Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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The Verlinden Case -- Access to Federal Courts - P1 Chapter 1
Lawrence W. Newman and Michael Burrows
A principal purpose of the Foreign Sovereign Immunities Act of 19761
(the FSIA) was to codify contemporary concepts concerning sovereign
immunity. The FSIA sets forth inter alia rules applicable to both state and
federal courts for determining whether sovereign immunity exists.
Congress, to assure that such rules would be applied consistently and to
avoid having foreign states necessarily subjected to the vagaries of state
courts, provided that all cases involving foreign states could be brought in
federal court.
In April 1981, in Verlinden B.V. v. Central Bank of Nigeria, the Second
Circuit concluded that the FSIA was unconstitutional to the extent it
purported to permit an alien plaintiff to sue a foreign state in federal court
on a non-federal claim. Insofar as American companies use foreign
subsidiaries in transactions with foreign states, if upheld by the Supreme
Court, the Verlinden decision could have the effect of relegating disputes
arising in such transactions to state courts.
This chapter describes the issues posed by Verlinden, as well as the recent
efforts to limit its scope.
The Facts
In April 1975, Verlinden, a Dutch corporation with its principal place of
business in Amsterdam, entered into an agreement with the Ministry of
Defense of the Nigerian government to deliver 240,000 metric tons of
cement to Nigeria at a price of $60 per ton. The government agreed to
effect payment through an irrevocable letter of credit. In June 1975, the
Central Bank of Nigeria (the Central Bank) established a letter of credit,
payable through Morgan Guaranty Trust Company in New York, in favor
of Verlinden for the full contract price. Beginning in August 1975,
however, Nigeria’s ports became hopelessly crowded with ships delivering
cement pursuant to approximately 100 other supply contracts. Nigeria’s
solution to this congestion was to cause the Central Bank unilaterally to
amend the irrevocable letters of credit issued in connection with the supply
contracts, thereby adding terms and conditions which would delay delivery
of the cement.
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
