Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983)

Facts

  • Verlinden B.V., a Dutch corporation, contracted with the Federal Republic of Nigeria to supply 240,000 metric tons of cement.
  • The contract required a confirmed letter of credit; the Central Bank of Nigeria instead issued an unconfirmed letter of credit payable through a New York bank (Morgan Guaranty Trust Company).
  • After port congestion and an oversupply of cement, the Central Bank instructed the New York bank to amend the letter of credit to limit payment to suppliers whose shipments were approved at least two months before entering Nigerian waters.
  • Verlinden alleged anticipatory breach of the letter of credit and sued the Central Bank in the U.S. District Court for the Southern District of New York.
  • Verlinden invoked federal subject-matter jurisdiction under the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. § 1330(a), which authorizes nonjury civil actions against a foreign state when the state is not immune under §§ 1605–1607 (or an applicable international agreement).

Issues

  1. Whether Article III permits Congress, through the FSIA, to grant federal jurisdiction over a suit brought by a foreign corporation against a foreign sovereign instrumentality.
  2. Whether FSIA jurisdiction under 28 U.S.C. § 1330(a) is limited to suits brought by U.S. plaintiffs or also extends to foreign plaintiffs.

Decision

  • The Supreme Court reversed the Second Circuit and held that the FSIA’s jurisdictional grant is constitutional under Article III.
  • The Court held that actions under the FSIA fall within Article III “arising under” jurisdiction because they require application of federal standards governing foreign sovereign immunity.
  • The Court held that § 1330(a) contains no citizenship limitation; foreign plaintiffs may sue foreign states in federal court if the FSIA’s substantive requirements are met.
  • The Court did not decide whether an FSIA immunity exception applied to Verlinden’s claims and remanded for further proceedings on immunity and jurisdiction under the Act.

Legal Principles

  • The FSIA supplies the governing federal law for determining whether a foreign state or its instrumentality is immune from suit and, correspondingly, whether federal subject-matter jurisdiction exists under § 1330(a).
  • An FSIA action “arises under” federal law for Article III purposes because a court must determine, under federal statutory criteria, whether the defendant is a foreign state and whether an immunity exception applies.
  • Article III jurisdiction for FSIA cases does not depend on the parties’ citizenship; the presence of a federal statutory immunity framework provides the necessary constitutional basis.
  • If no FSIA exception to immunity applies, the foreign state remains immune and the federal court lacks subject-matter jurisdiction under § 1330(a).

Conclusion

The Court upheld Congress’s power to place foreign-sovereign-immunity determinations in federal court under the FSIA, confirmed that FSIA suits arise under federal law for Article III, and ruled that foreign plaintiffs may invoke FSIA jurisdiction, while leaving the immunity-exception analysis to the lower courts on remand.