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Victory Transport Inc. v. Comisaria General De Abastecimientos Y Transportes

September 9, 1964


Author: Smith

Before SMITH, KAUFMAN and MARSHALL, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York, Thomas F. Murphy, District Judge, granting appellee's motion to compel arbitration and denying appellant's cross motions to vacate service and dismiss the petition. We think the district court's disposition of the motions correct and affirm the order.

The appellant, a branch of the Spanish Ministry of Commerce, voyage chartered the S.S. Hudson from its owner, the appellee, to transport a cargo of surplus wheat, purchased pursuant to the Agricultural Trade Development and Assistance Act, 7 U.S.C. § 1691 et seq.*fn1, from Mobile, Alabama to one or two safe Spanish ports. The charter agreement contained the New York Produce Arbitration Clause, providing for the arbitration of disputes before three commercial men in New York*fn2 The ship was delayed and sustained hull damage in discharging its cargo in Spanish ports that were allegedly unsafe for a ship of the Hudson's size. When the appellant failed to pay for the damages or submit the dispute to arbitration, the appellee instituted this proceeding under Section 4 of the United States Arbitration Act, 9 U.S.C. § 4*fn3, to compel arbitration. On March 22, 1963, appellee secured an ex parte order from the district court permitting service of its petition by registered mail at appellant's Madrid office. Service pursuant to this order was effected on April 1, 1963*fn4

On October 15, 1963 the appellant moved to vacate the extraterritorial service as unauthorized by statute. Appearing specially and supported by an affidavit of the Spanish Consul, who stated that the appellant was a branch of the Spanish Government and immune from suit, counsel for the appellant also moved to dismiss the petition to compel arbitration because of a lack of jurisdiction and sovereign immunity. Rejecting these cross-motions, Judge Murphy held that the court had in personam jurisdiction and granted the appellee's motion to compel arbitration.


Appellant's primary contention is that as an arm of the sovereign Government of Spain, it cannot be sued in the courts of the United States without its consent, which it declines to accord in this case. There is certainly a great deal of impressive precedent to support this contention, for the doctrine of the immunity of foreign sovereigns from the jurisdiction of our courts was early entrenched in our law by Chief Justice Marshall's historic decision in The Schooner Exchange v. McFaddon, 7 Cranch 116, 3 L. Ed. 287 (U.S. 1812). The doctrine originated in an era of personal sovereignty, when kings could theoretically do no wrong and when the exercise of authority by one sovereign over another indicated hostility or superiority. With the passing of that era, sovereign immunity has been retained by the courts chiefly to avoid possible embarrassment to those responsible for the conduct of the nation's foreign relations. See Comment, The Jurisdictional Immunity of Foreign Sovereigns, 63 YALE L.J. 1148 (1954). However, because of the dramatic changes in the nature and functioning of sovereigns, particularly in the last half century, the wisdom of retaining the doctrine has been cogently questioned. See, e.g., Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States, 28 BRIT. Y.B. INT'L L. 220 (1951). Growing concern for individual rights and public morality, coupled with the increasing entry of governments into what had previously been regarded as private pursuits, has led a substantial number of nations to abandon the absolute theory of sovereign immunity in favor of a restrictive theory. See Dralle v. Rep. of Czechoslovakia, 17 Int.L.Rep. 155 (Sup. Ct. of Austria 1950); SUCHARITKUL, STATE IMMUNITIES AND TRADING ACTIVITIES IN INTERNATIONAL LAW (1959); Lauterpacht, supra .

Meeting in Brussels in 1926, representatives of twenty nations, including all the major powers except the United States and Russia, signed a convention limiting sovereign immunity in the area of maritime commerce to ships and cargoes employed exclusively for public and non-commercial purposes*fn5 After World War II the United States began to restrict immunity by negotiating treaties obligating each contracting party to waive its sovereign immunity for state-controlled enterprises engaged in business activities within the territory of the other party. Fourteen such treaties were negotiated by our State Department in the decade 1948 to 1958. Setser, The Immunity Waiver for State-Controlled Business Enterprises in United States Commercial Treaties, Proceedings of Am.Soc.Int'l L. 89 (1961). And in 1952 our State Department, in a widely publicized letter from Acting Legal Adviser Jack B. Tate to the Acting Attorney General Philip B. Perlman, announced that the Department would generally adhere to the restrictive theory of sovereign immunity, recognizing immunity for a foreign state's public or sovereign acts (jure imperii) but denying immunity to a foreign state's private or commercial acts (jure gestionis) . 26 Dept. State Bull. 984 (1952).

In delineating the scope of a doctrine designed to avert possible embarrassment to the conduct of our foreign relations, the courts have quite naturally deferred to the policy pronouncements of the State Department. National City Bank of New York v. Republic of China, 348 U.S. 356, 360-361, 75 S. Ct. 423, 99 L. Ed. 389 (1955). See generally, Cardozo, Judicial Deference to State Department Suggestions: Recognition of Prerogative or Abdication to Usurper, 48 CORN.L.Q. 461 (1963). The Supreme Court's dictum in Republic of Mexico v. Hoffman, 324 U.S. 30, 35, 65 S. Ct. 530, 533, 89 L. Ed. 729 (1945) - "It is therefore not for the courts to deny an immunity which our government has seen fit to allow, or to allow an immunity on new grounds which the government has not seen fit to recognize" - has been variously construed*fn6, but we think it means at least that the courts should deny immunity where the State Department has indicated, either directly or indirectly, that immunity need not be accorded. It makes no sense for the courts to deny a litigant his day in court and to permit the disregard of legal obligations to avoid embarrassing the State Department if that agency indicates it will not be embarrassed. Cf. National City Bank v. Republic of China, supra, 348 U.S. at 360-361, 75 S. Ct. 423 (1955). Moreover, "recognition by the courts of an immunity upon principles which the political department of government has not sanctioned may be equally embarrassing to it in securing the protection of our national interests and their recognition by other nations." Republic of Mexico v. Hoffman, supra, 324 U.S. at 36, 65 S. Ct. at 533.

This is not to say that the courts will never grant immunity unless the State Department specifically requests it. A claim of sovereign immunity may be presented to the court by either of two procedures. The foreign sovereign may request its claim of immunity be recognized by the State Department, which will normally present its suggestion to the court through the Attorney General or some law officer acting under his direction. Alternatively, the accredited and recognized representative of the foreign sovereign may present the claim of sovereign immunity directly to the court. Ex parte Muir, 254 U.S. 522, 41 S. Ct. 185, 65 L. Ed. 383 (1921). In some situations the State Department may find it expedient to make no response to a request for immunity. Where, as here*fn7, the court has received no communication from the State Department concerning the immunity of the Comisaria General, the court must decide for itself whether it is the established policy of the State Department to recognize claims of immunity of this type. Republic of Mexico v. Hoffman, supra, 324 U.S. at 36, 65 S. Ct. 530.

Through the "Tate letter" the State Department has made it clear that its policy is to decline immunity to friendly foreign sovereigns in suits arising from private or commercial activity. But the "Tate letter" offers no guide-lines or criteria for differentiating between a sovereign's private and public acts. Nor have the courts or commentators suggested any satisfactory test. Some have looked to the nature of the transaction, categorizing as sovereign acts only activity which could not be performed by individuals*fn8 While this criterion is relatively easy to apply, it often times produces rather astonishing results, such as the holdings of some European courts that purchases of bullets or shoes for the army, the erection of fortifications for defense, or the rental of a house for an embassy, are private acts. See ALLEN, The Position of Foreign States Before National Courts 31 (1933) and cases cited therein. Furthermore, this test merely postpones the difficulty, for particular contracts in some instances may be made only by states*fn9 Others have looked to the purpose of the transaction, categorizing as jure imperii all activities in which the object of performance is public in character*fn10 But this test is even more unsatisfactory, for conceptually the modern sovereign always acts for a public purpose. Lauterpacht, supra, 28 BRIT. Y.B. INT'L L. at 224. Functionally the criterion is purely arbitrary and necessarily involves the court in projecting personal notions about the proper realm of state functioning. See Lalive, supra, fn. 9, 3 RECUEIL DES COURS at 260 (1953). See also, Friedmann, The Growth of State Control Over the Individual and Its Effect Upon the Rules of International State Responsibility, 19 BRIT. Y.B. INT'L L. 118, 128 (1938); Setser, The Immunities of the State and Government Activities, 24 LAW & CONT. PROBS. 291, 309 (1959).

The conceptual difficulties involved in formulating a satisfactory method of differentiating between acts jure imperii and acts jure gestionis have led many commentators to declare that the distinction is unworkable*fn11 However, the Supreme Court has made it plain that when the State Department has been silent on the question of immunity in a particular case, it is the court's duty to determine for itself whether the foreign sovereign is entitled to immunity "in conformity to the principles accepted by the department of the government charged with the conduct of foreign relations." Republic of Mexico v. Hoffman, supra, 324 U.S. at 35, 65 S. Ct. at 532. And since the State Department has publicly pronounced its adherence to the distinction, we must apply it to the facts of this case.

The purpose of the restrictive theory of sovereign immunity is to try to accommodate the interest of individuals doing business with foreign governments in having their legal rights determined by the courts, with the interest of foreign governments in being free to perform certain political acts without undergoing the embarrassment or hindrance of defending the propriety of such acts before foreign courts. Sovereign immunity is a derogation from the normal exercise of jurisdiction by the courts and should be accorded only in clear cases. Since the State Department's failure or refusal to suggest immunity is significant*fn12, we are disposed to deny a claim of sovereign immunity that has not been "recognized and allowed" by the State Department unless it is plain that the activity in ...

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