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ANSWERS TO PROBLEMS
1. Three banks that are wholly owned by the Republic of Costa Rica had issued promissory
notes, payable in U.S. dollars in New York City. The notes are now in default due solely
to actions of the Costa Rican government, which had suspended all payments of external
debt because of escalating economic problems. Efforts by Costa Rica to curb foreign
debt payment difficulties conflicted with U.S. policy for debt resolution procedures as
conducted under the auspices of the International Monetary Fund. A syndicate of U.S.
banks brought suit to recover on the promissory notes. The three Costa Rican banks
assert the act of state doctrine as a defense. Should the doctrine apply? Explain.
2. Six U.S. manufacturers of broad-spectrum antibiotics derived a large percentage of their
sales from overseas markets, including India, Iran, the Philippines, Spain, The Republic
of Korea, Germany, Colombia, and Kuwait. The manufacturers agreed to a common
plan of marketing, whereby territories were divided and prices for products were set.
The plan members also agreed not to grant foreign producers licenses to the
manufacturing technology of any of their “big money” drugs. May the above foreign
countries recover treble damages for violation of the U.S. antitrust laws? Why?
(1978).
3. After reading attractive brochures advertising a package tour of the Dominican
Republic, a U.S. family decided to purchase tickets for the family vacation plan. The
tour was a product of four different business entities, two domestic (U.S.) and two
foreign. Sheraton Hotels & Inns, World Corporation, was to provide food and lodging;
Dominicana Airlines, wholly owned by the government of the Dominican Republic,
which routinely flew into Miami International Airport and sold tickets within the United
States, was to provide round-trip air transportation and “tourist cards” necessary for
entry into the Dominican Republic; and two U.S. firms organized and sold the tour.
Problems for the family began when their Dominicana flight landed in the Dominican
Republic, and immigration officials denied them entry. Forced to leave, the family was
shuttled first to Puerto Rico and then to Haiti, where they had to secure their own
passage back to the United States at additional expense. The family brings suit for
battery, false imprisonment, breach of warranty, and breach of contract against all four
different business entities. The Dominicana Airlines asserts the act of state doctrine as a
defense. Explain whether this defense applies in this situation.
Answer: Act of State Doctrine/Foreign Sovereign Immunities Act. It applies to part of the
claim, but not all of it. The act of state doctrine precludes judicial inquiry into the
illegality, validity and propriety of the acts and motivations of foreign sovereigns acting
4. A privately owned business in a developing country determines that current computer
technology could solve many of the problems faced by its country’s private and public
sectors. This business, however, lacks the capital resources necessary for research and
development to acquire such computer technology, even if trained personnel were
available. Furthermore, despite a sense of patriotism, the business concludes that its
national government could not efficiently or effectively handle such a development
project. What business forms are available to this business for acquiring sophisticated
computer technology? What are the advantages and problems inherent in the various
options?
Answer: Forms of Multinational Enterprises. The following business forms are available
and should be considered.
a. Foreign Agency–The business may become the foreign agent of a major international
5. King Faisal II of Iraq was killed on July 14, 1958, in the midst of a revolution in that
country that led to the establishment of a republic subsequently recognized by the U.S.
government. On July 19, 1958, the new republic issued a decree that all property of the
former ruling dynasty, regardless of location, should be confiscated. Subsequently, the
Republic of Iraq brought suit in the United States to obtain possession of money and
stocks deposited in the deceased king’s U.S. bank account in New York City. Explain
whether Iraq will be able to collect the funds.
Answer: Confiscation. Decision for the U.S. bank and against the Republic of Iraq. Under
the traditional application of the act of state doctrine, the principle of judicial refusal of
6. A business entity incorporated under the laws of one of the European Union (EU)
member nations contracts with the government of a developing nation to form a joint
venture for the mining and refining of a scarce raw material used by several industrial
nations in the manufacture of highly sensitive weapons systems. The contract calls for
the EU-based corporation to invest money and technology that will be used to build
permanent refinery plants that will eventually revert to the developing nation. The
developing nation also reserves the right to set quotas on sales of this scarce resource
and to choose the destination of exports. Due to political conflicts, the developing nation
refuses to allow any exports of the scarce material to the United States. This causes a
sharp price increase in exports to the United States by other suppliers. The United States
asserts antitrust violations against the EU-based corporation for the effects produced
within the United States. Should the United States succeed? Explain.
Answer: Application of Antitrust Laws. Yes. The United States courts have asserted the
right to apply the Sherman Act to foreign commerce intended to or affecting the United
7. A Panamanian corporation lends money to a Turkish enterprise, which issues a
promissory note. The loan contract specifies that payment on the interest and principal
shall be made to the Chemical Bank of New York City, where both parties maintain
accounts. The loan contract contains no choice of law designation, but the Panamanian
and Turkish companies have referred to the Chemical Bank in New York as their “legal
address.” As a result of a contractual performance dispute, the Turkish company
suspends payments on the loan. The Panamanian corporation then brings suit in the
United States to recover the balance of the payments due. What possible options for
choice of law apply?
Answer: International Contracts. In the facts as stated in the problem, the law applied
could be New York State law (the issues raised involve commercial paper, which is
8. New England Petroleum Corporation (NEPCO), a New York corporation, was in the
business of selling fuel oil in the United States. PETCO, a refinery incorporated in the
Bahamas, was a wholly owned subsidiary of NEPCO. In 1968, PETCO entered into a
long-term contract to purchase crude oil from Chevron Oil Trading (COT), which held
50 percent of an oil concession in Libya. In 1973, Libya nationalized COT and several
other foreign-owned oil concessions, thereby forcing COT to terminate its contract with
PETCO. In order to secure needed oil supplies, PETCO entered into a new contract with
National Oil Corporation (NOC), which was wholly owned by the Libyan government.
This contract was at a substantially higher price than the original contract with COT.
The following month, Libya declared an oil embargo on exports to the United States, the
Netherlands, and the Bahamas. Accordingly, NOC canceled its contracts with PETCO.
After oil prices rose dramatically, NOC accepted bids for new contracts to replace the
ones inactivated by the embargo. NEPCO brought suit in a U.S. district court against
the Libyan government and NOC, alleging breach of contract. Does the district court
have jurisdiction? Explain.
Answer: Sovereign Immunity. The district court does not have jurisdiction. Libya and
9. Nigeria, experiencing an economic boom due to exports of high-grade oil, embarked on
an infrastructure development plan. Accordingly, Nigeria entered into at least 109
contracts with 68 suppliers for the purchase of cement at a price of almost $1 billion.
Among the contracting suppliers were four US corporations, including Texas Trading &
Milling Corporation. Nigeria misjudged the cement market (having anticipated only a
20 percent fulfillment rate) and was forced to repudiate most of the contracts. Texas
Trading & Milling Corporation and three other U.S. companies brought suit, alleging
anticipatory breach of contract. Nigeria claimed immunity under the Foreign Sovereign
Immunities Act. Is Nigeria’s claim correct? Explain.
Answer: Sovereign Immunity. No. The Foreign Sovereign Immunities Act denies immunity
to foreign governments from suits arising from commercial, as opposed to public or
10. Prior to 1918, a Russian corporation had deposited sums of money with August
Belmont, a private banker doing business in New York City. In 1918, the Soviet
government nationalized the corporation and appropriated all of the corporation’s
property and assets, including the deposit account with Belmont. The deposit became the
property of the Soviet government until 1933, when it was released and assigned to the
U.S. government as part of an international compact between the United States and the
former Soviet Union. The purpose of this arrangement was to bring about a final
settlement of the claims and counterclaims between the two countries. The United States
brought an action to recover the deposit from Belmont. Belmont resists, arguing that the
act of nationalization by the Soviets was a confiscation prohibited by the Fifth
Amendment to the U.S. Constitution and was also a violation of New York public policy.
Explain who will prevail.
Answer: Act of State. Judgment for the United States. Governmental power over external
affairs is vested exclusively in the national government, not the several states.
11. A Federal grand jury handed down an indictment naming as a defendant Nippon Paper
Industries Co., Ltd. (NPI), a Japanese manufacturer of facsimile paper. The indictment
alleged that five years earlier NPI and certain unnamed coconspirators held a number
of meetings in Japan, which culminated in an agreement to fix the price of thermal fax
paper throughout North America. NPI and other manufacturers who were involved in
the scheme purportedly accomplished their objective by selling the paper in Japan to
unaffiliated trading houses on the condition that the latter charge specified (inflated)
prices for the paper when they resold it in North America. The trading houses then
shipped and sold the paper to their U.S. subsidiaries, who in turn sold it to U.S.
consumers at inflated prices. The indictment further states that, to ensure the success of
the venture, NPI monitored the paper trail and confirmed that the prices charged to end
users were those that it had arranged. The indictment maintains that these activities had
a substantial adverse effect on commerce in the United States and unreasonably
restrained trade in violation of the Sherman Act. Does the Sherman Act apply to this
conduct? Explain.
Answer: Sherman Act. Yes. In the United States Supreme Court's most recent exploration
of the Sherman Act's extraterritorial reach the Justices permitted civil antitrust claims
ANSWERS TO “TAKING SIDES” PROBLEMS
The Commercial Oce of Spain hired Enrique Segni to develop a market
for Spanish wines in the U.S. Midwest. The Commercial Oce is an arm
of the Spanish government. Seven months later, Segni was !red,
whereupon he !led a lawsuit in a U.S. district court charging that the
Commercial Oce had breached the contract and seeking payment for
the remainder of the contract term as damages. The Commercial Oce
moved for dismissal, claiming immunity from suit under the terms of the
Foreign Sovereign Immunities Act (FSIA).
(a) What are the arguments that Spain is immune from suit under the FSIA?
(b) What are the arguments that Spain is not immune from suit under the FSIA?
(c) Explain which party should prevail.
ANSWER:
(a) The Commercial Office could argue that Segni had been hired to execute the policy
of the Spanish government, that is, the fostering of exports of Spanish wines to the
U.S. Midwest, and that his employment by the Commercial Office was a public act
