In 1960, amid escalating tensions with the United States, the Cuban government enacted Law 851 and related measures authorizing the expropriation of U.S.-owned property in Cuba in retaliation for reductions in Cuba's U.S. sugar quota. Compañía Azucarera Vertientes-Camaguey de Cuba (C.A.V.), a Cuban corporation with substantial U.S. shareholders, had contracted to sell sugar to Farr, Whitlock & Co., a New York commodities broker. The transaction involved shipment from Cuba and a letter of credit payable in New York. After Cuba expropriated C.A.V.'s assets, the Cuban government designated Banco Nacional de Cuba (BNC), its fiscal agent, to receive payments due under C.A.V.'s contracts. A shipment of sugar had been loaded in Cuba and consigned for delivery, and BNC demanded the proceeds. Sabbatino, acting for the New York broker and holding the proceeds (approximately $175,000), refused to pay BNC, arguing the expropriation was unlawful under international law because it was discriminatory, retaliatory, and lacked prompt, adequate, and effective compensation. The federal district court and the Second Circuit agreed, finding the taking violated international law and declining to give it effect. BNC petitioned for review, and the Supreme Court granted certiorari.
Does the act of state doctrine bar U.S. courts from examining the validity, under international law, of a foreign sovereign's expropriation of property located within its own territory when that sovereign is recognized by the United States?
The act of state doctrine, a principle of federal common law, provides that the Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government recognized by the United States at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the taking is alleged to violate international law. The doctrine is rooted in separation-of-powers and the need for a single national voice in foreign relations, not in state law or ordinary choice-of-law rules.
Yes. The act of state doctrine precludes U.S. courts from judging the validity of Cuba's expropriation of C.A.V.'s property. Accordingly, the Cuban government's taking must be treated as valid for purposes of the litigation, and Banco Nacional de Cuba may recover the proceeds. The Supreme Court reversed the Second Circuit and remanded for proceedings consistent with this rule.
1) Federal nature and separation of powers: The Court held that the act of state doctrine is federal common law because it implicates uniquely federal interests—primarily the conduct of foreign relations entrusted to the political branches. Allowing state law or ad hoc judicial scrutiny of foreign sovereign acts risks inconsistent outcomes and undermines the constitutional allocation of foreign affairs powers, which require the nation to speak with one voice. 2) Not a mere comity or choice-of-law device: The doctrine is not simply a discretionary comity principle or a conflicts rule. Rather, it reflects an institutional determination that courts should abstain from adjudicating the validity of a foreign state's public acts within its territory because such judgments could embarrass or interfere with the Executive's management of sensitive international matters. 3) International law allegations do not create an exception: The Court declined to carve out an exception permitting judicial review whenever a taking is alleged to violate international law. Such an exception would frequently require courts to resolve complex, contested questions of international law and foreign policy, thereby producing the very diplomatic friction the doctrine seeks to avoid. The Court emphasized it was not deciding whether Cuba's conduct complied with international law; instead, it held that the judiciary should not reach that question in this posture. 4) Territorial nexus and situs: The expropriation was a public act of the Cuban government effectuated in Cuba and directed at a Cuban corporation's assets and contract rights. Although the dispute involved proceeds located in the United States, the relevant governmental act whose validity was challenged occurred within Cuba's territory. Under the act of state doctrine, U.S. courts must treat that act as valid. 5) Role of the Executive: The Court rejected the contention that the doctrine applies only upon an express request or statement by the Executive. While courts may consider Executive views in close cases, the doctrine does not turn on case-specific Executive prompts. Absent a treaty or other clear, controlling federal policy directive to the contrary, the judiciary should refrain from judging the validity of the foreign act of state. 6) Displacement of contrary lower-court rulings: Because the lower courts premised relief on a judicial determination that the Cuban expropriation violated international law, their approach directly conflicted with the act of state doctrine. The Supreme Court therefore reversed, requiring the courts to give effect to the expropriation for purposes of the case.
Sabbatino is the modern anchor of the act of state doctrine in U.S. law. It establishes that the doctrine is federal, separation-of-powers-based common law and applies even where international law violations are alleged. The case illustrates how domestic courts calibrate their role when adjudication risks entanglement in foreign policy. The decision also spurred Congress to enact the so-called Second Hickenlooper Amendment, which in certain expropriation disputes prevents U.S. courts from invoking the act of state doctrine to avoid adjudicating the merits of international law claims concerning property (or its proceeds) located in the United States. Later cases, including First National City Bank v. Banco Nacional de Cuba and W.S. Kirkpatrick & Co. v. Environmental Tectonics, refined the doctrine's contours, but Sabbatino remains the baseline for understanding when and why courts abstain from judging the validity of foreign sovereign acts.
Banco Nacional de Cuba v. Sabbatino firmly situates the act of state doctrine within federal common law and grounds it in separation-of-powers principles. By directing courts to refrain from judging the validity of foreign sovereign acts within their territory, the decision protects the Executive's prerogatives in foreign affairs and promotes a uniform national posture toward sensitive international disputes.