Warren E. Burger: We will hear arguments next in Dunhill against the Republic of Cuba and others. Mr. Friedman, you may begin whenever you are ready.
Victor S. Friedman: Mr. Chief Justice May it please the court. We are here pursuant to this courts’ order of last June which we stored this case to the calendar for re-argument, directing the parties to address the question of whether this court's holding in Banco Nacional de Cuba versus Sabbatino should be reconsidered. The United States filed a brief amicus and we have seated 15 minutes of our time for oral argument to the government. On this question, our position, supported by the United States is that Sabbatino should be reconsidered insofar as it maybe read to permit a foreign sovereign to utilize the Act of State doctrine to repudiate its commercial obligations. The amount of foreign trade being conducted by government agencies continues to increase in size and importance. Largely, as a result of that, the Doctrine of Sovereign Immunity in the United States and elsewhere has been restricted so that a government, acting in a commercial capacity may not assert sovereign immunity as a defense to defeat adjudication of claims properly brought against it.
William H. Rehnquist: Is that true even though the foreign government is the defendant? Say maybe just has a ship in New York harbor and is libeled by private plaintiff?
Victor S. Friedman: Well, the assertion of a claim against the property of the foreign government stands on a somewhat different footing but the actual adjudication of claims against the foreign government when you eliminate the property difficulties that some courts have had.
William H. Rehnquist: How do you get jurisdiction over a foreign government other than by attaching their property?
Victor S. Friedman: One can and in some occasion serve a trading agency if it has an office in the United States conserved under some long arm statutes and one can get jurisdiction.
William H. Rehnquist: And in that case, even though they are defendant and they are not seeking relief, your position is that the claim of the private plaintiff can be adjudicated.
Victor S. Friedman: Absolutely your honor, certainly under the restrictive theory of Sovereign Immunity, there have been some difficulties where the State Department for example may come in and suggest immunity even though the case would seem to be covered by the restrictive theory. But absent such as suggestion, the rule today is fairly unanimous in the United States’ courts that such a claim can be adjudicated. We do not see any reason why a foreign government should be able to accomplish the same result that it could have accomplished under Sovereign Immunity, simply by characterizing a repudiation of its obligations as an active state. Before addressing this question more fully, however we feel that compelled distress here as we have in our briefs that this issue need be reached by the court only if certain threshold issues are passed. In particular we do not believe this issue need be reached unless this court agrees with the Court of Appeals that the Act of State in issue here was indeed Cuba’s repudiation of its obligation to return to Dunhill, certain payments that Dunhill had made to Cuba for cigars. I stress this because Cuba now appears to argue with us contrary to its prior position and although for different reasons that this holding of the Court of Appeals was incorrect. In order to put these contentions in context and explain some of these threshold questions, I would like to very briefly the history of litigation in a capsule form. Litigation arouse out of the 1960 decree in Cuba, which nationalized or intervened certain Cuban cigar factories. Dunhill and two other United States importers for number of years simply stood on the side lines as stake holders. While the former owners of these businesses in Cuba battled in the courts of the United States to determine which of them was entitled to payments for cigar shipped both before and after the intervention? In the prior action, not involving Dunhill and the other importers, Palicio v. Brush & Bloch, it was held by the second circuit that the interveners could recover from all of the post intervention shipments of the cigars. The interveners at that point stipulated that the owners could recover from the pre-interventions shipments because in their view the amounts were too small to worry about. After those threshold issues were resolved, both the owners and the interveners pressed their claims against the importers. That is this action, later then developed in this action that the fundamental assumption which underlay that stipulation was incorrect because it turned out as of the date of the intervention, there was unpaid, almost a half a million dollars for pre-intervention shipments of cigars. It further developed in our case and it was strenuously contested by the interveners that the importers had paid those sum shortly after the interveners and it further developed that those payments had found their way to the Cuban government. As a matter of law, the District Court ruled that those amounts were still owed by the importers to the owners. We had paid the wrong people but we could recover those amounts from Cuba. In the case of Dunhill, because the amounts transmitted to Cuba exceeded by some $55,000, the amount due for cigar shipment after the intervention. The district court entered in affirmative judgment in favor of Dunhill against Cuba in that amount. The Court of Appeals affirmed the District Courts rulings in every respect, except one. It set aside the affirmative judgment against Cuba in favor of Dunhill. The Court of Appeals held again over Cuba’s vigorous opposition that the evidence showed, that Cuba had received all of the post intervention payments, but it also held that Cuba’s, “Failure to honor the importers demand” for return of the payments constituted and act of state, therefore under Sabbatino and First National City Bank, no affirmative judgment could be entered against Cuba. Dunhill of course is seeking nothing in --
Warren E. Burger: Is that the only act of state the Court of Appeals identified?
Victor S. Friedman: Absolutely your honor
John Paul Stevens: With respect to Dunhill?
Victor S. Friedman: With respect to Dunhill
John Paul Stevens: So their holding was not based on the notion that Cuba has nationalized and accounts receivable?
Victor S. Friedman: No your honor. On that issue, the issue on the accounts receivable, the court held since the accounts receivable had the United States situs that no Act of State would be recognized. The net effect, of course of the Court of Appeals ruling is to impose double liability against Dunhill for the amounts which now can not be recovered against Cuba. Under the rulings of the court now, that money is still owed by Dunhill to the owners and there is no recovery over. The first threshold question, before we reach Sabbatino, of course remains the principal question on which certiori was originally granted. That is, whether statements by counsel for Cuba, that petitioners, Justin Richmond counter claim would not be honored by his client constitute or evidence an act of state. We continue to urge as we did before, that in our view, that those statements that Cuba would refuse to make any such repayments did not and could constitute an act of state. We will not delay with that argument here again. We note only that if only our position is accepted in that regard. Reexamination of Sabbatino, however desirable in unnecessary to decision of the case, the result would simply be the revert to Judge Brian’s ruling and reinstate the affirmative judgment he entered against Cuba. The second major threshold issue is created by Cuba’s complete shift in position, as to precisely what constitutes the operative act of state against Dunhill in this case. Court of Appeals of course stood for the repudiation of the obligation to pay Dunhill.
John Paul Stevens: Assume that you are right, that there was no act of state such as the Court of Appeals described, then you say that the barrier would be removed to your having a judgment?
Victor S. Friedman: Yes your honor.
John Paul Stevens: No questions on Sovereign Immunity or anything like that?
Victor S. Friedman: Sovereign Immunity has never been asserted by Cuba in this case and indeed you honor it could not have been asserted because of the restrictive theory of sovereign immunity now adopted by the courts. Although Cuba has never requested a suggestion of sovereign immunity from the State Department, I think with the State Departments’ present position that would be unlikely.
John Paul Stevens: Has Cuba ever acknowledged an obligation to repay the importers? Are you contending they repudiated an obligation they never acknowledged to exist that is what I am really asking?
Victor S. Friedman: So far as we know Mr. Justice Stevens, Cuba has never said anything about this obligation. Cuba brought all of these contentions into the United States courts seeking the money’s which it later turned out that they had already received. So it is difficult for me to address your questions in those terms.
John Paul Stevens: I do not understand them to be contending that they repudiated an existing obligation but rather that their act of state was to in a fact to appropriate the property of your clients’ when it was in Cuba namely the cash, when was paid on account?
Victor S. Friedman: If I may your honor, let me respond to you, this is a third position that Cuba is now taking as I see it for the first time in its reply to the government's a to make it brief. One of the great difficulties we have had I think, in analyzing the act of state issue here is identifying it. It is quite clear that up to the time that certiori was granted in this case, the only act of state on which Cuba was relying was this repudiation of the asserted obligation. If I may read from its brief in opposition to our petition for to certiori, Cuba said, but here, the Republic of Cuba is a party to the suit. For seven long years, it has been asserting that its repudiation of the debt was its act of state. That assertion was made in the District Court, in the Court of Appeals and is now being made in this court.
Warren E. Burger: It is not mentioned in the --
Victor S. Friedman: Absolutely your honor, absolutely, now contrast that with the position that Cuba took in the brief-on re-argument, in which Cuba now says, we do not agree that the act of state doctrine does not apply to commercial transaction but find no need to argue the point here. It is of course absurd to characterize this as an ordinary commercial controversy. It arouse not out of normal international trade but out of an intervention and it is the intervention, which is the act of state, not the repudiation of a commercial debt. We are faced with another threshold difficulty here in analyzing just what it is that Cuba says it is the act of state. There was of course no proof of anything at the trial, other than the fact that a decree has been entered. With respect to the decree itself, there are some very difficult issues presented by Cuba’s present position. That is the decree, now somehow constitutes the act of state. The theory of that of course is that the decree, having nationalized the accounts receivable of the owners somehow operated to give the claim of right to Cuba’s appropriation of the funds as they arrived in Cuba. The difficulty is that to deal with that issue, I do not believe that proper parties are before the court. In that effect of dealing with reversing the lower court's conclusions on that issue would be to adversely affect the rights of the owners. They are the real parties in interest. Dunhill in fact has no real stake in that because if the accounts receivable were appropriated by Cuba in act of state, that would be recognized by United States Courts. We paid the right people.
John Paul Stevens: Let me ask you one question. Suppose we disagreed with you, and agreed with the Court of Appeals if there was an act of state and the repudiation and that the ruling of Sabbatino was therefore to be contended with, that would bar the any consideration of whether or not there was a violation of international law
Victor S. Friedman: If Sabbatino were followed and that ruling and that version of the Sabbatino case were to be followed, I guess
John Paul Stevens: Assume that Sabbatino were not followed, would you claim there was a violation of international law in the repudiation of Cuba of this debt?
Victor S. Friedman: Yes we would your honor but I do not think we would even necessarily reach that question
John Paul Stevens: Because?
Victor S. Friedman: Because in our view, Sabbatino should not apply
John Paul Stevens: Well I understand that, it should not apply
Victor S. Friedman: Should not apply to sovereign's repudiation of a debt incurred in the course of a commercial transaction. So that one does not even reach the question whether such a repudiation is a violation of international law.
William H. Rehnquist: If you say such repudiation, is not an act of state for purposes of Sabbatino?
Victor S. Friedman: One can analyze it in one of two ways Mr. Justice Rehnquist. One can either say that is not an act of state or one can say although it maybe an act of state, such an act of state will not be given recognition as a defense by the sovereign who is committing the act of state to its commercial obligation.
John Paul Stevens: But then you said that only if whether or not it violates international law, you have another reason for saying the act of state would not file recovery
Victor S. Friedman: Yes, absolutely. If I may follow that for a minute, there may be a situation and this is getting very theoretical where if the repudiation appears to be something considerably different from the repudiation but has the effect of repudiating commercial obligation. If that act itself is in clear violation of international law, we might also say, I think we would also take the position that that should not be recognized by the States’ courts but we do not need to reach that in this case at all. Our theory of how Sabbatino should be read to deal with the repudiation of commercial obligations. I would like to address myself a minute to Mr. Justice Steven's question regarding the last known position at least of Cuba with respect to what the act of state is. Cuba now appears to take the position in its reply to the government's amicus brief, that neither the act of state, neither the decree itself, nor the later repudiation but somehow a seizure of funds as they arrived in Cuba perhaps under the authority of the original intervention decree. Our response to that is that that factual assertion is so contrary to the factual position taken by Cuba in the courts below during the course of this litigation that it should be rejected out of hand.
Warren E. Burger: Let us get that straight; I have some difficulty following these changes of position. In their brief in opposition of the petition for certiori, they contended that the nationalization included the nationalization of the accounts receivable. The decree itself, the act of state included the nationalization of the accounts receivable
Victor S. Friedman: I do not believe that to be correct sir. I believe that their basic position there which was set forth on pages three and four of their brief
Warren E. Burger: That is what I am looking at
Victor S. Friedman: Well, it says that seven long years that it has been asserting that its repudiation of the debt was its act of state.
Warren E. Burger: You are reading from the petition of certiori?
Victor S. Friedman: The brief in opposition to the petition of certiori, that is correct. I thought that is what you are referring to.
Warren E. Burger: That is, as I read in on page three it says that they argued that even if they received the payments., the payments are not recoverable in this suit because, one the nationalization of the owners property included the account of the nationalization of the owners accounts receivable and hence the interveners was entitled to payments and questions. Maybe this is a wrong argument here.
Victor S. Friedman: Actually your honor, reading on, then says and in any event the act of state doctrine was a complete defense. Those were all the alternative arguments. The first argument was, that the act of state viz-a-viz, the owners, was to take their accounts receivable and therefore they were entitled, you do not even reach the act of state doctrine. They were therefore entitled to these payments as they came in. That was not the act of state against Dunhill, the act of state against Dunhill was the repudiation.
Warren E. Burger: It seems to me there is not such a great difference between the argument that they nationalized the accounts receivable and an argument which they now make in all events, we nationalize the payments on the account on the accounts receivable as they came in.
Victor S. Friedman: I think there is an enormous difference your honor because the nationalization of the accounts receivable is the nationalization of a Cuban asset. One that does not even raise the issue of the act of state, nor one that affects the rights of American citizens, when you talk about nationalizing payments, that is a very different question because those payments were payments of Dunhill
Warren E. Burger: But I suppose their theory would be, that when they arrived, they became the payments of the prior owners.
Victor S. Friedman: Well, if the prior nationalization was effective to nationalize the accounts receivable. The courts below both have held that not to be so for purposes of American Law because the accounts receivable were held by both the District Court and the Court of Appeals under the Republic of Iraq case to have a situs in the United States and therefore not subject to the Act of State Doctrine.
Warren E. Burger: Do they clearly retain their situs in the United States when payment is made on the account; I suppose that is a part of the problem?
Victor S. Friedman: Well, that is a different issue there your honor because we start with the premise now from the rulings of the courts below that the accounts receivable were not nationalized. So that if the payments, if it is now Cuba’s position that is was the payments that were nationalized as they went down by some affirmative act of the sovereign. My response is somewhat different. My response there is that that so contradicts the factual condition that Cuba took through 15 years of litigation in our courts that they should not be heard to urge at this point. Must we recall that in 1961, shortly after these alleged seizures took place, Cuba came into our courts and sought to recover them? Later on, in the Palicio v. Brush & Bloch, litigation, when they thought that the payments were insignificant, they gave up their right to them. Then in our litigation, when it developed again --
Warren E. Burger: They would not seek to recover them in that litigation is that complete abandonment of the right or what is that?
Victor S. Friedman: No your honor and that is not my point. I am not arguing whether that stipulation is effective or not. I am simply saying, when it later developed in our case that the amounts were substantial, they reasserted their right to the money. When it turned out that not only had those been paid but the court found that they had received them over their vigorous opposition; they still maintained that they were entitled to the money and that they had not received them. They maintained that as late as the Court of Appeals. How can Cuba now come in and say with that history of 15 years of denying that they ever received the money and claiming that they wanted it, to know say, wait a minute, at the very beginning of all this, we forgot to tell you, we really took this money in the first instance. In our view, that claim of the factual basis for the act of state makes that all of the proceedings that went on below a charade. For the reasons I have stated, we conclude that the Sabbatino issue that is now framed by the court need be reached only if the court concludes as did the Court of Appeals, that counsel statements were sufficient to evidence the act of state and that act of state was the repudiation by Cuba of its obligations to Dunhill. Once past that threshold issue, we believe that Sabbatino should be reconsidered as I have indicated and the Act of State Doctrine should not be available as a defense to a sovereign in the effort to repudiate its commercial obligations. We begin from the premise that the Act of State Doctrine is a Doctrine of Judicial Abstention.
Warren E. Burger: In this fact, you are more or less in agreement with the United States?
Victor S. Friedman: I think we are your honor, yes we are. There maybe differences in phraseology but I think we come out fairly close and for fairly much the same reasons. Indeed having argued at lengths in our briefs that we did not believe that the Executive Branch could be embarrassed by such a ruling. And that there would be no interference with our foreign relations, or separation of powers problems created by that, we obviously gratify that the Executive Branch in its views concurs. I think with the court's permission, I would like to defer my argument of that subject in view of the time element to government counsel. I would like with the Court's permission to stress a slightly different approach to the problem. Based on our own experiences, counsel to clients engaged in considerable volume of international trade. The government obviously has a far greater expertise in dealing with the foreign relations aspects. Perhaps the private counsel can add something to the issue. Obviously, trade is conducted today with a variety of entities overseas. Sometimes obviously private entities and some instances governmental, some instances some mixture which maybe analogous to some of our form, sometimes not. As a commercial lawyer, I start with the premise that the law ought to reflect in dealing with commercial problems as neatly as possible. The expectations of the parties to commercial transactions, those expectations I can assure the court, do not vary depending on whether the party on the other side of the transaction is an agency of a foreign government, is a private trader or is some combination of the two. Indeed, in many instances with the numerous forms that now exists in the commercial world, it is difficult to know and indeed one may never know precisely what the form of the other entity is. There are types of trading companies throughout the world that have no analogue in our system. There maybe some government ownership, there maybe some private ownership. The interest to be served may never be fully be known by the other party of the transaction but in entering into agreements with those entities as well as with the state trading companies or with private traders. The expectations of the parties do not vary. The considerations do not vary, there is as much difference in dealing from one government to another government, as there is between a large company and a small company, as between one country and another country, differences vary by all of these considerations. I am saying that there is no reason for making any distinction in my view between the obligations and the rights of parties dealing with foreign sovereigns in the commercial context as opposed to when they deal with private traders. I can not argue with Cuba, when Cuba says the government agencies will not likely repudiate their commercial transactions. I take that to be a given, particularly countries which engage in state trading on a large scale, have a vital interest in protecting their reputation in the international community but the same is true of the private trader in the international community. Indeed, in international trade, perhaps more so even in domestic trade because of the smaller opportunity for face to face contact. Trading reputations are particularly important but I suggest that those do not vary. The importances of that do not vary depending on whether one is dealing with a state trading agency or with a significant private trading agency. With the court's permission, I should like to reserve my last five minutes for rebuttal.
Warren E. Burger: Okay Mr. Victor S. Friedman.
Antonin Scalia: Mr. Chief Justice and may it please the court, The principal purpose of the governments appearing as amicus in the present case is to preserve the vitality of a legal doctrine which is not itself technically at issue in the case but which the opinion of the court below, if accepted by this court would effectively destroy. I refer of course to the restrictive Doctrine of Sovereign Immunity, under which, it is not all of the activities of a foreign sovereign as to which that sovereign will not be held accountable in our courts but rather only those activities which are of governmental as opposed to a private nature. At the time, the famous Tate letter was issued by the State Department in 1952, that Modern Doctrine of Sovereign Immunity had already been adopted by virtually all of the important trading nations of the West. The significant exceptions were England and the United States. Since that time, only last November in the Philippine Admiral Case, the privy council has made England is no longer an exception. It has likewise been assumed that the United States is no longer an exception to the restrictive theory of Sovereign Immunity. Although the matter has never reached this court, it has been considered a number of times by lower Federal Courts and by State Courts, and their decisions are uniform in accepting it. In view of those decisions, in view of the Tate letter and in view of the deference which this court has normally accorded to the State Department's views in this area of Sovereign Immunity. It has properly been assumed that the applicable United States Law does adopt the restrictive theory of Sovereign Immunity. Respondents have not asserted sovereign immunity in the present case for the obvious reason that the assertion would not have been permitted under the restrictive theory. There are several other reasons why the assertion may not have laid as well. But clearly there was no way, in which the merchandising of tobacco or the receipt of an erroneous payment in connection with that merchandising activity could have been considered as governmental activity rather that a commercial activity on the part of the respondents. That being so, it would surely reduce the law to ineffectiveness and perhaps expose it to ridicule, if the respondent having being denied, the claim of sovereign immunity, were able to achieve precisely the same result by simply appearing and repudiating the obligation as to the very acts on which the claim of Sovereign Immunity was denied. Nothing occurred in this case except the appearance of an attorney who instead of asserting any sovereign immunity, simply asserted that the government of Cuba would not honor the obligation and what is claimed is that the effect of that statement should be the same as far as the rights of these parties are concerned as the assertion of the sovereign immunity under the Old Absolute Theory. Respondents reply brief, seeks to calm our fears on this point by assuring us that repudiation of a commercial obligation will be unlikely. Respondents says, I am quoting his reply brief to the government now “it is only in the unusual case and we suggest primarily in the political case in which this defense is called upon”. That is the Act of State Doctrine. He continues “it is likely that the more naked the repudiation, that is the more unconnected with governmental functions, the more political the background”. The trouble with all of these hopeful assurances is that they are destroyed by the experience of this very case. There could not have been a more naked repudiation. The mere statement of council in the case and as to the high political background of the repudiation, its non-existence is shown by the fact that up until the point when it was discovered that we were talking about a lot of money, Cuba was willing to stipulate on the point and indeed did so. That was one of the issues below. There is no high political background here, it is simply a question of a lot of money and until it was clear that it involved with a lot of money, Cuba did not care about the point. I suggest then that despite what the respondents assert in the reply brief. If the Theory of Act of State, that respondent is arguing in this case is adopted, we can expect the state trading nations to use it precisely where they previously used the Doctrine of Absolute Sovereign Immunity, that is wherever they do not wish to be held liable. How then can one avoid this absurd result? On one hand saying, the foreign state has no sovereign immunity but on the other saying, which means the sovereign must simply appear and say that it does not want to pay. In the view of the United States, it is difficult not to avoid that result. If one simply regards the statement and the application of the act of state doctrine as it has historically been described and applied by this court. Respondents would have us believe that the act of state doctrine applies to all acts of a sovereign power. But whether one chooses the old cases or the new ones, whether one takes the formulation in Underhill or in Sabbatino, the description of the doctrine has always shown that this is not so. There have been qualifications not simply a statement that an act of state is not examinable. In Underhill, for example, the Doctrine of the Act of State was described as applicable to acts done by sovereigns within their own states in the exercise of governmental authority, two qualifications, in their own states and in the exercise of governmental authority. In Sabbatino, it was described as being applicable to public acts of a recognized foreign sovereign power committed within its own territory. In other words, two conditions are attached, the first is the Territorial Condition that the act of state must have been performed within the governments own territory. One may interpret that territorial condition, literally I suppose and if it is interpreted literally, the only act of state that appears on the record on the present case occurred within the United States consisting of the statement of the Council for Cuba. There is no evidence of any other action on the part of the Government of Cuba. The United States, as described in our brief
Thurgood Marshall: Is that statement of the lawyers contradicted any place up until now?
Antonin Scalia: No sir, I do not believe that there was any contrary evidence adduced to show that the lawyer was not authorized. I believe that is true as of now, yes sir. I do not think that the issue of whether the statement of the lawyer was in fact authorized is really present in this petition. Of course, if he were not authorized, then the matter would be much simpler but for the purposes of the present case, I think that it is assumed that the statement was authorized to be made by Cuba but nevertheless, the only act of Cuba
Thurgood Marshall: The statement made authorized is made in Cuba?
Antonin Scalia: I do not know sir. I do not believe that there is anything in the record which shows --.
Thurgood Marshall: You say it is here, but the statement was, that something was done in Cuba.
Antonin Scalia: Well, certainly something was done in Cuba but I would not consider a Government
Thurgood Marshall: But if the government had any contrary evidence of any kind, I would assume they would have shown.
Antonin Scalia: Contrary evidence to what effect sir?
Thurgood Marshall: The fact that he was not talking about the truth, the fact that the government had introduced it after all these years leaves me what conclusion?
Antonin Scalia: I think that is correct. I think that the conclusion that the statement of the lawyer was authorized and again I am not contesting that but the point is, the only action, the only public act committed by Cuba, as far as we know, surely the authorization to the lawyer, even if it was given in Cuba does not constitute a public act anymore than the authorization by the President to one of his delegates in the United States for that delegate to do a particular act constitutes the act itself.
Thurgood Marshall: Now that let me interrupt, let me ask one more question. Do you want Sabbatino overruled or not?
Antonin Scalia: Yes Sir, Well, I think as described in the Governments brief, we think that the issue of Sabbatino is not involved in this case because the Act of State Doctrine properly understood, is not involved in this case. There was no act of state; therefore there is no reason for Sabbatino to be presented to the court in this case. If however, the court should disagree with our interpretation of the Act of State Doctrine, and if the court should find when Sabbatino spoke of an act of state, it meant an act of state which could even consist of a simple repudiation of a contractual obligation. Then I would assert that Sabbatino should be reexamined but there on that point on whether a commercial can be an act of state but in the view of the government, there is really no need to get to that issue because it would be reading Sabbatino to be unnecessarily wrong. If one were to read its description of act of state to include this simple repudiation. As I was saying, the court's decision and the application of the acts of state doctrine have brought forward two conditions, the territorial conditions, which can be interpreted literally or as government suggests in its brief, perhaps can better be interpreted not literally. So as to mean the act of state must be committed within the territory of the state and if it is committed within that territory, that is enough. If it is not, that is absolutely conclusive that there is no act of state, rather we think that the expression of territoriality is really a description of the most common situation in which the foreign governmental act constitutes an act as to which there is such a preeminent claim of the foreign government to exclusive Legislative Jurisdiction over the matter that the courts of the United States should not interpose our reexamination of that foreign states action. It is the second qualification to the Act of State Doctrine which is squarely raised in the present case which is of most importance to the government. That the qualification that the act of state, is an act performed in the exercise of governmental authority and that it is a public act. Respondents would have us believe that these qualifications mean nothing that they are mere surplusages and entirely redundant that when one says the act of state, one has said it all. So long as the state has acted, that is it but the case has not described it that way. They have felt constrained to say, an act of the State in the exercise of its governmental authority or to say public acts of a state. I would assert to the contrary of respondent's contention that it is not the governments position on this matter that is new or novel, what is truly novel and inventive is the repudiation which occurred in this case. If the act of state doctrine, indeed were understood to be as respondent represents it. It is indeed, marvelous that such a repudiation before an American court has never to our knowledge previously occurred, that is the novelty in the case, not the government's assertion of what I believe that have been understood to be the correct interpretation of the act of state doctrine. We assert, in other words, that the decision of the second circuit in the victory transport case, which involved precisely this issue, whether the denomination by State of a port in a commercial contract as a safe port amounted to an act of state and therefore could not be reexamined in litigation. The second circuit held of course that the denomination of the safe port in a contract is a commercial act which merchants do all the time. The mere fact that it was done by a state or by a state trading agency makes no difference and does not prevent the courts from inquiring into the case.
Warren E. Burger: (Inaudible)
Antonin Scalia: Excuse me sir
Warren E. Burger: With that opinion, you also said that that was a second circuit?
Antonin Scalia: Yes sir.
Warren E. Burger: Did that opinion address any distinction?
Antonin Scalia: That was early opinion sir.
Thurgood Marshall: The State Department took position that they were not going to intervene because the court matter was pending, Sabbatino. The court asked for the State Departments’ opinion and the State Department said that since this is a court matter we will give you our opinion, do you remember that?
Antonin Scalia: Yes, the position of the State Department in the present case, it has not sought intervene in the present case either. The position of the government on the matter is simply that the interpretation that we are urging of this act of state doctrine is in the interest of the Executive Branch and should be adopted by the courts for the simple reason that the two purposes sought to be achieved by the act of state doctrine are neither of them, served by the application of the doctrine to commercial transactions because if you are concerned about first of all, the avoidance of embarrassment, the United States Foreign Policy, the Tate letter makes it clear that there is no such embarrassment in the case of commercial transactions and it is made further clear by the appendix to the governments brief in this case. The second purpose, the purpose of enabling the court to avoid cases which do not have manageable legal standards, that purpose also was not served by adopting an act of state doctrine in the commercial field which is almost the prototype of a field of where there are manageable legal standards.
Warren E. Burger: Mr. Scalia, is there any country that you know of that concede or admit today that it applies the Act of State Doctrine to commercial transactions?
Antonin Scalia: It is said that the Act of State Doctrine is applied by a number of other countries but their application is a good deal less clear than our own has been. I am unaware of any statement by another country that it applies to commercial transactions. I am just guarding that statement with the fact that I tend to think that the application by other countries has been a good deal, less rational than our -- at least their description of it has been a good deal less rational than our own in any event.
Warren E. Burger: You mean generally?
Antonin Scalia: Generally
Warren E. Burger: In its application of perhaps without conceding that in fact is what is being done.
Antonin Scalia: I am certain that there are cases in foreign countries in which in a commercial transaction where what respondent in this case would call an act of state has occurred, the foreign court has given no regard, and has not given any special treatment. I see that my time has expired, thank you.
Warren E. Burger: Mr. Rabinowitz.
Victor Rabinowitz: I am glad that I can not find one point of agreement with the government in this case. In the assertion that the Sabbatino case is not involved in this litigation, I agree completely with that statement. I think that my analysis is different, but I think I can agree that the issue of the Sabbatino case, need not to be in fact as I understand the situation can not be reached on this issue. Let me first address myself to what has been the principal burden of the petitioners’ argument. Namely, was there an act of state by the government of Cuba and what was it. Yes, there was an act of state and the act of state was the Intervention Decree of September 16th 1960 and everything that has happened since that time has been based on that intervention decree. Of course it was not a single act. No political act and perhaps no human act. It is a single act that had consequences and the ultimate consequences are that it resulted in a refusal to honor, an obligation which the District Court, 10 years later found that it had to Dunhill. A great deal has been said in this case, on the prior argument and in the opinion of briefs of counsel and in the opinion of the District Court, about statements of counsel that the act of state here consisted only of statements of counsel. Since, I was the counsel, I have felt a heavy burden here to justify my attempting to act as sovereign and passing acts of state and so I looked at the record to see what it was that counsel had said at the District Court level. I find in closing argument, words which I have reproduced in a footnote to the brief filed in response in reply to the brief of the United States as a amicus curiae. Appears at the bottom of page five of that brief, it is the last of the many briefs that have been filed here. I am reading in the middle, I do not want to take too much time on this. Under the Act of State Doctrine, the Cuban government in accepting, expropriating, seizing, and nationalizing, whatever words you want, to take this money has done so pursuant to a regulation, a law, a decree of the Government of Cuba and therefore the Courts of this State will not look in to the matter nor will the Federal Court. I am not talking about the extra territorial effect of an act of state. I am talking about a territorial effect, namely the seizure or the acceptance, or the appropriation of this money when it got down to Cuba. We are not concerned if they expropriated debts on September 15th, the question is what happened on October 1st and 15th, November 8th and December 12th when the money came down? At that time the Cuban Government took this money and under the Act of State Doctrine, it belongs to the Cuban Government and the decree to which the counsel was referring in that case, was of course the Nationalization Decree of September 15, 1960. Not to any other Act of State, which counsel made up or created or passed in the course of his argument.
Warren E. Burger: Would you agree that your characterization in that part of the transcript of the Act of the State is quite different from your characterization, when you said, for seven long years, it has been asserting that its repudiation of the debt was an act of state? They are two quite different concepts I think.
Victor Rabinowitz: I do not think that they are two different concepts your honor.
Warren E. Burger: The debt then arrived until the money arrived.
Victor Rabinowitz: I do think that they are different formulations at least, in my mind, at least they were different formulations of the same problem. The repudiation, of which we spoke there, was not a naked repudiation of a commercial debt. It was not a repudiation which was created in a vacuum. At all times, it has been clear that the Cuban position has been based on the Intervention Decree of 1960 and there was never any suggestion that there was any subsequent act.
Warren E. Burger: But Mr. Rabinowitz, the debt did not exist at the time of the decree is that not correct?
Victor Rabinowitz: Well I do not know whether the debt existed at the time of the decree.
Warren E. Burger: What were you referring to as the debt when you referred to the repudiation of the debt in your brief?
Victor Rabinowitz: The debt that we are talking about as a result of the rather strange way which this case has developed, the debt that we were talking about I suppose perhaps was not created.
Warren E. Burger: It is clear that the debt referred to your obligation to return the money that have been delivered to Cuba. That is what you are talking about.
Victor Rabinowitz: But the obligation, the debt of Dunhill was not created until,Pardon me?
Warren E. Burger: That debt did not exist at the time of the decree.
Victor Rabinowitz: That debt, I would say did not exist until the District Court handed down its opinion in 1972.
Warren E. Burger: It is just another way of saying that, it did not existed the time of the decree.
Victor Rabinowitz: I suppose that that is true
Warren E. Burger: Therefore the decree could not be the repudiation of a subsequently created debt.
Victor Rabinowitz: Well perhaps the word repudiation was an unwise one. The Cuban Government from the very beginning has taken the position that this money belonged to it. It belonged to it and it collected the money in, much as a receiver who was appointed by a court in the United States and given authority to take over the property and the assets of a company will acquire and will take title to accounts receivable or other money that happened to come in to his possession and intervener is like a receiver, except that it is Executive rather than a Judicial Officer. The functions that he was to perform under the Intervention Decree, were precisely to take in to his possession all of the property of the intervened company. Now when that money came down into Cuba, he took it.
Warren E. Burger: Was it that time, property of the intervened company?
Victor Rabinowitz: Cuba claimed that it was property of the intervened company. Of course, there was some question at that time I suppose there might have been a question. Was this property of the intervened company, or was it a property of the former owners? No one dreamed at that point that it would turn out to be the property of Dunhill. At least I do not think anybody dreamed of it. Dunhill did not even make a claim to this money until 1969, on the last day of the trial of the District court. Dunhill came in and amended its answer to claim the money, it had not even claimed it up to that time. At this point, it became apparent as a result of what developed in the trial that a possible outcome of this complex set of affairs would be, that Cuba would be directed to pay the money back to Dunhill. Up to this point, it had never even demanded it
Warren E. Burger: If you are correct, as to the consequences of the intervention, your argument certainly should be and I suppose it was that this so called debt should never been adjudicated?
Victor Rabinowitz: Certainly
Warren E. Burger: That you did not know anything?
Victor Rabinowitz: That was our position
Warren E. Burger: Because it was your money in the first place?
Victor Rabinowitz: Exactly
Warren E. Burger: But those judgments of the court still stand, I take it that you owed the money. Was it your claim? I thought that is what you claimed in your response to your petition for certiori, that even if you owed it, you repudiated it?
Victor Rabinowitz: I do not think that that was what we claimed. What we claimed was, we did not owe it and we did not owe it because it was an act of state.
Warren E. Burger: Did the Court of Appeals suggest that if you owed the money, you nevertheless had repudiated the debt as an act of the state?
Victor Rabinowitz: In the Court of Appeals, we made what I considered then and still consider to be an alternative argument and that is a very broad argument and I do not find it necessary to repeat it here and it was picked up by the Court of Appeals and was accepted by the Court of Appeals which maybe the reason for all of this trouble here now. The Court of Appeals took a very broad step, very broad position. And as I read the opinion and incidentally it was not alone in so doing. It followed the decision of the New York Court of Appeals in the French case, quoted from it, I think extensively. It took the position at that time, that any repudiation, any refusal of a sovereign to pay a debt was an act of state.
Warren E. Burger: Well, if you defended that judgment in your response to the petition of certiori?
Victor Rabinowitz: I would defend that judgment here today if I had to.
Warren E. Burger: Yes, when you did in your response to the petition for certiori?
Victor Rabinowitz: I suppose I did. I would do it today and I think that it was a sound decision but I do not believe that I have to go that far. I do not think I have nearly that far because I think that we have here, a long time prior to that position, a clear unequivocal act of state which has resulted to Cuba’s contention that it was entitled to this money from the very beginning, it was claiming the money as a result of the intervention decree and it was therefore entitled to the money and on the act of state doctrine.
Warren E. Burger: On that basis, you claimed that there should not have been any set off either I take it?
Victor Rabinowitz: On that basis, I claim that they should not have been any set off and that issue your honor is raised in the petition for certiori which is up to this point at least refused to either grant or denied.
Warren E. Burger: I understand.
Victor Rabinowitz: Exactly
Warren E. Burger: But it is one way or the other because on that basis there never was any debt, is that right?
Victor Rabinowitz: On that basis, there never was any debt. And I argued that in my petition for certiori and so far the court has not passed upon as I wish it would. I am getting a little tired of this case.[Laughing] Now, I think that that is of importance here because I have apparently been charged with having as I say, committed an act of state and it is not a sin to which I am not prepared to plead guilty. That really is the issue that I see in this case. Was there an act of state? The answer is yes. What was the act of state? Here it was, Cuba is entitled to this money and is under no obligation to pay it back. I think we are entitled to a lot of other money as well but that can await this petition for certiori. Remember I said here last time that I did not even think that this petition for certiori should not even granted. I thought the whole thing was a mistake. The court obviously did not see it my way or I would not be here now and so I am not stressing that point at this time. The court when it originally granted the petition for certiori in the first time, put forth a second question, that second question said, assuming an act of state may petition again an affirmative judgment on its counter claim in the circumstances of this case. I am not reciting the full language of it. Now, I am not going to discuss that here unless the court wants me to. It was not raised at all by respondent. It is fully discussed in the briefs. I think that the question assumes something which is not a fact namely, that this court in the National City Bank case adopted a so called counter claim rule. As I recall the situation, there are only four judges. Only one judge who opted for a clear counter claim rule and that was Mr. Justice Douglas. Three judges opted for a counter claim rule when supported by the State Department Letter and the other five judges voted against it all together. So, I am not going to discuss it because as I said, I think that counsel has not urged the point and I do not want to tilt a non-existent argument here. The order for re-argument however, and the Governments brief here do raise two very important international law questions. I do not believe either of them is raised on this record but they are interesting. I think it is a mistake for a court to decide questions just because they are interesting. I think that the rule that a court should decide only the case that is before it is a salutary rule. However, interested we maybe in the broader questions Those broader questions will get here soon enough, back in the District Court in the Southern District of New York, we are going to be here with them, I think sometime pretty soon, that all the questions about the National City Bank Case and the Sabbatino Case and so forth will be here and sufficient onto the day. But these issues were raised by the Court and Solicitor General, and I think that out of respect, I should answer them.
Warren E. Burger: You may continue
Victor Rabinowitz: May I please the court? Mr. Justice White did you have a question on your mind when we were at recess? I thought you --
William H. Rehnquist: I have hand a question in my mind even though I did not indicate Mr. Rabinowitz, if you are right in your argument thus far, then do not you have to confront the Government's argument or would you say that this is not a commercial transaction?
Victor Rabinowitz: I was just about to get to it.
William H. Rehnquist: Okay.
Victor Rabinowitz: I think there has been some confusion here about the Sabbatino decision and what it held. The Sabbatino case did not create the act of state doctrine. All that the Sabbatino case did was to say that the act of state doctrine was not a defense when it was alleged that the act was a violation of international law. It is not my understanding that the dissenting opinion of the Sabbatino case, or any of the other academicians who have written extensively on the subject of the Sabbatino Case, have ever urged that the act of state doctrine should be abolished, or the act of state doctrine was wrong but merely that the Sabbatino decision was wrong in failing to allow of an international law exception.
Warren E. Burger: Well let us assume that in the case, the act of state doctrine is raised as a defense to an action and the other side says well, it should not be a defense because this is a violation of international law. Now, Sabbatino, you suggest says that the prior response is (Inaudible).
Victor Rabinowitz: That is right
Warren E. Burger: If it were worth something and the act of state doctrine would not bar an action, if it were in violation of international law, you have to go through the process of deciding whether it is in violation of the international law.
Victor Rabinowitz: Yes certainly
Warren E. Burger: If it is decided that the act does not violate the international law, the act of state doctrine then is a defense.
Victor Rabinowitz: Exactly
Warren E. Burger: But if you are going to go through that process of deciding whether it is a violation of international law, where does Sabbatino stand?
Victor Rabinowitz: I do not think that you do go to that process. I do not think that it is necessary to go to that process. If the Sabbatino decision holds, then the answer --
Warren E. Burger: You are supposed to stop before you ever decide whether it is in violation of international law.
Victor Rabinowitz: That is my understanding. Now, the government here has urged the position which I think that has nothing at all to do with Sabbatino but it has a great deal to do with the act of state doctrine. It is urging here, for the first time, I believe in our history, that the act of state doctrine should be subject to a limitation, namely that it does not apply to commercial as compared with political transactions, proceeding on the assumption that.
William H. Rehnquist: Without regard to whether there is a violation of international law?
Victor Rabinowitz: Having nothing to do with whether there is a violation of international law, that is my understanding of the Solicitor Generals’ brief. As a matter of fact, that is what the Solicitor Generals representative said when he was here. As a matter of fact, as I read the Solicitor General's Brief, that is the issue that is interested in. It is not interested in the intervention and it says specifically that it is not taking any position on Cuba’s contention that it had the right to receive and retain the funds on the basis of the intervention decree. Rather it assumes that we have here what it refers to as a naked repudiation of a commercial obligation or something like that and it says that the act of state doctrine should not apply to that kind of a dispute. Now this is a major innovation in our law. The act of state doctrine has never been so limited up to this point.
Warren E. Burger: Perhaps the act in itself was an innovation come along, was it?
Victor Rabinowitz: Well, of course, I am not suggesting that innovations are inappropriate. Once in a while, as our law develops
Warren E. Burger: Does it have any basis except for the national interest of the country, when a foreign sovereign comes in to our courts asking all the benefits of our legal system?
Victor Rabinowitz: I think you are now getting into the counter claim problem which is somewhat of a different one and think Mr. Justice Brennan's answer to that in the National City Bank Case was an adequate one and it was namely when he asks for our system of laws, he is asking among other things the act of state doctrine and that the reasons for the act of state doctrine had nothing to do with the convenience of the foreign sovereign. It has to do with our own problems, our own division of responsibilities between the Executive and Judicial Branch of the Government and while it maybe true that we do not want to insult the foreign sovereigns, the important burden of the Sabbatino decision, and I think of the dissent in the city bank case, was that, the important problem was the embarrassment in between the executive branches and the judicial Branches of the Government rather than the embarrassment between the United States and some foreign country.
Warren E. Burger: It is a matter of difference by the Judiciary to the foreign policy problems of the executive Branches is that the way you put it?
Victor Rabinowitz: No sir, I would say it was an effort on the part of the Judiciary to maintain its independence by not putting itself in political position which would make it very difficult for it to do so and if your honor would take a reference on that, I think that my last brief in response to the Governments brief, I cited in a rather extensive footnote the comments by former Attorney General Katzenbach in discussing the Rosemarie case in which he pointed to a notorious example in which the Judiciary of Great Britain was forced into a position where it had to make a finding in one way or the other on an issue because the government had so committed itself to that position that to have otherwise would have resulted in a very serious conflict between the Judiciary and the Government and this is precisely what I think the act of state doctrine is designed among other things to accomplish. But when we get to the question between political versus commercial obligations, and the Government's I say contentions that we know have a restrictive theory of act of state. The Government's contention here is based on first, the government says that this is primarily by analogy. It is by analogy to the restrictive sovereign immunity. We have a restrictive theory of sovereign immunity, a theory which incidentally has never been passed upon this court. And therefore, we should have a restrictive theory of act of state as well. The restrictive theory is as formulated by the Tate letter in the State Department was that sovereign immunity should not apply to urie gestiones or commercial transactions, business transactions I guess would be a better translation but should apply to urie imperia. Now that distinction which was established by the Tate letter, has not had a history that should commend itself to its extension. Every commentator or almost commentator discussing that question has found that very difficult to make this distinction. The usual example given is the contract by which a government buys shoes for its army. The Government in its brief in this case, says that is obviously a commercial transaction. The Court of Appeals in the victory transport case said it finds such a contention astonishing. It is obviously a governmental action. The fact of the matter is that dichotomy between commercial and political or commercial and business and government is in the era in which we leave. A false one because there are many acts which are both commercial and highly political. We need only read the newspapers to see that large numbers of our commercial transactions whether it be oil from the Middle East or it be wheat to Russia or it be copper from the operated Copper Mines in Chile, all of these which on the surface appear to be commercial transactions which in effect have tremendous political implications and therefore what I suggest a slick and easy distinction between the two is one that should be accepted with a great deal of caution. Now, let us take this case, counsel various times in brief here have referred to this as a commercial transaction. As I did my best to point out this morning, this was not a commercial transaction at all. It was a transaction not involving a debt between Tobacco merchants as someone put it in one of the briefs, but a transaction which arouse out of, it was one of a long series of political decrees in the Republic of Cuba in the course of the transformation in the course of the transformation of the economic, social and political systems of that government which took place beginning in 1960 and I suppose extending right on into the present This intervention decree was one of many intervention decrees, which nationalized private property in Cuba. In no sense was it a commercial transaction. Since that time Cuba has engaged in extensive commercial transactions between Tobacco merchants. As a matter of fact, one of the best of the customers of Cuba throughout the world is Dunhill, which purchases Cigars in large numbers and sells them throughout Canada and England and perhaps in other parts of the world without any problems about commercial repudiation of debts or anything like that. Those are ordinary commercial transactions; no questions are raised about sovereign immunity, about the act of state when there is a dispute about whether the cigars are wormy or not wormy, or whatever else happens to cigars. The disputes are settled in the normal course. Nobody pleads sovereign immunity. Nobody pleads the act of state, the business goes on in perfectly normal way. This is not that kind of transaction at all, this transaction was a transaction which was originally a transaction which expropriated, and which Cuba expropriated the property not on Dunhill, expropriated the property of its own citizens. It was a political act and in no way a commercial act and that has been the guts and the source, and the origin of the problem that existed here. The formulation that Mr. Justice Stevens referred to a while ago, I believe that it was a brief in petition to opposition, the petition for certiori, must be read, I submit against the background of this. It was not a new repudiation of a commercial debt. It was an old position that had been taken from the very beginning. I think that the origin of the formulation which I agree now was an unfortunate one is due to the fact that at time we were talking about a Court of Appeals’ decision. We were trying to dissuade this court from issuing certiori to review a Court of Appeal's decision and we used the language which perhaps the Court of Appeals used. But certainly, it was never regarded by anyone as a commercial as distinguished from a political transaction. Now, the fact is, that the restrictive theory of sovereign immunity which the government places a great deal of reliance on has not been applied at all by the State Department in delicate and difficult and troublesome situations. I refer to in my brief to three notorious cases in which this is true. In Rich v. Naviera Vacuba, in Spacil against Crowe and I believe in as Branson against the President of India, there were three transactions which was perfectly normal everyday commercial transactions, involving the sale of copper, the sale of wheat and an attachment by a long shoreman who wanted wages. In every one of those cases, the State Department filed a suggestion of immunity in direct contradiction to the Tate letter and when it was asked to explain it said, we do not have to explain. As a matter of executive discretion, we do not have to explain anything. We can apply the Tate letter or not apply the Tate letter as we wish. Now I respectfully suggest that this is not a rule of law that should be automatically, without much more thought be extended to the act of state doctrine. There is a great deal of difference between Sovereign Immunity and Act of State. Sovereign Immunity never goes to the merits of the situation at all. Sovereign Immunity merely relates to a question of jurisdiction and it has in historical terms, a base involving a committee between nations of the fact that a country might be insulted if it was sued in the courts of the United States that this is an upfront to a foreign sovereign to sue it in the United States. We have a Doctrine of Sovereign Immunity in our own law affecting the right of a citizen to sue the United States modified by statute but still a doctrine which in the absence a statute exists. There is nothing strange or revolutionary or restrictive about the ancient doctrine of sovereign immunity. The Act of State Doctrine is quite a different matter. Now we are concerned, and for the first time, unlike in the sovereign immunity case, we are concerned with passing on the question of the validity, well known of the act of a foreign sovereign. This is a question that never arises in connection with sovereign immunity. I think it will always arise in connection with the act of state. It is only that in the act of state area that we get to the question of the merits of the controversy. In the Sovereign Immunity situation, we stop at the very beginning and say either we have jurisdiction or we do not have a jurisdiction. When we get to the act of state, the problem is a much more serious one and as I say, it seems to be that the extension of a sovereign immunity doctrine which have not been noticeable for its success, should not be made so quickly to the act of state area and particularly is that true because so far this case is concerned, as I have pointed out, I do not believe that we have in any sense of the word, a commercial transaction, it is a political transaction. I suppose it had commercial aspect just like many political acts have commercial aspect but primarily and in its essence, the issue that was raised here is a political issue and not a commercial issue and the extension of the Doctrine of Sovereign Immunity will raise all sorts of problems. I do not know how the courts have handled Rich against Naviera Vacuba, had it not been for the wise judgment of the State Department in filing a suggestion of immunity in that case in clear violation of the Tate letter because it would have resulted in a most difficult and troublesome problem, the matter is discussed at great length and in my brief and in texts that I have referred to in the brief. I think that it will appear clear there that the courts would have been placed in a intolerable position. Had it not been for the State Department for bailing it out with the suggestion of immunity?
Warren E. Burger: Well Mr. Rabinowitz, your argument on the sovereign immunity point seems to be that you approve of this sort of discretion in the State Department to on occasion invoke sovereign immunity.
Victor Rabinowitz: If I had my choice, I would prefer an absolute theory of sovereign immunity.
Warren E. Burger: Nonetheless, you are willing to tolerate it in the areas with sovereign immunity?
Victor Rabinowitz: I am willing to tolerate it because no one has done. If you proceed with a theory of restrictive immunity then there has to be an escape hatch. There must be an escape hatch, otherwise how will you deal with Naviera Vacuba?
Warren E. Burger: But nonetheless, you are very opposed to the notion of the Bernstein letter in the act of state. I think there is a fair analogy between them.
Victor Rabinowitz: Well, I think not, with all do respect. I do not believe and I was going to come to that in a little while in connection with the latest Bernstein letter I suppose to call it the lee letter now. I was going to come to that and I will in a few minutes. I think that the necessity of having an escape hatch or door-out to save the court from really very serious embarrassment in the Naviera Vacuba situation, is an unfortunate thing and it would have been saved, had we had an absolute theory of sovereign immunity to begin with. We did not and therefore we had to find this alternative method. I think it would be better if we did not have to find it because we may not always have a State Department as alert to needs of the situation as existed at that time. In any event, I would have preferred not to have rely on Executive discretion concerned as it is as with many political considerations in the situation like that. However, in closing on this point, I just want say what counsel has already refuted before I said it. I do not believe that the Doctrine of Act of State or the Doctrine of Sovereign Immunity is part of the arsenal of a trading nation. I think that most trading nations rely upon act of state or sovereign immunity in only very rare situations and only when I suggest the political issue is somewhere hidden deep. I do not want to make this as an absolute rule but I would say that it is probably true as a generality. Only when there is a political issue which is hidden deep in the background of the case which makes it difficult to defend the case on other grounds and therefore the defendant must rely on one of these other defenses. The letter of the Legal Adviser in this case, it is not clear whether it is a part of the Justice Department's brief or not. This Legal Adviser, unlike his predecessors in the Bernstein Case and in the City Bank Case, makes very broad pronouncements of State Departments’ Policy which look far into the future. The last sentence of his brief, for example is, it is our view that if the court should decide to overrule the holding in Sabbatino so that the act of state would thereafter be subject to adjudication in American Courts under International Law, we would not anticipate embarrassment to the conduct of the future policy of the United States. We congratulate the State Department on its ability to see so clearly into the future. That talent was unfortunately not shared by its predecessor state department. The State Department in the Sabbatino case took a directly contrary position. There it strongly supported the Sabbatino case in argument before this court. It opposed any changes in the doctrine in opposing the Hickenlooper Amendment Attorney General Katzenbach, as I said has written extensively on the subject since and it is obvious that other state departments have not been able to see the future as clearly as the current state department does.
Warren E. Burger: Does the act of state doctrine or its substantial equivalent followed by the court?
Victor Rabinowitz: Your honor it is very difficult to tell foreign decisions are not readily assailable to ours. If you look at the example of the Anglo-Iranian cases, you find that the Italian and Japanese cases came to the same conclusion, came to an act of state conclusion even though they did not refer to the act of state, they referred to other grounds.
Warren E. Burger: Has Cuba a plan?
Victor Rabinowitz: I do not know of any decision of Cuba at all. I might say, the Government makes a great play of the foreign decisions. I might say that foreign law differs from the law of the United States in many respects and I think that the law of the United States is vastly superior to the law of many foreign countries and the fact that other countries do not adopt the act of state doctrine does not seem to me to be decisive as to what we ought to do. We have our own constitution. We have our own relationship between Judiciary and Executive. The independence of the Judiciary to us is a very critical point in our existence and in our constitutional structure and the act of state doctrine may not be so important to other countries which have different constitutions and different traditions. Just closing with respect to the Lee letter and it really responds to what Mr. Justice Rehnquist said a little while ago. I do not believe that this court can be expected to follow the State department around. When one state department says we consider the act of state doctrine to be essential, to the independence of the Judiciary. This court is supposed to say yes and we think so to and when another state department comes along and says we do not think the act of state doctrine or the Sabbatino doctrine has any significance or whatsoever, we do not anticipate any embarrassment in the future. I do not believe that this court is supposed to say that is right also.
William H. Rehnquist: But you (Inaudible) the state department around in the area of sovereign immunity?
Victor Rabinowitz: I am not willing to do it your honor. I do not have a choice
Warren E. Burger: Well you may not have a choice here either[Laughing]
Victor Rabinowitz: That maybe when I say, I do not mean that I do not personally have a choice. I think that the state department the Ex Parte Peru Doctrine. Let me put it this way, the doctrine which seems to be followed by many of the District Courts, namely that the State Departments view not only as to the granting of immunity but as to the denial of the immunity is conclusive. I would suggest that that doctrine would be unnecessary if we had an absolute theory of sovereign immunity. Since we have a restrictive theory of sovereign immunity which is for reasons that I have just set forth, I do not think that it is workable. We have find a way out because it is not workable and so we have these letters such as the suggestions which were filed in the Spacil case, Naviera Vacuba and this Branson case, all of which appeared on their face to be commercial transactions but the state department apparently held that they were political. I would like to get now to Sabbatino. As I said a few moments ago, the Sabbatino case held that the act of state doctrine will apply even when question at issue or act in question is alleged to be a violation of international law and therefore we met at the threshold were the problems, so far as this case is concerned. What is the question of international law in this case? Counsel for the petitioner has been able to suggest no question of international law at all.
Warren E. Burger: (Inaudible)
Victor Rabinowitz: I am sorry, we misunderstand each other or I misunderstand you perhaps. Under the Sabbatino decision as I understand it, when an act of state is alleged, it is no response when an act of state is pleaded as a defense, it is not a valid response to say the act of state doctrine is not applicable in this case because there is a violation of international law. That is what the court held as I understand it in the Sabbatino and it is on that issue your honor dissented. Therefore the problem here as to whether the Sabbatino decision applies and I might say that nobody even mentions Sabbatino in the lower courts in this case. It was not until the re-argument in this court that anybody even dreamed for a moment that Sabbatino had anything to do with this case. And the reason that nobody dreamed that Sabbatino had anything to do with the case was because the first step was never taken. Namely, Cuba pleaded act of state and no one said, your act of state is a violation of international law and no one said it because there is no ground for saying.
Warren E. Burger: But might they not have refrained from saying it because they considered that Sabbatino as being binding?
Victor Rabinowitz: I would doubt it your honor. It is possible but even now when the court has directed that the matter be re-argued, no one has been able to point to a respect in which the act of state that we are talking about is a violation of international law. Even now no one claims that it is a violation of international law. It is true that the petitioner because the court asked him to consider the question and therefore he had to do it. He says all this is a violation of international law, discrimination. What discrimination? At no point are we told what the act of discrimination is. So where is the violation of international law? What has happened here? Cuba seized the property of its own nationals. No violation of international law there. Money came down into Cuba; there was a dispute at the time about whether this money belonged to the former owners or to the Cuban government. But there was never a dispute about whether it belonged to Dunhill. Dunhill owed the money and it was paying it. No question of international law raised yet. Finally, we get to the District Court, because that is the next thing that happened. The District Court hands down a decision which says and Dunhill makes a demand that Dunhill paid this money by mistake. Dunhill incidentally argued all the way through here that they had not paid the money by mistake. That they were paying their debt and that was what they had to do and they did it and that is also in one of these petitions for certiori that is pending before you your honors. But Dunhill said, now argue that well if we have to pay the former owners, then we paid the money by mistake and we want it back and so the court issued a decree. Well, a decree of the United States court does not transform an act of Cuba, done in Cuba from an act which is consistent with international law to an act which is inconsistent with international law. I am sorry my time is up. At no point here have we had any definition of the illegal act which would give rise to any question at all as to whether the Sabbatino decisions applies.
Warren E. Burger: Suppose Mr. Rabinowitz, if you talked what the Court of Appeals held that the act of state, if there was one was in the repudiation of some later debt? Did you say the same thing about that?
Victor Rabinowitz: I have never heard or suggested that failure to pay your debt is a violation.
Warren E. Burger: Well I know an act of state with respect to a so called debt that has some situs in the United States.
Victor Rabinowitz: Failure to pay your debt has never been suggested as a violation by an alien.
Warren E. Burger: Owned by an alien?
Victor Rabinowitz: It does not matter. It may be a breach of contract but it does not make it a violation of international law. It is my understanding, again I can refer to my brief that it says, always been the position of the law, the position of the United States, commentators were on too many decisions on it, that a mere breach of contract, refusal to pay money is not a violation of international law. In the absence of some discrimination or some other conduct which would indicate improper dealing with an alien. Breach of Contract is not such.
Warren E. Burger: But the act of state, the Court of Appeals found was mere refusal to pay back money, was yet found that you wrongfully received and wrongfully taken?
Victor Rabinowitz: No
Warren E. Burger: They say it was Dunhill’s money and you took it, is not that what the Court of Appeals said?
Victor Rabinowitz: The District Court said along time after that the money had been paid by mistake, Dunhill’s mistake not Cuba’s mistake.
Warren E. Burger: I understand that.
Victor Rabinowitz: Dunhill’s mistake, the money has been paid by mistake and therefore Cuba was required to pay it back. Certainly, the refusal of Cuba to obey a decree of the courts of the United States is not a violation of international law anymore than it would be a violation of international law. If the converse were true, if Cuba made a decree and the United States refused to accept, that would hardly be a violation of international law.
Warren E. Burger: Very well, Mr. Rabinowitz, Mr. Friedman, do you have anything further?
Victor S. Friedman: Yes if I may Your Honor. Thank you Mr. Chief Justice
Warren E. Burger: You have about seven minutes
Victor S. Friedman: Thank you Mr. Chief Justice. I would like to start by picking up Mr. Justice White’s comments. The reason that nobody in the courts below ever took up Cuba on the question of whether or not there had been some violation of international law was very simply that in our view, in the other parties of the case, no act of state was ever shown in the courts below. The only thing that we had on the record that was ever asserted as an act of state against the importers were statements by counsel talking of the repudiation that Cuba would not pay back to the importers, any judgments entered against it. There was no act of state at that time asserted against the importers. There was nothing to which anyone could point and say that is a violation of international law. The first time an act of state was defined really in this case was by the Court of Appeals and there for the first time, the suggestion was that it was the repudiation of the claim of the unjust enrichment claim of Dunhill that Cuba had evidenced through statements of counsel at the trial. That we suggest, if the issue need be reached can constitute a violation of international law. It is nothing more than a discriminatory taking of property belonging to Dunhill which erroneously found its way to Cuba. Now, if that property were the property of the owners rather than of Dunhill, as counsel for Cuba maintains, then the decree should have said, Cuba owes that money back to the owners, not the past that puts through with Dunhill in the untenable position that the court of appeals ruling has done. Let me return now again to the issue that I still consider critical and that is just precisely what the act of state was in this case? I now gather that Cuba’s position is that the act of state was in fact the decree that everything that flowed, whether it was a taking of the money as it reached Cuba or whether it was a subsequent repudiation of the obligation, all of that arose from that somehow, ephemerally out of the original decree which seized the accounts but Dunhill is put in an absolutely untenable position by that reasoning. The Courts below have held that the decree was ineffective to seize the accounts and that therefore, when Dunhill paid the money to Cuba, it was paying the wrong party. That is precisely what has put Dunhill in the position that it now finds itself. I suggest that for the court to find, that somehow on the act of state was the decree itself and charged Dunhill with that as a valid act of state unrelated to a commercial transaction, is to fly in the face of the key holdings of the courts below and not deal with all of the issues that are presented in the case. If the court is to get to the issue of whether or not that decree was the act of state, I see no way it can do it without granting or dealing at least with the other petitions for certiori and that includes both Cuba’s cross petition as well as the conditional cross petition of the importers. I would like to talk just for a minute about the comments that counsel for Cuba has made on the difference between the act of state and sovereign immunity and why is it inappropriate to apply the principles, one doctrine into the other. We suggested in our brief and we submit now that when you are dealing with a sovereign who was acting in a commercial context, the question of whether or not it can interpose sovereign immunity defense or act of state defense because it wants to repudiate that obligation has no difference. I think this case illustrates it well, other cases certainly same is true. The question here is not whether an act of state is valid. The only question here is whether the act of state asserted can be used as a defense to justify a repudiation of otherwise commercial transaction. I would like also to comment on the inability that the counsel for Cuba finds to make the distinction between the commercial and the political transaction which we have suggested in somewhat different terms in our argument. The fact that there are maybe difficult cases such as shoes for the military does not mean that the basic distinction between the commercial and political transactions can not be made. Obviously, in this case, nobody would suggest that the purchase and sales of cigars was anything other than in a normal commercial transaction.
Warren E. Burger: Mr. Friedman, would you contend that the intervention of the cigar companies was a commercial or political transaction?
Victor S. Friedman: I would concede that that was a political transaction. By the same token, there are obviously easy cases on the other side where nobody would argue, that the act of the foreign state was clearly a political act unrelated to its commercial activities but with the volume of normal commercial activities being carried on by state trading agencies throughout the world today, it is foully to suggest that in most cases, one is not going to be able to say that this is a commercial transaction and should be treated, and the sovereign should be treated as though it is a party to a commercial transaction. Not a sovereign exercising some kind of sovereign rights.
Warren E. Burger: If you win this case in your judgment, if you win a judgment over and above the amount of the set off, how are you supposed to collect it?
Victor S. Friedman: Let me comment on that, counsel for Cuba has suggested that we have perhaps abandoned the second argument on which we relied in the first instance. That is not so, I simply did not want to repeat our position in that regard and that you will recall deals with the questions of whether given the nature of these cases against the importers that they all can be treated as one for purposes of pool, and that would be one way and there maybe other ways --
Warren E. Burger: So you in effect, would put it within the prior -- within the First National City?
Victor S. Friedman: That is right. In that sense, it falls within the National City Bank if you treat this whole case as a pool because on balance there is more money going from the importers as a group to the Cubans in other ways.
Warren E. Burger: But the situation has changed since you were here last?
Victor S. Friedman: No, it has not.
Warren E. Burger: Mr. Friedman, let me ask more question. If you view the act of state as the retention of the payments pursuant to the decree as Cuba argued, I know you say we must grant your cert for petition, if we do that, but in that event, would the act be commercial or political?
Victor S. Friedman: In that event your honor, I would still hold that the act is commercial because to the extent that Cuba were to say that it was retaining payments made in the normal commercial sense. I do not see any difference between the retention of payments or even if it were a decree saying we seize the payments. If that arises out of a course of commercial dealings, I see no difference. Let me give a different example if I may. Let us suppose that a transaction were an import transaction, where goods were going down to Cuba. It seems to me it makes no difference at that point, whether the foreign government says we refuse to pay for the goods or we seize the goods. It is the same repudiation of a commercial transaction. I see my time is up. Thank you Mr. Justice.
Warren E. Burger: Thank you gentlemen. The case is submitted