defense—that the actions of Iran's representatives on Pak Dairy's board of directors were inextricably intertwined with the implementation of Iranian sovereign policy.

Developments

B. The Supreme Court has not defined the specific contours of the “official action” requirement of the act of state doctrine. But the concept is best understood to refer to conduct that is by its nature distinctly sovereign. The courts of appeals have held that genuinely and distinctly sovereign conduct should not be questioned by United States courts. Thus, this Court had “no doubt that issuance of a license permitting the removal of uranium from Kazakhstan is a sovereign act,” and therefore held that the act of state doctrine barred litigation challenging the denial of such a license. World Wide Minerals, Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1165 (D.C. Cir. 2002) (the “right to regulate imports and exports is a sovereign prerogative”). That case also held that a transfer of corporate shares to a state entity was likewise an act of state. Id. at 1166. Notably, and in direct contrast to the facts in this case, the Court emphasized that “this transfer and alleged conversion were accomplished pursuant to an official decree of the Republic of Kazakhstan.” Ibid. (“That kind of expropriation of property is the classic act of state addressed in the case law.”).

Similarly, this Court has applied the act of state doctrine where a foreign government finance minister officially ordered payment of a tax to the foreign government. See Riggs Nat. Corp. v. CIR, 163 F.3d 1363, 1368 (D.C. Cir. 1999). That order was set forth in a “private letter ruling, which under Brazilian law binds the parties.” Id. at 1366. More recently, this Court has applied the act of state doctrine to preclude a challenge to the validity of a foreign statute. Society of Lloyd's v. Siemon-Netto, 457 F.3d 94, 102-103 (D.C. Cir. 2006). Other circuits have similarly emphasized the sovereign character of official action subject to the act of state doctrine. See, e.g., Spectrum Stores v. Citgo Petroleum Corp., 632 F.3d 938, 954 (5th Cir. 2011) (“adjudication of this suit would necessarily call into question the acts of foreign governments with respect to exploitation of their natural resources * * * [which] is an inherently sovereign function”), pet. for cert. pending (No. 10-1371 filed May 5, 2011); In re Philippine Nat'l Bank, 397 F.3d 768, 773 (9th Cir. 2005) (applying act of state doctrine because litigation would require holding invalid a forfeiture judgment entered by Phillippine supreme court, in an “action initiated by the Philippine government pursuant to its statutory mandate to recover property allegedly stolen from the treasury,” which Ninth Circuit described as “governmental”) (internal quotation marks omitted); Callejo v. Bancomer, 764 F.2d 1101, 1115 n.15 (5th Cir. 1985) (“Here, there is no question that Mexico's promulgation of the exchange control regulations was invested with the sovereign authority of the state. The decrees announcing the imposition of the controls were issued by the Mexican Ministry of Treasury and Public Credit and by President Lopez Portillo, and were later reiterated in legislative enactments.”); MOL, Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326, 1329 (9th Cir. 1984) (a country acts in a “uniquely sovereign” capacity when it “regulate[s] its natural resources”).

Thus, the act of state doctrine generally prohibits United States courts from questioning the validity of a foreign government's exercise of its sovereign authority in a manner unavailable to private entities—such as by enacting a statute, promulgating an official decree, or issuing a binding administrative decision—or a foreign government's official action with respect to distinctly sovereign concerns, such as the regulation of natural resource exploitation. Here, the corporate decisions of Iran's representatives on Pak Dairy's board of directors do not come within those descriptions of sovereign activity, and the act of state doctrine accordingly does not apply.

Details

C. We emphasize that the official action requirement is not equivalent to the determination of foreign sovereign immunity under the FSIA commercial activity exception. Nor does this case present the question whether there is a corollary commercial activity exception to the act of state doctrine. Resolution of that unsettled question is not necessary to a decision that the act of state doctrine does not apply here.

Even apart from the existence of such an exception, a jurisdictional determination that the foreign government's conduct involved commercial activity under § 1605(a)(2) is not by itself a sufficient answer to the act of state inquiry. See Callejo, 764 F.2d at 1125-1126 (explaining that inquiries are distinct and applicability of FSIA commercial activity exception does not preclude determination that act of state doctrine applies). Notably, Iran does not appear to argue that the corporate decisions of its representatives on the Pak Dairy board of directors (to the extent the district court held that they were not compelled by currency exchange controls) constitute official actions of the government of Iran.

Apart from the question of a commercial activity exception, the Supreme Court's decision in Dunhill provides an instructive example applying the public act (or official action) requirement of the act of state doctrine. There, the majority—including Justice Stevens, who did not endorse a possible commercial activity exception—declined to “draw * * * [the] conclusion” that “the conduct in question was the public act of those with authority to exercise sovereign powers.” Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 694 (1976). The Court pointed out that “[n]o statute, decree, order, or resolution of the Cuban Government itself was offered in evidence indicating that Cuba had repudiated its obligations in general or any class thereof or that it had as a sovereign matter determined to confiscate the amounts due three foreign importers.” Id. at 695. The same can be said for the conduct at issue in this case.

Applying this threshold analytical inquiry—identifying whether the outcome of the litigation would turn upon the effect of official action by a foreign sovereign—demonstrates that the act of state doctrine does not apply according to the terms set forth by the Supreme Court in Kirkpatrick. É

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See Also

• Foreign Relations
• Act Of State
• Political Doctrines