## Facts

- Kalamazoo Spice Extraction Company (Kal-Spice), a Michigan corporation, helped form Ethiopian Spice Extraction Company (ESESCO) in 1966 as an Ethiopian corporation and initially owned about 80% of its shares.
- Kal-Spice invested capital, built a production facility, trained staff, and ESESCO began production in 1970.
- Ethiopia’s Provisional Military Government of Socialist Ethiopia (PMGSE) came to power in 1974 and, in 1975, announced seizure of control and majority interests in various corporations, including ESESCO, reducing Kal-Spice’s ownership to about 39%.
- Ethiopia later established a Compensation Commission; Kal-Spice sought $11 million, and Ethiopia offered the equivalent of about $450,000 in Ethiopian currency, which Kal-Spice refused.
- After expropriation, Kal-Spice continued contracting with ESESCO for spice shipments but later stopped paying for shipments; Ethiopia (through ESESCO/PMGSE) sued in the Western District of Michigan for breach of contract.
- Kal-Spice asserted a counterclaim seeking damages for expropriation of its ESESCO shares, relying on a 1953 Treaty of Amity and Economic Relations between the United States and Ethiopia requiring “prompt payment of just and effective compensation” for expropriation.

## Issues

1. Whether the act of state doctrine barred a U.S. court from adjudicating Kal-Spice’s counterclaim challenging Ethiopia’s expropriation of its shares in an Ethiopian corporation.
2. Whether the treaty clause requiring “prompt payment of just and effective compensation” supplied a sufficiently specific controlling legal standard to permit adjudication notwithstanding the act of state doctrine.

## Decision

- The Sixth Circuit reversed the district court’s dismissal of the expropriation counterclaim and remanded.
- The court held the act of state doctrine did not bar the counterclaim because the U.S.–Ethiopia treaty provided a controlling legal standard for evaluating compensation.
- The court rejected the district court’s view that the treaty language was too general to apply.

## Legal Principles

- The act of state doctrine generally precludes U.S. courts from judging the validity of a recognized foreign sovereign’s public acts performed within its own territory.
- Under Sabbatino, the doctrine may yield where a treaty or other unambiguous agreement supplies controlling legal principles applicable to the dispute.
- A bilateral treaty provision requiring “prompt payment of just and effective compensation” for expropriation can constitute a judicially applicable standard for deciding whether compensation obligations were met.
- When the political branches have adopted rules in a treaty, adjudication applying those rules presents reduced separation-of-powers and foreign-relations concerns compared to creating standards without such commitments.

## Conclusion

The Sixth Circuit held that a bilateral treaty’s compensation clause provided a controlling legal standard that permitted adjudication of an expropriation counterclaim despite the act of state doctrine, and it remanded for merits proceedings under the treaty standard.


Kalamazoo Spice Extraction Co. v. Provisional Military Gov’t of Socialist Ethiopia, 729 F.2d 422 (6th Cir. 1984)