Brief Fact Summary
The Cuban government sought to recover money owed according to a contract for the sale of sugar.
Synopsis of Rule of Law
Federal law must determine the scope of the act-of-state doctrine.
Cuba nationalized the property of Americans in Cuba in response to a U.S. reduction of Cuba’s quota for sugar imports, including that belonging to Compania Azucarera Vertientes (CAV), a sugar corporation mainly owned by U.S. residents. CAV had contracted to sell the sugar to Farr, Whitlock & Co., a U.S. commodities broker. Far entered into a second contract with the Cuban government to buy sugar from them. Farr shipped the sugar and received payment, but turned the earnings over to CAV’s receiver, Sabbatino (Defendant). Cuba assigned its rights under contract to Banco Nacional (Plaintiff), which filed suit. The district court found in favor of Sabbatino (Defendant) and the court of appeals affirmed.
Must federal law determine the scope of the act-of-state doctrine?
(Harlan, J.) Yes. Federal law must determine the scope of the act-of-state doctrine. [The Court first held that the application of the act-of-state doctrine was not compelled by international law or by the Constitution.] The act-of-state doctrine expresses the judicial determination that courts should not pass on the validity of acts of other sovereign states. However, it is a federal issue. If the state courts were left free to invent their own rules for cases of this type, the purpose of the act-of-state doctrine would be gutted. International law issues are federal issues and should not be left to parochial state interpretations. [Because a challenge to the Cuban government’s decree would interfere with negotiations being carried out by the Executive Branch, the decree could not be challenged. The act-of-state doctrine is also discussed in the brief for Banco National de Cuba v. Sabbatino in Chapter 8.]
The Court, relying on Hinderlider v. La Plata River Ditch Co., 304 U.S. 92, equates the federal interest in the act-of-state doctrine to that of equitably apportioning interstate waters, and warns against the dangers of applying the Erie doctrine to legal problems affecting international relations.