Verlinden B. V. v. Central Bank of Nigeria
461 U.S. 480 (1983)
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Rule of Law:
The Foreign Sovereign Immunities Act of 1976 is a constitutional exercise of Congress's power under Article III's 'Arising Under' Clause. Any action against a foreign sovereign in a U.S. court necessarily 'arises under' federal law because the court must apply the Act's comprehensive federal standards to determine sovereign immunity at the outset of the case.
Facts:
- On April 21, 1975, Verlinden B.V., a Dutch corporation, entered into a contract to sell 240,000 metric tons of cement to the Federal Republic of Nigeria.
- The contract stipulated that Nigeria would establish an irrevocable, confirmed letter of credit, but the Central Bank of Nigeria, an instrumentality of the Nigerian government, instead established an unconfirmed letter of credit.
- This unconfirmed letter of credit was payable through Morgan Guaranty Trust Co. in New York.
- After Nigeria's ports became heavily congested with cement shipments from various suppliers, the Central Bank of Nigeria unilaterally issued a series of amendments to all letters of credit.
- These amendments instructed correspondent banks, including Morgan Guaranty, to refuse payment unless shipments were approved by the Central Bank two months prior to their arrival in Nigerian waters.
- Verlinden B.V. alleged that these unilateral actions by the Central Bank constituted an anticipatory breach of the letter of credit contract.
Procedural Posture:
- Verlinden B.V. sued the Central Bank of Nigeria in the U.S. District Court for the Southern District of New York for anticipatory breach of contract, asserting jurisdiction under the Foreign Sovereign Immunities Act (FSIA).
- The defendant, Central Bank, filed a motion to dismiss for lack of subject-matter and personal jurisdiction.
- The District Court held that the FSIA constitutionally conferred subject-matter jurisdiction but ultimately dismissed the complaint, finding that no exception to sovereign immunity applied in this case.
- Verlinden B.V., as appellant, appealed the dismissal to the U.S. Court of Appeals for the Second Circuit.
- The Court of Appeals affirmed the District Court's dismissal but on the grounds that the FSIA itself was an unconstitutional extension of federal court jurisdiction under Article III.
- The U.S. Supreme Court granted certiorari to review the constitutional question.
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Issue:
Does the Foreign Sovereign Immunities Act of 1976, which grants federal courts subject-matter jurisdiction over civil actions brought by foreign plaintiffs against foreign states, violate Article III of the Constitution?
Opinions:
Majority - Chief Justice Burger
No, the Foreign Sovereign Immunities Act of 1976 (FSIA) does not violate Article III of the Constitution. Every action against a foreign sovereign necessarily 'arises under' federal law because the FSIA provides the substantive rule of decision on the threshold question of sovereign immunity. The Court reasoned that Article III 'arising under' jurisdiction is significantly broader than the statutory 'arising under' jurisdiction of 28 U.S.C. § 1331 and is not limited by the well-pleaded complaint rule. Following the broad interpretation from Osborn v. Bank of United States, a case can arise under federal law if a federal question is a key 'ingredient' of the action. Under the FSIA, a court must always first determine whether the foreign state is entitled to immunity by applying the detailed federal standards set forth in the Act. Since the plaintiff's right to proceed is sustained or defeated based on the construction of this federal law, the entire action 'arises under' federal law for constitutional purposes, even if the underlying claim is based on state or foreign law.
Analysis:
This unanimous decision firmly established the constitutionality of the Foreign Sovereign Immunities Act and its role in consolidating litigation against foreign states in federal courts. The Court's key analytical move was to distinguish the broad scope of constitutional 'arising under' jurisdiction from its narrower statutory counterpart, thereby insulating the FSIA from challenges based on the well-pleaded complaint rule. This ruling ensures that a single, uniform body of federal law governs the sensitive issue of foreign sovereign immunity, preventing conflicting decisions among state courts and reinforcing the federal government's primacy in foreign relations. The case provides a clear example of how Congress can constitutionally grant federal jurisdiction over a class of cases by creating a comprehensive, substantive federal law that must be applied at the threshold of every dispute.
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