Banco Nacional de Cuba v. Sabbatino
Does the 'act of state doctrine' require American courts to refrain from examining the validity of a foreign government's expropriation of property within its own territory, even when that expropriation allegedly violates international law?
The Decision
8-1 decision · Opinion by John Marshall Harlan II · 1964
Majority Opinion— John Marshall Harlan IIconcurring ↓dissent ↓
The Supreme Court reversed the lower courts in an 8–1 decision, holding that the act of state doctrine required American courts to accept the validity of Cuba's expropriation and not examine whether it violated international law. Justice John Marshall Harlan II wrote the majority opinion.
Justice Harlan explained that the act of state doctrine holds that every sovereign state must respect the independence of every other sovereign state, and that the courts of one country will not sit in judgment on the official acts of another government done within its own territory. While the Court acknowledged that this doctrine is not explicitly required by the Constitution, it held that the doctrine has deep 'constitutional underpinnings' rooted in the separation of powers. The judiciary is not well-suited to make the kinds of sensitive political and diplomatic judgments that would be involved in declaring a foreign nation's sovereign acts illegal.
The majority rejected the argument that international law violations should create an exception to the act of state doctrine. Justice Harlan reasoned that the standards of international law governing expropriations are far from clear or universally agreed upon, and that different nations hold sharply divergent views on when compensation is required for nationalization of property. Having American courts declare that a foreign government violated international law could seriously embarrass the Executive Branch in its conduct of foreign relations and could undermine ongoing diplomatic negotiations.
The Court also addressed the fact that the State Department had communicated that it would not object to the courts adjudicating the case. Justice Harlan held that this kind of informal, case-by-case signaling from the Executive Branch was not a sufficient basis for courts to abandon the act of state doctrine. Allowing the executive to selectively tell courts when to apply the doctrine would create its own separation-of-powers problems and could subject the judiciary to political manipulation.
The practical result was that Cuba's expropriation had to be treated as valid by American courts, meaning Banco Nacional de Cuba was entitled to the proceeds from the sugar sale. The decision was a landmark ruling on the limits of judicial power in foreign affairs, affirming that courts should generally stay out of evaluating other nations' sovereign acts even when those acts harm American citizens.
Concurring Opinions
There were no separately written concurring opinions of particular note in this case. However, the decision prompted a swift legislative response: Congress passed the so-called Hickenlooper Amendment later in 1964, which directed courts not to apply the act of state doctrine in certain expropriation cases that violated international law, effectively overriding the Court's holding in specific circumstances.
Dissenting Opinions
Byron White
Justice White argued that the act of state doctrine should not apply when a foreign government's expropriation of property clearly violates established principles of international law. He believed that American courts were fully capable of applying international legal standards to determine whether Cuba's seizure was lawful, and that refusing to do so effectively rewarded governments that steal the property of American nationals.
- International law has long recognized that states may not expropriate the property of foreign nationals without providing adequate compensation, and courts should enforce this principle rather than hide behind the act of state doctrine
- The majority's approach leaves American citizens with no judicial remedy when a foreign government seizes their property in violation of international law, effectively placing such governments above the law in American courts
- Courts regularly apply international law in other contexts and are not incompetent to determine whether an expropriation meets basic international standards of legality
Background & Facts
This case arose from the turbulent early years of Fidel Castro's Cuban Revolution. In 1960, after the United States reduced Cuba's sugar import quota, the Cuban government retaliated by nationalizing properties owned by American nationals. Among the affected companies was Compañía Azucarera Vertientes-Camaguey de Cuba (C.A.V.), a sugar company whose stock was predominantly owned by United States residents. Cuba's expropriation decree seized C.A.V.'s sugar and other assets, asserting state ownership over them.
Before the nationalization, C.A.V. had contracted to sell a shipment of sugar to Farr, Whitlock & Co., an American commodities broker in New York. After Cuba nationalized C.A.V., Cuba's state bank — Banco Nacional de Cuba — claimed ownership of the sugar and assigned the right to receive payment for the shipment to a Cuban government entity. Farr, Whitlock ultimately received the sugar and sold it, generating substantial proceeds. However, instead of paying those proceeds to Cuba's bank, Farr, Whitlock turned the money over to Peter L.F. Sabbatino, who had been appointed as the court-designated receiver for C.A.V.'s New York assets. In essence, the original American owners' representative got the money instead of the Cuban government.
Banco Nacional de Cuba then sued Sabbatino and Farr, Whitlock in federal court in New York, seeking to recover the proceeds from the sugar sale. The core dispute was straightforward: did Cuba legally own the sugar it had seized, or was the expropriation invalid because it violated international law? The U.S. District Court for the Southern District of New York ruled against Cuba, holding that the nationalization violated international law because it was retaliatory, discriminatory against American nationals, and offered no adequate compensation. Therefore, the court concluded, Cuba never truly obtained legal title to the sugar. The Second Circuit Court of Appeals affirmed this ruling.
The Supreme Court agreed to hear the case because it raised a critically important and recurring question about the relationship between the American judiciary and foreign policy: whether American courts could sit in judgment of another sovereign nation's official acts within its own borders. The Cold War context — involving a newly communist government just ninety miles from American shores — made the stakes even higher.
The Arguments
Banco Nacional argued that the act of state doctrine prevented American courts from questioning the legality of Cuba's expropriation of sugar within Cuban territory. Because Cuba was a recognized sovereign nation, its official governmental acts within its own borders should be treated as valid by American courts, regardless of whether those acts might violate international law.
- The act of state doctrine is a longstanding principle that prevents one country's courts from judging the internal sovereign acts of another country
- Cuba's nationalization decree was an official act of a recognized foreign government carried out entirely within Cuban territory
- Allowing American courts to second-guess foreign governments' internal acts would create diplomatic chaos and improperly insert the judiciary into foreign affairs
Sabbatino argued that Cuba's seizure of American-owned property violated well-established principles of international law, and that the act of state doctrine should not shield a foreign government's actions when those actions clearly breach international legal norms. Therefore, Cuba never obtained valid title to the sugar, and the proceeds rightfully belonged to the original American owners.
- Cuba's expropriation was retaliatory, discriminatory against Americans, and offered no adequate compensation — all violations of international law
- The act of state doctrine should have an exception when a foreign government's conduct clearly violates established international law principles
- The Executive Branch, through the State Department, had indicated it did not object to judicial examination of Cuba's expropriation