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Litigation of Sovereign Immunity before a State Administrative Body and the Department of State: the Japanese Uranium Tax Case

Published online by Cambridge University Press:  27 February 2017

Charles N. Brower
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Extract

When President Nixon and Prime Minister Tanaka of Japan, held a summit meeting in Hawaii on August 31-September 1, 1972, doubtless no one expected they were laying the foundation for one of the most curious sovereign immunity cases in the annals of American jurisprudence. The resulting communique, however, which placed the leaders' seal of approval on extensive Japanese purchase commitments in the United States, became the basis for a Japanese claim that half a billion dollars worth of enriched uranium subsequently purchased by ten Japanese utilities from the Atomic Energy Commission (AEC) and stored on its reservation in Oak Ridge, Tennessee enjoyed sovereign immunity from local commercial property taxes. The Japanese claim, apart from posing a diplomatic issue between Japan and the United States, embroiled the Department of State and the AEC (and its successor, the Energy Research and Development Administration (ERDA)) with each other and with the Department of Justice, threatened controversy between Tennessee and Washington, and eventually resulted in the Japanese utilities’ settling the matter for $4.5 million. Although the settlement deprived posterity of a decision on the issue, this unique case remains not simply an entertaining episode but also a useful lesson in defense against claims of sovereign immunity. While the Foreign Sovereign Immunities Act of 1976 was intended substantially to eliminate the role of the Department of State in sovereign immunity disputes, the Act could not have been successfully invoked in this case, even had it been in effect, as related below.

Type
Three Perspectives on Sovereign Immunity
Information
American Journal of International Law , Volume 71 , Issue 3 , July 1977 , pp. 438 - 460
Copyright
Copyright © The American Society of International Law 1977

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References

1 Pub. L. No. 94-583, 28 USC §1, 90 Stat. 2891, 15 ILM 1388 (1976). See also Official Documents section, infra pp. 595-601.

2 Text of a Joint Statement Following Meetings Between Prime Minister Kakuei Tanaka and President Richard Nixon at Kuilima, Oahu, Hawaii, Aug. 31-Sept. 1, 1972, 67 Dept. State Bull. 331 (1972).

3 Id. 332.

4 These were undoubtedly the purchases by All Nippon Airways of Lockheed L-1011 Tristar jetliners, which involved allegedly improper payments by Lockheed of $12.6 million to private persons and public officials in Japan and which have led to the arrest of 15 persons in Japan, including former Prime Minister Tanaka. See N.Y. Times, July 27, 1976, at 1, col. 4; Time, Aug. 9, 1976, at 23.

5 “Enrichment services” refer to the process whereby a quantity of uranium is “enriched” “to include a higher percentage of the isotope U235 than is normally present, rendering a much more productive fuel source. The uranium material subjected to this process is commonly referred to as “feed material.” Generally the AEC would sell preproduced enriched uranium in return for a stated price per “separative work unit” of enrichment services and delivery to the AEC of an equivalent amount of “unenriched” uranium feed material.

6 Answers of Appellants to Interrogatories of Appellee, City of Oak Ridge, No. 42, In re Chubu Electric Power Co., Inc., (Assessment App. Comm'n, Tenn. Bd. Tax Equal., May 28, 1976) (hereinafter cited as Answers to Interrogatories).

7 Id., Nos.44,45,47,57.

8 Id., Nos. 13-15, 18, 19, 23, 24, 28-30, 34-36.

9 Id., No. 58.

10 Id., Nos. 2, 5, 9, 22.

11 AEC Press Release No. P-269 (Sept. 1, 1972).

12 Atomic Energy Act of 1954, 42 U.S.C. §2153.

13 Agreement for Cooperation with Japan Concerning Civil Uses of Atomic Energy, Feb. 26, 1968, [1968] 4 UST 5214, TIAS No. 6517, as amended, Feb. 24, 1972, [1972] 1 UST 275, TIAS No. 7306, March 28, 1973, [1973] 2 UST 2323, TIAS No. 7758 (hereinafter cited as Cooperation Agreement).

14 AEC Press Release No. P-269 (Sept. 1, 1972).

15 Id.

16 Record at 136, In re Chubu Electric Power Co., Inc., (Assessment App. Comm'n, Tenn. Bd. Tax Equal., May 28, 1976) (hereinafter cited as Appellate Record); Record at 20-21, State ex rel. Haddock v. Chubu Electric Power Co., No. 9370 (Roane County Ch., Tenn., Dec. 1, 1975) (hereinafter cited as Trial Record).

17 Id.

18 See. Business Week, Dec.22, 1975, at 15, 16; Wall St. J.,Oct.28,1975, at 1, col.4.

19 65 Dept. State Bull. 253 (1971); N.Y. Times, Aug. 16, 1971, at 1, col. 8.

20 65 Dept. State Bull. 121 (1971); N.Y. Times, July 16, 1971, at 1, col. 8.

21 United States-People's Republic of China: Joint Communique, Feb. 28, 1972, 11 ILM 443 (1972).

22 Answers to Interrogatories, supra note 6, No. 59.

23 See Minute of Japan-U.S. Discussions on Availability of Enrichment Services to Japan (on file at the offices of ERDA).

24 See Memorandum on Behalf of the Embassy of Japan in Support of a Suggestion of Immunity, filed with the Department of State on Jan. 19, 1976, at 11-12, (hereinafter cited as Memorandum of Japan).

25 E.g., Agreement for Advance Sale of Uranium Enrichment Services, Feb. 6, 1973, between ERDA and The Chubu Electric Power Company, Incorporated, Art. 11(2) (on file at the offices of ERDA).

26 Id., Arts. 11(2), (3).

27 Id., Art. X(l).

28 Id., General Terms and Conditions, para. 7.

29 Id., para. 11.

30 Id., para. 15.

31 E.g., Storage Agreement between ERDA and The Tokyo Electric Power Co., Inc., Feb. 8, 1973, paras. 2, 5, 9(a), 10, 13 (on file at the offices of ERDA).

32 State ex rel. Roberts v. Chubu Electric Power Co., No. 9362 (Roane County Ch., Tenn., Dec. 1, 1975).

33 See Washington Post, Sept. 25, 1975, at 1, cols. 1-3.

34 Diplomatic Note of the Embassy of Japan, Oct. 24, 1975 (on file at the offices of the Department of State).

35 State ex rel. Roberts v. Chubu Electric Power Co., No. 9362 (Roane County Ch., Tenn., Dec. 1, 1975).

36 Id.

37 See, e.g., Leigh, Sovereign Immunity —The Case of the “Imias,” 68 AJIL 280, 281-89 (1974); Lowenfeld, Litigating A Sovereign Immunity Claim —The Haiti Case, 49 N.Y.U.L. REV. 377, 391-95 (1974).

38 See, e.g., Spacil v. Crowe, 489 F.2d 614 (5th Cir. 1974).

39 E.g., N.Y. Times, Nov. 4, 1975, at 1, col. 6. Indeed, such speculation continued throughout the length of the proceedings and beyond. E.g., Time, Aug. 2, 1976, at 12; Time, Aug. 9, 1976, at 7, 14-15.

40 See p. 450 infra.

41 Following delivery of its Diplomatic Note, the Japanese Embassy was informed by the Department of State of its informal procedures for considering and determining claims of sovereign immunity, which included an opportunity for both parties to submit written briefs and make oral presentations, either directly or through counsel. Nelson, Contemporary Practice of the United States Relating to International Law, 64 AJIL 631, 650 (1970).

42 See Motion of the Embassy of the Government of Japan to Intervene, filed with the Assessment Appeals Commission of the Tennessee Board of Tax Equalization on December 23, 1975.

43 See Restatement (Second) Of Foreign Relations Law Of The United States §71(2) (1965).

44 The Anne, 16 U.S. (3 Wheat.) 435, 445-46 (1818); accord, The Sao Vicente, 260 U.S. 151 (1922); Victory Transport Inc. v. Comisaria General, 336 F.2d 354, 358 n.7 (2d Cir. 1964), cert, denied, 381 U.S. 934 (1965); The Secundus, 13 F.2d 469, 472 (E.D.N.Y. 1926).

45 Kunglig Jarnvagsstyrelsen v. Dexter&Carpenter, Inc., 300 F. 891, 892-93 (S.D.N.Y. 1924), afi'd, 32 F.2d 195 (2d Cir.), cert, denied, 280 U.S. 579 (1929). See also Heaney v. Spain, 445 F.2d 501, 502 n.l (2d Cir. 1971) (Friendly, C.J.); Harris&Co. Advertising v. Cuba, 127 So.2d 687, 688-89 (Ct. App., 3rd Dist., Fla. 1961).

46 Ex Parte Muir, 254 U.S. 522, 527 (1921).

47 Kunglig Jarnvagsstyrelsen v. Dexter&Carpenter, Inc., 32 F.2d 195, 200 (2d Cir), cert, denied, 280 U.S. 579 (1929); The Sao Vicente, 295 F. 829, 831-32 (3rd Cir. 1924).

48 Victory Transport Inc. v. Comisaria General, 336 F.2d 354, 358 n.7 (2d Cir. 1964), cert, denied, 381 U.S. 934 (1965); The Sao Vicente, 281 F. I l l (2d Cir.), aff'd, 260 U.S. 151 (1922), related case, 295 F. 829, 831, 833 (3rd Cir. 1924).

49 The Uxmal, 40 F. Supp. 358 (D. Mass. 1941). See also Flota Maritima Browning de Cuba v. Motor Vessel Ciudad, 335 F.2d 619, 625 (4th Cir. 1964).

50 Appellate Record, supra note 16, at 14-22.

51 Ex Parte Peru, 318 U.S. 578, 588-89 (1943).

52 Irvin v. Quintanilla, 99 F.2d 935, 939 (5th Cir. 1938), cert, denied, 306 U.S. 635 (1939).

53 Pan American Tankers Corp. v. Vietnam, 391 F. Supp. 49 (S.D.N.Y. 1968).

54 Letter from Jack B. Tate, Acting Legal Adviser, Department of State, to Philip B. Perlman, Acting Attorney General, 26 Dept. State Bull. 984 (1952). The Tate Letter announced that thenceforth the United States would no longer follow its previous practice of automatically allowing immunity as to any sovereign despite the nature of the matter in dispute and would instead apply the “restrictive” theory denying such immunity with respect to commercial transactions. This policy was adopted in light of the increased tendency on the part of foreign countries to conduct business abroad through governmental entities rather than through private companies and the consequent trend of other countries to adopt such restrictive theory. Id. For a comprehensive review of both historical and present United States practice in the field of sovereign immunity, see Lowenfeld, Claims Against Foreign States —A Proposal for Reform of United States Law, 44 N.Y.U.L. Rev. 901 (1969).

55 E.g., Rich v. Naviera Vacuba S.A., 295 F.2d 24 (4th Cir. 1961); Chemical Natural Resources, Inc. v. Venezuela, 420 Pa. 134, 215 A.2d 864 (1966).

56 Leigh, supra note 37, at 280, 281, 285, 289.

57 324 U.S. 30 (1945). In that case, the Supreme Court, speaking through Chief Justice Stone, stated: “It is therefore not for the counts to … allow an immunity on new grounds which the government has not seen fit to recognize.” Id. at 35.

58 318 U.S. 578, 586 (1943).

59 11 Colum. J. Transnatl. L. 334, 343-44 (1972).

60 United States of Mexico v. Schmuck, 293 N.Y. 264, 56 N.E.2d 577 (1944); Stephen v. Zivnostenska Banka Natl Corp., 15 App. Div. 2d 111, 222 N.Y.S.2d 128 (1st Dep't. 1961), affd, 12N.Y.2d 781, 186 N.E.2d 676, 235 N.Y.S.2d 1 (1962); Republic of Cuba v. Arcade Building of Savannah, Inc., 104 Ga. App. 848, 123 S.E.2d 453 (1961); Note, Statutory Reform in Claims Against Foreign States: The Belman-Lowenfeld Proposal, 5 Vand. J. Transnatl. L. 393, 417 (1972); see also 13 Harv. Intx. L. J. 527, 532-33 (1972): Should a court be willing to push [considerations of damage to international relations and embarrassment to the executive branch] aside if it is shown that the foreign sovereign agreed prior to suit that it would not rely on any defense available to it as a sovereign nation? … [T]he existence of the waiver might be thought to lessen the danger to foreign relations, inasmuch as the sovereign has indicated its consent to suit. Additionally, the private plaintiff may have bargained for inclusion of the waiver clause, and reasonably relied on its enforceability.

61 446 F.2d 1198 (2d Cir.), cert, denied, 404 U.S. 985 (1971).

62 See 13 Harv. Intl. L. J. 527, 533 (1972).

63 Quoted at id; see also Letter from John R. Stevenson, Legal Adviser, to Lakshmi Kant Jha., Ambassador of India, June 22, 1971, in 1971, A.M.C. 1834.

64 Pub. L. 94-583.

65 [1953] 4 UST 2063, TIAS No. 2863.

66 U.S. Const. Art. VI, CI. 2.

67 Petrol Shipping Corp. v. Kingdom of Greece, 360 F.2d 103, 107, 110 (2d Cir.), cert, denied, 385 U.S. 931 (1966) (contractual submission to arbitration found sufficient to render sovereign amenable to suit and sufficient for denial of immunity); Victory Transport, Inc. v. Comisaria General, 336 F.2d 354, 361 (2d Cir. 1964), cert, denied, 381 U.S. 934 (1965) (“[O]ne of the most significant indicators of die private commercial nature of this charter is the inclusion of the arbitration clause“); Premier Steamship Co. v. Embassy of Algeria, 336 F. Supp. 507 (S.D.N.Y. 1971) (grant of order appointing an arbitrator and directing that arbitration proceed in the manner provided for in the contract between the parties); Pacific Molasses Co. v. Comite de Ventas de Mieles, 30 Misc. 2d 560, 219 N.Y.S.2d 1018, 1020 (Sup. Ct., N.Y. Co., 1961) (contractual consent to referral of any controversy to courts having jurisdiction under international law held to be a waiver of sovereign immunity); cf. Isbrandtsen Tankers, Inc. v. President of India, 446 F.2d 1198, 1199-200 (2d Cir.), cert, denied, 404 U.S. 985 (1971).

68 363 F.2d 733, 737 (4th Cir.), cert, denied, 385 U.S. 837 (1966).

69 See Restatement (Second) Of Foreign Relations Law Of The United States §564, 65, Comment d (1965); Deák, Immunities and Privileges of State Organs and of the State, In Manual Of Public International Law 473 (M. Sørensen, ed. 1968).

70 Oliver Am. Trading Co. v. Mexico, 5 F.2d 659 (2d Cir. 1924), cert, denied, 267 U.S. 596 (1925); In re Investigation of World Arrangements, etc., 13 F.R.D. 280 (D.D.C. 1952); F. W. Stone Eng'r Co. v. Petroleos Americanos, 352 Pa. 12, 42 A.2d57 (1945); United States of Mexico v. Schmuck, 293 N.Y. 246, 56 N.E.2d 577 (1944); Mason v. Intercolonial Ry. of Canada, 197 Mass. 349, 83 N.E. 876 (1908); Bradford v. Director Gen. of R.Rs. of Mexico, 278 S.W. 251 (Tex. Civ. App. 1925); Dunlap v. Banco Central del Ecuador, 41 N.Y.S.2d 650 (Sup. Ct., N.Y. Co. 1943).

71 Cooperation Agreement, supra note 13, Art. VI.

72 Letter from Kenichi Murakami, Atomic Energy Attache, Embassy of Japan, to Samuel D. Tatalovich, Chief, Materials and Services Branch, Div. of Int'l Programs, AEC, March 12, 1973.

73 See note 12 supra.

74 Argentina (June 25, 1969, 20 UST 2587, TIAS No. 6721), Australia (June 22, 1956, 8 UST 738, TIAS No. 3830), Austria (July 11, 1969, 21 UST 10, TIAS No. 6815), Brazil (July 17, 1972, 23 UST 2477, TIAS No. 7439), Rep. of China (April 4, 1972, 23 UST 945, TIAS No. 7364), Colombia (April 9, 1962, 14 UST 388, TIAS No. 5330), Denmark (February 29, 1968, 19 UST 4669, TIAS No. 6459), Greece (August “4, 1955, 6 UST 2635, TIAS No. 3310), India (August 8, 1963, 14 UST 1484, TIAS No. 5446), Indonesia (June 8, 1960, 11 UST 2024, TIAS No. 4557), Iran (March 5, 1957, 10 UST 733, TIAS No. 4207), Israel (July 12, 1955, 6 UST 2641, TIAS No. 3311), Korea (November 24, 1972, 24 UST 775, TIAS No. 7583), The Philippines (June 13, 1968, 19 UST 3589, TIAS No. 6522), Portugal (May 16, 1974, 25 UST 1125, TIAS No. 7844), South Africa (July 8, 1957, 8 UST 1367, TIAS No. 3885), Spain (March 20, 1974, 25 UST 1063, TIAS No. 7841), Sweden (July 28, 1966, 17 UST 1176, TIAS No. 6076), Switzerland (December 30, 1965, 17 UST 1004, TIAS No. 6059), Turkey (June 10, 1955, 6 UST 2703, TIAS No. 3320), Venezuela (October 8, 1958, 11 UST 104, TIAS No. 4416), and Republic of Viet-Nam (April 22, 1959, 10 UST 1150, TIAS No. 4251).

75 Cf. Victory Transport, Inc. v. Comisaria General, 336 F.2d 354, 361 (2d Cir. 1964), cert, denied, 381 U.S. 934 (1965).

76 Cooperation Agreement, supra note 13, Arts. 1(G), 11(B).

77 Id., Art. VIII(F).

78 Id., Art. VI(C).

79 See 2 Hackworth, Digest Of International Law 465, 467 (1941); Bishop, Immunity From Taxation of a Foreign State-Owned Property, 45 AJIL 239, 258 (1952).

80 446 F.2d 1198 (2d Cir.), cert, denied, 404 U.S. 985 (1971).

81 See Letter from John R. Stevenson, Legal Adviser, Department of State, to John N. Mitchell, Attorney General, Sept. 16, 1970, in 1971 A.M.C. 1833. See also 13 Harv. Intl. L. J. 527, 528 (1972).

82 See note 4 supra.

83 p Memorandum on Behalf of the City of Oak Ridge and Roane County, Tennessee m Opposition to the Request of the Government of Japan for a Suggestion of Immunity, filed with the Department of State on March 1, 1976 at 52, n. 30 (hereinafter cited as Memorandum of Oak Ridge). See Washington Post, Feb. 27, 1976, at 14, col. 1, and N.Y. Times, Feb. 27, 1976, at 7, col. 1 (city ed.).

84 ADM Milling Co. v. Bolivia, 14 ILM 1279 (1975) (D.D.C. 1975); Renchard v. Humphries&Harding Co., 381 F. Supp. 382, 385 n. 2 (D.D.C. 1974); Amkor Corp. v. Bank of Korea, 298 F. Supp. 143, 144 (S.D.N.Y. 1969); Ocean Transport Co. v. Ivory Coast, 269 F. Supp. 703 (E.D.La. 1967).

85 H.R. 11315, 94th Cong., 1st Sess. §1603(d) (1975); H.R. 3493, 93d Cong., 1st Sess. §1603(b) (1973). This legislation, in slightly amended form, was recently signed into law. See note 1 supra.

86 Memorandum of Japan, supra note 24, at 39.

87 Leigh, New Departures in the Law of Sovereign Immunity, 63 Asil Proc. 187, 192 (1969).

88 Memorandum of Japan, supra note 24, at 43.

89 AEC Press Release No. P-269 (Sept. 1, 1972).

90 See KY. Rev. Stat. Ann. §§131.190 et seq. (1969); Ohio Rev. Code Ann. §§5709.01 et seq. (1973). Likewise overstated were the Japanese complaints that the utilities had no “dominion” or “control” over the uranium stored at Oak Ridge. Memorandum of Japan, supra note 24, at 16, 36, 43. The utilities owned the uranium and under their contracts could have taken possession at any time they satisfied the terms of the contracts requiring replacement of feed material. As the Japanese Government itself admitted, the utilities subsequently conveyed title to the uranium. Id., at 20.

91 Answers to Interrogatories, supra note 6, No. 52.

92 Id., Nos. 44, 45, 47.

93 Memorandum of Japan, supra note 24, at 43.

94 Trial Record, supra note 16, at 13.

95 Memorandum of Japan, supra note 24, at 45.

96 The Constitution of Tennessee, Article II, Section 28, has provided for many years for such taxation. The only recent change was a reduction in the rate applicable to the uranium from 40% to 30% which became effective January 1, 1973.

97 Memorandum of Oak Ridge, supra note 83, at 64-66.

98 Pub. L. 94-583 §4(a).

99 Id.

100 See Department of State Public Notice No. 507, in which the Legal Adviser declares: Future Department of State interests. The Department of State will not make any sovereign immunity determinations after the effective date of P.L. 94-583. Indeed, it would be inconsistent with the legislative intent of that Act for the Executive Branch to file any suggestion of immunity on or after January 19, 1977. 41 Fed. Reg. 50, 883, 71 AJIL 343 (1977), 15 ILM 1437 (1976).