Kalamazoo Spice Extraction Co. v. The Provisional Military Government of Socialist Ethiopia

The Kalamazoo Spice Extraction Co. (Kal-Spice) (defendant) was an American corporation that held a substantial majority interest in an Ethiopian corporation called the Ethiopian Spice Extraction Company (ESESCO). The Provisional Military Government of Socialist Ethiopia (PMGSE) (plaintiff) was the provisional Ethiopian government that came into power in 1974. In pursuit of its socialist policy, PMGSE seized the majority of shares of ESESCO in February 1975, thereby reducing Kal-Spice’s ownership interest in ESESCO by more than half. Kal-Spice sought compensation from PMGSE in the amount of $11,000,000, but PMGSE responded with an offer of the equivalent of $450,000 in Ethiopian currency, which Kal-Spice rejected. Shortly before PMGSE expropriated Kal-Spice’s shares in ESESCO, Kal-Spice placed a large order for spices to be delivered to its facilities in Michigan. To fulfill the order, ESESCO shipped over $1.9 million worth of spices to Michigan, some before the PMGSE’s expropriation of the majority of ESESCO shares and some after. Kal-Spice initially made payments on the spices it received but ultimately ceased paying on the order after realizing that PMGSE was not going to compensate Kal-Spice for the ESESCO shares PMGSE had expropriated. PMGSE sued Kal-Spice for breach of contract, and Kal-Spice counterclaimed for the losses it suffered from PMGSE’s expropriation of Kal-Spice’s ESESCO shares. At the time of the expropriation, the United States and Ethiopia were parties to the United States-Ethiopia Treaty of Amity and Economic Relations (treaty), which provided that property belonging to companies from either the U.S. or Ethiopia would not be taken without prompt payment of just and effective compensation. The district court dismissed Kal-Spice’s counterclaim on the grounds that the act-of-state doctrine precluded adjudication of Kal-Spice’s claim for damages against PMGSE. Kal-Spice appealed.