W.S. Kirkpatrick & Company, Inc. v. Environmental Tectonics Corporation, International – Oral Argument – November 27, 1989

Media for W.S. Kirkpatrick & Company, Inc. v. Environmental Tectonics Corporation, International

Audio Transcription for Opinion Announcement – January 17, 1990 in W.S. Kirkpatrick & Company, Inc. v. Environmental Tectonics Corporation, International

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William H. Rehnquist:

We’ll hear argument next in No. 87-2066, W.S. Kirkpatrick & Company versus Environmental Tectonics Corporation.

Mr. Brodsky.

Edward Brodsky:

Mr. Chief Justice, and may it please the Court:

The issue in this case is whether or not the act of state doctrine bars the prosecution by the plaintiff of this action which we say that it does.

The facts are as follows.

In 1982 our client, W.S. Kirkpatrick Company, entered into an agreement with the Government of Nigeria to supply equipment on an air base, a military air base, in Nigeria.

The equipment was part of… was to be used in an aeromedical center in Nigeria as part of its defense program.

The equipment were things like ejection seats for jet aircraft and centrifugal machines to train pilots.

In connection with obtaining this contract with the Government of Nigeria, our client paid an intermediary, not an official of the Government of Nigeria… our client paid an intermediary an amount of money which, pursuant to an arrangement with the intermediary, was to be used as bribes to officials of the Government of Nigeria.

The amount of money paid was about $1.7 million.

The total contract price was about $10 million.

In 1984, our company was indicted, along with our chief executive officer… actually, it was our predecessor… for violating the Foreign Corrupt Practices Act.

We pleaded guilty.

And after that, the plaintiff in this case brought an action against us and is claiming that it is entitled to damages because, but for our bribe, it would have obtained the contract.

It is suing us under the RICO statute, under the Robinson-Patman Act, and it is suing us under a New Jersey RICO statute.

It is not suing under the Foreign Corrupt Practices Act.

The district court agreed with our position, even after receiving a letter from the legal advisor to the Secretary of State.

That letter was requested by the district court.

And the letter that was received by the district court was kind of inconsistent, internally inconsistent.

One the one hand, it said that the State Department had no objection if this case would go forward.

But, on the other hand, it also said that discovery in this case might seriously affect… that’s a quote from the letter… might seriously affect United States foreign relations.

Therefore, the district court said, look, I’m not a member of the State Department, I’m not an expert in foreign relations and this case should be dismissed.

The court of appeals disagreed in the Third Circuit and the court of appeals made a distinction between something which motivates an act of state… namely, in this case we say the act of state is the awarding of the contract itself… and the validity of a contract.

The court of appeals said that we are not claiming… we disagree with this position of the court of appeals… but the court of appeals said that we are not claiming that the act of state here, namely the awarding of the contract, is an invalid act.

We are simply saying that the contract was achieved through bad motives, through a bribe.

That evidence might embarrass the Government of Nigeria but that, the court of appeals says, makes no difference.

It makes this bright line distinction between motivation and validity.

When the court of appeals did that, it went in conflict with the Ninth Circuit in the Clayco case which does not make that distinction.

And that case we say on the facts is the same as this case and, therefore, the two circuits are in conflict.

First, with regard to the motivation validity distinction.

Edward Brodsky:

In the first place, it is our contention here that in order for the plaintiff to prevail, the plaintiff does indeed impinge upon the validity of the act of state of the Government of Nigeria.

And the act of state doctrine says that the courts in the United States shall not examine and pass judgment upon the acts of foreign governments.

Now, the act here… the act of state… is the award of the contract and what the plaintiff is saying is that we obtained this contract through the payment of a bribe; we obtained this contract, they say, in violation of the laws of the Government of Nigeria.

They say that they should have received the contract, not us.

And in doing all of that, it seems to me that the plaintiff would be required to examine the procedures of the award of the contract by the Government of Nigeria, what officials get involved in the award of such a contract, how the award is made.

The complaint in this case doesn’t even say that they were the low bidder.

They do say elsewhere in the record, their own statement, that they were the low bidder.

But there is nothing in this record or anyplace else which would even indicate that the low bidder would get the contract.

So, what they would be doing in this case and what we say that the courts in the United States should not be doing, is examining the internal workings of high officials in the Government of Nigeria on matters which directly affect the Government of Nigeria because this is a military contract, a contract that’s made in connection with the air force of the Government of Nigeria.

William H. Rehnquist:

Certainly there is nothing in the act of state doctrine that would require a United States court to refrain from examining Nigerian law–

Edward Brodsky:

No.

–in the abstract, is there?

Edward Brodsky:

I would agree with that, Your Honor.

But this is more than examining Nigeria law.

What they would have to say in this case… this Court would have to say, in our view… is that the contract was invalid.

It was made for the wrong purpose.

It was made because a bribe was taken.

William H. Rehnquist:

But there must be many cases in which one… the United States courts will examine the law of a foreign country and say that a contract was or was not valid under the law of that country.

Edward Brodsky:

Well, that’s true but what the courts do not do is to say that when the foreign government entered into that contract, that act, that contract was invalid.

William H. Rehnquist:

So you say that the critical factor is that it was a contract by the Government of Nigeria?

Edward Brodsky:

Oh, yes.

Yes, indeed.

William H. Rehnquist:

And no contract entered into by the Government of Nigeria could be examined under the act of state doctrine?

Edward Brodsky:

I don’t think I have to go that far if one accepts the so-called commercial exception to the act of state doctrine.

But I say… and, indeed again, the government has been inconsistent in this way as well… even the… well, first of all, the two courts below say that the commercial exception to the act of state doctrine would not apply in this case.

The Solicitor General, in his amicus brief to this Court, said the same thing.

Now the Solicitor General… yes… seems to say… seems to say, because even the brief in this Court is somewhat inconsistent, that that commercial exception would apply.

But I do not believe that the commercial exception to the act of state doctrine should apply in this case because we weren’t dealing with, as I think one of the courts said, is this the kind of an agreement that a company ordinarily would enter into in the regular course of commerce, and it’s not.

This is an agreement which has to do with the security of the air force, the military of the Government of Nigeria.

If anything is not a commercial contract which would come within the commercial exception, such as we had in the Dunhill case in this Court… it’s this contract.

William H. Rehnquist:

So, if Nigeria… if the Nigerian Government were buying fertilizer, the result would be different under your view than in this case?

Edward Brodsky:

Well, in my view it would not… it might be in this Court’s view.

William H. Rehnquist:

Not fertilizer for the military, but fertilizer for farming.

[Laughter]

Edward Brodsky:

Well, yeah, if they buy fertilizer for a farm.

I think if there is a commercial exception, that’s the kind of thing that it would apply to.

Yes, I would think so.

Antonin Scalia:

How about food for the troops?

I mean, food that’s going to be used by the army?

Edward Brodsky:

Food for the troops gets closer, you know, as a fuzzy area as far as–

Antonin Scalia:

Well, this stuff wasn’t missiles.

Edward Brodsky:

–No.

Antonin Scalia:

It was training… training equipment for pilots of the sort–

Edward Brodsky:

That’s correct.

Antonin Scalia:

–of the sort that commercial airlines might well use.

Edward Brodsky:

Well, no.

Not ejection seats.

Not centrifugal force machines to train jet pilots.

No, I don’t think so, Your Honor.

All of this equipment was really a design for jet aircraft–

Just military planes.

Edward Brodsky:

–that’s used in warfare.

Antonin Scalia:

Mr. Brodsky, why do you… why do you… you know, in your brief and also in your oral argument you asserted that the letter that the district court got from… from Judge Sofaer was very ambiguous and unhelpful.

I don’t think it’s ambiguous at all.

It seems to me the letter says very clearly that the act of state doctrine does not apply.

Edward Brodsky:

Well–

Antonin Scalia:

It answered the question that, you know, the court was interested in squarely.

It said that the doctrine only… in the State Department’s view… only applies to the inquiries into the validity of foreign government acts, not into the background of it.

Edward Brodsky:

–Yeah, but let’s look at the rest of the letter.

If I may–

Antonin Scalia:

The rest of the letter said, of course this is a sensitive case and be careful.

Edward Brodsky:

–But it goes further.

Antonin Scalia:

On the act of state doctrine it was dead clear, wasn’t it?

Edward Brodsky:

Well, it was dead clear in the sense of making the legal distinction which the State Department makes and which indeed the Solicitor General says is wrong, in this brief.

Antonin Scalia:

Apparently the Solicitor General doesn’t agree with Judge Sofaer.

Edward Brodsky:

That is correct.

But–

Antonin Scalia:

He doesn’t seem to have been copied on the letter either.

[Laughter]

Edward Brodsky:

–Well, we told him what the position was, Your Honor.

But you see what else that letter says, Your Honor.

It says that inquiries into the motivation and validity of foreign state’s actions and discovery against foreign government officials may seriously affect United States foreign relations.

So what?

Edward Brodsky:

Well, if I may answer the so what–

Antonin Scalia:

A lot of things may.

That doesn’t prove that–

Edward Brodsky:

–Let me answer the so what.

How is a district court going to deal with that?

What kind of rules does a district court follow when the district court judge is not the Secretary of State; he’s not an expert in foreign relations?

Antonin Scalia:

–Lord knows, but there is no way that one can read that to contradict what Judge Sofaer said in the earlier part of the letter quite flatly, which is that the act of state doctrine… whatever else may apply… the act of state doctrine does not apply.

Edward Brodsky:

Well, I quite agree with that in that sense, but by saying that it doesn’t apply and in the same breath saying to the district court judge be very careful because there are foreign policy concerns here that may adversely affect the foreign policy of the United States, what we’re saying is that although his conclusion is… he’s saying to the district court and later to this Court… go ahead and let this case be tried.

What we’re saying is that this Court should examine that very closely to see whether or not in its judgment this case should be tried.

Not to–

Antonin Scalia:

Or it may be an invitation to invent some new doctrine, which invitation you may be accepting.

But it certainly… it certainly does not speak to whether it’s the act of state doctrine.

Edward Brodsky:

–Well, I… look, there’s no dispute about what the letter says.

The Secretary of State says… the legal advisor to the Secretary of State says… go ahead and let this action be prosecuted, which goes to the issue of whether or not this Court should simply listen, without itself making a decision or having rules on this subject, to the Secretary of State.

Mr. Justice Douglas in the Citibank case said that to do that would make this Court nothing more than an errand boy with respect to the Secretary of State, nothing more than an errand boy for the Secretary of State to decide that the court, rather than he, should decide which chestnuts to pull out of the fire and which ones to leave in the fire.

And we say that that… that rule, if you will, that Bernstein exception… while the Secretary of State’s views, we would agree, should be considered by the Court as to whether or not the Court should permit an action like this to proceed, the Secretary of State’s view should not be the final word on the subject.

The final word on the subject should be this Court’s views, because secretaries of states come and go.

Edward Brodsky:

Policies change.

Indeed, the very policies, arguments, in this case have been, we say, inconsistent.

When the plea of guilty was being taken, the United States Attorney said to the district court… and, mind you, this was a very carefully orchestrated plea of guilty in this sense because foreign relations sensibilities were very important to the government.

First of all, the indictment itself was an indictment which accused us of paying money to an intermediary, not to any official of the Government of Nigeria.

Now, the government which is charged with enforcing the Foreign Corrupt Practices Act… it is the government that can decide what kind of allegations to make and what kind of allegations not to make.

So that, for example, in this case, the government very carefully decided that the allegations that it was going to make were allegations that an intermediary receive the payment rather than any official of the Government of Nigeria.

And when the plea of guilty was being taken, the United States Attorney was very careful to make that distinction and to say to the court there are things that I know that I don’t want to reveal to the court because of what may happen in the Government of Nigeria as a result of this prosecution.

Antonin Scalia:

Mr. Brodsky–

Edward Brodsky:

Yes?

Antonin Scalia:

–which of our… can you tell us which of our cases has applied the act of state doctrine to a situation in which the validity and the effectiveness of the act of a foreign government was not an issue in the case?

Edward Brodsky:

I don’t believe… I don’t believe there are any.

And we’re saying that that’s the same here as our primary argument.

I mean, we’re saying that this case is not… certainly it’s different on the facts, but it’s the same in principle to Sabbatino, which is an expropriation case.

Now, this is a government contract case.

But what we are saying is that, inevitably, the proof by the plaintiff will have to demonstrate that the contract that we entered into with the Government of Nigeria was an invalid contract.

So we’re saying it’s the same as those cases.

Now… in other words, the same as–

Antonin Scalia:

That it is invalid–

Edward Brodsky:

–Yes.

Antonin Scalia:

–under Nigerian law and ineffective internationally?

Edward Brodsky:

Well, I think that’s what the plaintiff would have to show here.

In other words, I don’t think that the two concepts can live together, (a) a valid contract in the Government of Nigeria but (b) coming to the United States and taking out profits… indeed, more than our profits… in this valid contract in Nigeria.

I don’t think you can say it’s a valid contract when bribes were paid to get that contract which violated Nigerian law, at least the stated law.

Now, we go further than that, and that’s what the plaintiff would have to show in this case.

That’s what we are saying.

We don’t think the two concepts can live together, a valid–

Antonin Scalia:

I would think that if the plaintiff can show that the contract is invalid, the plaintiff would lose its case.

Edward Brodsky:

–No, I respectfully disagree.

Well, wait–

Edward Brodsky:

I think that’s the plaintiff’s theory.

Edward Brodsky:

I don’t think the plaintiff would agree in this court that he has to go that far as to show it’s invalid.

But that’s basically what he has to show.

I mean, what do we have in either the words “validity” and “invalidity” when you say the contract is valid but you take all our profits away, when you say the contract was valid but made in violation of Nigerian law, I think you’re just using words to say that this contract is invalid.

This contract has no validity to us if they take all our profits away.

John Paul Stevens:

–Well, that’s true in any case where you’re suing somebody under the Robinson-Patman Act or under lots of statutes.

You take away the defendant’s profits, but you don’t set aside the underlying contract.

I don’t understand that concept.

Edward Brodsky:

Well, you–

John Paul Stevens:

Lots of times you recover the damages that, the defendant… the profits the defendant earned out of a contract as the measure of damages that the plaintiff seeks to recover.

Edward Brodsky:

–That is correct.

But what else is going on here is that they’re not only claiming that kind of a violation… they’re claiming that we bribed officials to get this contract.

They’re claiming that this contract was made in violation of Nigerian law.

The Nigerian–

John Paul Stevens:

Well, why is that any… take the Robinson-Patman… I guess one of their counts under Robinson-Patman.

Why is that any different than any other commercial bribe situation where you say the purchasing agent was paid off on the side and that violates a lot of statutes?

You don’t set aside the underlying contract?

Edward Brodsky:

–I don’t think it becomes an issue… it doesn’t become important in those cases.

John Paul Stevens:

Well, why is it important in this case?

Edward Brodsky:

Oh, because the contract itself, we say, is the act of state.

John Paul Stevens:

I understand.

Edward Brodsky:

In those other cases it doesn’t make any difference whether the contract is valid or invalid.

You get your damages and nobody argues the–

John Paul Stevens:

Well, why does it make a difference here–

Edward Brodsky:

–Well, because–

John Paul Stevens:

–if they don’t have to prove its invalidity, and they don’t think they do?

Edward Brodsky:

–Well, it makes a difference here because what we would have here is the courts in the United States examining corruption in Nigeria.

And whether you… you see, I want to make the second argument now.

Whether you call it valid or invalid, that contract, I mean our position is the same as the position of the Solicitor General on this issue.

Even if the contract is valid, it doesn’t make any difference because the proof is really the important thing here as far as the act of state doctrine is concerned.

The proof in this case, whether the contract is valid or invalid, will be… must be from the plaintiff’s point of view… that people at the highest level of government in Nigeria took substantial bribes for us to get this contract.

Edward Brodsky:

The proof also will be because it will be part of the defense, that not only did they take bribes in this case, but the Government of Nigeria lives that way.

You get a contract with the Government of Nigeria by paying bribes because if that’s true, then the plaintiff has no damages in this case.

That is to say, if the proof in this case if it goes ahead… if the proof in this case shows that the only way to get a contract with the Government of Nigeria is to pay a bribe, then the plaintiff in this case has no damages because it couldn’t have received this contract without paying a bribe.

Antonin Scalia:

We’ve got to give the doctrine a new name then, if it covers this, Mr. Brodsky.

We’d have to call it the don’t embarrass foreign governments doctrine, or something else.

Edward Brodsky:

Well, perhaps–

Antonin Scalia:

It’s a misnomer to call it the act of state doctrine then.

You’re saying it doesn’t matter whether there is an act of state involved here, it’s the acceptance of bribery by state officials, contrary to state law, that comes under the act of state doctrine because it will embarrass our diplomatic relations with a foreign country.

We ought to really give it a new name if we accept your theory.

Edward Brodsky:

–Your Honor, if I win this case, give it any name you want to.

No, but seriously–

Antonin Scalia:

But you are urging upon us an ancient theory, not a–

Edward Brodsky:

–I don’t think so.

Antonin Scalia:

–You are saying it comes upon… under this act of state doctrine, but you give us no case in which we’ve ever applied it to anything except questioning the validity of an act.

Edward Brodsky:

But I also… you also don’t have the case, Your Honor, not to this date, where this Court has made the distinction that is being made by the Third Circuit in this case.

That is the distinction between embarrassment and validity.

This Court has never made that distinction yet.

So, when you ask me for a case on that subject, we don’t have a case either way.

In that sense, if you disagree with my first argument that they are looking at the validity of the contract, then we have to get to the second point, and the question is whether or not this Court will indeed make that distinction.

I say, and the Solicitor General says, that there should be no distinction because, after all, when you look at the purposes of the act of state doctrine, it really doesn’t become that important as to whether or not you’re trying to declare the act of state invalid.

The real important thing about the doctrine, when you get to the reason for it, is that the United States courts will be looking at in this case corruption at the highest level of the Government of Nigeria.

That’s what we’re trying to prevent in this case.

William H. Rehnquist:

But our previous act of state doctrine cases don’t point in that direction.

They don’t suggest, as Justice Scalia said, that it would be embarrassing to a foreign government with whom we have friendly relations to have discovery about what went on in the award of the contract.

Therefore, the Court shouldn’t hear it.

Edward Brodsky:

Well, no, I think the case… I mean, the case that looks this way, in my opinion, is the Sabbatino case.

That was an expropriation case, so in that sense distinguishable on the facts.

But when you look at Sabbatino, look at the kind of allegations that the claimant… or that the defendant actually in that case was making.

And this Court said you can’t hear those allegations.

Things like property was being taken, discriminating against Americans… property had been taken by the Government of Cuba without just compensation.

Edward Brodsky:

Our government had–

William H. Rehnquist:

But did we say it shouldn’t hear it because it might embarrass the Cuban Government?

Edward Brodsky:

–No, the Court did not make that analysis.

No, it did not.

In that case the Court said that, because it was an act of state that was the end of it, no matter what else might flow from that.

But I look at the… I mean, we’re not just using those words in the abstract, using the words “act of state” in the abstract.

The purpose is what I am looking at of the act of state doctrine, whether it’s in Sabbatino or it’s in any of the other cases decided by this Court.

Antonin Scalia:

The purpose of the Fourth Amendment is to protect invasions of privacy.

But that doesn’t mean you can’t search with a warrant.

I mean, yes, the act of state doctrine moves toward that purpose a certain step.

But you’re saying since we’ve moving in that direction we go all the way and, therefore, anything that embarrasses a foreign government, not just calling into question the validity of its acts… anything that embarrasses a foreign government shouldn’t be inquired into.

That’s a great step further from what our–

Edward Brodsky:

Mr. Justice Scalia, I don’t go that far.

I could… I could perceive of situations where a government might be embarrassed and the act of state doctrine would not apply.

But not this case.

I mean, what do we have in this case?

Corruption at the highest level of another government.

And that’s why I say it applies in this case.

I don’t take the position that every time a different government might be embarrassed you don’t apply the act of state doctrine.

Thurgood Marshall:

–Mr. Brodsky, imagine a case where there were allegations of corruption in high officials in Nigeria and the United States.

Now, courts could investigate the United States but not Nigeria.

Edward Brodsky:

I’m not sure about that, Your Honor.

It seems to me under that… because, after all, what we’re arguing for is a position of flexibility for the courts to have.

What we’re arguing for is that the courts should consider–

Thurgood Marshall:

You don’t need any flexibility to decide whether or not you can enforce it against the United States but not Nigeria.

That doesn’t take flexibility.

Edward Brodsky:

–I would agree with that.

I’m only trying to–

Thurgood Marshall:

You agree with that?

Edward Brodsky:

–That if somebody in the United States violated United States law and it had nothing to do with the Government of Nigeria–

Thurgood Marshall:

That’s not what I said.

Edward Brodsky:

–I’m sorry.

Thurgood Marshall:

I said there were two groups of people violating the law together, those in Nigeria in high office and those in the United States in high office.

Edward Brodsky:

Well, I would think if there were people in high office in the United States that were violating the laws, I would think that the courts would certainly want to get into that.

And if–

Thurgood Marshall:

And why not Nigeria?

Edward Brodsky:

–Well, because we have different concepts as far as that’s concerned.

We don’t have a concept involving our own government involving the act of state.

The courts in the United States look at what the government does and it’s supposed to look at what this government does, but not the Government of Nigeria or any other government.

That’s what the act of state doctrine is.

And you may have–

Thurgood Marshall:

That’s what you say it is.

Edward Brodsky:

–Yes, Your Honor, of course.

That’s what I say it is, Your Honor.

Of course.

But, I mean, what… we have an act of state doctrine in the first place, I say, so that the kinds of things that might be adduced in a case like this will not be adduced in American courts.

I see that I have a short time remaining.

I’d like to reserve the rest of my time, if I may.

William H. Rehnquist:

Very well, Mr. Brodsky.

Mr. Rutter.

Thomas B. Rutter:

Good morning, Mr. Chief Justice, and may it please the Court:

If there is one thing that is very clear as we come to the podium it is that despite any broad statements we might find in the Oetjen or Ricaud case, or in any of the other cases, the mere fact that the conduct of foreign relations is committed by the Constitution to the Executive Branch does not mean that every case or controversy which touches foreign relations lies beyond judicial cognizance.

And that’s an exact quotation, if the court please, from Mr. Justice Harlan’s opinion for this court in the Sabbatino case.

What needs to be done here, I suggest, is to decide which of the several bases that are available for affirmance of the Third Circuit Court of Appeals should be adopted.

And I mean by that this.

The case can be affirmed on a very narrow basis.

That is, by saying this Court’s decisions in Sisal Sales and Continental Ore, which I discuss in my brief, squarely rule the outcome of this case.

Those cases say very simply and succinctly that where American citizens are brought before an American court for acts which violate American law, even if those acts have the tangential involvement of a foreign government… in Sisal Sales it being the Country of Mexico and the State of Yucatan and in Continental Ore it being a Canadian agent, exporter in Canada… that nonetheless, notwithstanding those tangential involvements of the foreign countries, the American federal courts can, will, and should decide those cases.

Likewise, I can take it to the broadest extreme.

I’ll pass for the moment the proposition that there is no act of state involved here, which I have briefed in some length.

Thomas B. Rutter:

And likewise I’ll pass the proposition that Sabbatino, when you read its analysis and apply the underlying premises to this case, that you find that Sabbatino says this case goes forward and so, too, our past commercial activity exception which I think applies, and, indeed, the motivation against validity argument which is sometimes advanced and which the Third Circuit followed.

To say to you that I think in the broadest reach of this case this Court is presented with the opportunity to now say the act of state doctrine, if it means anything, means merely that in a case where foreign relations are involved, the Court will invite the State Department to express its views, and if in that first time in the history of the United States of America, the State Department says, stay your hand, we will then, as a matter of federal jurisprudence, make the determination of whether we should stay our hand applying an abuse of discretion standard.

What I mean by that last statement is this.

The act of state doctrine, which is now 25 years old as defined by Sabbatino, but which is much older than that… the act of state doctrine, I suggest with respect, has done nothing more than give rise to a cottage industry amongst the law professors and the law commentators, and has permitted people who want to weep crocodile tears for places like the Country of Nigeria to come to federal court and say we ought not be held liable for our wrongdoing because a foreign country is involved.

Let me pause.

I think Mr. Justice Stevens put his finger on it precisely.

This case would not be here, nor would we be without our verdict and judgment, if the people bribed and paid off had been an American company or, indeed, if it had been an American government, be it federal, state or municipal.

The act of state doctrine has permitted these people… and, by the way, the depth and breadth of the depravity existing in terms of this company and these petitioners’ behavior in Nigeria is set forth in their own memoranda on pages 212 to 222 of the joint appendix.

They were not dealing with a single intermediary.

They were dealing with at least two.

And this went on for over a year.

So that the depth and breadth of what occurred here is amply set forth in the record.

And so, too, we have amply set forth in our complaint, paragraphs 39, 40, and 41 of the complaint, where we specifically say, but for this conduct in Nigeria, and in London, and in America, by these petitioners, we would have had this contract.

We would have had the profit.

Therefore, the act of state doctrine has simply said in this case because Nigeria is involved, these petitioners, these wrongdoers, get some special benefit which would not exist if they were a straight American corporation or American government.

John Paul Stevens:

Mr. Rutter–

Thomas B. Rutter:

Yes, sir.

John Paul Stevens:

–it is correct though, isn’t it, that they may well have a defense that you wouldn’t have had the contract unless you were willing to engage in the same kind of conduct?

Thomas B. Rutter:

No, sir, I don’t agree with that.

Number one, there are ample cases, as you know, Mr. Justice Stevens, for the proposition that you cannot defend an antitrust case by saying you are one too.

That is to say, you cannot–

John Paul Stevens:

No, it’s not in pari delicto.

It’s simply that, in order to get this contract, you have to pay off the officials of this country.

That’s the way they’ve done business for a long time.

That’s the way the French, the British, and all the other countries do business with them and you would presume you would have to have done the same thing.

It’s not totally unreasonable to assume that.

Thomas B. Rutter:

–It is, Mr. Justice Stevens.

The first answer is the legal answer which I’ve suggested, in pari delicto.

John Paul Stevens:

That’s not the point.

It’s no damages, is their argument.

Thomas B. Rutter:

Well, the second answer is that, first of all, how will they prove it.

But more importantly, we will have countervailing evidence.

We are prepared at the trial of the case to go forward with our people who have done business in Nigeria, who would have done business on this contract, who will testify au contraire.

Now, that’s not of record, Mr. Justice Stevens, but I’d represent to you that that is the situation.

John Paul Stevens:

Well, I’m not trying to predict how the case will come out.

All I’m saying is that it is not unreasonable to assume that the inquiry into possible corrupt practices in this government may be broader than the facts of this particular case because of the defense they’ve alleged in their pleadings.

Thomas B. Rutter:

That may be so, but Mr. Justice Stevens–

John Paul Stevens:

And I don’t know if that makes any difference, but at least it’s certainly something we have to think about.

Thomas B. Rutter:

–I don’t think it makes any difference and I would suggest to you, sir, that it really makes no difference when you look at what the Republic of Nigeria has done in response to my request.

You will recall, Mr. Justice Stevens, that as it appears in the appendix, I asked the Republic of Nigeria, through its ambassador, to take a position, namely that we could go forward with this litigation.

They have not responded.

That suggests to me that that answer is at worst neutral, as I see it from my point of view in the case.

It is, I suggest to you, a positive fact in my case.

Namely, if Nigeria seriously didn’t want to have the corruption in a previous regime… and that, too, is set forth in our appendix… if the Republic of Nigeria did not want corruption in its previous regime to become well known, they would by now have stepped forward either in this case or through the State Department and said, please, please don’t disclose to the whole world what’s going on in Nigeria.

Therefore, I say to you, Mr. Justice Stevens, that their suggested defense that everybody is doing it, doing it, is not one which is going to be, (a) admissible as a matter of law, and (b) will not fly as a matter of fact.

And, in any event, it is not something worthy of consideration by this Court in deciding whether the court of appeals should be reversed.

Antonin Scalia:

Mr. Rutter, can I come back to the suggestion you’re making as to how we ought to handle act of state cases.

I don’t remember this in your brief.

But you’re suggesting that if the district court gets a representation from the State Department that says, go right ahead, then, in reviewing whether that district court correctly applied the act of state doctrine or not, we should say it did correctly apply it… I’m sorry… it did correctly not apply it unless it was an abuse of discretion to ignore the State Department’s letter?

Thomas B. Rutter:

No, Mr. Justice Scalia, I obviously did not say what I intended to say which is–

Antonin Scalia:

Or I didn’t hear what you intended me to hear, I’ll put it that way.

Thomas B. Rutter:

–Well, if you look at the last few pages of our brief, I think I’ve said it there at greater length and perhaps with greater persuasion.

What I mean to say is this.

I am talking in terms of what I denominate a reverse Bernstein rule, which is to say that rather than deal with a straight Bernstein exception, which has been adopted by some members of this Court and by lower courts, and which has led to the kind of criticism that Mr. Brodsky refers to from Mr. Justice Douglas, what I am saying to you is this, and I think it’s implicit in Mr. Justice White’s dissenting opinion in Sabbatino and other cases that follow.

It’s simply this.

The court or the litigants notify the State Department that there is a… quote… act of state issue arising in this case, i.e., the conduct of a foreign nation.

The State Department then either takes a position or not.

And I’m saying to you, Mr. Justice Scalia, the State Department, so far as my research shows, has never, ever stepped up and said to a court, “Don’t litigate this case”.

The most they’ve done is in Sabbatino where it’s a no-comment kind of letter.

Antonin Scalia:

Because they knew the court wouldn’t listen to–

Antonin Scalia:

[Laughter]

–for nothing.

Thomas B. Rutter:

In any event, sir, my proposed procedure, as set forth in the brief and as proposed here is simply this on the over-arching rule.

If the State Department steps forward to the district court and says, you ought not hear this case, you ought to pass on this case, you should defer this case or perhaps even dismiss it, the court then responds to the State Department recommendation either by accepting it or rejecting it, subject on appeal and in this Court to a review as to abuse of discretion.

That’s the one safeguard that’s necessary to make sure that the State Department is not playing fast and loose.

Anthony M. Kennedy:

Well, what standards does the State Department follow in deciding whether or not to give such a letter?

Thomas B. Rutter:

I think those are matters remitted to the Executive Branch.

The question is what standard should the court apply in deciding whether or not to follow the suggestion.

For example… and foolishly… if the State Department were to say, please don’t adjudicate this case because it would be an embarrassment to the First Lady, the court could then well say, well, that’s not a very good reason and we do not accept that reason.

If, however, the State Department says–

Anthony M. Kennedy:

Well, I’m assuming that in making that judgment we’re saying that the State Department has or has not followed an appropriate policy.

And so I don’t think it’s an answer for you to say, well, the State Department can do whatever it wants.

I assume the State Department has to have some guidance from us as to what is or is not an appropriate answer.

Thomas B. Rutter:

–May I, with deference, Mr. Justice Kennedy, disagree with that because the political issues which would be involved in the State Department’s decision in whether or not to write such a letter are not matters that are properly within the purview of the judiciary, even of this Court.

All this Court can do is to say, has the Bernstein-type representations by the State Department in this case been sufficient in order for the Court to properly exercise its discretion and not proceed?

I would be candid and say to you that in the overwhelming majority of the cases, if not all the time, the answer would be yes.

But I think the Court has to, in deciding how to handle a reverse Bernstein, should it decide to take that course, has got to nonetheless reserve unto itself the last and final decision, which is to say has the court below properly conducted itself as a court, after we have the representation from the State Department.

Byron R. White:

What if the State Department says, go right ahead?

Thomas B. Rutter:

Then the court goes ahead, sir.

Byron R. White:

No matter what?

Thomas B. Rutter:

Yes, sir.

Byron R. White:

It doesn’t… the court then doesn’t ask any questions?

Thomas B. Rutter:

No, sir, because, again, as I’ve said to Mr. Justice Kennedy, the political questions that would be involved in “embarrassment”–

Byron R. White:

Well, you say then in this case the… the case is over because you have a representation from the State Department to go ahead.

Thomas B. Rutter:

–Yes, sir.

I think under the Bernstein exception, or under any other careful consideration of what an act of state is supposed to mean, and the State Department having said not once but now twice, it doesn’t matter to us, please feel free to go ahead,–

Byron R. White:

Even if this is… even if this is an act of state, go ahead.

Thomas B. Rutter:

–Even if it’s an act of state, yes sir.

Byron R. White:

Which was the case in Citibank.

Thomas B. Rutter:

Yes, sir.

Byron R. White:

And what if the State Department says, sorry, no comment?

Thomas B. Rutter:

There, again, sir, I suggest that given the proper application of the rule that the case goes forward.

I’m saying to you, Mr. Justice White, that the only time the court should even consider staying its hand is when the State Department, because of its exercise of executive powers for the political reasons it has in mind says, please don’t.

Byron R. White:

Well, that’s a… you do say, then, that that takes a reworking of our past cases?

Thomas B. Rutter:

Absolutely.

But I say it’s a natural corollary of your opinion in Sabbatino.

Byron R. White:

Well, I know, but I was the sole dissent.

[Laughter]

Thomas B. Rutter:

Well,–

Byron R. White:

So, I wouldn’t mind reworking it, I suppose.

[Laughter]

But it’s against the law.

It’s against the law right now because there was silence in Sabbatino.

Thomas B. Rutter:

–That’s exactly right, Mr. Justice White.

It was a no panel–

Byron R. White:

And the Court went ahead and held that the act of state doctrine applied.

Thomas B. Rutter:

–But let me remind you of the further history because that then suggest to me why the reworking along the lines I have suggested is necessary.

After this Court decided Sabbatino, Congress passed the second Hickenlooper amendment, under which the President has the authority to step up in any expropriation case and say, please do not hear this case.

They have never, ever exercised that authority.

In fact, when Sabbatino went back to the lower court, the State Department declined to intervene.

So, that’s one of the reasons I’m suggesting to you, in line with perhaps what Mr. Justice Scalia suggested in asking the questions of Mr. Brodsky, I think it’s time to rethink this doctrine and turn it around instead of… instead of making all of these lawsuits in this Court’s docket… about a half a dozen in the past couple of years on petitions… instead of having these lawsuits around and law review professors having things to write about, let’s let the litigants litigate the cases.

Byron R. White:

Yes, but you certainly are making an argument you don’t need to make–

Thomas B. Rutter:

Absolutely, Mr. Justice–

Byron R. White:

–to win this case.

Thomas B. Rutter:

–Absolutely.

Byron R. White:

I don’t know why you’d want to carry a big load like that.

Thomas B. Rutter:

I’m doing it, sir, because I have said that there are several levels at which this case can be decided.

On the narrowest ground, as I’ve said to you, under Sisal Sales and Continental Ore, I win.

Under the commercial activity exception, I prevail, because we know this is commercial activity by–

Byron R. White:

Well, just on the Bernstein letter you–

Thomas B. Rutter:

–Yes, sir.

Byron R. White:

–just on the State Department’s representation.

Thomas B. Rutter:

Yes, sir.

Byron R. White:

No matter what else is true.

Thomas B. Rutter:

Absolutely, Mr. Justice White.

Antonin Scalia:

You don’t even have a very good Bernstein letter, though.

I mean, this isn’t a letter in which the State Department says, go right ahead, it’s not going to embarrass us.

Thomas B. Rutter:

But as you said–

Antonin Scalia:

The State Department says, go right ahead because, as we read the law, the act of state doctrine doesn’t apply.

Now, we should defer to the State Department as to whether the act of state doctrine applies or not?

Thomas B. Rutter:

–Absolutely not.

Antonin Scalia:

But what it then goes on to say… although I’ve got to admit it’s going to embarrass the devil out of us, so be very careful–

Thomas B. Rutter:

It may embarrass–

Antonin Scalia:

–that seems to me to be a reverse Bernstein letter.

I don’t know why you want to rely on that letter.

Thomas B. Rutter:

–Well, it’s good enough for my purposes to satisfy the Bernstein exception, hence I rely upon it, Mr. Justice Scalia.

But it is the fact that it is not as pellucid as one might desire.

But, nonetheless, as you pointed out, it does in that paragraph, fulfill the Bernstein requirements.

And now Judge Sofaer has done it again.

He’s given us another letter which is appended to the Solicitor General’s brief as amicus where again he says, whatever weight I have folks, the State Department says we don’t mind.

That, I think, as Mr. Justice White points out, is–

Antonin Scalia:

He said, we do mind, but as we read the law, the act of state doctrine doesn’t apply.

That’s how… there’s no other way to read that letter.

Thomas B. Rutter:

–Well, I… in deference–

He says, you know–

Thomas B. Rutter:

–Mr. Justice Scalia, I think what he says is, we don’t mind, but please don’t do things which are embarrassing to the extent you can avoid it, whatever that means.

In any event, I see that my time is about at an end.

Unless there is another question from the Court, I would simply suggest to you, as I’ve tried to suggest in the response to Mr. Justice White, we can solve this case and affirm the Third Circuit, as we properly should, on any of several levels.

I invite the Court to take whichever one of the methods which I have suggested in my brief and tried to suggest to you, seems most appropriate.

However, notwithstanding Mr. Justice White’s suggestion, I don’t need to carry the burden.

Thomas B. Rutter:

As a lawyer who is involved in federal practice, I would most urge this Court to consider… to consider… redefining the act of state doctrine.

Thank you very much for listening to me.

William H. Rehnquist:

–Thank you, Mr. Rutter.

Mr. Merrill, we’ll hear now from you.

Thomas W. Merrill:

Thank you, Mr. Chief Justice, and may it please the Court:

The United States supports the judgment of the court of appeals in this case, but we do so for grounds… on reasons that are narrower than those that the court of appeals itself enunciated and also those that have… some of those that have been argued by respondent in this Court.

Let me begin by addressing the threshold question of whether there is an act of state inquiry required in this case or not.

The classic or traditional formulation of the act of state doctrine is that it applies when the courts are called to question or inquire into the validity of a public act of a recognized foreign sovereign within its own territory.

In terms of that formulation, it seems to us that the critical inquiry here at the threshold is whether this case will involve the questioning or the inquiring into the validity of a foreign sovereign act.

And, more precisely, do those words mean only… refer only to a direct adjudication of the legality of the foreign act of state, which appears to be the reading that respondent implicitly adopts or that the court of appeals implicitly adopted, or are those words broad and flexible enough to encompass some additional types of cases that might also be understood as inquiring or questioning the validity of a foreign act?

We believe that this case… the type of situation of this case… is one where there ought to be an act of state inquiry.

That, because of the need to prove causation in this case, the case, if it goes forward, could establish the factual predicate which would establish as a matter of Nigerian law that this contract is either void or voidable.

And that that type of situation sufficiently implicates the general policies of the act of state doctrine that at least an inquiry into the act of state question ought to be undertaken.

Second, let me address very briefly the commercial activities–

Antonin Scalia:

Excuse me.

Do you have any prior case that supports that?

Thomas W. Merrill:

–I think American Banana at least provides some indirect support for that, Justice Scalia.

Remember, in that case, the allegation was that a foreign government, Costa Rica, had been induced by an American company to engage in expropriate… acts of essentially expropriation against another American company.

It’s hard to read the case as saying that the Court, if it head the case, would have to inquire directly into the legal validity of the acts of the Costa Rican government, but, nevertheless, this Court–

Antonin Scalia:

Wouldn’t it have had to?

Wasn’t… wasn’t the setting aside of the expropriation at issue?

Thomas W. Merrill:

–No.

It was an antitrust action brought to recover damages in the United States and the cause of the damages was the act of expropriation–

Yeah.

Thomas W. Merrill:

–but the defendant who was alleged to have violated the antitrust laws by conspiracy and so forth… whether their conduct was legal or illegal could have been determined without determining the legality of the expropriation itself.

I think the reaction of the court in that case was that essentially what was being alleged was that Costa Rica was a puppet of an American corporation and that that type of inquiry was of sufficient… had sufficient implications for the conduct of America’s foreign relations that such an inquiry ought not to be permitted.

That obviously isn’t directly parallel to this case and the two are obviously distinguishable.

But we think it provides at least some inferential support for the proposition that the narrowest possible reading of the act of state doctrine, that it only applies where there is a direct adjudication of illegality, is not necessarily one that this Court’s cases require that it adopt.

Let me address briefly the commercial activities exception.

We agree with the petitioners that this act, the decision to enter into a defense procurement act, is sufficiently sovereign, that the case should not, by that reason alone, be held to fall within the commercial activities exception.

Thomas W. Merrill:

What we said in our brief was that it’s nevertheless relevant under the type of comity… international comity analysis that the Court has undertaken in Sabbatino and succeeding cases, that the relationship the parties would enter into once this decision was made to enter into the contract would be commercial in nature.

So, for example, questions about breach of warranty, questions about other issues that might come up in the governance of the contractual relationship we think, for example, would fall into the commercial exception for this Foreign Sovereign Immunities Act and if there were a commercial activities exception recognized, would presumably also those questions would come within a commercial activities exception of the act of state doctrine.

So, because the relationship that would be entered into is commercial, we think that’s one factor that the Court could weigh under a comity type analysis in deciding whether or not the act of state doctrine precludes giving a questioning… or not giving effect to the act of a foreign sovereign.

I’d also like to speak, if I could, to the general question of the institutional relationship between the federal courts and the executive branch in applying the act of state doctrine.

It’s a matter that this Court has not spoken to in an opinion enjoined by a majority of the Court and is also of some considerable institutional interest to the United States.

The position that we’ve taken in our brief in this case really attempts to build on two principles that we think there is a fair consensus about within this Court’s opinions, even though the Court has not reached a concluded view about them.

One is the principle that the courts, of course, are the final arbiters of question of law, and the second is the principle that the Executive Branch ought to be the final arbiter of questions of foreign relations and foreign policy.

And the way we propose that these two principles can be reconciled in this area is that when a court undertakes an act of state inquiry in deciding whether or not the act of state doctrine should in any particular case preclude examination of a foreign sovereign act that any questions about the foreign relations impact, about sensitivities of foreign governments, about the consequences for ongoing American diplomatic efforts, that those questions ought to be referred to the legal advisor of the State Department through the Justice Department and courts should give the very greatest deference to those determinations.

But that the legal elements of the doctrine, including the threshold questions about whether it is or is not an act of state, in the final determination after the courts engaged in the balancing process would, of course, remain for the courts themselves.

We think that this reconciliation is one that is consistent with all this Court’s prior opinions, including the rejection by six Justices in–

Harry A. Blackmun:

So what if… so, giving all the deference you suggest to the State Department’s letter you would still say that… that the Court should make an independent inquiry as to whether there is an act… the act of state doctrine isn’t law.

Thomas W. Merrill:

–We think the Court should not question the foreign policy judgments.

And to the extent that foreign policy judgments are a very important element in the calculus, the Court should take those as a given.

But other elements in the doctrine, for example, the question of whether an act is sufficiently sovereign to trigger the act of state, or whether or not the act took place within the territory of a foreign government, those questions–

Well,–

Thomas W. Merrill:

–those questions are the kind, of course, that the courts could determine themselves.

Harry A. Blackmun:

–you don’t… you’re not taking the position that even if there is clearly an act of state involved in this case, that the State Department letter should determine the case?

Thomas W. Merrill:

Our position is that the State Department letter is not a trumping device.

We think that that’s the reason why six justices primarily rejected the Bernstein approach.

The Bernstein approach was perceived as one where even if the court concluded as a matter of law that the act of state doctrine precludes adjudication, that the executive could come in and say, no, we want you to go ahead anyway.

And six justices in the First National City case thought that that was an impermissible relationship between the executive and the courts.

And we don’t question that.

We are simply suggesting that when the court undertakes the Sabbatino-type analysis looking at the various factors in the case, and to the extent that those factors include questions like what will be the impact on ongoing diplomatic efforts of the executive, that it should refer to the State Department and get the State Department’s views on those questions.

In this particular case, there were two letters, as has been noted.

The letter in the district court we think can fairly be read as saying that there would be no adverse impact on the foreign relations of the United States if the case goes forward.

But if there is any ambiguity about that, we think that reference to the letter, which is appended to our brief, should resolve it.

In that letter, the legal advisor… this is at page 2(a) of the appendix in our brief… states quite expressly that we do not see any foreign relations obstacles to adjudication of this case on the merits and we also believe that, in the absence of a representation to the contrary, the courts may properly assume that no unacceptable interference with U.S. foreign relations will occur on account of adjudication of like cases.

So, in response to this Court’s grant of certiorari the State Department has undertaken a reevaluation of the foreign policy implications that suits of this type present and has determined that, as a general matter and absent a representation to the contrary, we do not see sufficient foreign policy obstacles to going forward and considering a case of this nature on the merits.

If there are no questions, I thank the Court.

William H. Rehnquist:

Thank you, Mr. Merrill.

William H. Rehnquist:

Mr. Brodsky, you have two minutes remaining.

Edward Brodsky:

Well, if the Court please, first, with regard to the second letter that was received from the State Department, I don’t think there is any material difference between the two letters.

The second letter says at the end, the legal advisor to the State Department reminds the trial court to exercise appropriate supervision over the trial process so as to limit damage to foreign sensibilities.

Now, what I’m saying is that there are no rules for a district court to follow in presiding over a case and limiting that case to things that will involve foreign sensibilities.

So, for that reason, and all the other reasons that I have given, I respectfully suggest that the act of state doctrine should apply in this case.

Thank you.

William H. Rehnquist:

Thank you, Mr. Brodsky.

The case is submitted.