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Banco Nacional De Cuba v. Sabbatino

July 6, 1962


Author: Waterman

Before WATERMAN, KAUFMAN and MARSHALL, Circuit Judges.

WATERMAN, Circuit Judge.

The plaintiff, the financial agent of the Government of Cuba, appeals from a summary judgment entered in the United States District Court for the Southern District of New York, dismissing its complaint against the defendant Peter L. F. Sabbatino, the New York Temporary Receiver, who is holding the proceeds of a certain shipment of sugar, and against the defendant Farr, Whitlock & Co., the commodity broker which negotiated the sale of the sugar in this country, for the conversion of the bills of lading and the sales proceeds of this sugar shipment.

In February and July 1960, Farr, Whitlock entered into contracts with General Sugar Estates, Inc., a wholly-owned Cuban subsidiary of Compania Azucarera Vertientes-Camaguey de Cuba (C.A.V.) for the purchase of Cuban sugar. C.A.V. is organized under the laws of Cuba, but over ninety per cent of its shareholders are residents of the United States. Pursuant to these contracts, between 6:00 A.M. on August 6, 1960, and 1:00 P.M. on August 9, 1960, 22,000 bags of sugar were loaded aboard the German vessel S.S.Hornfels standing offshore at the Cuban port of Jucaro. The exact distance offshore is not known.

On the first day of that loading, August 6, the Castro Government, at the seat of the government in Havana, issued Executive Power Resolution No. 1 under Law No. 851. The resolution proclaimed:

"In pursuance of the powers vested in us, in accordance with the provisions of Law No. 851, of July 6, 1960, we hereby,


"FIRST: To order the nationalization, through compulsory expropriation, and, therefore, the adjudication in fee simple to the Cuban State, of all the property and enterprises located in the national territory, and the rights and interests resulting from the exploitation of such property and enterprises, owned by the juridical persons who are nationals of the United States of North America, or operators of enterprises in which nationals of said country have a predominating interest, as listed below, * * *"

Followed a list of the twenty-six companies to be seized, number 22 on the list being C.A.V. The purpose of Law No. 851 and the resolution of expropriation was set forth in the resolution as follows:

"WHEREAS, Law No. 851, of July 6, 1960, published in the Official Gazette of July 7, 1960, authorized the undersigned to provide, through joint resolutions, whenever they deem it advisable in order to defend the national interests, for the nationalization through compulsory expropriation, of the property or enterprises owned by physical and corporate persons who are nationals of the United States of North America, and the enterprises in which such persons have any interest or participation, even though they have been organized under the Cuban laws.

"WHEREAS, the attitude assumed by the Government and the Legislative Power of the United States of North America, of continued aggression, for political purposes, against the basic interests of the Cuban economy, as evidenced by the amendment to the Sugar Act adopted by the Congress of said country, whereby exceptional powers were conferred upon the President of said nation to reduce the participation of Cuban sugars in the sugar market of said country, as a weapon of political action against Cuba, was considered as the fundamental justification of said law.

"WHEREAS, the Chief Executive of the Government of the United States of North America, making use of said exceptional powers, and assuming an obvious attitude of economic and political aggression against our country, has reduced the participation of Cuban sugars in the North American market with the unquestionable design to attack Cuba and its revolutionary process.

"WHEREAS, this action constitutes a reiteration of the continued conduct of the government of the United States of North America, intended to prevent the exercise of its sovereignty and its integral development by our people thereby serving the base interests of the North American trusts, which have hindered the growth of our economy and the consolidation of our political freedom.

"WHEREAS, in the face of such developments the undersigned, being fully conscious of their great historical responsibility and in legitimate defense of the national economy are duty bound to adopt the measures deemed necessary to counteract the harm done by the aggression inflicted upon our nation."

After August 6 the consent of the Cuban government was required before sugar-carrying ships could leave Cuban waters. To obtain this consent, on August 11 Farr, Whitlock entered into contracts with Banco Para el Commercio Exterior de Cuba, as the representative of the Castro government. The terms of these contracts were identical with those in the earlier contracts between Farr, Whitlock and the subsidiary of C.A.V. With the permission of the Cuban regime the sugar-laden S.S. Hornfels sailed for its destination, Casablanca, Morocco.

Banco Para el Commercio Exterior as signed the bills of lading for this sugar shipment to the plaintiff, which in turn sent them to Societe Generale, a French bank which acted as the plaintiff's agent in New York. The plaintiff instructed Societe Generale to deliver the bills of lading and a sight draft in the sum of $175,250.69 to Farr, Whitlock in return for payment of the draft. On August 26, 1960, as instructed, Societe Generale presented the documents to Farr, Whitlock for payment, but the broker refused to accept them, giving as its reason the fact that one of the three necessary copies of the shipping documents was missing.

Meanwhile, on August 16, a shareholder of C.A.V. brought an action in the New York Supreme Court, Kings County, pursuant to N.Y.Civ.Prac.Act, ยง 977-b for the appointment of a receiver for the assets of C.A.V. in New York.*fn1 That same day the New York court ex parte appointed the present defendant Sabbatino as Temporary Receiver. A certified copy of the order appointing the Temporary Receiver was served on Farr, Whitlock on August 23.

On Friday, August 26, the same day on which Societe general Generale first tried to make delivery of the shipping documents and receive payment for the plaintiff, officers of C.A.V. advised Farr, Whitlock orally and in writing that C.A.V., not the Cuban government or its agencies, was the true owner of the sugar covered by the bills of lading in the hands of Societe Generale.*fn2 C.A.V. enclosed in its letter to Farr, Whitlock a notice of the appointment of the Temporary Receiver. Later that day Farr, Whitlock and C.A.V. entered into an agreement by which Farr, Whitlock promised to retain any proceeds it might receive from the sugar shipment here involved until it was compelled by a court order to turn them over to the Receiver or anyone else. C.A.V. promised to indemnify Farr, Whitlock against any claims with respect to the sugar, except a claim by the Receiver; to defend any suit against Farr, Whitlock involving the sugar or the proceeds therefrom, except a proceeding by the Receiver; and to pay Farr, Whitlock ten per cent of the sum of $175,000 if C.A.V. ever obtained that sum.

Monday morning, August 29, 1960, Societe Generale again presented the draft to Farr, Whitlock, this time with all the necessary documents. The plaintiff claims that Farr, Whitlock informed Societe Generale that it would take the documents for inspection and that a representative of the French bank might return later that day for payment. Farr, Whitlock claims on the other hand, that Societe Generale presented the documents in the usual manner and that no conversation took place. In either event, the same day Farr, Whitlock negotiated the bills of lading to its customer and received payment of the purchase price in the amount of $175,250.69.

A representative of Societe Generale returned to Farr, Whitlock's office at 3:00 P.M. that day to receive payment of the draft. He was informed, the plaintiff maintains, that the bills of lading had been negotiated and that Farr, Whitlock had received the proceeds but that it would not turn over the proceeds to Societe Generale because C.A.V. claimed them.

About two hours later Farr, Whitlock was served with an order of the Supreme Court of New York, Kings County, enjoining it from taking any action which might result in removing assets claimed by C.A.V. out of the State of New York. That same day Farr, Whitlock notified the French bank by letter that the sugar broker had notice of the appointment of the receiver for C.A.V.'s New York assets, that C.A.V. claimed the sugar proceeds here involved, that the broker had received formal notification of a motion in the New York court to vacate the receivership,*fn3 and that Farr, Whitlock had been served with the order mentioned in the preceding sentence. Therefore, the letter stated, Farr, Whitlock was obliged to retain the proceeds until directed by a competent court to give them up. Societe Generale formally protested the non-payment of the draft.

On October 24, 1960, the Supreme Court of New York, Kings County, ordered Farr, Whitlock to transfer the proceeds less $1,314.38, commissions due the broker, or a total of $173,936.31, to Sabbatino, the Temporary Receiver, to await the court's determination as to the rightful owner of the proceeds. The commodity broker transferred the proceeds as the state court ordered.

The plaintiff filed its complaint in the present action in the United States District Court for the Southern District of New York on October 10, 1960, and amended it on October 31 in the light of the New York court's order of October 24, referred to in the preceding paragraph. In the amended complaint, the Cuban bank alleged that Farr, Whitlock's refusal either to return the bills of lading or to pay over the proceeds of the sale to Societe Generale was a conversion of the bills and of the proceeds. The plaintiff asked the federal court to enter judgment for it against Farr, Whitlock in the amount of $175,250.69 and to enjoin Sabbatino from exercising jurisdiction over the sums paid to him.

The defendant Farr, Whitlock answered, and filed a cross-claim for judgment over against the defendant Sabbatino in the amount of $173,936.31, being the sum which the broker had paid to the Receiver, should the plaintiff recover judgment against Farr, Whitlock. The commodity broker also raised a counter-claim in the amount of $412,807.12 based on an unrelated shipment of Cuban sugar.

Sabbatino moved to dismiss the plaintiff's complaint as to him and the broker's cross-claim for failure to obtain permission to sue him from the court which appointed the Receiver. Farr, Whitlock moved to dismiss the Cuban bank's action against it because of alleged lack of jurisdiction over the subject matter. The plaintiff moved for summary judgment against both defendants. Farr, Whitlock moved for summary judgment against the Receiver in the event that the plaintiff obtained summary judgment against Farr, Whitlock. The district court below treated all these motions in a single, scholarly opinion, reported at D.C., 193 F.Supp. 375 (1961). It denied the broker's motion to dismiss, holding that it had jurisdiction over the subject matter and, on the plaintiff's motion for summary judgment, granted judgment for the defendants, thereby rendering the other motions moot. The plaintiff then appealed to this court.

Inasmuch as they are presently involved in several cases with issues similar to those in this case, we allowed the Cuban-American Sugar Company and its wholly-owned subsidiary, the Cuban American Sugar Mills Company, to file a brief as amici curiae.

This appeal raises very important and difficult legal questions in the fields of international relations, state-federal relations, ...

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