647 F.2d 320 (2nd Cir. 1981), 643, Verlinden B. V. v. Central Bank of Nigeria

Docket Nº:643, Docket 80-7413.
Citation:647 F.2d 320
Party Name:VERLINDEN B. V., Plaintiff-Appellant, v. CENTRAL BANK OF NIGERIA, Defendant-Appellee.
Case Date:April 16, 1981
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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647 F.2d 320 (2nd Cir. 1981)

VERLINDEN B. V., Plaintiff-Appellant,


CENTRAL BANK OF NIGERIA, Defendant-Appellee.

No. 643, Docket 80-7413.

United States Court of Appeals, Second Circuit

April 16, 1981

Argued March 6, 1981.

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Abram Chayes, Cambridge, Mass. (Berthold H. Hoeniger, New York City, of counsel), for plaintiff-appellant.

James G. Simms, New York City (Craig P. Murphy, Peter J. Dranginis, Jr., Kissam, Halpin & Genovese, New York City, of counsel), for defendant-appellee.

Before KAUFMAN and TIMBERS, Circuit Judges, and WARD, District Judge. [*]

IRVING R. KAUFMAN, Circuit Judge:

Throughout the long summer of 1787, the Framers of the Constitution, assembled at Philadelphia, hammered the parochial prejudices of thirteen colonies into the rough framework of a union. There, a fundamental tenet of American jurisprudence was forged: federal courts are courts of limited jurisdiction. Alexander Hamilton, Luther Martin, James Madison, and others honed such rough verbiage as "cases respecting the national peace and harmony" to the precision of "cases arising under the Laws of the United States," 1 and Article III, thus tempered, emerged.

Nearly two centuries later, in 1976, Congress passed the Foreign Sovereign Immunities Act ("FSIA" or "Act"). 2 The Act purports to create, pursuant to that same Article III, original jurisdiction in the district courts over "any nonjury civil action against a foreign state as to any claim for relief in personam with respect to which

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the foreign state is not entitled to immunity " 28 U.S.C. § 1330(a). This case, one of seven decided today involving the FSIA, 3 presents a sharp issue under the Act: may a foreign plaintiff sue a foreign state in a federal court for breach of an agreement not governed by federal law? The language of the statute seems to allow it. After exhaustive examination of the context, language, and history of Article III, we defer to the Framers' prescient restraint, and find jurisdiction lacking in the constitutional sense.


The facts relevant to the issues on appeal can be stated quite briefly. Verlinden B. V. is a Dutch corporation. It has its principal offices in Amsterdam, the Netherlands. On April 21, 1975, Verlinden signed a contract with the Federal Republic of Nigeria agreeing to ship to Nigeria 240,000 metric tons of cement over the course of several months. Nigeria, in turn, promised to establish "an Irrevocable, Transferable abroad, Divisible and Confirmed Letter of Credit in favour of the seller for the total purchase price through Slavenburg's Bank, Amsterdam, Netherlands." On June 23, 1975, Nigeria established the letter of credit at the Central Bank of Nigeria, 4 and made it payable through the Morgan Guaranty Trust Company in New York. Under the letter of credit, Verlinden could collect, upon presentation of certain documents, $60 per ton for shipments made to Nigeria. The letter of credit provided it was to be governed by "(U)niform (C)ustoms and Practice Documentary Credits (1962 Revision) Chamber of Commerce Brochure No. 222." 5

On August 21, 1975, Verlinden subcontracted with a third party, Interbuco (a Leichtenstein corporation), for the purchase of 240,000 tons of cement at $51 per ton. Verlinden agreed to pay Interbuco $5 per ton if Verlinden reneged on the purchase.

In September, Nigeria found its ports clogged with ships. 6 Central Bank instructed Morgan, and Morgan notified Verlinden, that Morgan was not to pay Verlinden under the letter of credit for a shipment of cement unless Verlinden had obtained, two months before sailing, Nigeria's permission to enter the port. Verlinden, alleging Central Bank's action constituted an anticipatory breach of the letter of credit, 7 sued Central

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Bank in the Southern District of New York. Verlinden's complaint claimed $4.66 million, consisting mostly of lost profits and of money Verlinden was forced to pay Interbuco under the terms of the subcontract. Central Bank moved to dismiss the complaint for lack of jurisdiction under the FSIA. The district court, 498 F.Supp. 1284, granted the motion, assuming, as we have in setting forth the facts above, all the allegations of Verlinden's complaint to be true. Verlinden appeals.


Turning to the law, our first inquiry must be whether Verlinden's complaint meets a threshold requirement under the FSIA. Do both Verlinden and Central Bank fall into the category of parties contemplated by the Act? Section 2(a) of the FSIA, codified at 28 U.S.C. § 1330(a), provides:

The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.

The parties agree that Central Bank is an "instrumentality of a foreign state" under 28 U.S.C. § 1603(b), and therefore is a "foreign state" under § 1603(a). Accordingly, Verlinden's suit is one "against a foreign state" for purposes of § 1330(a).

Verlinden's qualification under the Act is less clear, since it is a foreign corporation. The Report of the House Judiciary Committee on the bill that later became the Act (H.R. 11315) proclaims the Act's purpose to be to ensure that "our citizens will have access to the courts" in suits against foreign states. House Judiciary Committee, Jurisdiction of United States Courts in Suits Against Foreign States, H.R.Rep.No. 1487, 94th Cong., 2d Sess. 6, reprinted in (1976) U.S.Code Cong. & Admin.News 6604, 6605 ("House Report") (emphasis added). 8 The draftsmen of § 1330(a) assumed "U.S. businessmen" and "American property owner(s)" would bring suits under the Act. Id. The experts who testified at subcommittee hearings spoke of protecting "American citizens," 9 "American businesses," 10 "American parties," 11 and "American nationals." 12 Looking back to the hearings surrounding the introduction of a 1973 predecessor to H.R. 11315, references to "our citizens" again abound. 13 In general, Congress emphasized that it did not intend "to open up

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our courts to all comers to litigate any dispute which any private party may have with a foreign state anywhere in the world." Hearings on H.R. 11315 Before the Subcommittee on Administrative Law and Governmental Relations of the House Committee on the Judiciary, 94th Cong., 2d Sess. 31 (1976) ("1976 Hearings") (testimony of Bruno A. Ristau, Chief, Foreign Litigation Section, Civil Division, Dep't of Justice).

On the other hand, extensive language in the legislative history supports the belief that Congress did not limit the Act to suits brought by Americans. The House Report states the Act provides "when and how parties" can sue a foreign state in American courts, House Report at 6604 (emphasis added), and that it applies to "any claim" against a foreign state, id. at 6611. Testimony before the subcommittee at the 1976 hearings referred broadly to relief for "private parties with claims," 1976 Hearings at 31 (testimony of Bruno A. Ristau), and "private litigants," id. at 58 (testimony of Peter D. Trooboff, Chairman, Committee on Transnational Judicial Procedure, International Law Section, American Bar Association). Professor Moore finds a "plain intention to confer on the district court jurisdiction of an action by an alien against a foreign state if the action otherwise meets the requirements" of the Act. 1 J. Moore, Federal Practice and Procedure P 0.66(4) at 700.178-79 (2d ed. 1979). This conclusion is buttressed by the Act's removal provision, 28 U.S.C. § 1441(d), which is not limited to suits brought by U.S. citizens, and purports to allow removal to federal court of "any civil action brought in a State court against a foreign state" (emphasis added).

From this murky and confused legislative history, only one conclusion emerges: Congress formed no clear intent as to the citizenship of plaintiffs under the Act. It probably did not even consider the question. In the absence of determinative or even persuasive guidance from the legislative history, the words of the statute control. Section 1330(a) is not limited to suits brought by Americans. It applies to "any nonjury civil action against a foreign state" (emphasis added). Accordingly, we hold that a suit brought in a federal court by an alien against a foreign state is properly filed at least under the terms of the Act.


Having concluded that both plaintiff and defendant are within the class of parties contemplated by § 1330(a), we are forced to confront the constitutional dilemma: does Congress possess the power to grant jurisdiction over a suit such as this?

Article III of the federal Constitution provides that the national government's "judicial Power shall extend to" certain types of disputes, which it lists in clause 1 of section 2. 14 That Congressional power to confer jurisdiction to those cases and no further has been established on a number of occasions. E. g., Hodgson v. Bowerbank, 9 U.S. (5 Cranch) 303, 3 L.Ed. 108 (1809). See also National Mutual Insurance Co. v. Tidewater Transfer Co., 337 U.S. 582, 604, 69 S.Ct. 1173, 1183, 93 L.Ed. 1556 (Rutledge and Murphy, JJ., concurring ); 626, 69 S.Ct. 1195 (Vinson and Douglas, JJ., dissenting ); 646, 69 S.Ct. 1209 (Frankfurter and Reed, JJ., dissenting ); Federal Election Commission v. Central Long Island Tax Reform Immediately Committee, 616 F.2d 45, 51 (2d Cir. 1980) (per curiam) (en banc). To satisfy federal jurisdictional requirements, therefore, every case must be supported by both a Congressional

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grant of jurisdiction 15 and a constitutional base on...

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