Opinion ID: 1272032
Heading Depth: 1
Heading Rank: 8

Heading: act of state doctrine and exclusive federal power over foreign relations

Text: GAC's second basis for challenging the validity of the trial court's discovery orders involves two distinct legal principles-the act of state doctrine and the exclusive power of the federal government over the conduct of foreign relations. Although distinct, each principle is alleged to be applicable to this case because of two actions of the Canadian Government-first, the role that Government played in the international uranium cartel; and second, the Canadian Uranium Information Security Regulations. GAC contends that both principles, as applied to these actions of Canada, precluded the trial court from considering any claims concerning the cartel or Gulf's role therein and, therefore, from entering discovery orders directed at cartel documents or information. The applicability of each of these principles will be separately examined. 1. The Canadian Government's Role in the Cartel a. The Act of State Doctrine The classic definition of the act of state doctrine is found in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897): Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. The act of state doctrine, which has `constitutional' underpinnings, reflects the proper distribution of functions between the judicial and political branches of the Government on matters bearing upon foreign affairs. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423, 427-28, 84 S.Ct. 923, 940, 11 L.Ed.2d 804 (1964). The doctrine derives from the judiciary's concern for its possible interference with the conduct of foreign affairs by the political branches of the government. Timberlane Lbr. Co. v. Bank of America, N.T. & S.A., 549 F.2d 597, 605 (9th Cir.1976). The doctrine is a matter of federal law which is binding on state courts. Banco Nacional de Cuba v. Sabbatino, supra, 376 U.S. at 427, 84 S.Ct. at 939; Republic of Iraq v. First National City Bank, 353 F.2d 47, 50-51 (2nd Cir.1965), cert. denied, 382 U.S. 1027, 86 S.Ct. 648, 15 L.Ed.2d 540 (1966). GAC contends that the act of state doctrine is applicable because the Canadian Government participated in the cartel and effectively compelled Gulf, through its Canadian subsidiary, Gulf Canada, to join the cartel, transforming the cartel itself and all actions Gulf or Gulf Canada may have taken pursuant to it into the acts of a foreign state. [35] GAC asserts that judicial inquiry into the cartel and Gulf's role therein is precluded by the act of state doctrine because such an inquiry would necessarily place in question the legitimacy of the Canadian Government's actions. The Canadian Government has repeatedly stated that it initiated the discussions which led to the formation of the cartel, and that it thereafter participated in that organization. It has also stated that it approved of the participation of Canadian uranium producers in the cartel and that Gulf participated at the Government's specific written request. [36] We accept these representations of the Canadian Government. However, the initiation of the cartel and the participation therein by that Government are not sufficient alone to transform the cartel-related activities of a wholly-owned subsidiary of a corporation based in the United States into the sovereign acts of a foreign nation, and thus to immunize those activities from challenge in American courts. It is well-settled that the mere fact that a foreign government approved, authorized, tolerated, encouraged, aided, or participated in the anti-competitive actions of a private individual or corporation does not necessarily provide an act of state defense. See Cantor v. Detroit Edison Co., 428 U.S. 579, 592-93, 96 S.Ct. 3110, 3118, 49 L.Ed.2d 1141 (1976); [37] Continental Co. v. Union Carbide, 370 U.S. 690, 706-07, 82 S.Ct. 1404, 1414, 8 L.Ed.2d 777 (1962); U.S. v. Sisal Sales Corp., 274 U.S. 268, 276, 47 S.Ct. 592, 593, 71 L.Ed. 1042 (1927); Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1293 (3rd Cir.1979); Timberlane Lbr. Co. v. Bank of America N.T. & S.A., supra, 549 F.2d at 606; Linseman v. World Hockey Ass'n, supra, 439 F. Supp. at 1324; United States v. The Watchmakers of Switzerland Information Center, Inc., 1963 Trade Cas. ¶ 70,600 (S.D.N.Y. 1963), order modified, 1965 Trade Cas. ¶ 70,352 (S.D.N.Y. 1965); Annot., 40 A.L.R. Fed. 343, 379-80, § 15 (1978); Baker, Antitrust Conflicts Between Friends: Canada and the United States in the Mid-1970's, 11 Cornell Int'l L.J. 165, 177-78 (1978). In the recent case of Industrial Inv. Development v. Mitsui & Co., Ltd., 594 F.2d 48 (5th Cir.1979), cert. denied, 445 U.S. 963, 100 S.Ct. 1078, 63 L.Ed.2d 318 (1980), the court said that the instigation of foreign governmental involvement does not mechanically protect conduct otherwise illegal in this country from scrutiny by the American courts. Id. at 52. It is not sufficient merely to say the Government of Canada played a role in the cartel. The critical inquiry is into the nature of the role played by the foreign government, for the very assertion of an act of state defense requires the court to examine into the nature of the conduct complained of and its relationship to the foreign sovereign. Hunt v. Mobil Oil Corp., supra, 550 F.2d at 79 (citations omitted) (Van Graafeiland, J., dissenting). Unless a court can examine this initial issue-whether the acts complained of are in reality the acts of the defendants or the acts of a foreign government [38] it cannot determine whether the act of state doctrine applies, for that doctrine requires the act in question to be the public act of those with authority to exercise sovereign powers. Alfred Dunhill of London, Inc. v. Cuba, 425 U.S. 682, 694, 96 S.Ct. 1854, 1861, 48 L.Ed.2d 301 (1976). In each of the act of state decisions cited above, there appeared to be little doubt as to the nature of the role played by the foreign government. However, in this case, the absence of cartel discovery has made it impossible for our courts to determine the preliminary question-whether the challenged acts involve any action by the Government of Canada. There are two aspects to this dilemma. First, neither the official statements of the Canadian Government nor the available cartel evidence fully describes the acts of the cartel or the situs of those acts. More specifically, without the cartel records, it is impossible to determine precisely what cartel-inspired actions Gulf Canada, Gulf or GAC may have taken, at whom such actions may have been directed, or where they occurred. Second, the absence of cartel information has made it impossible to fully delineate the precise role played by the Government of Canada in the cartel; and more importantly, what specific actions, if any, Gulf was compelled by that Government to perform, or where those activities took place. Without this vital information we cannot determine if the act of state doctrine is applicable, as the following hypotheticals demonstrate. First, if we assume that the cartel, as the Canadian Government has described it, was not intended to, and did not have, an adverse impact on the domestic market of the United States, then cartel activities might well be beyond the scope of American antitrust laws, [39] and shielded by the act of state doctrine. However, we could also assume-because the absence of cartel records makes it impossible to negate the possibility-that Gulf, with the knowledge of such anti-competitive, non-United States activities and of the potential business opportunities such activities presented, went beyond the scope of the cartel as the Canadian Government defined it, and took predatory actions in the United States designed to eliminate competitors and to monopolize uranium reserves. [40] If this were the case, GAC and Gulf would not be shielded by the act of state doctrine, since the Canadian Government would have played no role in the specific anti-competitive conduct challenged in our courts. See Continental Co. v. Union Carbide, supra, 370 U.S. at 706-07, 82 S.Ct. at 1414; W. Fugate, supra, at 148. The Canadian Government has repeatedly stated that the United States was excluded from the cartel's operations. However, Prime Minister Trudeau stated in October 1977 that although the exclusion of the domestic markets of the United States and Canada was his government's policy, he did not rule out the possibility that some producers may have gone beyond that policy. He stated: We have no knowledge what some companies may have done under the pretext or cover of government policy. Official Report of House of Commons Debates, Vol. 121, No. 6, p. 224, 3rd Sess., 30th Parliament (Oct. 25, 1977). Without the withheld cartel documents it is impossible to determine whether the limited territorial scope of that policy was adhered to by the cartel or by Gulf. Although the Canadian Government has said that the cartel did not include the United States market, the broad proscriptions of the Canadian Uranium Information Security Regulations are not similarly limited. The language of those Regulations is broad enough to encompass any documents or information concerning the uranium activities of an American corporation in the United States. [41] Thus, the breadth of the regulations effectively precludes our courts from determining whether GAC or Gulf took predatory actions against their competitors in the United States, either as part of the cartel conspiracy or completely independently of it. It is clear that the Canadian Government does not wish to permit the courts of this country to inquire into whether Gulf exceeded the original scope of the cartel. However, whether Gulf adhered to the limited territorial scope of the cartel as Canada defined it is an inquiry that the act of state doctrine cannot preclude an American court from making. It is for the courts of this country, and not for the government of a foreign state, to determine whether our nationals took actions in our nation in violation of our laws. [42] The existence of cartel evidence indicating that the cartel might have exceeded its original non-United States scope makes it imperative that our courts be free to conduct such an inquiry in this case. [43] GAC argues on appeal that United has failed to show that the cartel either sought to or did harm United; has failed to show that the cartel even considered uranium producers; and has not cited any competent evidence that the cartel engaged in any predatory activity against anyone. These assertions are entirely beside the point. It is inconsistent for a party to fail to produce records and to then contend that the opposing party has failed to point to any records to support its allegations. We will not accept the proposition that the broad and vague outlines of a foreign government's activities automatically activate a doctrine which provides a total eclipse of the judicial search for the truth. The absence of cartel records makes the second aspect of Canada's alleged involvement in the cartel-its compulsion of Gulf Canada-equally unavailing to GAC under the rubric of the act of state doctrine. In Interamerican Refining Corp. v. Texaco Maracaibo, Inc., 307 F. Supp. 1291, 1297-98 (D.Del. 1970), the court held that where an American corporation is compelled by a foreign government to commit anti-competitive practices, such compulsion constitutes a complete defense to an antitrust action based on those practices. See also United States v. The Watchmakers of Switzerland Information Center, Inc., supra ; K. Brewster, supra, at 92-94; W. Fugate, supra, at 148-49; Annot., 12 A.L.R. Fed. 329, 340-43, § 4 (1972); Annot., 40 A.L.R. Fed. 343, 377-79, § 14 (1978). However, [o]ne asserting the [sovereign compulsion] defense must establish that the foreign decree was basic and fundamental to the alleged antitrust behavior and more than merely peripheral to the overall illegal course of conduct. Mannington Mills, Inc. v. Congoleum Corp., supra, 595 F.2d at 1293. The reason why the sovereign compulsion defense cannot be invoked here is because the absence of cartel records makes it impossible to determine precisely what acts, if any, were compelled, and where those acts were performed. [44] The available cartel evidence bearing on the question of government compulsion is ambiguous and conflicting. The Canadian Government has stated that the participation of all Canadian uranium producers in the cartel was a matter of Canadian Government policy, which was implemented through the [Canadian] Atomic Energy Control Act and Regulations. The Government also stated it had secured compliance with the terms of the [cartel] arrangement. However, Prime Minister Pierre Trudeau stated in response to a question in the Canadian Parliament that the contention about the government forcing companies into [the cartel] ... is obviously a spurious argument. He said that the government had a policy which authorized the cartel and that the Government had requested Canadian uranium producers to act within that policy. Official Report of House of Commons Debates, Vol. 121, No. 6, p. 224, 3rd Sess., 30th Parliament (Oct. 25, 1977). The cartel records that have been produced do not substantially clarify this issue. Initially, Gulf described its attendance at early cartel meetings as a response to a very strong invitation from the Government to participate in the cartel; Gulf Canada had been forcefully invited to attend. From the outset, however, Gulf apparently conditioned its participation upon a determination that it would not result in violations of the United States antitrust laws. In April 1972, an associate general counsel for Gulf wrote to Gulf's general counsel in Pittsburgh concerning an agreement in the making among producers of uranium. He stated that the producers would present their agreement to the Canadian Cabinet for approval, and that the Cabinet would thereafter direct the producers to participate in the agreement. [45] He concluded that a decision by Gulf to participate in the cartel was necessary before the cartel's Paris meeting on April 20-21, because there is no point in our attending the meeting unless we have decided to go along. Gulf apparently decided to go along. Roger Allen, an attorney for Gulf Minerals in Denver, attended the cartel's Paris meeting, along with Gulf Minerals' president, S.A. Zagnoli. However, Gulf was nevertheless still concerned about its possible liability under United States antitrust laws. Allen told the other cartel members that Gulf management was unwilling to take such a risk and, consequently, any participation by Gulf in the arrangement was conditioned upon receiving an expression from the U.S. Department of Justice satisfactory to Gulf. The following month, Gulf indicated that although it remained concerned about United States antitrust laws, it otherwise agreed in principle with the desirability of establishing a marketing arrangement. By June 1972, Allen was reporting that Gulf had decided that it should not even file a White Paper with the Department of Justice. Gulf Minerals had agreed to take a business risk. ... (Emphasis added.) Although by early June 1972, Gulf had established compulsion as the fountainhead of its antitrust defense, in July 1972, Gulf officials were nevertheless describing the nature of the Canadian Government activity in fostering the Organization as still a bit fuzzy. As late as September 1972, a Gulf attorney stated that Gulf's antitrust problem was aggravated by the ambiguous role played by the cartel governments. The following month, the same attorney referred to the interchanging and ambiguous capacities in which the Canadian Government had acted. Thus, six months after the government compulsion allegedly occurred, Gulf officials were still having difficulty delineating the role played by the Government. The evidence suggests that Gulf officials took steps designed to bolster the sovereign compulsion defense by encouraging Canada to take a more explicit and less flexible position. As early as May 1972, Mr. Ediger, Gulf Canada's president, advised Mr. Hoffman, a member of the Gulf-United board of directors and a vice-president of Gulf Energy, the predecessor of GAC, that Gulf intended to suggest amendments [to the proposed producers' agreement] which will emphasize the fact that our participation is a result of direction from the Canadian government. Therefore, we will likely suggest [adding language] to indicate that Gulf and UCL [Uranez Canada Limited, a German corporation] are complying at the request of the Canadian government.... In September 1972, a Gulf attorney complimented Mr. Ediger for telling the other cartel members that it was very important for continuity to reside in the [Canadian] Department of E.M.& R. [Energy, Mines, and Resources]. The attorney went on to say: Whatever the occasion for expression of this position, Gulf representatives should take advantage of the occasion and recognize it as the party line. The more intricately involved the Canadian Government and any of its agencies or Departments becomes and remains in this uranium matter, the better the degree of protection for Gulf. (Emphasis added.) One reasonable inference that can be drawn from this evidence is that Gulf wanted to be compelled by the Government of Canada; it is not particularly consistent with the notion that Gulf reacted, in innocence and good faith, to governmental threats and pressures. Graziano, Foreign Governmental Compulsion as a Defense in United States Antitrust Law, 7 Va.J.Int'l L. 100, 117 (1967). The evidence does not establish to our satisfaction that Gulf-acting without the intent to restrain competition-innocently responded to foreign governmental pressure. Rather, it would appear that Gulf simply decided to take a business risk, and thereafter did all it could to minimize that risk by establishing the effective Canadian Government direction that it join the cartel as the fountainhead of its antitrust defense. Even if we were to assume, however, that Gulf had been effectively compelled to join and participate in the cartel operations, such compulsion might not provide an all-encompassing defense in this case, for the critical questions upon which application of the act of state doctrine turns would remain unresolved-what specific acts were compelled and where did they take place. [46] United has alleged that GAC and Gulf sought to eliminate it as a competitor in the United States and to monopolize American uranium reserves. It further contends that the 1973 and 1974 Supply Agreements were part of that anti-competitive effort. Even if such actions were compelled by a foreign government the act of state doctrine would provide no protection to Gulf or GAC. By definition, the act of state doctrine applies only to the acts of a foreign state done within its own territory. Underhill v. Hernandez, supra, 168 U.S. at 252, 18 S.Ct. at 84. See also Republic of Iraq v. First National City Bank, supra, 353 F.2d at 51. The doctrine cannot be used to excuse the commission of illegal acts within the territorial boundaries of the United States. Linseman v. World Hockey Ass'n, supra, 439 F. Supp. at 1324 (citations omitted). Although the compulsion may have occurred in Canada, it is the acts that are compelled, rather than the compulsion itself, that are at issue in the present litigation. The act of state doctrine must apply to those acts if it is to apply at all. We cannot agree with the proposition that if a foreign state compels an American corporation to take actions in the United States which are intended to and do have severe adverse consequences to free and fair trade in the United States, the American corporation is thereby immunized from the full force of the laws of its own sovereign. [47] To hold otherwise would render asunder the cornerstones of this nation's economic policies-the antitrust laws. United States v. First National City Bank, 396 F.2d 897, 903 (2nd Cir.1968). Our conclusion that the act of state doctrine is inapplicable is supported by the position taken towards the cartel by those branches of the federal government that are responsible for the formulation and execution of foreign policy. The Proposition that the act of state doctrine should not be applied where the executive or legislative branches of the federal government have indicated that the act of a foreign state is not entitled to recognition under that doctrine was first set forth in Bernstein v. N.V. Nederlandsche-Amerikaansche, Etc., 210 F.2d 375, 376 (2nd Cir.1954). See generally Annot., 12 A.L.R.Fed. 707, § 2[b] (1972). The Bernstein exception to the act of state doctrine was subsequently adopted by three members of the United States Supreme Court in First Nat. City Bk. v. Banco Nacional de Cuba, 406 U.S. 759, 767-70, 92 S.Ct. 1808, 1813, 32 L.Ed.2d 466 (1972). Although the Bernstein exception has never gained the support of a majority of the Supreme Court, [48] neither in First Nat. City Bk. nor in any other case has the Court held that the position taken by the executive and legislative branches regarding the subject matter of the particular litigation in which the doctrine is sought to be invoked is irrelevant. The fact that those branches of the federal government which are responsible for the formulation and execution of foreign policy do not consider a certain subject to involve act of state implications is relevant to, but not dispositive of, the question of the applicability of that doctrine. Both the executive and legislative branches have taken actions with respect to the uranium cartel which are clearly inconsistent with the notion that judicial examination of Gulf's participation in the cartel is precluded by the act of state doctrine. The United States Government declined to state that this litigation involves a breach of friendly relations between the United States and Canada. In a letter transmitting communications from the Canadian Government to the trial court, the State Department stated that it was taking no position with regard to any of the issues raised by those letters, and that transmittal of the letters should not be understood as having implications with respect to the foreign affairs of the United States. [49] More significantly, the federal government has affirmatively sought to apply the laws of this country to Gulf's cartel activities. A Congressional subcommittee held hearings on the cartel. See Hearings on International Uranium Cartel, supra. A federal grand jury was impaneled to investigate the cartel. In Re Grand Jury Investigation of Uranium Industry, Misc. 78-0173, F.S. 78-0166 (D.D.C. 1978). In May 1978 the Justice Department filed a criminal information against Gulf, charging it with violations of the Sherman Antitrust Act, to which Gulf pled nolo contendere. United States v. Gulf Oil Corp., Cr.No. 78-123 (W.D.Pa. 1978). [50] The actions taken by both the legislative and executive branches regarding the cartel, and the detailed position the Justice Department has adopted in the general area of the extraterritorial application of United States antitrust laws ( see n. 50, supra ), are persuasive evidence that the branches of the federal government having responsibility for the conduct of foreign affairs do not consider the cartel activities of a major United States corporation to be immune from examination by the courts of this country. These actions are more than a simple statement that the United States Government does not consider the act of state doctrine to be applicable to specific litigation involving private parties. The Government's position is also not merely an isolated instance involving a single corporation and a specific cartel. See n. 50, supra. Therefore, there is little danger that judicial deference to the executive branch's position will make the judiciary a mere errand boy for the Executive Branch which may choose to pick some people's chestnuts from the fire, but not others. First Nat. City Bk. v. Banco Nacional de Cuba, supra, 406 U.S. at 773, 92 S.Ct. at 1816 (footnote omitted) (Douglas, J., concurring). The fact that these actions involved the public enforcement of the antitrust laws, rather than a civil antitrust action by a private litigant, is immaterial. Recognition of such a distinction would further no national interest. As one commentator noted: It would seem that where the branches responsible for formulation of foreign policy have subordinated the sensitivity of foreign governments to having their acts of a particular sort explored in American courts that, at least after a successful prosecution of the American concern, the act of state doctrine should not stand in the way of the injured competitor's antitrust claim. In such a case, the act of state doctrine would thwart antitrust enforcement policies without furthering any separation of powers (judicial non-interference with foreign policy) values... . [T]he decision to review a foreign sovereign's act has already been contemplated by the statute and . .. already occurred in a prosecution. Note, Sherman Act Jurisdiction and the Acts of Foreign Sovereigns, 77 Colum.L. Rev. 1247, 1261 (1977) (footnote omitted). The antitrust laws of this State and nation contemplate both public and private actions against those who may have violated them. [51] They do not envision, nor should they be applied in such a way as to bring about, the anomalous situation in which the public interest is vindicated by the imposition of a fine of several thousand dollars, but in which the private interest is frustrated by enforcement of a multi-million dollar judgment against what may have been a harmed competitor. To permit such a situation to exist could further the very anti-competitive and monopolistic goals which the multi-national corporation is alleged to have sought to achieve and which the antitrust laws were designed to prevent. [52]