Appendix — First Nat. City Bank v. Banco Nacional De Cuba
Supreme Court brief1972
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APPENDIX. i
FILED
In THE NOV 26 197)
Supreme Court of the Upttadee tates cur
eee eee oa
Ocroser Term, 1971 —
No. 70-295
FIRST NATIONAL CITY BANK,
Petitioner,
BANCO NACIONAL DE CUBA,
Respondent.
On Writ of Certiorari to the
United States Court of Appeals
for the Second Circuit
Petition for Certiorari filed June 17, 1971
Certiorari graxted October 12, 1971
INDEX
I ak cic sc esi ceiclieectemanie
Amended Complaint (Exhibit omitted)
Answer to Amended Complaint ~-.---_.--.._-___-
Second Amended Reply of Plaintiff _._____________
Opinion and Order of the United States District
Court, Southern District of New York __________ 34
Opinion of the United States Court of Appeals for
Se NOG CATON 2... nccncncencseccsceaunnn ~ 48
Order of the Supreme Court -_-----_--_-_-________ 71
Opinion on Remand of the United States Court of
Appeals for the Second Cireuit ______._-_______- 72
Order of the Supreme Court _____________________ 88
UNITED STATES DISTRICT COURT
SouTHERN District or New York
No. 60 Civ. 4664
Banco Nacrionau DE Cusa,
Plawmntiff,
Vv.
THe First Nationa City Bank or New York,
Defendant.
Docket Entries
Date Proceedings
Nov. 28-60—Filed complaint & issued summons.
Dec. 660—Filed summons & return—served deft. 11-30-
60.
Dec. 19-60—Filed stip. & order extending time for deft. to
answer to 1-9-61. Clerk.
Jan. 9-61—Filed stip. & order extending time for deft. to
answer to 1-19-61. Clerk.
Jan. 19-61—Filed deft’s Answer to the complaint.
Mar. 6-61—Filed pltff’s amended complaint.
Mar. 6-61—Filed deft’s answer to amended complaint.
Mar. 28-61—Filed stip. & order extending time for pltff. to
answer to 4-10-61. Noonan, J.
Apr. 11-61—Filed pltff’s Reply to counterclaim.
Apr. 21-61—Filed pltff’s amended reply to counterclaim.
May 24-61—Filed affdvts., exhibits & notice of motion for
. summary nidemient for deft. on first and
second causes of action of amended com-
plaint and for setoffs & counterclaims
pleaded in its answer to the amended com-
plaint—Ret. 6/6/61.
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Date Proceedings
June 15-61—Memorandum endorsed on notice of motion
filed 5/24/61—Motion adjourned from cal.
endar of 6/13/61 to 7/25/61. No interest to
be charged from original return date of -
June 6, 1961 to July 25, 1961. So ordered—
Levet, J.
May 26-61—Filed deft’s statement pursuant to Rule 9(g).
May 26-61—Filed deft’s memorandum of law in support of
motion for summary judgment.
July 14-61—Filed affdvt., notice of motion for an order
granting leave to pltff. to serve 2nd amended
reply—ret. 7/25/61.
July 14-61—Filed pltff’s Memorandum in support.
July 20-61—Filed pltff’s affidavits of Victor Rabinowitz &
Dr. Raul Lopez Gonzalez in opposition to
motion for summary judgment.
July 20-61—Filed pltff’s memorandum in opposition to
motion for summary judgment.
July 20-61—Filed pltff’s statement pursuant to rule 9(g),
federal rules of Civil procedure.
July 26-61—Memo endorsed on notice of motion filed
7/14/61.—Motion granted. So ordered.
Bryan, J.—mailed notices.
Aug. 1-61—Filed pltff’s 2nd amended Reply to complaint.
Aug. 7-61—Filed order assigning case to Bryan, J. for all
purposes—Ryan, J. (filed in 60-663).
_ Aug. 23-62—Filed Order to Show Cause why an order
should not be made granting leave for ap-
plicants to intervene, etc. ret. Aug. 28/62,
with affdvt. & pleadings.
; |
Date _ Proceedings
Aug. 28-62—Memo endorsed on order to show cause filed
. 8-23-62—This motion is respectfully re-
ferred to Judge Bryan—Levet, J.
Oct. 22-62—Filed affdvt. of Victor Rabinowitz.
Nov. 5-62—Memo endorsed on order to show cause filed
~ 8/23/62—Motion granted without opposi-
’ tion. Applicants for intervention are made
‘parties to the action & proposed pleadings,
will be deemed their pleadings as interven-
ors & deemed served upon other ptys. in
this action. This is an order. Bryan, J.
mn.
Apr. 20-64—P re-trial conference held, Bryan, J.
May 28-64—Filed pltff’s affdvt. & notice of motion for
summary juigment—Ret. before Bryan, J.
at a time to be set by Court.
June 22-64—Filed affdvt. of Henry Harfield.
June 22-64—Filed pliff’s supplemental brief in support of
motion for summary judgment.
July 24-64—F led pltff’s response to deft’s reply of 7-8-64.
July 21-67—Filed deft’s reply brief.
July 21-67—Filed deft’s reply memorandum.
July 21-67—Filed deft’s memorandum.
July 21-67—Filed deft’s memorandum.
July 21-67—Filed memorandum Opinion #33857—def?’s
motion for summary judgment on 2nd claim
is granted—judgment will be entered ac-
cordingly—pltff’s cross-motion for sum-
mary judgment on its Ist claim & on the
counterclaims is denied—deft’s motion for
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Date Proceedings
summary judgment on the Ist claim is
denied since there are triable issues the cage
will be :vied on the sole issue of amt. which
deft. is entitled to assert by way of set-off—
So Ordered—Bryan, J. M/N.
July 27-67—Filed affdvt. of Henry Harfield in opposition
to pltff’s motion to resettle the order of this
Court dated July 20, 1967.
July 27-67—Filed judgment & order that deft. 1st Nat'l
City have judgment against pltff. Banco
Nacional De Cuba dismissing the 2nd claim
for relief—Rryan, J. judgment entered—
Clerk m/n. Ent. 28-67.
Aug. 14-67—Filed pltff’s notice of appeal—mailed copy to
Shearman & Sterling.
Oct. 13-67—Filed memo endorsed on unsigned order—
pltff’s motion for resettlement is in all re-
spects denied. It is so ordered—Bryan, J,,
mailed notice.
Nov. 1-67—Pre-trial eonference held—Before Bryan, J.
Mar. 22-68—Filed stip. & order—If the dett. is lawfully
entitled to the offset claimed by it, the
amount thereof is such that pltff. will take
nothing in this action. This stipulation is
made solely for the purpose of permitting
entry of a final order & judgment on deft’s
motion for summary judgment so that pltif.
may perfect an appeal from the determina-
tions of law made in the court’s opinion
dated 7-21-67. Pltff. does not, for any other
purpose, make any admissions as to fact or
law which may be adverse to it.—So or-
dered—Bryan, J.
5
EP
Date Proceedings
Apr. 26-68—Filed J udgment—Ordered, adjudged & de-
creed that the pltff. take nothing, & that the
action be dismissed on the merits & that the
deft. First National City Bank have & re-
cover its costs from the pltff., Banco Na-
cional De Cuba.—Bryan, J. Judgment ent.
4-26-28—Clerk mailed notice. Ent. 4-29-68.
May 20-68—Filed pltff’s Notice of Appeal. Mailed copy
to: Shearman & Sterling.
SS SO SRE Fem a
6
UNITED STATES COURT OF APPEALS
For tu 3 Seconp CIRcuIT
Nos. 480 and 481—September Term, 1969
Docket Nos. 32533 and 33864
Banco NacionaL De Cusa,
Appellant,
v.
Tux First Nationau Ciry Bank or New York,
Appellee,
Date Proceedings
July 12-68—Filed record (original papers of District |
Court) (order 7/27/67).
July 12-68—Dep. Acct. 10241 (4702) CD :£7.
July 12-68—Filed order extending time to file record to
7-12-68 (& in 33864).
July 12-68—Filed record (original papers of District
Court) (& in 33864).
Aug. 15-68—Filed order extending time to serve appel-
lant’s designation of the parts of the record,
etc. to 9-13-68.
Aug. 1-69—Keceived Docket Fee (Banco Nacional de
Cuba) (order 4/26/68) (& in 33864).
Aug. 6-69—Filed supplemental record (original papers of
District Court) (& in 33864).
Dec. 11-69—Filed order extending time to file appellant's
brief to 12-12-69 (& in 33864).
Dee. 12-69—Filed joint appendix, with proof of service
(& in 33864).
———————————_
7
Date Proceedings
Dec. 12-69—Filed brief, appellant with proof of service
(& in 33864).
Jan. 2-70—Filed order extending time to file appeliee’s
brief, to 2-13-70.
Feb. 10-70—Filed order extending time to file appellees
and intervenors brief to 2-27-70 (& in 33864).
Feb. 27-70—Filed brief, intervenors with proof of service
(& in 33864).
Feb. 27-70—Filed brief, appellee with proof of service
(& in 33864).
Mar. 16-70—Filed order extending time to file appellant’s
reply brief to 3-16-70 (& in 33864).
Mar. 16-70—Filed reply brief, appellant with proof of ser-
vice (& in 33864).
Mar. 23-70—Argument heard (by: Lumbard, Hays, CJJ &
Blumenfeld, DJ) (& in 33864).
July 16-70—Judgment Reversed and Action Remanded,
Lumbard, ChJ. (& in 33864).
July 16-70—Filed judgment (& in 33864) Vacarep 2-25-71.
July 30-70—Filed motion to stay issuance of mandate
(with proof of service) (& in 33864).
Aug. 4-70—Filed affidavit in opposition to raotion to stay
issuance of mandate with proof of service
(& in 33864).
Aug. 5-70—Filed reply affidavit in response to opposition
papers with proof of service (& in 33864).
Aug. 19-70—Filed order granting motion for a further stay
of the mandate to 10-14-70 (& in 33864).
Oct. 16-70—Filed notice of filing of petition for writ of
certiorari (& in 33864).
Pacaeerteriasiivsis: WP nue Man Acts
8
SUPREME COURT OF THE UNITED STATES
No. 846—October Term, 1970
First Nationat City Bank,
Petitioner
v.
Banco Nacronat, DE Cusa,
Respondent
Date Proceedings —
Oct. 13-70—Petition for writ of certiorari filed.
Nov. 10-70—Order extending time to file response unti
11-16-70.
Nov. 16-70—Brief in opposition filed.
Nov. 17-70—Reply brief of petitioner filed.
Nov. 20-70—Memorandum filed. (Gov’n.)
Dec. 19-70—Answer of Banco Nacional De Cuba to meno
, randum submitted by Solicitor General.
Jan. 471—Petition distributed.
Jan. 25-71—Petition granted. Adjudged to be vacated an
remanded. See Orpen.
Feb. 23-71—Judgment issued.
. 15-71—-Motion of respondent for waiver of clerk’
costs filed.
. 16-71—-Motion above distributed.
May 3-71—Motion of respondent for waiver of clerk’
costs is denied. See OrpER.
9
UNITED STATES COURT OF APPEALS
For THE SEcoND Circuit
Nos. 798, 799—September Term, 1970
Docket Nos. 32533 and 33864
Banco Nactonat De Cusa,
Appellant,
v.
Tue First Nationat City Bank or New Yor,
Appellee.
Date Proceedings
Feb. 1-71—Filed notice from Supreme Court granting
petition for writ of certiorari; vacating
judgment of this Court and remanding
action to Court of Appeals for reconsidera-
tion, ete. (& in 33864).
Feb. 25-71—Filed certified copy of order of Supreme Court
granting petition for writ of certiorari (&
in 33864).
Feb. 25-71—Filed certified copy of judgment of Supreme
Court vacating judgment of this Court with
costs and remanding action to the U. S.
Court of Appeals for reconsideration, etc.
(& in 33864).
Feb. 25-71—Filed order directing that additional briefs of
parties may be accepted.
Feb. 25-71—Filed brief and appendix, appellant with proof
of service (& in 33864).
Feb. 25-71—Filed brief, appellee with proof of service
(& in 33864).
Mar. 12-71—Filed reply brief, appellant with proof of serv-
ice (& in 33864).
EE
-
*
10
Date Proceedings
Mar. 12—.1—Filed reply brief, appellee with proof of sery-
ice (& in 33864).
Mar. 18-71—Argument heard (by: Lumbard ChJ & Hays,
CJ & Blumenfeld, DJ) (& in 33864).
Apr. 27-71—Judgment Reversed and Action Remanded,
Lumbard, ChJ (& in 33864).
Apr. 27-71—Dissenting in separate opinion, Hays, CJ (&
in 33864).
Apr. 27-71—Filed judgment (& in 33864).
May 5-71—Filed copy of notice by Supreme Court deny-
ing waiver of clerk’s costs.
May 12-71—Filed motion to further stay issuance of man-
date (& in 33854).
May 24-71—Filed order granting motion to further stay
issuance of mandate (& in 33864).
June 17-71—Filed notice of Supreme Court (by Telephone)
of filing of petition for writ of certiorari (&
in 33864).
June 21-71—Filed notice of filing of petition for writ of
certiorari (& in 33864).
June 21-71—Filed certificate of filing of petition for writ
of certiorari (& in 33864).
July 15-71—Filed copy of notice extending time te file a
response to the petition for a writ of cer-
: tiorari in Supreme Court to 9-1-71 (& in
{ 33864).
Oct. 28-71—Filed certified copy of order of Supreme Court
granting petition for writ of certiorari (&
in 33864).
Nov. 11-71—Certified original, supplemental record and
proceedings for Shearman & Sterling, Esqs.
(& in 33864).
11
Amended Complaint
(Exuisit OMITTED)
UNITED STATES DISTRICT COURT
SourHern District or New YorK
[Tirtz Omittep]
Plaintiff, by its attorneys, Rabinowitz & Boudin, for its
Amended Complaint herein, alleges:
As AND For A First Cause or ACTION:
1. Plaintiff is a corporate body existing under and by
virtue of the laws of the Republic of Cuba, authorized to
administer the domestic and foreign credit operations of
the Republic of Cuba as its agent and having its principal
ofice in Havana, Cuba.
9 Defendant is a national banking association, duly
organized and existing under the laws of the United States
of America, with its principal office located in the City of
New York.
3. The jurisdiction of this Court is invoked under 28
U.S. C. 1332, in that plaintiff is a foreign corporation and
defendant is a citizen of the State of New York, and the
amount in controversy excceds, exclusive of interest and
costs, the sum of $10,000.
4. On or about July 8, 1958, the defendant entered into
a contract with Banco de Desarrollo Economico y Social
(hereinafter referred to as Bandes) and with Fondo de
Shayne OLEATE S
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Sil SSeS a pete A RRA ore te ND Lovb arty Ais lm tieteycs Bek ieee .
12
Establizacion de la Moneda (hereinafter referred to g
Fondo), by the terms of which the defendant loaned {
Bandes the sum of $15,000,000, for a period of one year
said loan being secured by United States Government obli
gations, owned by Fondo, having a face value in excess 0:
_ $15,000,000. Bandes and Fondo were both autonomous in
stitutions of the Republic of Cuba, having been duly create
by the laws of said Republic. A copy of said contract i
annexed hereto.
5. On or about July 8, 1959, said loan was extended fo:
a period of one year.
6. By virtue of Laws 730 and 847, as amended, of th
Republic of Cuba, dated respectively February 16, 1960 an
June 30, 1960, Bandes was dissolved and the plaintiff suc
ceeded to certain of its liabilities, including the obligatio
to repay the loan hereinabove referred to. The Republi
of Cuba guaranteed the payment of such loan by plaintifi
7. Ox: July 7, 1960, plaintiff made a part payment o
said loan to the extent of $5,000,000; at the same time, th
loan of the unpaid balance of $10, 000 000 was extended fo
an additional period of one year.
8. On September 23, 1960, the defendant advised plair
tiff that the collateral held as security for the unpaid pot
tion of the loan had been sold and the proceeds applie
against the unpaid principal amount of the loan and inte!
est thereon.
9. Upon information and belief, the amount realize
by the sale of such collateral amounted to $12,412,000; ¢
this sum, $10,000,000 was applied to the unpaid princip:
amount of the loan and $65,000 was applied to the paymer
of interest on said unpaid portion of the loan for the perio
from July 7, 1960 to September 23, 1960, leaving a balan
due and owing from defendant to plaintiff amounting |
$2,347,000.
13
10. ‘On or about October 13, 1960, Fondg was dissolved
by virtue of Law No. 891 of the Republic of Cuba and by
virtue of said law plaintiff assumed all of the rights and
obligations of Fondo.
- 41. By virtue of the foregoing, there is now due and
owing from the defendant to the plaintiff the sum of
$2,347,000.
As AND FoR A SxconpD CavusE oF ACTION:
12. Plaintiff repeats and realleges each and every al-
legation contained in paragraphs 6677’, $9? and ‘3’ here-
inabove. |
12. Prior to October 17, 1960, Banco Gelats, Banco
Pujol, Banco de San Jose, Banco Castano, Banco Asturiano
de Ahorras, Banco de la Construccion and Trust Company
of Cuba were corporations organized and existing under
the laws of the Republic of Cuba. For some time prior-to
that date, said corporations had maintained accounts in
their respective names at the office of the defendant in New
York City.
14. On October 17, 1960, Banco Gelats, Banco Pujol,
Banco de San Jose, Banco Castano, Banco Asturiano de
Ahorras, Banco de la Construccion and Trust Company
of Cuba were nationalized by virtue of Law No. 891 of
the Republic of Cuba. By the terms of that law, plaintiff
became the legal successor of the property and assets of
said corporations. |
15. Upon information and belief, on October 17, 1960,
there was credited to the above mentioned accounts the
following sums: To the account of Banco Gelats the sum
of $209; to the account of Banco Pujol the sum of $248.86 ;
to the account of Banco de San Jose the sum of $17,783.24;
to the account of Banco Castano the sum of $683.51; to the
account of Banco Asturiano de Ahorras the sum of $73.59;
Ses.
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to the account of Banco de la Construccion the sum of
$101.82; and to the account of Trust Company of Cuba the
sum of $14,712.91.
16. On or about October i7, 1960, the defendant closed
the said accounts and appropriated the funds therein to
itself. Since that time, the defendant has refused to pay
over said sums to the plaintiff, although demand therefor
has been made.
17. By reason of the aforesaid, defendant is indebted
to the plaintiff in the sum of $33,812.93.
Wuenerore, plaintiff demands judgment against defend-
ant in the amount of $2,380,812.93, together~with interest
and the costs of this action. “
RasinowitTz & Bovupin
by Victron Rasinow1tTz
Attorneys for Plaintiff
Office & P. O. Box
25 Broad Street
New York 4, N. Y.
[Exursit OmirTep] oe
15 >
Answer to Amended Complaint
[ CAPTION Omirtep]
Defendant The First National City Bank of New York
answers the amended complaint herein as follows:
1. Defendant has no knowledge or informaiion sufficient
to form a belief as to the truth of any of the allegations
contained in paragraph 1 thereof except that prior to the
commencement of this action plaintiff became and at all
times since then has been and now is an agent and instru-
mentality of the Republic of Cuba wholly owned by said
Republic.
i»
y Admitted.
3. Defendant admits that plaintiff purports to invoke
the jurisdiction of this Court under 28 U.S.C. 1332 but
denies knowledge or information sufficient to form a belief
as to the truth of the allegation in paragraph 3 thereof that
plaintiff is a foreign corporation.
~
4, Defendant denies each and every allegation «cntained
in paragraph 4 thereof except that on or about July 8,
1958 defendant entered into a contract with Banco de
Desarrollo Economico y Social (referred to in the amended
complaint and hereinafter as ‘‘Bandes’’), Fondo de Hsta-
bilizacion de la Moneda (referred to in the amended com-
plaint and hereinafter as ‘‘Fondo’’) and plaintiff; that an
accurate copy of this contract is annexed to the amended
complaint; and except that defendant denies knowledge or
information sufficient to form a belief as to the truth of the
allegation that Bandes and Fondo were both autonomous
institutions of the Republic of Cuba.
5. Admitted.
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16
6. Defendant has no knowledge or information sufficient
to form a belief as to the truth of the allegations contained
in paragraph 6 thereof.
7. Defendant denies each and every allegation contained
in paragraph 7 thereof.
8. Defendant denies each and every allegation contained
in paragraph 8 thereof excepi that on September 23, 1960
defendant sent a cable to plaintiff reading as follows:
‘Syou ARE ADVISED THAT COLLATERAL HELD AS SECURITY
FOR DEMAND NOTE OF BANCO D™% DESARROLLO ECONOMICO
Y SOCIAL, DATED JULY 8, 1958, Has BEEN so AND
PROCEEDS APPLIED AGAINST PRINCIPAL AND INT
AS INDICATED IN OUR CABLE SEPTEMBER 20.”’
ST AND
‘‘oUR CABLE SEPTEMBER 20’’ referred to in said cable of
September 23, 1960 was a cable which defendant hz . sent
to plaintiff cn September 20, 1960 which read as follows:
‘¢rHIS IS TO NOTIFY YOU THAT IN VIEW OF ACTION TAKEN
RESPECTING OUR BRANCHES IN CUBA WE FAVE EXERCISED
OUR RIGHTS OF LIEN AND OFFSET AND CLOSED YOUR
ACCOUNTS AS OF SEPTEMBER 17”’
9. Defendant denies each and every ailegation con-
tained in paragraph 9 thereof.
10. Defendant has no knowledge or information sufi-
cient to form a belief as to the truth of any of the allega-
tions contained in paragraph 10 thereof.
11. Defendant denies each and every allegation con-
tained in paragraph 11 thereof.
12. Defendant repeats and realleges each and every
allegation contained in paragraphs 1, 2 and 3 hereof.
—_ ———————————————————s |
17
13. Defendant admits that for some time prior to and
up to on or about October 14, 1960 it maintained on its
books at its head office in New York City accounts in the
names of Banco Gelats, Baneo Pujol, Banco de San Jose,
Banco Castano, S. A., Banco Asturiano de Ahorros, S. A.,
Banco de la Construccion and The Trust Company of
(Cuba; and except as admitted by the foregoing defendant
denies knowledge or information sufficient to form a belief
as to the truth of any of the allegations contained in para-
graph 13 thereof.
14. Defendant has no knowledge or information suffi-
cient to form a belief as to the truth of any of the allega-
tions contained in paragraph 14 thereof.
15. Defendant denies each and every allegation con-
tained in paragraph 15 thereof.
16. Defendant denies eacli and every allegation con-
tained in paragraph 16 thereof.
17. Defendant denies each and every allegation con-
tained in paragraph 17 thereof.
For a First CoMpLeTE DEFENSE TO THE First
Cause or ACTION IN THE AMENDED CoMPLAINT
DEFENDANT ALLEGES:
18. This action is brought by and for the benefit of
the Republic of Cuba by and through its agent and wholly-
owned instrumentality, the plaintiff herein, which is in
fact and law and in form and function an integral part
of and indistinguishable from the Republic of Cuba.
18. In and before the year 1898 the territory of the
Republic of Cuba was a colony of the Kingdom of Spain.
In or about April 1898 the peoples of the territory of Cuba
asserted their right to independence. On or about April
j
Biter ronan area acer nee
Abe
Besititestetesitisicrces.c’ Y apenas Tia pe Tic GO Bette 4
7
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18
20, 1898 the United States of America recognized the inde.
pendence of the peoples of Cuba.
20. In consequence of such recognition the United
States of America engaged in war with the Kingdom of
Spain and carried on such war for and on behalf cf the
peoples of Cuba until the peoples of Cuba had been libe-
rated. On December 10, 1898, the Treaty of Paris was duly
executed by the United States of America and the Kingdom
of Spain, and pursuant to such Treaty the Kingdom of
Spain withdrew all of its forces, both military and civil,
from Cuba.
21. By reason of the action of the United States of
America, the peoples of Cuba were emancipated and were
enabled to and did establish an autonomous government
for themselves and for the area of Cuba. The United States
of America recognized the autonomous government of the
Republic of Cuba upon its creation and has continued to
_extend recognition to the successor lawful governments of
the Republic of Cuba.
22. From the inception of the said independent Republic
of Cuba, the laws of Cuba have provided for the private
ownership of property and for the protection of rights
concerning such private property; and by its establishment
and administration and enforcement of such laws and other-
wise, the Republic of Cuba initiaily and until the latter
part of the year 1960 represented that it would protect and
preserve all business legaliy established within the Re-
public of Cuba and all private rights acquired therein and
would protect and defend all such businesses lawfully
carrying out the legitimate objects thereof, and that it was
and at all times would be ready, willing and able to meet
all of its international commitments and otherwise conform
to the Law of Nations.
23. In reliance upon the representations made by the
Republic of Cuba for the protection of property and prop-
\ \ers
|
19
oor ie
erty rights and upon its integrity, good faith and dedication
to the principles of freedom, all as hereinabove set forth
in paragraph 22 hereof, and pursuant to the laws of Cuba
and to Section 25 of the Federal Reserve Act, the defend-
ant, in or about August, 1915, opened a branch of its
banking business in the City of Havana, Cuba, for the
purpose of carrying on the business of banking in further-
ance of the foreign commerce of the United States, and for
the provision of banking services and facilities for the
business activities of Cuba and its inhabitants and the
development of its natural resources and trade, all of which
comprise the economy of the Republic of Cuba; and in
further reliance on said representations, defendant con-
tinued to invest in the Republic of Cuba, additional funds
and to open and operate additional branches, and on Sep-
tember 16, 1960 defendant maintained and operated eleven
distinct and separate branches within the Republic of Cuba.
24. In 1958 the Republic of Cuba applied to the defend-
ant for financial assistance in the form of a loan of United
States dollars to be used for governmental purposes of
said Republic of Cuba. On or about July 8, 1958, in re-
sponse to this request, defendant entered into a credit
agreement, a copy of which is annexed to the amended
complaint, with three agencies or instrvmentalities of the
Republic of Cuba, designated by it for the purpose, namely,
Bandes, Fondo and plaintiff, which agreement provided
fora loan by defendant to Bandes of the sum of $15,000,000,
such loan to be secured by obligations of the United States
Government and of the International Bank for Reconstruc-
tion and Development (hereinafter called ‘‘the collateral’’)
pledged with the defendant for such purpose by the Repub-
lic eof Cuba through its agents and instrumentalities, Fondo
and plaintiff; and on or about July 8, 1958, at its head
office in the City of New York, the defendant received said
collateral in pledge and made the loan of $15,000,000 to the
Republic of Cuba through its agency and instrumentality,
Bandes.
PETOKA TOR 10 EL
DD eee PTET FTI a ees ree er eh iin owe
Bcoitsenciw: Oe RS ECR Pee a
20
25. On or about December 31, 1958 a new government
calling itself the Revolutionary Government of Cubs and
being under the leadership of one Fidel Castro as.umed
de factg control of the Republic of Cuba and on or about
January 7, 1959 the United States of America formally
extended recognition to Castro’s Revolutionary Govern.
ment.
26. Subsequent to January 7, 1959, the Republic of
Cuba formally and expressly reaffirmed its representations,
assurances and guaranties with respect to the preservation
of private property and with respect to the other matters
set forth in paragraph 22 hereof, anc to this end on or
about February 17, 1959 the Republic of Cuba by the said
Revolutionary Government promulgated the Fundamental
Law of Cuba, Articles 24 and 87 of which provided and still
provide, in English translation, as follows:
‘‘Article 24. Confiscation of property is pro-
hibited, but it is authorized for the property of the
Tyrant deposed on December 31, 1958 and of his
collaborators, of natural or juridical persons respon-
sible for crimes committed against the national econ-
omy or the public treasury, and those who are
enriched or have been enriched unlawfully under —
the protection of the public power. No other natural —
or juridical person can be deprived of his property —
except by competent judicial authority and for a ~
justifiable reason of public benefit or social interest
and always after payment of appropriate compensa-
tion in cash, fixed by court action. Non-compliance
with these requirements shall give the person whose
property has been expropriated the right to protec-
tion by the ccurts and, if the case warrants, to resti-
tion of his property.
‘‘The reality of the grounds for public benefit or
social interest and the need for expropriation shall
be decided by the courts in the event of challenge.”
21
‘‘ Article 87. The Cuban State recognizes the
existence and legitimacy of private property in its
broadest concept as a social function and without f
other limitations than those which, for reasons of §
public necessity or social interest, are imposed by
law.”’
ME ta cc
97. Inor about July 1959 the Republic of Cuba. through
its agent and instrumentality Bandes, requested the defend-
ant to forbear collection of uhe loan previously referred
to for a period of one year; and in reliance upon the repre-
sentations described in paragraphs 22 and 26 hereof the
defendant acquiesced in such request.
98. Inor about July 1960 the Republic of Cuba, through
its agent and instrumentality, the plaintiff herein, pro- ‘
posed to pay to the defendant on or before July 8, 1960
$5,000,000 of the indebtedness incurred as alleged in para-
graph 24 hereof and requested that a proportionate amount
of the collateral be released and that demaud for the bal-
lance be deferred for a period of a year; and the defendant,
in reliance upon the representations as set forth in para-
graphs 22 and 26 hereof, and upon the express pr«viso that
the continuance of the lear. was predicated on a continuance
of the then existing conditions, acquiesced in such request
by the Republic of Cuba.
29. On September 16 and 17, 1960, the Republic of
Cuba forceably seized and took from the defendant all of
the branch offices and the business and property of defen-
dant in the Republic of Cuba, and deciared itself substituted
for and subrogated in place and stead of the defendant
with respect to such property and rights as well as the
entire assets and liabilities of defendant within the Repub-
lic of Cuba, without the consent of the defendant but
against its will, and without compensation of any sort
whatsoever.
“5 havel o's iii ae Mnas Une
’ i , sia sean Ce ee ee eee a ‘igs Goad te ba ae elas
Th ates aaah gale me Oy S56: AI OR OEE aE Sa aes gpa ad a %
SO PAN hk M
rare
igh gL EAL A GRR eA
ee ee eT
22
30. Thereafter the Government of the United States of
America protested against the action alleged in paragraph
29 hereof and declared such action to have been forced ex.
propriation taken under color of a dise 1inatory, coafisca.
tory and arbitrary law.
31. After September 17, 1960 defendant sold the col.
lateral and applied the net amount realized upon said sale
to the then unpaid principal amount of the loan and
to the interest then accrued and unpaid on said loan, and
applied the balance as an offset to its claim against the
Republic of Cuba for the value of its property seized by
the Republic of Cuba.
32. On January 3, 1961 the Government of the United
States severed diplomatic relations with the Government
of the Republic of Cuba on the ground that the harass.
ment and vilification by the said Government of the Re-
public of Cuba had passed endurance and thus indicated
that the normal courtesies extended between friendly
nations would not be continued as to the Republic of Cuba,
33. The seizure by the Republic of Cuba of the defen-
dant’s property within the territory of the Republic of
Cuba as alleged in paragraph 29 hereof was discrimina-
tory, confiscatory and in violation of international law, and
the laws of the United States, and the laws of the Republic
of Cuba itself.
34. In this action the Republic of Cuba, through its
agent and wholly-owned instrumentality the plaintiff herein,
seeks to rccover from the defendant a sum of money, the
amount of which can be determired onlv in an accounting
in equity. The Republic cf Cuba is therefore seeking
_ equitable relief and by reason of the tortious acts of the
Republic of Cuba is seizing defendant’s property and the
violation by the Republic of Cuba of its assurances respect-
ing the protection of private property and its own laws and
vane
23
international law with respect thereto, all as more fully
hereinabove set forth, the Republic of Cuba, including its
agent and instrumentality the plaintiff herein, comes into
this Court with unclean hands and is not entitled to any
equitable relief and the action must be dismissed. .
For A SECOND CoMPLETE DEFENSE TO THE First Cause OF
AcTION IN THE AMENDED COMPLAINT AND AS A SETOFF
AND COUNTERCLAIM THE DEFENDANT ALLEGES:
35. It repeats and realleges each and every allegation
set forth in paragraphs 18 through 33 hereof.
36. By reason of the matters hereinbefore set forth,
the defendant has been damaged by the wrongful and
tortious acts of the Republic of Cuba in an amount substan-
tially in excess of the amount claimed in the first cause
of action of the amended complaint herein but at present
indeterminable, and the defendant is entitled to setoff
against such damages the amount claimed in the first cause
of action of the amended cvmplaint herein, leaving a bal-
ance due and owing from the Republic of Cuba to the
defendant.
For a Turrp CompLeTe DEFENSE TO THE First CavsE OF
ActTION IN THE AMENDED CoMPLAINT AND AS A SETOFF
AND COUNTERCLAIM DEFENDANT ALLEGES:
37. It repeats and realleges each and every allegation
set forth in paragraphs 18 through 33 hereof.
38. The reasonable value of the business and property
of defendant in the Republic of Cuba, at the time of the
seizure thereof by the Republic of Cuba, was substantially
in excess of the amount claimed in the first canse of action
of the amended complaint hercin. The Republic of Cuba
promised to and was obligated by international law to
pay prompt, adequate and effective compensation to defen-
dant and others whose property it seized.
seijapcaahe
24
39. No part of such compensation has been paid to
defendant but, on the contrary, the Republic of Cuba has
repudiated its obligation to make such payment and has
waived the necessity of any demand therefor.
40. By reason of the matters hereinbefore alleged, the
Republic of Cuba is indebted to the defendant in an amount
substantially in excess of the amount claimed in the first
cause of action of the amended complaint herein but at
present indeterminable, and the defendant is entitled to
setoff against such indebtedness the amount claimed in the
first cause of action of the amended complaint herein,
leaving a balance due and owing from the Republic of
Cuba to the defendant.
For a FourtH CoMPLETE DEFENSE TO THE First Cause
oF ACTION IN THE AMENDED COMPLAINT
DEFENDANT ALLEGES:
41. The real party in interest is not Banco Nacional
de Cuba, the plaintiff kerein, but the Republic of Cuba.
The action must be dismissed because it is not being prose-
cuted in the name of the real party in interest.
For a First CoMPLETE DEFENSE TO THE SECOND CAUSE
oF ACTION IN THE AMENDED COMPLAINT AND ASA
SETOFF AND COUNTERCLAIM DEFENDANT ALLEGES:
42. Defendant repeats and realleges each and every
allegation contained in paragraphs 18-23, inclusive, 25, 26,
29 and 30 hereof.
43. On or about October 14, 1960 the Republic of Cuba
purported to enact its Law No. 891 pursuant to which 1
private Cuban banks were purportedly nationalized by the
Republic of Cuba and their assets, including deposits i
foreign countries, were purportedly taken over by the
Republic of Cuba.
25
44, On or about October 14, 1969 defendant was ad-
yised of the purported enactment of said Law No. 891 and
thereupon applied the balances standing to the credit of the
accounts in the names of Banco Gelats, Banco Pujol, Banco
de San Jose, Banco Castano, S. A., Banco Asturiano de
Ahorros, S. A., Banco de la Construccion and The Trust
Compan of Cuba as an offset to its claim against the
Republic of Cuba for the value of its property seized by
the Republic of Cuba.
45. Defendant repeats and realleges each and every
allegation contained in paragraphs 32 and 33 hereof.
46. By reason of the matters hereinbefore set forth,
defendant has been damaged by the wrongful and tortious
acts of the Republic of Cuba in an amount substantially in
excess of the amount claimed in the second cause of action
of the amended complaint herein but at present inde-
terminable, and defendant is entitled to setoff against such
damages the amount claimed in the second ceuse of action
of the amended complaint herein, leaving a balance due
and owing from the Kepublic of Cuba to the defendant.
For a Seconp CoMPLETE DEFENSE TO THE SECOND CAUSE
or ACTION IN THE AMENDED CoMPLAINT AND ASA
Srrorr AND COUNTERCLAIM DEFENDANT ALLAGES:
47. Defendant repeats and realleges each and every
allegation contained in paragraphs 42-45 hereof, inclusive.
48. The reasonable value of the business and property
of defendant in the Republic of Cuba, at the time of the
seizure thereof by the Republic of Cuba, was substantially
in excess of the amount claimed in the second cause of
action of the amended complaint herein. The Republic of
Cuba promised to and was obligated by international law
to pay prompt, adequate and effective compensation to
defendant and others whose property is seized.
PLOT EE ESENS
ERNE MEAP LI SALE RH SM STR EL ARR 2 RN LM EE LANE LETRA ROM HIND IE RUNES FUT
49. No part of such compensation has been paid to
defendaut but, on the contrary, the Republic of Cuba
has repudiated its obligation to make such payment and
has waived the necessity of any de.nand therefor.
50. By reason of the matters hereinbefore alleged, the
Republic of Cuba is indebted to the defendant in an amount
substantially in excess of the amount claimed in the second
cause of action of the amended complaint herein but at
present indeterminable, and the defendant is entitled to
setoff against such indebtedness the amount claimed in
the second cause of action of the amended complaint
herein, leaving a balance due and owing from the Republic
of Cuba to the defendant.
For a Tu1rp CoMPLETE DEFENSE TO THE SECOND CAUSE
or ACTION IN THE AMENDED COMPLAINT
DEFENDANT ALLEGES:
51. Plaintiff’s second cause of action is based upon a
claim of right, title and interest in plaintiff to certain
assets of those private Cuban banks which are named iz
paragraphs 13 and 14 of the amended complaint herein
Plaintiff claims to be entitled to these certain assets not a
a result of any voluntary act of said private Cuban vanks
but solely as 4 result of the purported enactment by the
Republic of Cuba of its Law No. 891.
52. Those certain assets which plaintiff is attempting
to recover by its second cause of action herein are debt:
payable in the City and State of New York which wer
on the date of the purported enactment of said Law No
891 and still are represented by deposit balances in bank
accounts maintained by said private Cuban banks with
defendant in the City and State of New York and whic
constitute property located within said City and State.
53. The said alleged Law No. 891 of the Republic o
Cuba is by its terms a confiscatory decree and the Republi
27
of Cuba has not paid or tendered prompt, adequate and .
effective compensation to the owners of said private Cuban
hanks for the forced expropriation of their property
through which plaintiff claims to derive its right, title and
interest as alleged in its second cause of action herein.
54, It is contrary to the public policy of the State of
New York to enforce a confiscatory decree with respect
to property located within the State of New York at the
date of the decree and the second cause of action therefore
fails to state a claim upon which relief to plaintiff can be
granted.
For a FourtH Compete DEFENSE TO THE Sreconp CAUSE
or ACTION IN THE AMENDED COMPLAINT
DEFENDANT ALLEGES:
55. The real parties in interest are Banco Gelats, Banco
Pujol, Banco de San Jose, Banco Castano, S.A., Banco
Asturiano de Ahorros, 8.A., Banco de la Construccion and
The Trust Company of Cuba and not Banco Nacional de
Cuba, the plaintiff herein. The action must be dismissed
because it is not being prosecuted in the name of the real
parties in interest.
For a Firru Complete DEFENSE TO THE SECOND CAUSE
or ACTION IN THE AMENDED COMPLAINT
DEFENDANT ALLEGES:
56. The real party in interest is not Banco Nacional de
Cuba, the plaintiff herein, but the Republic of Cuba. The
action must be dismissed because it is not being prosecuted
in the name of the real party in interest.
Wuererorg, the defendant demands judgment herein
1. Dismissing this action with prejudice ;
|
BREA tio DESAI Sei lB Sais EERIE, hla RIANA SHS AC hae
eins ss aa ra Sibi ae ap gn ge
eee SEAORS leet
28
2. Adjudicating that the Republic of Cuba is liable to
the defendant in an amount in excess of the amount speci.
fied in the amended complaint herein, without prejudice to
the defendant’s rights at any subsequent time, through
diplomatic channels or in an international forum, in any
forum in any foreign nation, or in any court in the United
States, to assert such liability of the Republic of Cuba
either through affirmative relief or as a matter of defense,
offset, counterclaira, or by such other means as may from
time to time be available to it;
3. For such other, further and different relief as to
the Court may seem just.
Dated: New York, N.Y.
March 6, 3.961
SHEARMAN & STERLING & Wricut
By Harry Harrieip
Member of the Firm
Attorneys for Defendant
20 Exchange Place
New York 5, N.Y.
29
Second Amended Reply of Plaintiff
[Caption OmittepD]
Plaintiff, for its second amended reply, alleges:
As a Repty to THE First CoUNTERCLAIM ALLEGED
in ParacrapHs 35 anp 36 oF THE ANSWER TO THE
AMENDED CoMPLAINT, THE PLAINTIFF:
1. Denies each and every allegation contained in para-
graphs 18, 30, 33, 34 and 36 of the answer.
2. The allegations contained in paragraphs 19, 20, 21
and 22 of the answer all relate to historical facts allegedly
occurring prior to the establishment of plaintiff and to
matters not within the corporate knowledge of the plaintiff
or the personal knowledge or memory of its officers.
Therefore, the plaintiff denies knowledge or information
sufficient to form a belief as to the allegations of said
paragraphs.
3. Denies each and every allegation contained in para-
graph 23 of the answer, except admits that the defendant,
in or about August, 1915, opened a branch of its banking
business in the City of Havana, Cuba; that among the pur-
poses of such branch was to carry on the business of bank-
ing; and that on September 16, 1960, defendant maix.‘ained
and operated 11 branches within the Republic of Cuba.
4, Denies each and every ailegation in paragraph 24
of the answer, except admits that in 1958 defendant en-
tered into an agreement, a copy of which is annexed to
the amended complaint; plaintiff refers to the said copy
of the agreement for the terms thvreof.
5. Denies each and every allegation contained in para-
graph 25 of the answer, except admits that on or about
ci tet ao aa
bE BUSSE ERG LOE EAGER CET:
ey
male
30
\ *
January 7, 1959, the United States of America formally
extended recognition to the present government of Cub,
6. Denies each and every allegation contained in para.
graph 26 of the answer, except admits that on or about
February 17, 1959, ‘the Republic of Cuba promulgated a
law entitled ‘‘Fundamental Law’’; plaintiff refers to said
law for its contents.
7. \Denies each and every allegation contained in para-
graph 27 of the answer, except admits that in or about
July of 1959, the loan which was the subject matter of the
agreement hereinabove referred to was extended for a
period of one year.
8. Denies each and every allegation contained in para-
graph 28 of the answer, except admits that in or about
July, 1960, plaintiff proposed to and did pay to the defen-
dant $5,000,000. of the indebtedness incurred pursuant
to the aforementioned agreement and requested that a pro-
portionate amount of collateral be released and that the
balance of the loan be extended for a period of one year.
9, Dehies each and every allegation contained in para-
graph 29 of the answer, except admits that on or about
September 16, 1960, the business and property of the
defendant in the Republic of Cuba was nationalized.
10. Denies each and every allegation contained in para-
graph 31 of the answer, except admits that after Septem-
ber 17, 1960, defendant sold the collateral held as security
for the unpaid portion of the loan.
11. Denies each and every allegation contained in para-
graph 32 of tlie answer, except admits that on January 3,
1961, the Government of the United States severed diplo-
matic relations with the Government of the Republic of
Cuba.
31
As a Repty to THE SeconpD CouNTERCLAIM ALLEGED
in ParacraPpas 37 THroucsH 40 INCLUSIVE OF THE
ANSWER TO THE AMENDED CoMPLAINT, THE PLAINTIFF:
12. Repeats and realleges each of the denials and ad-
missions set forth in paragraphs 1 through 11 inclusive
hereinabove.
13. Denies each and every allegation contained in para-
graphs 38, 39 and 40 of the answer.
As a Repty to tHE Turrp CounTERCLAIM ALLEGED
in ParacrapHs 42 THroucH 46 INCLUSIVE OF THE
ANSWER TO THE AMENDED CoMPLAINT, THE PLAINTIFF:
14. Repeats and realleges each of the denials and ad-
missions set forth in paragraphs 1, 2, 3, 5, 6 and 9 herein-
above.
15. Denies each and every allegation contained in para-
graphs 30, 33 and 46 of the answer.
16. Denies each and every allegation contained in para-
graph 43 of the answer, except admits that on or about
October 14, 1960, the Republic of Cuba enacted Law No. 891
and plaintiff refers to that law for the contents thereof.
17. Denies each and every allegation contained in para-
graph 44 of the answer, except admits that on or about
October 14, 1960, the defendant seized balances standing
to the credit of the accounts in the ames of Banco Gelats,
Banco Pujol, Banco de San Jose, Banco Castano S.A.,
Banco Asturiano de Ahorros, S.A., Banco de la Construc-
cion and the Trust Company of Cuba.
18. Denies each and every allegation contained in para-
graph 32 of the answer, except admits that on January 3,
1961, the Government of the United States severed diplo-
ri relations with the Government of the Republic of
ba.
32
AS AND FoR A REPLY T) THE FourtTH COUNTERCLAIM
ALLEGED IN ParaGcrapus 47 THROUGH 50 INCLUSIVE oF
THE ANSWER TO THE AMENDED COMPLAINT,
THE PLAINTIFF :
19. Repeats and realleges each and every allegation
contained in paragraphs 14 through 18 inclusive herein.
above. :
20. Denies each and every allegation contained in para.
graphs 48, 49 and 50 of the answer.
As AND For A Fst, AFFIRMATIVE DEFENSE To Hacu
OF THE COUNTERCLAIMS ALLEGED BY DEFENDANT IN ITS
ANSWER TO THE AMENDED COMPLAINT, THE
PuaIntiFF ALLEGES:
21. The allegations set forth in each of said counter-
claims do not state claims upon which relief can be granted.
As AND FoR A SECOND, AFFIRMATIVE DEFENSE TO Each
: OF THE COUNTERCLAIMS ALLEGED BY DEFENDANT IN ITS
¥ ANSWER TO THE AMENDED COMPLAINT, THE
: PuawntirF ALLEGES:
22. Plaintiff is an autonomous financial institution
which, under the laws of the Republic of Cuba, is not
responsible for the obligations of the Republic of Cuba.
As AND For A Trier, AF¥IRMATIVE DEFENSE TO Hach
OF THE COUNTERCLAIMS ALLEGED BY DEFENDANT IN ITS
ANSWER TO THE AMENDED CoMPLAINT, THE
PuaIntTiIFF ALLEGES:
23. To the extent, if eny, to which plaintiff may be re-
sponsible for the obligations of the Republic of Cuba, it is
entitled to immunity from a suit in a court of the United
States.
: ee
33
As A PartraL DEFENSE TO HacH OF THE CouUNTERCLAIMS
ALLEGED BY DEFENDANT IN ITS ANSWER TO THE
AMENDED CoMPLAINT:
94. Plaintiff realleges each and every allegation con-
tained in paragraph 23 hereof.
Wuenrerore, plaintiff demands judgment against the de-
fendant :
(a) Dismissing defendant’s counterclaims ;
(b) Awarding judgment to the plaintiff in the sum de-
manded by the complaint ; and
(c) Awarding the plaintiff interest and the costs and
disbursements of this action.
Dated: New York, N.Y.
August 1, 1961
Rasrnow1tz & Boupin
by Victor RaBINowItTz
Member of the Firm
Attorneys for Plaintiff
25 Broad Street
New York 4, N. Y.
Ms
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34
Opinion and Order, Dated July 20, 1967
and Entered July 21, 1967
UNITED STATES DISTRICT COURT
SoutHERN District, New Yorx
July 20, 1967
Banco Nacional DE CuBa,
Plaintiff,
Vv.
Tue First NationaL City BaNnK oF New York,
Defendant.
No. 60 Civ. 4664.
Shearman & Sterling, New York City, for defendant;
Henry Harfield, Charles C. Parlin, Jr., William Harvey
Reeves, New York City, of counsel.
Rabinowitz & Boudin, New York City, for plaintiff;
Victor Rabinowitz, Mary M. Kaufman, Henry Winestine,
Eleanor Fischer, New York City, of counsel.
Opinion
FREDERICK VAN PE.LT Bryan, District Judge:
This action by Banco Nacional of Cuba (Banco Na-
cional), the financial agent of the Government of Cuba,
against The First National City Bank of New York (First
National City) is one of the numerous cases before me rais-
ing issues arising out of confiscations of American-owned
property in Cuba by the Castro Government. .
The amended complaint alleges two claims for relief, the
first for the excess realized by First National City on the
sale of collateral held as security for a loan, and the second
for deposits by nationalized Cuban banks in First National
35
City in New York. The answer pleads a series of defenses,
set-offs and counterclaims based principally on the confisca-
tion of First National City’s Cuban branches. First Na-
tional City has now moved for summary judgment pursuant
to Rule 56(a), F.R.C.P., and Banco Nacional has cross-
moved for the same relief on the first claim and for judg-
ment dismissing the counterclaims. Rule 56(b).
L
The facts giving rise to the first claim for relief are not
in serious dispute. On July 8, 1958, First National City, a
New York banking corporation doing business in New York
and throughout the world, made a loan of fifteen million dol-
lars to Banco de Desarrollo Economico y Sozial (Bandes),
a governmental corporate agency of the Republic of Cuba.
The loan was secured by United States Government bonds
and obligations of the International Bank of Reconstruction
and Development pledged te First National City by Fondo
de Estabilizacion de La Moneda (Fondo), another Cuban
governmental agency, and Banco Nacional. On January 1,
1959, the Castro Government took control of the Republic of
Cuba. The fifteen million dollar loan to Bandes was re-
newed for another year or July 8, 1959. Thereafter by
virtue of Cuban Law No. 720, February 16, 1960, and Law
No. 847, June 30, 1960, Bandes was dissolved and Banco Na-
cional succeeded to the rights and obligations with which we
are concerned in this action, including the obligation to
repay the loan. The Republic of Cuba guaranteed repay-
ment. On July 7, 1960, the terms of the loan were rene-
gotiated for the last time. Banco Nacional repaid five mil-
lion dollars, and requested and obtained an agreement from
First National City to defer demand for the balance of ten
million dollars for one year. A proportionate amount of
collateral was then released.
September 16, 1960, however, marked the date of an ir-
reparable breach of the relationship between these parties.
On that day the Cuban militia seized all eleven of First Na-
tional City’s branches located in Cuba. On the following
weer Bee
36
| day the issuance of Executive Power Resolution No. 2 left
no uncertainty as to the permanent nature of these confisca.
tions; u.ider the terms of the resolution the Cuban State
was declared ‘‘subrogated’’ to all of First National City’s
rights, ovligations, and liabilities.!
In the light of this turn of events First National City,
on September 23, 1960, sold the collateral it held as security
‘for the unpaid portion of the loan and appiied the proceeds
in payment of the principal obligation and accrued interest,
Defendant concedes—and plaintiff for purposes of this mo-
tion does not deny—that the amount realized on the sale of
collateral exceeded by $1,810,880.51 the ten million dollars
of unpaid principal and the $65,000 interest then due.? The
first claim for relief seeks judgment for the amount of the
excess.
The answer of First National City to the first claim
alleges in substance that the Republic of Cuba is the real
party in interest in this action, that the Cuban government
is indebted to the defendant in an amount exceeding the sum
demanded in the amended complaint by reason of the con-
fiscation of its Cuban property, and that therefore the
defendant is entitled to set off this outstanding obligation
as a complete defense to the claims asserted by Banco Na-
cional. First National City has also interposed an affirma-
tive counterclaim for the amount of the excess, and seeks
dismissal of plaintiff’s claim with prejudice. Both parties
recognize that this court on the present papers cannot de-
termine the value of First Nationa! City’s Cuban properties
which have been confiscated. But apart from this issue of
fact the basic questions in this case are posed by the motions
before me.
The ultimate legal issues on the first claim are clearly
drawn. Banco Nacional strenuously contends that the afir-
mative counterclaim and the set-off by way of defense are
1 See note 6, infra.
2 The amount sought in the first count of the amended complaint
was $2,347,000.
*
pm pit
ae
37
barred, alternatively, by principles of sovereign immunity
and the act of state doctrine. The dispositive question is
simply whether defendant is precluded on those grounds
from asserting—either affirmatively or by way of set-off as
a complete defense—a claim for the value of its confiscated
Cuban properties.
II. Sovereign Immunity
There is no serious question that the Government of
Cuba and Banco Nacional are ve and the same for purposes
of this litigation.? And as a general rule a state which initi-
ates proceedings in a court of another sovereignty waives
immunity from a counterclaim or set-off to the extent that
it does not exceed the amount of the state’s claims. ALI,
Restatesnent (Second), Foreign Relations Law of the
United States § 70(2)(a) (1965). This waiver extends to
defensive counterclaims which do noi arise out of the sub-
ject matter of the claims of the state which initiated the
3Plaintiff at various times has argued that defendant’s claim
against the Cuban government cannot be asserted against Banco Na-
cional, an entirely separate entity. This position is, of course, flatly
inconsistent with the sovereign immunity argument. Moreover,
throughout the Sabbatino litigation it was recognized by every court
concerned that Banco Nacional De Cuba was an instrumentality of
the Cuban government. Banco Nacional v. Sabbatino, 193 F. Supp.
375 (S.D. N.Y. 1961), aff’d, 307 F.2d 845 (2d Cir. 1962), rev’d, 376
U.S. 398, 84 S. Ct. 923, 11 L. Ed. 2d 804 (1964). As Judge Wein-
feld pointed out the complaint there alleged that plaintiff was a “public
corporation wholly owned by the government.” Banco Nacional De
Cuba v. Sabbatino, 27 F.R.D. 255, 258 (S.D. N.Y. 1961). The present
amended complaint alleges only that plaintiff “is a corporate body
existing under * * * the laws of the Republic of Cuba, authorized to
administer the domestic and foreign credit operations of the Republic
of Cuba as its agent and having its principal office in Havana, Cuba.”
But any doubts as to the organic relationship between plaintiff and
the Cuban government are removed by an examination of the local
laws defining the function and authority of Banco Nacional. Plaintiff
alone has exclusive charge of directing the banking fizction of the
state. Law No. 891, arts. 1, 2, 3, Oct. 14, 1960. And it is plaintiff
who shall exercise “the monetary sovereignty of the Nation.” Law
No. 930, art. 1, Feb. 23, 1961. The Government of Cuba and Banco
Nacional are indistinguishable entities for purposes of this lawsuit.
Compare Dexter & Carpenter, Inc. v. Kunglig Jarnvagsstyrelsen, 43
F.2d 705 (2d Cir. 1930).
38
action. Naticaal City Bank of New York v. Republic of
China, 348 U.S. 356, 75 S. Ct. 423, 99 L. Ed. 389 (1955);
Wacker v. Bisson, 348 F.2d 602, 610 (5th Cir. 1965) ; Ameri-
can Hawaiian Ventures, Inc. v. M. V. J. Latuharhary, 257 F,
Supp. 622, 626-627 (D. N.J. 1966) ; See Dexter & Carpente?
Inc. v. Kunglig Jarnvagsstyrelsen, 43 F.2d 705 (2d Cir,
1930). The ultimate policy reason for this is simply that
‘fairness has been thought to require that when the soy-
ereign seeks recovery, it be subject to legitimate counter.
claims against it.'’ Banco Nacional de Cuba v. Sabbatino,
376 U.S. 398, 438, 84 S. Ct. 923, 945, 11 L. Ed. 2d 804 (1964);
see Pugh & McLaughlin, Jurisdictional Immunities of For.
eign States, 41 N.Y.U. L. Rev. 25, 53-54 (1966).
So viewed, there is no doubt that the assertion of First
National City’s defensive counterclaim as a set-off is not
barred se plaintiff happens to be an instrumentality of
vernment. When a foreign government insti-
tutes suit in\the courts of this country, it can expect
nothing more and nothing less than substantial justice
between the parties. Since the decision in National City
Bank of New York v. Republic of China a suit brought by
a foreign government is no longer a one-way street. The
doctrine of sovereign immunity cannot be raised in this
court as a technical bar to any legitimate defensive
counterclaims or set-offs advanced by First National
City. Whether the defendant has such legitimate de-
fenses—and if so in what amount—are, of course, entirely
separate questions.°
* Pons v. Republic of Cuba, 111 U.S. App. D.C. 141, 294 F.2d
925 (1961), cert. den., 368 U.S. 960, 82 S. Ct. 406, 7 L. Ed. 2d 392
(1962), is not to the contrary because the party there aggrieved by
the Cuban confiscation was a Cuban national.
5 As mentioned, First National City has also interposed an
affirmative counter-claim to recover the amount by which the com-
pensation for the confiscations exceeds the $1,810,880.51 figure. I
hold, however, that plaintiff's limited waiver of immunity by institut-
ing this suit permits only the assertion of a defensive counter-
claim that “does not exceed the amount of the state’s claims.”
Restatement (Second), Foreign Relations Law of the United States
§ 70(2) (a) (1965).
SL BOLTS RECS OOQET RE: SIPPY SZ EMELLOE, ALE PEGE BIE SE MEE LANAI ALITA LAT aN —
39
III. The Act of State Doctrine.
The basis for defendant’s set-off is that the Govern-
ment of Cuba, in whose shoes Banco Nacional stands, con-
fseated eleven of First National City’s Cuban branches
without compensation and in violation of international
lav. Under Banco Nacional de Cuba v. Sabbatino, 376
US. 398, 84 S. Ct. 923, 11 L. Ed. 2d 804 (1964), inquiry
into the legality vel non uf the expropriations here in-
volved would be foreclosed by the act of state doctrine
which forbids the courts of une country from sitting ‘‘in
judgment on the xcts of the government of another, done
| within its own territory.’’ 376 U.S. .at 416, 84 S. Ct. at
934, queting Underhill v. Hernandez, 168 U.S. 250, 252,
18S. Ct. 83, 42 L. Ed. 456 (1897). However, the holding
in Sabbatino was for all practical purposes overruled by the
Hickenlooper amcdment to the Foreign Assistance Act of
1964, 22 U.S.C. § 2370(e) (2), as amended 79 Stat. 658-659
(Sept. 6, 1965), the constitutionality of which has been
upheld. Banco Nacional de Cuba v. Farr, 243 F. Supp.
957 (S.D. N.Y. 1965), aff’d, July 31, 1967 (2d Cir.). Con-
gress there declared that the courts of this country should
not refrain, on the ground of the act of state doctrine, from
determining the merits in cases involving a confiscation
after January 1, 1959, by an act of a foreign state ‘‘in
violation of the principles of international law, including
the principles of compensation.’’ The Hickenlooper amend-
ment specifically stated that it did not apply ‘‘in any case
in which an act of a foreign state is not contrary to inter-
national law’’.
The ultimate act of state doctrine issue boils down to
whether the confiscation of First National City’s Cuban
property violated principles of international law. In my
view the seizures here involved had precisely this effect
for a combination of reasons.
In the first place the various decrees authorizing the
confisecations did not provide for adequate payments to
| First National City. The scheme of ‘‘illusory compensa-
tion’’ outlined by Judge Waterman in Sabbatino, 307 F.2d
PLEA LES LGA R «Ba ONE: ENA IADR roan PERSE ANI MAREN ORD SCOOTER acy 4st
. Vase Mey 7 Hk
ie bi ai i ae Racha EERIE ALT
40
at 862, has been totally ineffective in practice in the inter.
vening years. No compensation whatsoever appears to
have been forthcoming and none can reasonably be
expected in the foreseeable future.
It is true that both the Second Circuit and the Supreme
Court in Sabbatino pointedly refrained from resolving the
delicate question of whether the mere failure, without
more, to provide adequate compensation to aliens whose
property has been expropriated constitutes a breach of
international law. 376 U.S. at 428-430, 84 S. Ct. 923; 307
F.2d at 862-864. But Congressional passage of the Hicken.
looper Amendment has removed any doubt on this score—
at least insofar as the courts of this country are concerned,
While the reference to the ‘‘principles of compensation”
in 22 U.S.C. § 2370(e) (2) is somewhat open-ended because
it does not state specifically that compensation is a sine
qua non of full compliance with international law, sub-
section (1) of the same statute leaves no doubt as to the
views of Congress on the subject. That provision requires
the suspension of assistance under the foreign aid pro-
gram to the government of any state which, after effec.
tuating the confiscation of property that is at least 50 per-
cent owned by United States citizens or corporations,
‘‘fails within a reasonable time * * * to take appropriate
steps * * * to discharge its obligations under international
- law toward such citizen or entity, including speedy com-
pensation for such property in convertible foreign ex-
change, equivalent to the full value thereof, as required by
international law’’. The legislative history of the Hicken-
looper Amendment and its extensions is replete with
statements reaffirming what is plain on the face of the legis-
lation, ie., that international law, at least from the paro-
chial point of view of the United States, requires ful
compensation for seizures of American-owned property.
S. Rep. No: 170, 89th Cong., 1st Sess. at 19; 110 Cong. Ree.
18936-37, 18946 (Aug. 14, 1964) ; 110 Cong. Rec. App. A5157
(daily ed. Oct. 7, 1964) (Senator Hickenlooper’s Statement -
on Conference Report); see 22 U.S.C. § 2370(a) (2).
41
It is clear to me that this rule of compensation legisla-
tively announced by Congress is fully consistent with gen-
erally accepted principles of international law estabi'shed
by the authorities reviewed by the appellate courts in Sab-
batino. It is therefore unnecessary to reiterate the settled
proposition that ‘‘the rules of international law * * * are
subject to the express acts of Congress.’’ United States
ex rel. Pfefer v. Bell, 248 F. 992 995 (E.D. N.Y. 1918). This
court would accordingly be bound to apply the provisions
of the Hickenlooper Amendment even if they were found
to be inconsistent with the views of other nations on inter-
national law, though that is not so here. See The Nereide,
13 U.S. (9 Cranch) 388, 423, 3 L. Ed. 769 (1815) ; Paquette
Habana, 175 U.S. 677, 700, 20 S. Ct. 290, 44 L. Ed. 320
(1900); United States v. Siem, 299 F. 582, 583 (9th Cir.
1924) ; Schroeder v. Bissell, 5 F.2d 838 (D. Conn. 1925) ;
Reeves, The Sabbatino Case and the Sabbatino Amend-
ment: Comedy—or Tragedy of Errors, 20 Vand. L. Rev.
429, 492-93 (1967).
There is more to this case, however, than a naked failure
by the Cuban government to comply with general principles
of compensation. Violations of international law spring
from other sources also. The September 16, 1960, takeover
of First National City’s branch banks in Cuba had all the
earmarks of the seizure of American-owned properties
which Judge Waterman in Sabbatino condemned as violative
of international law for reasons apart from the failure to
provide compensation. Here, as in Sabbatino, the expro-
priations were consummated under Cuban Law No. 851,
July 6, 1960, which granted the government carte blanche
authority to confiscate all properties owned by nationals
of the United States. As Judge Waterman pointed out,
see 307 F.2d at 865 n. 14, this law plainly was passed as a
retaliatory measure against the United States Goverment’s
reduction of the sugar quota allotted to Cuba. On Septem-
ber 17, 1960, the day after the Cuban militia seized defen-
dant’s branches, the Cuban government issued Executive
Power Resolution No. 2, which, like Resolution No. 1 in-
42
olved in Sabbatino, justified the seizures of American.
owned property as retaliation for an ‘‘act of cowardly and
criminal aggression,’’ that is, the reduction of the sugar
quota.°®
6 The vitriolic language of Resolution No. 2, Def. Ex. 22, left no
doubt as to the retaliatory and discriminatory motivation for the bank
seizures :
“Whereas: Law No. 851 of July 6, 1960, published in the Gaceta
Oficial of July 7, authorized the undersigned to order jointly, when-
ever they consider it necessary to the defense of the national interest,
the nationalization, by means of expropriation, of the assets and com-
panies owned by natural or juristic persons who are nationals of the
United States of America, or of companies in which the said persons
have an interest or participation, even though the said companies were
constituted in accordance with Cuban laws.
Whereas: It is not possible to allow a large share of the nation’s
banking to remain in the hands of the imperialist interests which, in
an act of cowardly and criminal aggression, inspired the reduction of
our sugar quota.
Whereas: Subsequent to the reduction of the sugar quota, the
Government of the United States of America and the representatives
of monopolistic interest of that country repeatedly committed acts of
open aggression against, the Cuban economy, such as those involving
the curtailment of trade between the two countries, which had the
obvious purpose of hampering the economic development of Cuba;
and the imposition of embargoes on commercial aircraft owned by
Cuban companies, under the legal guise of claims against civil debts,
but which have the implicit purpose of curtailing our vital means of
international communication, in an increasingly greater effort to
isolate our country.
Whereas: One of the most efficient instruments of that imperial-
istic ‘interference in our historical development has been typified by
the operations of the American commercial banks, which have served
as a financial vehicle to facilitate the monopolistic activities of the
American companies in Cuba and the massive invasion of our couniry
by imperialistic capital through usurious loans, which, far from pro-
moting our economic growth, brought about in times of emergency
numerous lawsuits resulting in the seizure of our national wealth by
that imperialistic capital.
Whereas: Jt has always been the financial policy of these banks to
encourage the activities of the American companies that devote their
efforts to the procurement of our natural resources, the exploitation
of our land by holders of large estates, and the mercantile operations
that have contributed to the growing trend toward importing Ameri-
can manufactured goods, to the extent that it has hindered the devel-
opment of national industries and has forced our economy to become
dependent on a single crop and a single export.
PSOE IN GD, 9 8 SARE ETT Sea lt neta OCT aCe EE RR ES AEE RE SPECIE ETS noe a
43
‘“[C]onfiscation without compensation when the expro-
priation is an act of reprisal does not have significant sup-
port among disinterested international law commentators
from any country.’’ 307 F.2d at 866. Thus the allegations
in the decrees that the general public intcrest necessitated
the seizures of First National City’s property must be dis-
counted when the manifest purpose of the confiscations was
political retaliation of the rankest sort.
Moreover, as in Sabbatino, the reprisals involved in this
ease evidently evince discrimination rising to the level of a
violation of international law. Not only was Law No. 851
aimed solely at United States Nationals, but also a general
confiscation of the remaining Cuban banking properties did
not take place until October 14, 1960,’ almost a month after
- First National City’s branches were seized. Even then the
end result was not that Cuban-owned enterprises and Amer-
iean-owned enterprises were treated alike, compare 307
F.2d at 845, because the compensation provisions for
Americans, unlike those for Cuban citizens, were entirely
Whereas: All this proves that the activities of American banks in
~ Cuba have been a decisive factor in the disruption of our economic
structure.
:
|
| Whereas : It is unquestionable that the continuation of American
~ banking interests in Cuba, a typical example of the imperialistic phe-
nomenon, constitutes an obstacle to national liberation.
| Whereas : In addition to the facts already stated, there is the delib-
erate practice of the United States Government designed to facilitate
and to encourage, within its own territory, counter-revolutionary ac-
tivities by war criminals and fugitive traitors.
|
|
:
|
Whereas: Furthermore, the work of international espionage in
Cuban territory has been intensified under the sponsorship of that
Government, with notorious contempt for international law and with
- the obvious: intention of promoting conspirational activities in our
country.
Whereas: All these acts are undertaken for the purpose of
destroying the great achievements of the Cuban Revolution, in the
wicked hope of again subjecting our countzy to imperialistic oppres-
sion.
Whereas: We the undersigned realize that we should exercise the
authority vested in us, and that we should proceed, in responsible
discharge of the revolutionary duty, to nationalize all the American
ee ee 2397: ERR RDRRORRORCEORONES ,
TES. 1 BCP
-
'
44
dependent upon the creation of a fictitious fund consisting
of ‘‘twenty-five per cent of the foreign exchange received
by Cuba from its annual sales to the United States of Cuban
sugar in excess of three million Spanish long tons at a price
of not less than 5.75 cents per English pound (f.a.s.).’’ 307
F.2d at 862. Beyond this, First National City obviously
was damaged by discrimination to the extent it did not
enjoy the profitable use of its Cuban properties during the
period non-American bank enterprises operated w-
molested.
IV.
The totality of circumstances presented by this case—a
patent failure to provide adequate compensation, a retalia-
tory confiscation by a foreign government, and discrimina-
tion against United States nationals—compel a finding that
the Cuban decree directing confiscation of First National
City’s property was in direct contravention of the prin-
ciples of international law. Thus First National City is
entitled to set-off against the first claim for relief such
banks operating in our country, thus advancing still further on the
road undertaken by cur people, with firm patriotic will, toward the
total economic independence of our nation.
Now, therefore: Exercising the authority vested in us, in accor-
dance with the provisions of Law No. 851 of July 6, 1960,
We Resolve:
First, To order the nationalization, by expropriation, and conse-
quently, award to the Cuban Government, in absolute ownership, all
the assets, rights and shares deriving from the utilization thereof,
especially the baisks, including all their branches and agencies located
in Cuba, whick are the property of the following legal persons:
1. The First National City Bank of New York
2. The First National Bank of Boston
3. The Chase Manhattan Bank
Second: Accordingly, the Cuban State is hereby declared subro-
gated in the place and stead of the natural or juristic persons listed
in the preceding paragraph with respect to the above mentioned
property, rights, and rights of action, and to the assets and liabilities
forming the capital of the above mentioned companies.”
oe. & 8° s
7 Law No. 891, Def. Ex. 10.
RDU tpt seen er mamnets Taare ea SR
45
amount as may be due and owing to it from the Cuban
Government as compensation for the seized Cuban prop-
erties, and I so hold.*®
Banco Nacional is quite correct in pointing out that the
amount owing to First National City from the Government
of Cuba under the applicable international law ‘‘principles
of compensation’” cannot be determined on this record.
The actual amount of the set-off which can be asserted here
poses delicate questions of fact and law requiring further
careful consideration. See Reeves, supra at 505-508, for a
consideration of some of the factors involved. It therefore
cannot be determined on these motions whether, as defend-
ant contends, the amount of the set-off equals or exceeds the
sum of $1,810,880.51 admittedly owning to the plaintiff. If
it does, defendant is entitled to judgment dismissing count
one?
V.
Tne second claim for relief may be speedily disposed of.
Italleges that a number of Cuban banks which were nation-
alized pursuant to Law No. 891 in October, 1960, at that time
maintained accounts with the defendant at its office in New
York City. Banco Nacional as agent of the Cuban Govern-
ment now lays claim to these funds, amounting to some
$33.819.93, by virtue of the confiscation decree declaring
8 The Sabbatino amendment is inapplicable “in any case with re-
spect to which the President determines that application of the act of
state doctrine is required in that particular case by the foreign policy
interests of the United States, and a suggestion to this effect is filed
on his behalf in that case with the court.” 22 U.S.C. 4 2370(e) (2).
However, since the Executive Branch has maintained silence for the
six years this action has been pending, it is clear that it has not deter-
mined that foreign policy interests of the United States require appli-
cation of the act of state doctrine here.
922 U.S.C. § 2370(e).
Any sum which First National City is permitted to set-off in
this action will, of course, have to be taken into account by the United
States Foreign Claims Settlement Commission in assessing claims
filed by First National City. See International Claims Settlement
Act, § 501, 78 Stat. 1110 (1964), 22 11.S.C. § 1643.
Vk i hc 2 a Oa
vip. Wie te aca era
46
it to have full title to the property of the Cuban banks who
maintained these accounts in New York.
The short answer to this claim is simply that ‘‘whep
property confiscated is within the United States at the time
of the attempted confiscation, our courts will give effect, to
ts of state ‘only if they are consistent with the policy and
law of the United States.’’’ Republic of Iraq v. First
National City Bank, 353 F.2d 47, 51 (2d Cir. 1965), cert
den., 382 U.S. 1027, 86 S. Ct. 648, 15 L. Ed. 2d 540 (1966),
quoting ALI, Restatement of Foreign Relations Law § 46
(Proposed Official Draft, 1962). The Cuban decree, like
the attempted confiscation of the accounts in Republic of
Iraq, is plainly contrary to our policy and laws. It is not
entitled to extraterritorial enforcement in United States
courts as to property located within the United States. Re.
public of Iraq v. First National City Bank, supra; see F.
Palicio y Compania v. Brush, 256 F. Supp. 481 (S.D. N.Y.
1966), aff’d per curiam, 375 F.2d 1011 (2d Cir. 1967) ; see
Note, International Conflict of Laws: Limitations Imposed
On Effect American Courts May Give Foreign Confisca-
tions, 1966 Duke L.J. 828. Defendant is therefore entitled
to judgment dismissing count two.
VI.
In the light of what has been already said the motions
before me are disposed of as follows:
(1) Defendant’s motion for summary judgment on the
second claim for relief is granted. Since I find there is no
just reason for delay, it is directed that final judgment in
favor of defendant will be entered accordingly. Rule 54(b),
F.R.C.P.
(2) Plaintiff’s cross-motion for summary judgment on
its first claim and on the counterclaims is in all respects
denied.
(3) Defendant’s motion for summary judgment on the
first claim is denied since there are triable issues of fact
47
and law with respect to the amount of defendant’s set-off.
However, I hold that defendant is entitled to set-off as
inst the first claim for relief any amounts due and owing
to it from the Cuban Government by reason of the confis-
cation of First National City’s Cuban properties.
This opinion shall constitute my specification of the facts
supporting that holding pursuant to Rule 56(d), F.R.C.P.
The case will be tried on the sole issue of the amount which
defendant is entitled to assert by way of set-off.
It is so ordered.
ib ial Satna UR eke aR Kadles Rie TNT
48
Opinion, Dated July 16, 1970
UNITED STATES COURT OF APPEALS
For tHE Seconp Circuit
Nos. 480 and 481—September Term, 1969.
(Argued March 23, 1970 Decided July 16, 1970)
Docket Nos. 32533 and 33864
Banco Nacronat De Cusa,
Appellant
v.
Tue First NationaL City Bank or NEw York,
Appellee
Before:
Lumsarp, Chief Judge,
Hays, Circuit Judge, and BLuMENFELD, District Judge."
Appeal from an order of the United States Distric
Court for the Southern District of New York, Frederid
vanP. Bryan, J., granting defendant-appellee’s motion fo
summary judgment on its counterclaim against plaintiff
appellant. Reversed and remanded with directions.
Victor Rasrnowitz, New York, N. Y. (Rabino
\. 4z, Boudin & Standard, Leonard B. Bou
din, and Kristin Booth Glen, on the brief)
for appellant.
* Sitting by designation.
49
Henry Harrrevp, New York, N. Y. (Shearman &
Sterling, Wm. Harvey Reeves, and John J.
Madden, Jr., on the brief, for appellee.
Watter J. Neyton, New York, N. Y., on the
brief, for Alicio Ruiz Martinez, Sr., et w.,
mtervenors.
LumBarD, Chief Judge:
Plaintiff-appellant Banco Nacional de Cuba appeals
from an order of the District Court for the Southern Dis-
trict of New York which granted summary judgment to
defendant-appellee First National City Bank of New York
(First National City) on Banco Nacional’s two causes of |
actiou. Appellant has abandoned the second cause of action |
on this appeal, and thus only the first cause of action, which
is based on the following facts, is before us on this appeal.
First National City, when the Castro government of Cuba
expropriated its properties there, forthwith sold collateral
securing a loan it had made to Banco Nacional prior to
the change in Cuba’s government. The effect of Judge
Bryan’s order was to allow First National City to retain,
as an offset against the value of its expropriated properties,
the amount by which the proceeds from the sale of the
collateral exceeded the amount then owing on the loan.
We hold that allowing such an offset was error. The so-
called Hickenlooper Amendment does not give to a lender
such as First National City the right to apply assets under
its control to recoup losses it has suffered by expropria-
tion of its properties in Cuba. Accordingly, we reverse
and remand to the district court for a factual finding as
to the amount of the excess. Once this factual determina-
tion is made, we direct entry of summary judgment in
favor of Banco Nacional on its first cause of action.
On July 8, 1958, First National City made a fifteen
million dollar secured loan to Banco de Desarrollo Eco-
) nomico y Social (Bandes), a corporate agency of the gov-
50
ernment of the Republic of Cuba. Collateral for the loan
was pledged by Banco Nacional de Cuba (Banco Nacional)
and another Cuban government agency, Fondo de Estab.
ilizacion de la Moneda (Fondo) ; this security was held in
New York and consisted of bonds of the United States
government and obligations of the International Bank of
Reconstruction and Development.
The Castro forces seized control of the government of
Cuba on January 1, 1959. Thereafter, on July 8, 1959,
First National City renewed the fifteen million dollar loan
to Bandes for another year. During the course of the
ensuing year, two Cuban laws went into effect which re.
sulted in the dissolution of Bandes and the succession
by Banco Nacional to many of its rights and obligations,
including the obiigation to repay the fifteen million dollars,
plus interest, to First National City. The Republic of Cuba
also guaranteed that the loan would be repaid.
First National City and Banco Nacional renegotiated
the loan for the second time on July 7, 1960. Banco Na.
cional repaid one-third of the loan—tive million dollars—
and First National City released approximately one-third
of the collateral. At Banco Nacional’s request, First Na-
tional City agreed not to demand repayment of the ten
million dollar baiance for one year.
On September 16, 1960, the Cuban militia occupied the
eleven First National City branch offices in Cuba. Execv-
tive Power Resolution No. 2, issued by the Castro gov-
ernment the following day, formally confirmed that the
branches had in fact been nationalized.?
i The district court cited these laws as Cuban Law No. 730, Feb-
ruary 16, 1960, and Cuban Law No. 847, June 30, 1960.
2 Executive Power Resolution No. 2 was issued pursuant to
Cuban Law No. 851, July 6, 1960. See Banco Nacional de Cuba v.
Sabbatino, 307 F.2d, 845, 849, 861-2 (2d Cir. 1962). Executive
Power Resolution No. 2 is set out in the opinion of the district court,
270 F. Supp. at 1009-1010, note 6.
2x
PARTIE MVE AE LEE PONY PER
51
First National City retaliated almost immediately. On
September 20, 1960, it notified Banco Nacional that it had
dosed Banco Nacional’s accounts as of September 17 and
that it was claiming the amounts on deposit therein as an
offset against the nationalization of its properties in Cuba.’
What is more important to the present appeal, on Septem-
ber 21 and 22, 1960, First National City sold the collateral
held in New York as security on the ten million dollar
lan. First National City received from that sale an amount
_eonceded to be at least $11,892,448 and perhaps as much
as $12,412,000—which was substantially in excess of that
required to discharge the ten million dollar principal sum
and the interest thereon at the annual rate of 4 per cent
for the period July 8, 1960 through the time of the sale.
II.
Banco Nacional instituted suit in November, 1960,
against First National City to recover the excess realized
on the sale of the collateral held as security for the loan.
Its complaint also set forth a second cause of action for
recovery of the deposits on the Cuban banks which First
National City had retained. As Judge Bryan described it,
First National City’s answer raised ‘‘a series of defenses,
set-offs and counterclaims based principally on the con-
fication cf First National City’s Cuban branches.’’ 270
F. Supp. at 1005. Both parties moved for summary judg-
ment on both causes of action and on the counterclaims.
As to the secou.d cause of action, Judge Bryan granted
First National City’s motion for summary judgment. Banco
Nacional filed a notice of appeal from that portion of his
_} What had happened was that a number of private Cuban banks
with deposits in First National City were nationalized pursuant to
Cuban Law No. 891 in October 1960, and the confiscation decree
declared that Banco Nacional was to have full title to the property
of those banks. Thus, First National City, in notifying Banco
4 Nacional, referred to the accounts as Banco Nacional’s.
52
order, but is not pressing that appeal at this time.* Ip
dealing with the first cause of action, Judge Bryan denied
Banco Nacional’s motion for summary judgment on its
ciaim aud on First National City’s counterclaim. However,
as to defendant First National City’s motion for summary
judgment on the first cause of action and the counterclaim,
Judge Bryan ruled:
Defendant’s motion for summary judgment on the
first claim is denied since there are triable issues of
fact and law with respect to the amount of defendant's
set-off. However, I hold that defendant is entitled to
set-off as against [Banco Nacional’s] first claim for
relief any amounts due and owing to it from the Cuban
Government by reason of the confiscation of First
National City’s Cuban properties.
270 F. Supp. at 1011.
It is this latter holding that is before us on this appeal.
After Judge Bryan’s order was filed, the parties entered
into a stipulation providing that the value of First Na-
tional City’s property which had been confiscated in Cuba -
exceeds any amount which Banco Nacional could be awarded
4 We only observe that Judge Bryan’s resolution of this issue was
in compliance with the decision of this court in Republic of Iraq v.
First National ‘City Bank, 353 F.2d 47 (2d Cir. 1965), cert. den,
382 U.S. 1027 (1960). We also note that the holding that the Cuban
expropriation decrees are not entitled to extraterritorial enforcement
in United States courts as to property located within the United
States is distinct from the question whether the act of state doctrine
—absent the Hickenlooper Amendment — bars an American court
from inquiry into the validity of expropriations of American property
within the territory of the expropriated nation.
On this appeal, certain intervenors point out that they claim some
of these deposits. The court below, in granting summary judgment to
First National City on Banco Nacional’s second cause of action, did
not reach these claims, which we assume will be litigated below at
some time.
ee
53
on its first cause of action to recover from First National
City the excess amount realized on the sale of the collateral.
| I.
First National City claims that it is entitled to retain
the excess amount realized on the foreclosure of the
collateral as a set-off because the Cuban government con-
fscated its branch banks without providing adequate com-
pensation, and that this act was a violation of international
law. Judge Bryan properly observed that under the United
States Supreme Court’s decision in Banco Nacional de
Cuba v. Sabbatino, 376 U.S. 398 (1964), ‘inquiry into the
legality vel non of the expropriations here involved would
be foreclosed by the act of state doctrine which forbids
the courts of one country from sitting ‘in judgment of the
acts of the government of another, within its own terri-
tory.’ ’?? 270 F. Supp. at 1007. However, Judge Bryan then
concluded that the Sabbatino decision had been legislatively
overruled ‘‘for all practical purposes,’’ by the Hickenlooper
Amendment to the Foreign Assistance Act of 1964, 22
USC. § 2370(e) (2), as amended, 79 Stat. 658-59 (Sept. 6,
1965). He also noted that the Hickenjooper Amendment
had been held constitutional in the Southern District of
New York in the sequel to the Sabbatino \litigation, Banco
Nacional de Cuba v. Farr, 243 F. Supp\ 957 (8.D.N.Y.
1965) ; we add that the district court decisidn_in Farr was
affirmed in a lengthy opinion by Judge Waterman, 383
F.2d 166 (2d Cir. 1967), and that Banco Nacional’s petition
for a writ of certiorari in that case was denie.‘, 390 US.
1956 (1968).
Judge Bryan also held that the Hickenlooper Amend-
ment directed him, regardless of the act of state doctrine, ,
to determine ‘‘the merits in cases involving a confiscation: _
after January 1, 1959, by an act of a foreign state ‘in
‘This stipulation was entered for purposes of this litigation, to .
avoid the necessity of a trial on the value of First National City’s
expropriated assets located in Cuba. See 270 F. Supp. at 1010-11.
—
bai
:
;
54
violation of the principles of international law, including
the principles of compensation.’ ’’ 270 F. Supp. at 1007.
Proceeding to the merits, Judge Bryan held that the confis.
cation of First National City’s branches did violate inter.
national law because adequate compensation was not pro-
vided and because the confiscation was a reprisal evidencing
discrimination against nationals of the United States,
270 F. Supp. at 1007-1010. In light of this, he concluded
that First National City was entitled to a set-off against
Banco Nacional’s claim to recover the amount left from the
sale of the collateral after deduction of the principal and
interest due and owing. |
On this appeal, Banco Nacional makes three principal
arguments. First, it claims that the act by which the Cuban
government confiscated First National City’s branches in
Cuba was an act of state, that the Hickenlooper amendment
is not applicable to the facts in this case, and thus that the
district court should have followed Mr. Justice Harlan’s
opinion for the Court in Sabbatino and not inquired into
the validity of the Cuban expropriation under international
jaw.° Second, Banco Nacional argues that the Hickenlooper
Amendment is unconstitutional.” Third, Banco Nacional
contends, with some justification, that summary judgment
on First National City’s counterclaim was improper be-
cause: (1) the counterclaim was invalid procedurally in
that it was directed at the Republic of Cuba, which is not
an ‘‘opposing party’’ in the present suit under Rule 13 of the
Federal Rules of Civil Procedure and the interpretations
of that rule; or (2), assuming the counterclaim to be proper
6 A sub-part of this argument is that, assuming the Hickenlooper
Amendment applies to the facts or this case, Judge Bryan incorrectly
applied international law in holding that the Cuban expropriations
violated international law. However, appellant concedes that if this
court holds the Amendment applicable to the case at bar, Judge
Bryan’s decision on this issue was in accordance with the decision of
this court in Banco Nacional v. Farr, supra. 382 F.2d at 183-185;
appellant states that it raises the issue only to preserve it for further
appeal.
7? Again, this issue was resolved against Banco Nacional in Banco
Nacional v. Farr, supra, 383 F.2d at 178-183.
h3)
procedurally, Banco Nacional is not in fact liable for the
obligations of the Republic of Cuba; or (3) because at the
very least this latter question raised a triable issue’ of fact
which was improperly resolved on a motion for summary
judgment. Since we agree with Banco Nacional’s first argu-
ment, we find it unnecessary to pass on the other conten-
tions.
IV.
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398
(1964)* laid down a rule of federal law by which this court
and all other courts are bound absent subsequent changes
in the rule wrought by Congress or by the Supreme Court.
In the course of his exhaustive opinion for the eight-
member majority of the Court, Mr. Justice Harlan devoted
considerable attention to the general problem of when
domestic courts should decline to pass upon claims which
draw into question the validity of the acts of foreign
sovereign states. He observed that the ©
‘‘continuing vitality [of the act of state doctrine] de-
pends on its capacity to reflect the proper distribution
of functions between the judicial and political branches
of the Government on matters bearing upon foreign
affairs. It should be apparent that the greater the
degree of codification or consensus concerning a
particular area of international law, the more appro-
priate it is for the judiciary” to render decisions re-
garding it, since the courts can then focus on the appli-
cation of an agreed principle to circumstances of fact
rather than on the sensitive task of establishing a prin-
ciple not inconsistent with the national interest or with
international justice. It is also evident that some
aspects of international law touch much more sharply
on national nerves than do others; the less important
the implications of an issue are for our foreign policy,
* Reversing Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845
(2d Cir. 1962).
56
the weaker the justification for exclusivity in the
political branches.’’
376 U.S. at 427-8.
From this general discussion, Mr. Justice Harlan’s
opinion proceeds to a specific consideration of the problem
posed when the courts of one nation purport to examine
the validity under international law of another nation’s
expropriation of the property of foreign nationals. Exam-
ining the state of the international law on this question, the
Court concluded that there was no extant definition of the
limits of such power which could command anything
approaching a substantial majority of informed opinion.
Id. at 428. After canvassing some of the basic disagree-
ments on the question,’ the Court stated that ‘‘[il]t is
difficult to imagine the courts of this country embarking on .
an adjudication in an area which touches more sensitively
the practical and ideological goals of the various members
of the community of nations.’’ Id. at 430.
The Court’s opinion also stressed that it is far wiser for —
the courts to defer to the Executive in the task of securing ©
some form of compensation for citizens of the United States —
who have lost property through expropriation by a foreign |
state. The Executive can often achieve some form of gen-
eral redress, whereas judicial determinations can have only
ah occasional impact.’? Moreover, judicial
‘‘decisions would, if the acts involved were declared |
invalid, often be likely to give offense to the expro-
priating country; since the concept of territorial
sovereignty is so deep-seated, any state may resent the
refusal of the courts of another sovereign to accord
validity to acts within its territorial borders. Piece-
meal dispositions of this sort involving the probability
of affront to another state couid seriously interfere
9 376 U.S. at 429-430.
10 See section VI, infra.
wo
57
with siegotiations being carried on by the Executive
Branch and might render less favorable the terms of
an agreement that could otherwise be reached. Rela-
tiuns with third countries which have engaged in
similar expropriations would not be immune from
effect.’’
Id. at 431-2. Mr. Justice Harlan also dismissed the argu-
ment that American courts should examine the validity of
foreign expropriations because in doing so they would
make an important contribution to the development of
international law as based on ‘‘the sanguine proposition
that the decisions of the courts of the world’s major capital
exporting country and principal exponent of the free enter-
prise system would be accepted as disinterested expressions
of sound legal principal by those adhering to widely dif-
ferent ideologies.’’ 376 U.S. at 434-5.
Accordingly, the Court held ‘‘that the Judicial Branch
will not examine the validity of a taking of property within
its own territory by a foreign government, extant and
recognized by this country at the time of suit, in the absence
of a treaty or other unambiguous agreement regarding
controlling legal principles, even if the complaint alleges
that the taking violates customary international law.’’ Id.
at 428. There can be no doubt that the confiscation of First
National City’s branch offices in Cuba by the Cuban gov-
ernment was such a taking of property. As such it is an act
of state the validity of which the Court has directed the
Judicial Branch not to examine.
te
V.
The analysis just presented would suffice to decide this
appeal but for the enactment of the Hickenlooper Amend-
ment by Congress. The amendment, sometimes described
during the Congressional debates as the ‘‘Sabbatino Amend-
58
ment,’’'! was passed in 1964, shortly after the Supreme
Court rendered. its decision in Sabbatino, and that fact js
importan: in interpreting the language Congress used. In
pertinent part, the Hickenlooper Amendment now provides:
‘¢(2) Notwithstanding any other provision of lay,
no court in the United States shall decline on the
ground of the federal act of state doctrine to make a
determination on the merits giving effect to the prin-
ciples of international law in a case in which a claim of
title or other right to property is asserted by any party
including a foreign state (or a party claiming through
such state) based upon (or traced through) a confisca-
tion or other taking after January 1, 1959, by an act of
that state in violation of the principles of international
law, including the principles of compensation and the
other standards set out in this subsection... .’’
Judge Bryan held that the Hickenlooper Amendment
overruled the Sabbatino decision ‘‘for all practical pur-
poses’’ and that he was therefore required to disregard the
act of state doctrine and to pass on the validity of the
expropriations of First National City’s branches in terms
of international law. Banco Nacional takes the position
that Judge Bryan’s reading of the Hickenlooper Amend-
ment is far too broad. We agree.
To understand the legislative history upon which Banco
Nacional relies, it is necessary to sketch briefly the facts
of Sabbatino itself. The case involved a shipment of Cuban
sugar which was to have been purchased by an American
commodity broker, Farr, Whitlock & Co., from the Cuban
subsidiary of an American owned firm, C.A.V. Before the
shipment could leave Cuba, all of the O.A.V.’s assets in
Cuba were expropriated. Thereafter, the Cuban govert-
11 See e.g., Hearings before the Senate Committee on Foreign
Relations on S. 2659, S. 2660, S. 2662, and H.R. 11380, 88th Cong,
2d Sess. (1964) at 449; Hearings before the House Committee on
Foreign Affairs on H.R. 7750, 89th Cong., Ist Sess. (1965).
| ‘
59
nent allowed the shipment of sugar to leave Cuba, but only
after Farr, Whitlock had entered into contracts, identical
io its earlier agreement with C.A.V., with Banco Para
(ommercio Exterior de Cuba (Banco Exterior), an instru-
nentality of the Cuban government. The ship carrying the
sugar was then allowed to sail from Cuba to Morocco.
Banco Exterior assigned the bills of lading to Banco
Yacional, which in turn assigned them to Societe Generale,
4 French bank which acted as Banco Nacional’s agent in
New York, for presentation to Farr, Whitlock for payment.
In some manner, Farr, Whitlock obtained possession of the
bills of lading from Societe Generale without making pay-
ment upon presentation. The money which Farr, Whitlock
yas supposed to pay for the shipment was also claimed
by C.A.V. Thus, the dispute over the right to the pro-
weds of the sale of the expropriated shipment of Cuban
sugar was between Banco Nacional, which in the words of
the Hickenlooper Amendment claimed ‘‘title or other right
_,. based upon (or traced through) a confiscation,”’ and
(.A.V., an American-owned firm which had owned the
sugar before the expropriation.
Sabbatino was handed down by the Supreme Court in
March, 1964, and in April, 1964, Senator Hickenlooper pro-
posed the initial version of a foreign aid bill amendment
related to the case in the Foreign Relations Committee.”
A Conference Committee rew the language in Septem-
ber, 1964, and the amendedq.version was enacted on October
7, 1964, as section 301 4) of the Foreign Assistance
Act of 1964. Pub. L. 88-633, 78 Stat. 1009, 1013. It was
changed slightly and re-enacted in its present form on Sep-
12“No court in the United States shall decline on the ground of the
federal act of state doctrine to make a determination on the merits, or
to apply principles of international law including the principles of
compensation and the other standards set out in this subsection, in a
case in which an act of a foreign state occurring after January 1, 1959
is alleged to be contrary to international law, and effect shall not be
given by the court in any such case to acts that are found to be in
violation thereof.” (S. Rep. No. 1188, Part I, 88th Cong., 2d Sess.
[1964], p. 37 ; emphasis added. )
an ia
60
tember 6, 1965, as section 301(d)(2) of the Foreign Assist.
ance Act of 1965. Pub. L. 89-171, 79 Stat. 653 22 U.S.¢.
§ 2370(e) (2).
It is evident from the proceedings in Congress relating
to the Hickenlooper Amendment that Congressmen and
others were quite concerned about the problem peculiarly
related to the facts of the Sabbatino case. At the time of
the Congressional debates during 1964 and 1965, virtually
all American-owned property in Cuba had been national.
ized. Much of this property consisted of productive in.
stallations such as sugar plantations, fertilizer plants,
mines, and oil production facilities. In light of this, when
the Supreme Court in Sabbatino issued a ruling which
would apparantly permit Banco Nacional to prevail over
an American-owned firm in securing the proceeds of the
sale of a shipment of expropriated sugar to an American
commodity broker, the phrase ‘‘thieve’s market for expro-
priated property’’ came into vogue. In explaining his pro-
posal in an August, 1964, letter to the Washington Post,
Senator Hickenlooper used the term ‘‘thieve’s market,”
and explained further that the Amendment’s purpose was
to require American courts to apply international law
‘‘whenever expropriated property comes within the terri-
torial jurisdiction of the United States.’’ 110 Cong. Ree,
19548. At another time, he said ‘‘Basically the amendment
is designed to assure that the private litigant is granted his
day in court.’’ 110 Cong. Rec. 18936. The Senator further
explained:
‘‘’'The amendment] will discourage foreign expropria
tion by making sure that the United States cannot
become a ‘thieve’s market’ for the product of foreign
expropriations.
* * * * *
One ‘of the principal reasons for the proposed
amendment is that it will serve no‘ice that foreign
13 For a discussion of these changes see Banco Nacional v. Farr,
supra, 383 F.2d at 171-2, and at 171, note 5.
61
states taking action against U.S. investment in viola-
tion of international law cannot market the product of
their expropriation in the United States free from
litigation.’’
110 Cong. “Rec. 19555, 19559 (1964). See also id. 19548,
19557.
When the Conference Godnatiten reported the Amend-
inent to the House of Representatives on October 2, 1964,
Congressman Adair, its sponsor in the House, gave this
explanation of its purpose:
‘<It insures that however the case may arise or the
act of state doctrine be invoked,.a party who had suf-
fered an expropriation in violation [of international
law] may bring suit to assert his claim to the expro-
priated property if there is an attempt to market tt im
the United States or can resist a suit by the expropri-
ating government to seize the property.”’
110 Cong. Rec. 23680 (1964) (emphasis added). Senator
Hickenlooper described the provision in virtually identical
terms in the Senate the following day. See 110 Cong. Rec.
24076-7 (1964).
The Hickenlooper amendment was further considered
in the 89th Congress during 1965, particularly in hearings
held by the House Committee on Foreign Affairs on its
reenactment. The first witness at these hearings was Pro-
fessor Cecil Olmstead, one of the original authors of the
Hickenlooper Amendment, who represented the Rule of
Law Committee—formed by a group of American com-
panies which had suffered expropriations—ir its support
for the Amendment. He first discussed Sabbatino, describ-
ing its effect as follows:
. [I]f the former American owners of property ex-
prepriated abroad seek to recover that property when
it turns up within the United States they are denied
any kind of recourse to U.S. courts, both State and
Federal, even in cases in which the expropriation is
| pha Foe kk aid
62
uncompensated. . . . Specifically, this means that the
fruits of such illegal expropriation could be marketed
with impunity in the United States.’’
Hearings before the House Committee on Foreign Affairs
on H.R. 7750, 89th Cong., Ist Sess. (1965), 578. See also
Id. 579, 591, 502, 598-599, 601, 604-605, 612-615.
During Professor Olmstead’s testimony, an instructive
colloquy took place between Olmstead and Congressman
Fraser, a member of the Committee. Mr. Fraser was in. *
terested in determining how broad the Amendment was,
He asked:
‘‘For example, supposing that country X expropriates
some property and doesn’t compensate for it and then
a property belonging to the foreign state comes into
the hands of an American citizen within this country
so that they bring an action, they attach tke property
and bring an actien in the U.S. courts alleging that
this government has wronged them by expropriating
their property, but the property they have attached is
not the property that was expropriated, nevertheless
they make the claim they are entitled to compensation
and the defense, I assume, by the country involved is
that they had a right to expropriate.
Does that situation come within the language of
your amendment?
Mr. Olmstead: No, sir; that would not come within
it. Our amendment has no provision in its scope to
apply to property other than that actually expropri-
ated by the foreign country itself.’’
* ik * * *
Mr. Fraser: You are saying it would be limited
solely to situations where you actually—where what
[was] at issue was the title of the [expropriated]
property, that is the major issue?
Mr. Olmstead: Yes.’’ ya
63
there followed a page of discussion about ore or oil from
n expropriated mine or well coming back into this coun-
ry, and Professor Olmstead then concluded: ‘‘Of course
his amendment will only operate when some proceeds of
he illegal expropriation turn up in the Umted States,’’ td.
t 607-608 (emphasis added).
Attorney General Katzenbach, who testified before the
same Committee the day after Professor Olmstead, took
he same view. In his ‘opening remarks in opposition to
the Amendment be stated:
‘‘What are we taking about in this amendment? We
are talking about a very isolated, infrequent occur-
rence which is when American property that has been
nationalized in some way or another finds its way back
in the United States. That is very unlikely to occur.
... It is generally an accident because the owner of
that property, or the foreign government involved, is
not going to bring that property into this country and
is deterred from doing it by the fact that normally,
if that property is brought into this country, the assets
from it are going to be frozen in an outstanding dis-
pute with the foreign country.”’
House hearings, supra, at 1235. See also, id. 1236, 1237
(testimony of Mr. Katzenbach).
Congressman Gross, another member of the House For-
eign Affairs Committee, urged that the Amendment be
broadened to enable the owner of expropriated property to
seize Cuban property in the United States as an offset for
the value of property seized by Cuba. See House Hearings,
supra, at 1249; see also id., at 1050. As appellant Banco
Nacional points out, this is precisely the position First
National City takes in this litigation. However, First Na-
tional City has cited no legislative history, and we have
found none, which indicates that Mr. Gross’ suggestion was
thought to have been adopted by Congress when it re-
enacted the Hickenlooper Amendment.
64
Banco Nacional quotes the following colloquy betwee,
Mr. Katzenbach and Representative Gallagher of the House
Foreign Affairs Committee as indicative of the legislators’
and witnesses’ understanding of the scope of the Amend.
ment:
‘‘Mr. Gallagher: This amendment merely applied
to property that works its way back into the United
States ; correct?
Attorney General Katzenbach: Yes.
Mr. Gallagher: That it has no effect whatsoever on
any property that continues to rest or vest in the
cvuntry that made the seizure?
Attorney General Katzenbach: That is correct.’’
House hearings, supra, at 1247. Sée also colloquy between
Mr. Katzenbach and members of the Committee, id. at
1245-1247 ; colloquy between Professor Henkin and Mr. Gal-
lagher, id. at 1072; testimony of Professor Metzger, i.
at 1025-1031; testimony ef Professor McDougal, 7d. at 1043,
1050-1051; statement of the Committee on International
Law of the Association of the Bar of the City of New York
submitted to the House Foreign Affairs Committee in sup-
port of the Amendment, id. at 1316. See also Hearings
before the Senate Committee on Foreign Relations on the
Foreign Assistance Progrem, 89th Cong., Ist Sess. (1965),
728 (letter to Chairman Fulbright from George W. Ball);
730-760 (an appendix consisting of material submitted by
Senator Hickenlooper, much of it from the earlier House
hearings).
Given all of this background, we can find no basis for
holding that the present case is one ‘‘in which a claim of
title or other right to property is asserted by [First Na-
tional City] . .. based upon (or traced through) a con-
fiscation or other taking. .. .”? 22 U.S.C. § 2370(e) (2). To
do so would stand the statute on end. If one fact is clear
from the legislative history, it is that this language was
designed to be invoked by American firms in order to afford
65
them ‘‘a day in court’’—and presumably a monetary re-
covery—When some other entity attempted to market the
American firms’ expropriated property and some aspect
of such an attempted transaction took place in this country.
We cannot believe that through the same language Con-
gress intended to create a self-help seizure remedy for those
few American firms fortunate enough to hold or have ac- —
cess to some assets of a foreign state at the time that state
nationalizes American property."
VI.
Indeed, it seems to us that such an interpretation of
the Hickenlooper Amendment would run counter to an-
other important Congressional policy.
Through the provisions of Subchapter V of the Inter-
national Claims Settlement Act of 1949, Pub. L. 88-666, 78
Stat. 1110, amended Oct. 19, 1965, Pub. L. 89-262, § 1, 79
Stat. 988; Nov. 6, 1966, Pub. L. 89-780, § 1, 80 Stat. 1365,
22 U.S.C. §§ 1643-1648k (1970 Supp.), on October 16, 1964,
Congress provided for ‘‘the determination of the amount
and validity of claims against the Government of Cuba...
[arising] out of nationalization, expropriation, intervention,
or other takings of ... property of nationals of the United
States... .’? 22 U.S.C. § 1643 (1970 Supp.). Obviously, the
expropriation of First National City’s branches in Cuba
gave rise to a claim of the sort which Congress intended
to be submitted to the Foreign Claims Settlement Commis-
sion. See 22 U.S.C. § 1643b(a) (1970 Supp.).
On the other hand, Congress and the Fxecutive Branch
have also acted, pursuart to the Trading with the Enemy
Act, 50 U.S.C. App. $5 (1970 Supp.); Proc. 3447, 27 F.R.
1085, 3 C.F.R., 1959-1963 Comp., to block all Cuban assets
present in this country as of July 8, 1963. See 31 C.F.R.
See Henkin, Act of State Today: Recollections in Tranquility,
_ J. of Transnational Law, 175, 184-5 (1967) ; see aiso id. 185, n.
eta
4
"PGRN SEAPORT RR
66
§§ 515, et seq. (1970).'5 At present there is no provision i
the federal statutes or regulations providing for vesting 0
the blocked Cuban assets—whether assets of the Cuba
government or of Cuban nationals—in the government of
the United States for sale and use by the Foreign Ciaims
Settlement Commission to pay those who have submitted
claims to the Commission based on expropriations by the
Cuban government.’®
It is this system of claim submission and blocking of
assets which First National City seeks to circumvent. Due
to the Cuban expropriation of its branches, First National
City felt justified in breaching whatever loan agreement it
had entered with Banco Nacional on July 7, 1960, by pre-
maturely foreclosing on the collateral held as security. It
was fortunate for First National City that sale of the col-
lateral brought more than enough money to cover the prin-
cipal amount and interest then due on the loan. First
15 The report of the Treasury Department, Office of Foreign Assets
Control, on the census of blocked Cuban assets, is reprinted in House
Hearings, supra, at 1264. The report states, as reprinted at 1264,
that the Cuban assets control regulations were adopted “under section
5(b) of the Trading with the Enemy Act of 1917, as amended, to
implement the policy of an economic embargo of Cuba set forth in
Proclamation No. 3447, which was issued by the President under
section 620(a) of the Foreign Assistance Act of 1961, Public Law
87-195.”
16Tn 1964, when Congress enacted subchapter V of the Interna-
tional Claims Settlement Act of 1949, relating to claims against Cuba,
it included as section 511(b) a provision vesting the blocked assets of
the Cuban government in the United States government and further
providing that the proceeds of such assets of the Cuban government
should be used to reimburse the United States government for the
expense of operating the Foreign Claims Settlement Commissions and
the Department of the Treasury in processing claims against Cuba.
Pub. L. 88-666, section 511(b), 78 Stat. 1113 (October 16, 1964).
However, that section was repealed one year later, see Pub. L. 89-
262, section 5, 79 Stat. 1988 (October 16, 1965). The report of
the Senate Foreign Relaticns Committee states that “the committee
was persuaded by the following argument advanced by the Depart-
ment of State:
‘it is the Department’s view that vesting and sale of Cuban prop-
erty could set an unfortunate example for countries less dedi-
cated than the United States to the preservation of rights. The
67
Yational City was also fortunate in that they sold the
eurity before Cuban assets were blocked in July, 1963.
Had they waited, it seems clear, under 31 C.F.R. § 515.202
(1970), that any sale of the collateral put up by Banco
Yacional as security on the loan in suit would have been
impossible without a license from the Office of Foreign
Assets Control of the Treasury Department. See 31 C.F.R.
§ 515.801 (1970). As matters now stand First National
City has recouped dollar-for-dollar on the loan transac-
tion; be its position on this appeal, it seeks something more.
We do not believe that First National City uas any spe-
dal claim to the excess proceeds of the sale of the col-
lateral. Any judgment rendered in faver of Banco Nacional
on its first cause of action would, after deduction of attor-
ney’s fees, become a blocked Cuban asset.!? Presumably,
if other attempts at settlement of the claims fail, the blocked
Government of the United States, as a matter of policy, en-
courages the investment of American capital overseas and
endeavors to protect such investments against nationalizations,
expropriations, intervention, and taking. To vest and sell
Cuban assets would place the Government of the United States
in the position of doing what Castro has done. It could cause
other governments to question the sincerity of the United States
Government in insisting upon respect for property rights. The
result could be a reduction, in an immeasurable but real degree,
of one of the protections enjoyed by American-owned property
around the world.’ ”
Sen. R. No. 701, 89th Cong., Ist Sess., 2 U.S.C. Code Cong. &
Admin. News p. 3583 (1965).
It seems to us that Congress’ acceptance of the State Department's
argument points up to some extent the wisdom of Mr. Justice Har-
lan’s observation in Sabbatino that to permit American courts to pass
on the validity of expropriations would have an effect on “ [r]elations
with third countries which have engaged in similar expropriations.”
376 U.S. at 432.
17 See Report of Treasury Department, Office of Foreign Assets
Control, Census of Blocked Cuban Assets, supra note 15, reprinted
in House Hearings, supra, at 1264.
First National City’s judgment debt to Banco Nacional for the
excess amount it holds would have to be reported to the Office of
Foreign Assets Control on Form TFR-607 under any one of several
classifications of “reportable property” specified on that form.
AS
Pie anh ns
ao a.
68
Cuban assets will eventually be vested in the United Stat
government and the Foreign Claims Settlement Commi
sion will begin compensation of the claimants. As part
the pool of assets available for compensation, such a jud
ment in favor of Banco Nacional would serve to provi
at least partial compensation of all those claimants wh
suffered losses in the Cuban expropriations. See testimon
of Attorney General Katzenbach, House Hearings, supr
at 1235-1236. No authority which First National City ha
cited in its brief establishes any right to a preference suc
as that which would result if the decision of the distric
court were to be affirmed. While Judge Bryan noted i
a footnote that ‘‘{[a]ny sum which First National City i:
permitted to set-off in this action will of course have to be
taken into account by the United States Foreign Claim:
Settlement Commission in assessing claims filed by First
National City,’’ 270 F. Supp. at 1011, note 10, we observe
that such a set-off against its total claims with the Com.
mission would still allow First National City a dollar-for.
dollar recoupment on a significant portion of its total claim
for the value of its expropriated property—something
which few, if any, other claimants are likely to receive."
The report also states that the deadline for filing reports for thi
Office’s census of blocked Cuban assets was March 15, 1964. How:
ever, the report notes that there are probably many people holding
blocked assets who did not know of the deadline, and states “exten:
sions of time for filing were granted when necessary.” There is little
question that an extension would be granted in a situation such a:
the present case, where lengthy, litigation to settle the dispute over
entitlenient to the excess funds carried the parties past the filing
deadline.
18 We note from the affidavit of First National City Bank sub
mitted below that its claims for expropriated property is relativel)
small, about three million dollars, as compared to some claims which
must have been filed by American corporations with large industria
operations in Cuba.
The windfall First National City seeks can best be understoo
through a hypothetical example. Assume that there are twenty claim
ants who have filed with the Foreign Claims Settlement Commission
pursuant to 22 U.S.C. § 1643 (Supp. 1970). Ten claimants, calle
“A” claimants, each have claims for fifteen million dollars; fout
claimants, called “B” claimants each claim five million dollars. The
2
69
VII.
Since there is a factual dispute, to the extent of more
than $500,000, between the parties as to the total amount
realized from the sale of the collateral and as to the amount
of interest properly deducted, which Judge Bryan was not
called upon to resolve due to his disposition of the sum-
mary judgment motions, we remand to the district court
for a determination of the exact amount of excess left
after the principal sum and the interest due thereon is
deducted from the proceeds of the sale of the security.
When this determination is rade, the district court is
directed to grant Banco Nacional’s motion for summary
judgment on its first cause of action.
twentieth claimant is First National City Bank which, for purposes
of this example, also seeks five million dollars. Further, assume that
absent the sum in dispute in this case the total value of blocked Cuban
assets held by the Office of Foreign Assets Controls is 20 million
dollars.
If the claims are eventually allowed to vest against the fund and
some sort of pro rata payment authorized, First National City Bank
will do considerably better if it is permitted to retain the Cuban assets
which fortuitously were in its reach, rather than if it had merely held
the excess here in dispute so that in time it would have been blocked
and become part of the fund.
Assume First National City has seized the collateral, sold it, and
realized three million dollars over the amount owed with interest. If,
as it seeks in this suit, it keeps the three million as a set-off against
its claims against Cuba, the fund compromised of all blocked assets
would still equal twenty million dollars. However, the clairns against
the fund would be reduced from 200 million to 197 million, since First
National City would have to off-set the three million dollars against
the five million dollars we have assumed it has claimed with the
Foreign Claims Settlement Commission. See 22 U.S.C. § 1643 (Supp.
1970). On this basis, the pro rata share would be 10.9 cents on the
dollar. The “A” claimants, seeking 15 million each, would each receive
about 1.52 million; the ““B”’ claimants, with claims for 5 million, would
each take about .57 million. And First National City, with its claim
reduced to 2 million, would receive about .24 million. But to this must
beadded the 3 million which it took directly, bringing its cotal recovery
to 3.24 million.
In the second case, First National has not (or is not allowed to)
take the 3 million for its own account; rather, it stays in Banco
Nacional’s name and in time becomes part of the fund. Now, the fund
a
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| 70
Reversed and remanded for further proceedings cop.
sistent with this opinion.
————___
has 23 million, while the claims are 200 million, since First National
City has nothing to off-set against its initial claim of 5 million. Here
the pro rata share would be about 11.5 cents on the dollar. The “A”
claimants would receive about 1.73 million each, while the “B” claim.
ants—including First National City—would take about .575 million
each.
As can be seen, by resorting to self-help and avoiding the Congres.
sional scheme for orderly settlement of these claims, First National
City stands to profit considerably. Under our hypothetical figures,
the difference is between 3.24 million and .575 million dollars. The
windfall of course is not at the expense of Cuba, but rather comes out
of the shares of all other American nationals who have lost property
by the Cuban expropriation.
71
Order, Dated and Entered January 25, 1971
SUPREME COURT OF THE UNITED STATES
OctToBeR TERM, 1970
No. 846
Fimsr Nationau City Bank,
Petitioner,
Vv.
Banco Nactonau DE CuBa,
| Respondent.
ORDER
The petition for a writ of certiorari is granted. The
judgment of the Court of Appeals is vacated and the case is
remanded to the Court of Appeals for reconsideration in
light of the views of the Department of State expressed
in its letter dated November 17, 1970, and transmitted to
this Court by the Solicitor General. In taking this action,
the Court is expressing no views on the merits of the case.
— a eee eee el hie es Sak el ae a MR Te IE ent aoa tad gas et ten ages tomate oa teat een eee ae ee LESLIE UR ERR
. oe i ee OO IT ee ees EE ORE Ose OT YO ERS PRY LITE EP NRA ee
72
. Opinion, Dated April 27, 1971
UNITED STATES COURT OF APPEALS
For tHE SEconD CrRcultT
Nos. 798, 799—September Term, 1970.
(Argued March 18, 1971 Decided April 27, 1971.)
Docket Nos. 32533, 33864
Banco Nacriona DE CuBa,
Plantiff-Appellant,
v.
THE First Nationa City Bank or New York,
Defendant-A ppellee,
Before:
Lumsarp, Chief Judge,
Hays, Circuit Judge, and BLUMENFELD, District Judge.
Appeal from an order of the District Court for the
Southern District of New York, Frederick vanP. Bryan,
J., holding the act of state doctrine inapplicable and grant-
ing defendant’s motion for summary judgment on its
counterclaim against plaintiff. After our reversal and re-
mand to the District Court, the Supreme Court remanded
- this case to us for reconsideration in light of the views of
the Department of State.
We adhere to our prior decision and reverse and remand
with directions.
Victor Rasinowitz, New York, N.Y. (Rabino-
witz, Boudin & Standard on the brief), for
appellant.
Henry Harrietp, New York, N.Y. (Shearman
& Sterling, Herman E. Compter and James
B. Keenan, on the brief), for appellee
‘i
* Sitting by designation.
73
LumBaRD, Chief Judge:
This case comes to us on remand from the Supreme
Court for our reconsideration in light of the views of the
Department of State expressed subsequent to our original
decision which was filed on July 16, 1970. Banco Nacional
de Cuba v. The First National City Bank of New York,
431 F.2d 394 (2d Cir. 1970). For the reasons stated below,
we adhere to our prior decision and reverse and remand
to the district court.
In the original action, Banco Nacional de Cuba brought
suit against First National City Bank of New York in the
Southern District. After the Castro gevernment of Cuba
had expropriated First National City’s properties there
pursuant to Cuban Law No. 851, First National City had
sold collateral securing a ten-million-dollar loan it had made
to Banco Nacionai prior to the change in Cuba’s govern-
ment. From the sale of that collateral, First National City
had received an amount—conceded to be at least $11,892,448
and perhaps as much as $12,412,000—which was substan-
tially in excess of that required to discharge the ten-niilhion-
dollar principal sum and the four per cent interest thereon. .
Banco Nacional’s suit was to recover the excess realized on
that sale.
In the district court, First National City raised a series
of counterclaims and setoffs based principally on the con-
tention, that, since the Cuban government had confiscated
its properties in Cuba in violation of international law, it
was entitled to retain the excess on the sale ut the collateral
as an offset against the value of its confiscated properties.
Judge Bryan in the Southern District gretféd summary
judgment to First National City. Banco Nacional de Cuba
v. The First National City Bank of New York, 270 F. Supp.
1004 (S.D.N.Y. 1967).
On appeal, we reversed the district court’s judgment,
holding that Cuba’s confiscation of First National City’s
preperties in Cuba was an act of state and that under
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964),
the act of state doctrine foreclosed judicial inquiry into the
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74
validity of that confiscation under international law. We
held further that the Hickenlooper Amendment to the For.
eign Assistance Act of 1964! did not apply here so as to
defeat the act of state doctrine and thereby to give a lender
such as First National City the right to apply assets under
its control to recoup losses it has suffered by expropriation
of its properties in Cuba. Accordingly, we concluded that
allowing First National City its claimed offset against the
allegedly unlawful expropriation was error; and we re.
manded to the district court for a factual finding as to the
amount by which the rroceeds of the sale of the collateral
exceeded the amount then owing on the loan—wLich excess
we directed should then be paid to Banco Nacional.
First National City petitioned for a writ of certiorari
on October 13, 1970; and on November 17, 1970, the Legal
Advisor to the Department: of State wrote a letter to the
Supreme Court expressing the views of that Department
with respect to this case. The State Department’s ‘etter is
set out in full in an appendix to this opinion. By order
dated January 25, 1971, the Supreme Court granted cer-
tiorari and remanded the case to us withc.t taking any
position on the merits. The Supreme Court’s order stated
in full:
‘*846 First National City Bank v. Banco Nacional de
Cuba. The petition for a writ of certiorari is granted.
The judgment of the Court of Appeals is vacated and
the case is remanded to the Court of Appeals for re-
considerati«n in light of the views of the Department
of State expressed in its letter dated November 17,
1970, and transmitted to this Court by the Solicitor
General. In taking th's action, the Court is expressing
no views on the merits of the case.’’ 39 U.S.L.W. 3321
(January 26, 1971).
Upon reconsideration, we see no reason to change our ir*tial
decision on this appeal.
122 U.S.C. § 2370(e) (2), as amended, 79 Stat. 658-59 (Sept. 6
1965).
75
Basically, the State Department’s letter of November 17
expresses the view that the act of state doctrine does not
par consideration of a claim for compensation asserted as
a defensive counterclaim or offset limited to the amount of
aclaim made in a United States court by a foreign govern-
ment, arising out of a relationship between the parties
when the act of state occurred, and where the foreign policy
interests of the United States do not require application
of the doctrine. It suggests that this Court is relieved from
any restraint upon the exercise of its jurisdiction to adju-
dicate First National City’s counterclaim arising out of the
confiscation of its Cuban assets. The letter states that in
this case
“the foreign policy interests of the United States do
not require the application of the act of state doctrine
to bar adjudication of the validity oi a defendant’s
counterclaim or set-off against the Government of
Cuba in these circumstances.
The Department of State believes that the act of
state doctrine should not be applied to bar considera-
tion of a defends nt’s counterclaim or set-off against
the Government of Cuba in this or like cases.’’
First National City argues that this letter constitutes
the requisite statement by the Executive Branch which
under our decision in Bernstein v. N.V. Nederlandsche
Amerikaansche, etc., 210 F.2d 375 (2d Cir. 1954), relieves
the courts from applying the act of state doctrine to bar
examination of the validity of the law in question. Because
the interpretation of Bernsteim will be crucial to our deter-
mination of the instant case, we set forth the background
of Bernstein in some detail.
That case involved the alleged confiscation of the prop-
erty of a single plaintiff, a Jewish German national, by the
Nazi German government between 1937 and 1939. Plaintiff
alleged that he was compelled by officials of that govern-
ment, acting through threats of bodily harm, indefinite
imprisonment, and death for plaintiff and his family, ~o
assign his property to the German government. Beginning
76
in 1946 the plaintiff sought to attach and recover some of
the proceeds of his former property in a suit brought ing
state court in New York and removed to the federal district
court. In the first Bernstein case, Bernstein v. Van Heyghen
Freres Societe Anonyme, 163 F.2d 246 (2d Cir.), cert. de.
nied, 332 U.S. 772 (1947), we held, in an opinion by Judge
Learned Hand, that the act of state doctrine prevented us
from inquiring into the validity of the confiscation of the
plaintiff’s property by the Nazi goverment; and we there.
fore affirmed the district court’s dismissal of the complaint.
However, in the course of his opinion, Judge Hand said
that it was a relevant question ‘‘whether since the cessation
of hostilities with Germany our own Executive, which is
the authority to which we must look for the final word in
such matters, has declared that the commonly accepted
doctrine which we have just mentioned does not apply.”
163 F.2d at 249. After full consideration, we concluded that
the Executive Branch had not in fact acted to relieve the
courts of the restraint imposed by the act of state doctrine,
In the second Bernstein case, the same plaintiff broughi
a conversion action against another defendant — a Dutch
corporation which, in participation in a plan with officials
of the Nazi government, had confiscated and converted his
stock in a German liability corporation. In that case, we
reaffirmed our holding in the first Bernstein case that,
because of the lack of a definitive expressién of Executive
policy, the act of state doctrine prevented judicial examina-
tion of official acts of the Nazi government. Bernstein v.
N.V. Nederlandsche-Amertkaansche, etc., 173 F.2d 71 (2d
‘Cir. 1949). We did remand the case for the purpose of
allowing the plaintiff to allege, if he could, that his property
had ‘een seized by persons acting in a private capacity; but
we ordered: him to refrain from alleging matters which
would cause the court to pass on the validity of acts of
officials of the German government. ~ ism
Following that decision, the State Department issued
a press release quoting a letter from its Acting Legal
Advisor. As the release stated, that letter
17
‘‘repeats this Government’s opposition to forcible acts
of dispossession of a discriminatory and confiscatory
nature practiced by the Germans on the countries or
peoples subject to their controls; states that it is this
Government’s policy to undo the forced transfers and
restitute identifiable property to the victims of Nazi
persecution wrongfully deprived of such property;
and sets forth that the policy of the Executive, with
respect to claims asserted in the United States for
restitution of such property, is to relieve American
- courts from any restraint upon the exercise of their
jurisdiction to pass upon the validity of the acts of
Nazi officials.’’
When the case came before us again, we stated that ‘‘[i]n
view of this supervening expression of Executive Policy,
we amend our mandate in this case by striking out all
restraints based on the inability of the court to pass on acts
of officials in Germany during the period in question.’’
210 F.2d 375, 376 (2d Cir. 1954).
First National City argues that Bernstein requires that
we change our prior Gecision in the instant case, as we did
there, to conform with the State Department suggestions.
t contends that since the Executive has now written a
“Bernstein letter’’ exercising its prerogative in the area of
foreign policy and suggesting that the act of state doctrine
is inappropriate in this case, the policies underlying that
doctrine, to which the Supreme Court gave crucial weight
in Sabbatino, are not present here. According to First
National City, judicial resolution of the issue raised by this
claim would involve no encroachment on the Executive’s
prerogatives in the area of foreign affairs; there would be
no invasion of the foreign government’s sovereignty since
Cuba itself sought the process of United States law; and
there would be no burden on international trade, nor risk
to innocent purchasers, since the sole question is whether
one party has defenses that fairly curtail the recovery
sought by the other party. Hence, says First National City,
this Court should not apply the act of state doctrine here.
}
prec meerreieere an
LP FLY TENOR
aa Fie
78
First Nationai City contends further that without the
bar of the act of state doctrine, we can and must hold in its
favor—that it is entitled to set off against Banco Nacional’s
claim for relief such amount as may be due “nd owing it
from the Cuban government as compensatio:. for its con.
fiscated Cuban property. Its argument in this regard runs
as follows: In Sabbatino, we held that Cuba’s seizures of
property of United States nationals pursuant to Cuban Law
No. 851 were in violation of international law. Banco Na-
cional de Cuba v. Sabbatino, 307 F.2d 845 (2d Cir. 1962),
That substantive determination was not questioned by the
Supreme Court in reversing us in Sabbatino, for the Su.
preme Court decided only that the Judicial Branch will not
examine the validity of a taking of property within its own
territory by a foreign sovereign. When this restraint was
removed by the Hickenlooper Amendment, this Court was
‘‘unable to find any convincing reason, based on argument
or new autuority, for altering our holding in the original
appeal,’’ 383 F.2d at 183; and so we reaffirmed our previous
holding that Cuban taking was invalid under international
law. Banco Nacional v. Farr, 383 F.2d 166 (2d Cir.), cert.
denied, 390 U.S. 956 (1967). When the instant case came
here, we felt that the restraint on an examination of validity,
recognized in the Supreme Court’s decision in Sabbatino,
precluded the result we had reached in Farr because the
Hickenlooper Amendment did not apply. Now, says First
National City, the situation is altered by the subsequent
expression of views by the State Department; and hence,
in conformity with our decision in Bernsteim, we should
respond by following our decision on the merits in Farr,
with respect to the same Cuban law.
We disagree. First National City’s arguments are based
wholly on the assumption that the so-called Bernstein excep-
tion to the act of state doctrine applies kere since the State
Department Las written a letter. We fell that thai assump-
tion is erroneous. Bernstein arose out of a unique set of
circumstances calling for special treatment, and _ hence
should be narrowly construed and, insofar as is possible,
limited to its facts.
79
As shown above, the facts in Bernstein were most un-
usual, to say the least, and bear no resemblance to those in
the instant case. The acts of state there were performed by
, German government with which this country had gone to
war and which was no longer in existence at the time of the
State Department’s letter. Here, on the other hand, we have
‘ never been at war with Castro’s Cuban government, and
that government is both extant and recognized by the United
States. Again, unlike the situation here, the State Depart-
ment’s letter in Bernstein was written during the aftermath
cf a great world war; and the Nazi government’s actions,
such as those of which Bernstein complained, had been con-
demned throughout the world as crimes against humanity.
Furthermore, the letter in Bernstein went so far as to
indicate that it was the affirmative policy of our govern-
ment to restitute identifiable property to all those victimized
by the Nazi confiscation, not merely, as the letter indicates
in this case, to those who assert counterclaims or setoffs.
The Executive itself seems to have recognized the
miqueness of Bernstein, for tne Solicitor General’s Brief as
Amicus Curiae before the Supreme Court in the Sabbatino
case states:
‘‘The circumstances leading to the State Department’s
letier in the Bernstein case were of course most un-
usual. The governmental acts there were part of a
monstrous program of crimes against humanity; the
acts had been condemned by an international tribunal
after a cataclysmic world war which was caused, at
least in part, by acts such as those involved in the
litigation, and the German State no longer existed at
the time of State Department’s letter. Moreover, the
principal of payment of repazations by the successor
German government had already been imposed, at the
time of the ‘Bernstein letter,’ upon the successor
government, so that there was no chance that a sus-
pension of the act of state doctrine would affect the
negotiation of the reparations settlement.”’
80
There is still another important distinction betwee,
Bernsteim and the case at bar. In Bernstein, as should be
clear, the balance of equities was almost entirely on the side
of the party opposing application of the act of state doe.
trine, the plaintiff, whereas here, as we found in our prior
decisicn in this case, the contra _ is true, since First Na.
tional City is seeking a windfau at the expense of other
creditors. 431 F.2d, at 404n. 18.
In actual practice, as the Solicitor General’s Amicus
Brief in Sabbatino also recognizes, the Bernstein exception
has been an exceedingly narrow one. Prior to the present
case, a ‘‘ Bernstein letter’’ has been issued only once—in the
Bernstein case itself. Moreover, the case has never been
followed successfully; it has been relied upon only twice,
and in both of those instances, by lower courts whose deci-
sions were subsequently reversed. Banco Nacional de Cuba
v. Sabbatino, 307 F.2d 845, 857-58 (2d Cir. 1962), rev’d,
376 U.S. 398 (1964) ; Kane v. National Institute of Agrarian
Reform, 18 Fla. Supp. 116 (Fla. Cir. Ct. 1961), rev’d, 153 So.
2d 40 (Fla. App. 1963).2 The Supreme Court has never
passed en the validity of the Bernstewn exception; indeed,
in Sabbatino it carefully avoided making any such deter-
mination. 376 U.S. at 420.
Furthermore, the Court in Sabbatino seemed te recog-
nize one of the distinctions described above between a
2.The Bernstcin case has, in a few other instances, been cited, but
not in relevant situations. For example, in Zwack v. Kraus Bros. &
Co., 237 F.2d 255 (2d Cir. 1956) and Republic of Iraq. v. Fist
National City Bank, 241 F. Supp. 567 (S.D.N.Y. 1965), the case was
cited, although no Bernstein letter had been filed and the issue in the
cases involved property located in the United States and hence not
subject to the Act of S‘ate doctrine. In a few other instances the
Bernstein case has been mentioned in passing, merely as an exception
to the act of state doctrine. Banco National v. Farr, 243 F. Supp. 95/7
(D.C.N.Y. 1965); Palicio v. Brush, 256 F. Supp. 481 (D.CNY.
1966) ; Wyman v. United States, 166 F. Supp. 766, 769 (Ct. Cl. 1958).
In Menendez Rodrigues v. Pan American Life Insurance Co., 31l
F.2d 429 (5th Cir. 1962), the court treated the correspondence te-
ferred to in our decision in Sabbatino, as a Bernstein letter ; but, as is
noted above, our decision in Sabbatino was reversed by the Supreme
Court.
Bernstein-type case and a case such as the one at bar. In
discussing when the act of state doctrine should be applied,
the Court stated that ‘‘[t]he balance of relevant considera-
tions may... be shifted if the government which perpetrated
the challenged act of state is no longer in existence, as in the
Bernstein case, for the political interest of this country may,
asa result, be measurably altered. Therefore, ... we decide
only that the Judicial Branch will not examine the validity
of a taking of property within its own territory by a
foreign sovereign government, extant and recognized by
this country at the time of suit, in the absence of a treaty
or other unambiguous agreement regarding controlling
legal principles, even if the complaint alleges that the taking
violates customary international law.’’ 376 U.S. at 428. It
is clear that the confiscation of First National City’s prop-
erty in Cuba by the extant and recognized Cuban govern-
ment comes within this holding, and the thrust of the entire
decision in Sabbaiino is contrary to recognizing exceptions
to the act of state doctrine in such cases.
For these reasons, we conclude that Bernstein is best
left narrowly limited to its own peculiar facts and that,
despite the State Department’s letter of November 17, 1970,
the exception to the act of state doctrine created by that
case is inapplicable to the case at bar. Rather, we stil! find
persuasive those cogent policy reasons for applying the
doctrine which were articulated by Mr. Justice Harlan in
Sabbatinu and set forth in our prior opinion at 431 F.2d
397-99. Since we hold that the State Department’s letter
uere does not bring this case within the narrow Bernstein ;
exception, it is plain that that letter does not relieve us F
from applying the act of state doctrine to bar examination
of the validity of the Cuban expropriation of First National
City’s property there.
Accordingly, we adhere to our prior decision and reverse z
and remand this case for further proceedings consistent
with that decision and this.
ze
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82
APPENDIX
Tue LeGcaLt ADVISER
DEPARTMENT OF STATE
WASHINGTON
NovEMBER 17, 1970
Honorable E. Robert Seaver
Clerk of the Court
United States Supreme Court
Dear Mr. Seaver:
The case of First National City Bank v. Banco Nacional
de Cuba is before the Supreme Court on petition for a writ
of certiorari, No. 846 filed October 13, 1970. The case in-
volves a claim by Banco Nacional for excess collateral it
had pledged with City Bank to secure a loan and a counter-
claim by City Bank, up to the amount claimed by Banco
Nacional, based upon Cuba’s expropriation, without com-
pensation, of property of City Bank in Cuba in 1960.' The
Court of Appeals for the Second Circuit held that the
exception to the Act of State doctrine created by 22 U.S.C.
§ 2370(e) (2)? did not apply to City Bank’: claim against
1The District Court determined that Banco Nacional and the
Government of Cuba are one and the same for purpeses of this
litigation.
2“(2) Notwithstanding any other provision of law, no court
in the United States shall decline on the ground of the federal act of
state doctrine to make a determination on the merits giving effect to
the principles of international law in a case in which a claim or title
or other right to property is asserted by any party including a foreign
state (or a party claiming through such state) based upon (or trace
through) a confiscation or other taking after January 1, 1959, by an act
of that state in violation of the principles of interna’ ‘onal law, includ-
ing the principles of compensation and the other standards set out
in this subsection: Provided, That this subparagraph shall not be
ana
83
Cuba and that the Act of State doctrine, as expressed by the
Supreme Court in Banco Nacional de Cuba v. Sabbatino,
76 U.S. 398 (1964), barred adjudication of City Bank’s
counterclaim.
The Department of State believes tnis second holding
inyolves matters of importance to the foreign policy inter-
ests of ‘he United States and requests that our views be
conveyed to the Supreme Court.’
The Executive’s role in suggesting that the act of state
doctrine should not be applied with respect to a certain
case or class of cases has been recognized Foth by the
Department of State and in court decisions. This role, the
so-called Bernstein exception to the act of state doctrine as
applied by United States courts, was first clearly established
in Bernstein v. N.V. Nederlandsche Amevikaansche, Etc.,
210 F.2d 375 (2nd Cir. 1954), where the court reversed its
earlier holding, 173 F.2d 71 (2nd Cir. 1949), that the act
of state doctrine precluded the court’s adjudication of the
validity of certain acts of the (Nazi) German Government.
The basis for this reversal was a statement by Jack B. Tate,
Acting Legal Adviser, Department of State, indicating that
EGAN EMRE ARNT FI PR HN BET IN IEMA BO A 9 UDP AN Naren
applicable (1) in any case in which an act of a foreign state is not
contrary to international law or with respect to a claim of title or other
right to property acquired pursuant to an irrevocable letter of credit
of not more than 180 days duration issued in good faith prior to the
time of the confiscation or other taking, or (2) in any case with re-
spect to which the President determines that application of the act
of state doctrine is required in that particular case by the foreign
policy interests of the United States and a suggestion to this effect is
filed on his behalf in that case with the court.” (Foreign Assistance
Act of 1965, Sec. 620(e) (2), 22 U.S.C. § 2370(e) (2). a
3We regret that our views could not have been brought to the
attention of the lower courts. Unfortunately, it was only after the
not-yet-published opinion of the Second Circuit Court of Appeals
was handed down that the question of the appropriateness of State
Department action arose, since it did not become clear until that time
that the Sabbatino Amendment would be considered inapplicable.
No formal request for a statement by the Department was made in
this case until October 14, 1970, one day after the petition for writ of
certiorari was filed.
TERRAIN ROOMS AOS RRA E TY
: isancere:
RE Re ee UE one
84
Lhe policy of the. Executive, with respect to claims
asserted in the United States for restitution of such
vroperty (or compensation in lieu thereof) lost
through force, coercion or duress as a result of Nazi
persecution in Germany, is to relieve American courts
from any restraint upon the exercise of their juris.
diction to pass upon ue validity of the acts of Nazj
officials.’’
210 F.2d at 376. Thus ihe Executive had indicated that the
act of state doctri e need notxbe applied in a certain class
of cases; the applicability of the statement was not limited
to the Bernstem case.
In Banco Nacional de Cuba v. Sabbatino, supra, the
Supreme Court held that the act of state doctrine precluded
the examination of the validity. of the act of a foreign
sovereign within its own territory, even where that act was
allegedly a violation of international law. 376 US. at
436-37. The ruling was based on the Court’s recognition of
the Executive’s prerogatives in the area of foreign affairs;
it found the act of state doctrine ‘‘arising out of the basic
relationships between branches of ggvernment in a separa-
tion of powers.’’ Id. at 423. However, the Court specifically
avoided ruling on the validity of the Bernstewm exception.
Id. at 436.
While the Department of State in the past has generally
supported the applicability of the act of state doctrine, it
has never argued or implied that there should be no excep-
tions to the doctrine. In its Sabbatino brief, for example, it
did not argue for or against the Bernstein principle; rather
it assumed that judicial consideration of an act of state
would be permissible when the Executive so indicated, and
argued simply that the exchange of letters. relied on by the
lower courts in Sabbatino constituted ‘‘no such expression
in this case.’’ Brief of the United States, page 11.
Recent events, in our view, make appropriate a deter-
minaticn by the Department of State that the act of state
doctrine need not be applied when it is raised to bar
85
adjudication of a counterclaim or setoff when (a) the
foreign state’s claim arises from a relationship between the
parties existing when the act of state occurred; (b) the
amount of the relief to be granted is limited to the amount
of the foreign state’s claim; and (c) the foreign policy
interests of the United States do not require application
of the doctrine.
The 1960’s have seen a great increase in expropriations
by foreign governments of property belonging to United
States citizens. Many corporations whose properties are
expropriated, financial institutions for example, are vulner-
able to suits in our courts by foreign governments as
plaintiff, for the purpose of recovering deposits or sums
owed them in the United States without taking into account
the institution’s counterclaims for their assets expropriated
in the foreign country.
The basic considerations of fairness and equity suggest-
ing that the act of state doctrine not be applied in this class
of cases, unless the foreign policy interests of the United
States so require in a particular case, were reflected in
National City Bank v. Republic of China, 348 U.S. 356
(1956), in which the Supreme Court held that the protection
of sovereign immunity is waived when a foreign sovereign
enters a U.S. court as plaintiff. While the Court did not
deal with the act of state doctrine, the basic premise of that
case — that a sovereign entering court as plaintiff opens
itself to counterclaims, up to the amount of the original
daim, which could be brought against it by that defendant
were the sovereign an ordinary plaintiff —is applicable by
analogy to the situation presented in the present case.
In this case, the Cuban government’s claim arose from a
banking relationship with the defendant existing at the time
the act of state — expropriation of defendant’s Cuban prop-
erty — occurred, and defendant’s counterclaim is limited to
the amount of the Cuban government’s claim. We find, more-
over, that the foreign policy interests of the United States
do not require the application of the act of state doctrine to
—_
86
bar adjudication of the validity of a defendant’s counter.
claim or set-off against the Government of Cuba in thege
circumstances.
The Department of State believes that the act of state
doctrine should not be applied to bar consideration of g
defendant’s counterclaim or set-off against the Government
of Cuba in this or like cases.
Sincerely yours,
JoHN R. STEVENSON.
Hays, Circuit Judge (dissenting) :
By refusing to apply the exception to the act of state
doctrine announced by this court in the third Bernstein
case, Bernstein v. N.V. Nederlandsche-Amerikaansche
Stoomevaa:t-Maatschappij, 210 F.2d 375 (2d Cir. 1954), the
majority is engaging in precisely the kind of judgment
which the act of state doctrine has removed from judicial
determination.
The majority’s attempt to distinguish Bernstein shows
a misapprehension of the basis upon which the Bernstem
exception was formulated. Bernstein was a per curiam
opinion in which this court set forth part of the text of a
State Department letter. The court, making no independent
evaluation of the letter itself, then stated that ‘‘[i]n viéw
of this supervening expression of Executive Policy, we
amend cur mandate in this case by striking out all restraints
based on the inability of the court to pass on acts of officials
in Germany during the period in question.’’ Id. at 376
Considerations such as the acts of the Nazi government, the
fact that we were at war with the government in question,
and the fact that that government no longer existed, all used
by the majority to distinguish Bernstein, were set forth
not by the court but by the State Department in its letter.
Unless the majority wishes to overrule Bernstein, it must
accept the Banco Nacional letter as an expression of Execu-
— _—
87
tive Policy and go no further. In Banco Nacional de Cuba
y, Sabbatino, 376 U.S.-398, 420 (1964), the Court held that
there had been no expression of Executive Policy.
More fundamental than a mere lack of conformity with
Bernstein, however, is the fact that the majority, by apply-
ing the act of state doctrine after an independent evaluation
of the merits of the State Department’s decision, is usurp-
ing the same executive prerogative which it is the function
of that doctrine to preserve. The recognition of this coxflict
is the very reason for the Bernstein exception. The funda-
mental premise behind the act of state doctrine is that
“It]he conduct of the foreign relations of our Government
iscor aitted by the Constitution to the Executive and Legis-
lative—‘the political’—Departments of the Government,
and the propriety of what may be done in the exercise of
this political power is not subject to judicial inquiry or
decision.’? Oetjen v. Central Leather Co., 246 U.S. 297, 302
(1918). It is not the function of the courts to choose between
competing foreign policy considerations and conclude that
Nazi Germany is ‘‘bad’’ and that Cuba is ‘‘good.’’ The
attitude of the United States toward foreign powers must
be left, as in Bernstein, to the decision of the other branches
of government. As the Court said in Sabbatino, in discus-
sing the related issue of a judicial determination of the
tight of a foreign country to sue in our courts, ‘‘[t]his Court
would hardly be competent to undertake assessments of
varying degrees of friendliness or its absence. . . .’” “Banco
Nacional de Cuba v. Sabbatino, supra at 410. The majority
has undertaken just such an assessment and, in doing so,
ignores both the exception to the act of state doctrine in
Bernstein, and the fundamental purpose of the doctrine
itself. I must dissent from what I consider to be a deviation
from our judicial function.
NCEP IEA PERLE AI BARA BELG
4
4
=
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88
Order, Dated and Entered October 12, 1971
SUPREME COURT OF THE UNITED STATES
Octoser TrERM, 1971
No. 70-295
First Nationau City Bang,
Petitioner,
Vv.
Banco Nactonau DE Cusa,
Respondent.
ORDER
‘The petition for a writ of certiorari is granted.
Supreine Court of the Anited States
No. 702295 --<-4Qoteber Term b>
First National City Bank,
Petitioner,
Ve
Banco Necionel de Cubs
OrpeR ALLOWING CERTIORARI. Filed October 12, erececenons]9 71,
The petition herein for a writ of certiorari to the United States Court of
Appeals for the Second -«-sccceuseeeeee Circuit is granted.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.