decided: October 15, 1968.
HAZEL W. FRENCH, RESPONDENT,
BANCO NACIONAL DE CUBA, APPELLANT
French v. Banco Nacional de Cuba,
Opinion by Chief Judge Fuld in which Judges Bergan, Jasen and Hopkins*fn* concur, Judge Hopkins in a separate opinion in which Chief Judge Fuld and Judges Bergan and Jasen concur; Judge Burke dissents and votes to affirm in an opinion in which Judges Scileppi and Keating concur, Judge Keating in a separate opinion in which Judges Burke and Scileppi concur.
On this appeal from a judgment in favor of the plaintiff in an action for a breach of contract, two questions were originally briefed and argued -- first, whether the defendant is entitled to sovereign immunity and, second, whether the defendant may invoke the "act of state" doctrine. We ordered reargument, requesting the parties to address themselves to further questions, the primary one being whether the Hickenlooper Amendment to the Federal Foreign Assistance Act of 1961 (hereafter referred to as the Hickenlooper Amendment)*fn1 covers this case and bars application of the act of state doctrine. The case stems from a regulation of the Cuban Government -- adopted after Fidel Castro's accession to power in January of 1959 -- which, in effect, prevented American and other foreign investors from receiving currency other than Cuban pesos on their Cuban investments. The investor here involved was the plaintiff's assignor, Alexander Ritter, an American citizen, now living in Florida, who resided in Cuba at the time of the events from which this lawsuit arises. In 1957, some two years before the events in question, he invested about $350,000 in a Cuban farm. At that time, the Cuban Government permitted foreign investors to turn the proceeds from their enterprises into American dollars, or other foreign currency, and exempted such proceeds from Cuba's tax on the exportation of money. To this end, the Currency Stabilization Fund of the Cuban Government was authorized to issue "certificates of tax exemption." In June, 1959, six months after the inception of the Castro regime, Ritter acquired eight such certificates, aggregating $150,000.*fn2
Each certificate recites that
"Alexander S. Ritter of a member Bank of the System, as endorsee hereof, will receive from Banco Nacional de Cuba [defendant herein] against delivery to said Bank of $Cuban Pesos and surrender of this Certificate, a check on New York for an equal amount of United States Dollars, exempt from the Tax on Exportation of Money.
"This Certificate is issued and delivered inasmuch as the importation and investment in Cuba of the said funds have been duly accredited in accordance with the provisions of Law-Decree No. 548 of November 20, 1952 and its Regulations."
Although the certificates state that their owner "will receive from [defendant bank]" the appropriate "amount" of American dollars, they are signed by both the defendant and the Cuban Government's Currency Stabilization Fund. On July 15, 1959, the Currency Stabilization Fund issued "Decision No. 346." Aimed at stopping the flow of foreign currency from Cuba and thereby preventing a situation "very dangerous" to that country, the Decision suspended "for the time being processing of "tax exemption certificates "until reorganization of the system of exemptions". The redemption of such outstanding certificates, according to the president of defendant bank, would have wiped out Cuba's dollar reserves. When, in December of 1959, Ritter tendered his certificates for redemption, together with the appropriate number of pesos, payment in American dollars was refused under the mandate of the Decision.
The plaintiff, Ritter's assignee, brought the present action, late in 1960, in Supreme Court, New York County, and obtained a judgment against defendant bank in the amount of $150,000, with interest.*fn3 A closely divided Appellate Division affirmed, rejecting the defendant's claims (1) that it was entitled to sovereign immunity from suit as an agency of the Cuban Government and (2) that the Decision in question "had the force of law" and was an act of the sovereign Government of Cuba to which our courts will not deny legal effect.
On the first of these questions, that of sovereign immunity, the entire court is in agreement with the Appellate Division, and we dispose of the point very quickly. In view of the State Department's conclusion (set forth in a note not included in the record) that the activities out of which the present action arose "were of a jure gestionis [commercial] * * * nature" and its position that immunity should not be granted in such cases, we must decline to accord the defendant sovereign immunity from suit. It is "not for the courts to allow immunity" on grounds "which the government has not seen fit to recognize." (Republic of Mexico v. Hoffman, 324 U.S. 30, 35; see, also, National Bank v. Republic of China, 348 U.S. 356, 360; Victory Transp. v. Comisaria General, 336 F. 2d 354, 360, cert. den. 381 U.S. 934.)
This brings us to the second question presented, namely, whether the act of state doctrine bars the plaintiff's claim. It has long been settled,*fn4 and recently reaffirmed by the Supreme Court in Banco Nacional de Cuba v. Sabbatino (376 U.S. 398, 416 et seq.), that the courts in the United States will not inquire into the validity of the acts of a foreign government done within its own territory. As the Supreme Court stated in Underhill v. Hernandez (168 U.S. 250, 252) -- quoted in Sabbatino (376 U.S., at p. 416) -- "[every] sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves."
Our courts will not examine a foreign law to determine whether it was adopted in conformity with the internal procedures and requirements of the enacting state. The act of state doctrine, it has been well said, is not limited to situations in which "the foreign act is committed in a manner 'colorably valid' under foreign law. It should make no difference whether the foreign act is, under local law, partially or wholly, technically or fundamentally, illegal. * * * So long as the act is the act of the foreign sovereign, it matters not how grossly the sovereign has transgressed its own laws." (Banco de Espana v. Federal Reserve Bank, 114 F. 2d 438, 444; emphasis supplied.) The opinion in Sabbatino itself is unequivocal on this point. "The courts below", the Supreme Court wrote (376 U.S., at p. 415, n. 17), "properly declined to determine if issuance of the expropriation decree complied with the formal requisites of Cuban law. * * * If no institution of legal authority would refuse to effectuate the decree, its 'formal' status -- here its argued invalidity if not properly published in the Official Gazette in Cuba -- is irrelevant. It has not been seriously contended that the judicial institutions of Cuba would declare the decree invalid." Nor, it should be noted, does the plaintiff before us make any such claim.
Consequently, there is no basis whatever for the plaintiff's contention that the action dishonoring and repudiating the certificates held by Ritter was not an "act of state." Regardless of whether or not Decision No. 346 was published in the Official Gazette or otherwise complied with internal Cuban standards of regularity, it was issued by the Currency Stabilization Fund, an official instrumentality of the Cuban Government. Moreover, in compliance with that Decision -- or even if only in purported compliance -- Banco Nacional, also an agency of the Cuban Government, refused and continues to refuse to exchange pesos for dollars as the certificates had required. These undisputed facts establish, as matter of law, that the breach of contract, of which the plaintiff complains, resulted from, and, indeed, itself constitutes, an act of state.*fn5
On this analysis, there is no issue of burden of proof. Rather, the question is, what need be proved. The defendant introduced evidence showing that Decision No. 346 had been issued by the Currency Stabilization Fund, that it was adopted as a measure to control currency and foreign exchange and that defendant bank had regarded the Decision as binding upon it and as prohibiting performance of the agreement in the tax exemption certificates. The plaintiff adduced evidence to the effect that the Decision did not conform to Cuba's fundamental law and that it had not been published in the "Official Gazette." But that was insufficient, as matter of law, to establish that the action dishonoring and repudiating the certificates was not an act of state. It was incumbent on the plaintiff to prove that the Cuban authorities themselves would deem Decision No. 346 invalid and would disregard it. This she was obviously unable to do.
Since it is thus apparent that there was an act of state, it follows -- unless the Hickenlooper Amendment requires the
--> court not to apply the act of state doctrine (infra, pp. 57-62) -- that we are barred from all further inquiry in this case concerning Cuba's action and, in particular, from any inquiry that would test such action by the standards of international law or the public policy of this forum.
In Sabbatino, where the Supreme Court most recently considered the act of state doctrine, it was confronted with a complete and outright expropriation of American property, a quantity of sugar, by Cuba. Nevertheless, taking into consideration the "fluidity of present world conditions" and the division of opinion upon the "limitations on a state's power to expropriate the property of aliens", the court was of the opinion that, whether or not an "international standard in this area" might be discerned, the "matter is not meet for adjudication by domestic tribunals" (376 U.S., at pp. 428, 429, 434). Accordingly, and having in view the particular facts of the case before it, the Supreme Court said (376 U.S., at p. 428):
"Therefore, rather than laying down or reaffirming an inflexible and all-encompassing rule in this case, 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."*fn6
Indeed, if the act of state doctrine was decisive in the situation presented in the Sabbatino case, then, it must surely be so here -- again, unless the Hickenlooper Amendment requires a different result. In the present case, although there are circumstances which undoubtedly imposed serious losses upon the plaintiff's assignor, manifestly, they do not reach the level of an outright "taking" or "expropriation" with which the court was confronted in Sabbatino.
The Government of Cuba, by its Decision No. 346, has actually done nothing more than enact an exchange control regulation similar to regulations enacted or promulgated by many other countries, including our own. (See, infra, pp. 63-64.) A currency regulation which alters either the value or character of the money to be paid in satisfaction of contracts is not a "confiscation" or "taking." (Cf. Norman v. B. & O. R. R. Co., 294 U.S. 240, Nortz v. United States, 294 U.S. 317, and Perry v. United States, 294 U.S. 330 [Gold Clause Cases].) As one authoritative writer in the field has stated (Mann, Money in Public International Law, 96 Recueil Des Cours  1, 90), "A legislator who reduces rates of interest or renders agreements invalid or incapable of being performed or prohibits exports, or renders performance more expensive by the imposition of taxes or tariffs does not take property. Nor does he take property if he depreciates currency or prohibits payment in foreign currency or abrogates gold clauses. Expectations relating to the continuing intrinsic value of all currency or contractual terms such as the gold clause are, like favorable business conditions and good will, 'transient circumstances, subject to changes', and suffer from 'congenital infirmity' that they may be changed by the competent legislator. They are not property, their change is not deprivation." (See, also, 1 Hyde, International Law Chiefly as Interpreted and Applied by the United States [2d rev. ed., 1945], pp. 690-691.)
In the light of Sabbatino, we must recognize that the currency regulations of a foreign state -- at least when presented in a context such as this one -- are not appropriate subjects for evaluation by state courts applying local conceptions of public policy. The "continuing vitality" of the act of state doctrine, the Supreme Court wrote in Sabbatino (376 U.S., at pp. 427-428), "depends 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." As Mr. Justice Harlan observed (p. 432), "Piecemeal dispositions" by courts which refuse to accord validity to the acts of a foreign sovereign within its borders "could seriously interfere with negotiations being carried on by the Executive Branch and might prevent or render less favorable the terms of an agreement that could otherwise be reached." (See, also, Zschernig v. Miller, 389 U.S. 429, rehearing den. 390 U.S. 974.)
In an area of international law where, for instance, there is a wide divergence "between the national interests of capital importing and capital exporting nations and between the social ideologies of those countries that favor state control of a considerable portion of the means of production and those that adhere to a free enterprise system", judicial restraint is surely indicated (376 U.S., at p. 430): "It is difficult to imagine the courts of this country embarking on adjudication in an area which touches more sensitively the practical and ideological goals of the various members of the community of nations." Even if, therefore, we were to assume that the decision of the Cuban instrumentality here involved was contrary to our public policy, such considerations would not affect our determination. As the Supreme Court observed in the far harsher context of Sabbatino (pp. 436-437), "However offensive to the public policy of this country and its constituent States an expropriation of this kind may be, we conclude that both the national interest and progress toward the goal of establishing the rule of law among nations are best served by maintaining intact the act of state doctrine in this realm of its application."
We might properly conclude at this point. The parties themselves raised no other issues in the courts below or on the original argument of this appeal. However, in deference to the views of some of the members of this court, we directed reargument and, as noted above (p. 49), requested the parties to address themselves, in essence, to the further question whether the Hickenlooper Amendment covers this case and bars the court from applying the act of state doctrine.*fn7 In our view, the Hickenlooper Amendment is inapplicable. The statute was enacted to "reverse in part" the decision in Sabbatino (S. Rep. No. 1188, Pt. I, 88th Cong., 2d Sess., p. 24 ). So far as relevant, the amendment declares that "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 of title or other right to property is asserted by any party including a foreign state * * * based upon (or traced through) a confiscation or other taking * * * by an act of that state in violation of the principles of international law". (Emphasis supplied.)*fn8
It is plain enough upon the face of the statute -- and abundantly clear from its legislative history -- that Congress was not attempting to assure a remedy in American courts for every kind of monetary loss resulting from actions, even unjust actions, of foreign governments. The law is restricted, manifestly, to the kind of problem exemplified by the Sabbatino case itself, a claim of title or other right to specific property which had been expropriated abroad. (See Henkin, Act of State Today: Recollections in Tranquility, 6 Colum. J. of Transnatl. L. 175, 185, 186.)
The basic terms of the statute -- to come directly to its wording -- simply cannot be made to fit the present case. The amendment applies only if there is a "claim of title or other right to property " and that claim is "based upon (or traced through) a confiscation or other taking" of such property.*fn9
We must thus attempt to identify the "property" -- or the proceeds of such property -- which was allegedly "confiscated or taken" from Ritter by the action of the Cuban Government. It is quite evident that, before the issuance of Decision No. 346, Ritter had only two things that are relevant to this action --
--> (1) some 150,000 pesos or the means of obtaining them and (2) a contract made in Cuba, to be performed in Cuba (by delivery there of a check), and subject, from its inception and at all times since, to the laws of Cuba.*fn10 He did not, it must be emphasized, have any fund of dollars with which this action is concerned nor did he have rights to any specific fund of dollars in the possession of any other party. What, then, was "taken"?
Ritter's loss is due not to a taking of property but, rather, to the breach of a promise upon which he had relied. What had happened -- and undoubtedly to Ritter's financial loss -- was that the Cuban law which governed the contract had been changed by the adoption of a government regulation which "suspended," perhaps permanently, the conversion of pesos into dollars. In the strictest sense, and within the terms of the statute we are construing, just as no one has "taken" the pesos from Ritter, so no one has "taken" the contract from him; it is still his or his assignee's to enforce, or attempt to enforce, as the present action bears witness. No other party claims to be possessed of the contract rights that Ritter had acquired. It is not as though the Cuban Government had assumed title to a contract right or other chose in action that had belonged to Ritter and had then sought to enforce it against the obligor. Indeed, as will shortly appear (infra, p. 61), even if a true, outright confiscation of this kind had occurred -- that is, an actual divesting of ownership of a contract right -- it would still be outside the compass of the Hickenlooper Amendment.
If there could be any doubt that the amendment is inapplicable to claims for breach of contract, that doubt is dispelled by reference to the legislative history, both of the original enactment in 1964 and the change in wording adopted in 1965.
Throughout the committee hearings and proceedings in Congress, the supporters of the bill and those who commented upon it were quite explicit about the intended purpose of the proposal. That purpose was simply to permit an adjudication "on the merits", despite the holding in Sabbatino, in those cases in which a party asserts "a claim of title or other right" to property which has been confiscated or taken and such property becomes the subject of a lawsuit in the United States. Indeed, Senator Hickenlooper himself expressly declared, at one point, that the purpose of his proposal was to require our American courts to apply international law " whenever expropriated property comes within the territorial jurisdiction of the United States ", noting that, unless his proposal was accepted and the Sabbatino decision overruled, this country might become "an international 'thieves market'" (110 Cong. Rec. 19548).*fn11
The words "confiscation" and "taking", the debates and committee hearings established, were used synonymously with "expropriation" and "nationalization." (See, e.g., Hearings Before Senate Committee on Foreign Relations on S. Bill 2659, 2660, 2662, 88th Cong., 2d Sess. , p. 619; S. Rep. No. 1188, Pt. I, 88th Cong., 2d Sess. , p. 24; 110 Cong. Rec. 19548, 19557-19559, 23680, 24076-24077.) Nothing in the lengthy record of the congressional proceedings suggests that the amendment was designed to cover claims of breach of contracts by a foreign government such as the one in this case. Nor was there any intimation that Congress had in view the highly complex problems of exchange control regulations, repudiation of debts or depreciation of currency. Conspicuously absent from the hearings was the kind of expert testimony on international monetary problems which surely would have been sought if the Congress had been addressing itself to problems of that nature.
Further proof of the limited scope intended for the exemption from the act of state doctrine is found in the Senate's refusal to enact Senator Hickenlooper's original, broadly worded, draft of the amendment which would have made the act of state doctrine inapplicable to any case "in which an act of a foreign state occurring after January 1, 1959 is alleged to be contrary to international law".*fn12 The statute, as actually adopted in 1964, contained the far more restrictive wording which we have already discussed.
In point of fact, to eliminate any possibility that the original language, adopted in 1964, might be construed to cover or encompass ordinary contract rights, or anything other than specific and identifiable and "traceable" property, Congress amended the statute in 1965. In its original form, the amendment referred to cases in which "a claim of title or other right is asserted * * * based upon (or traced through) a confiscation or other taking." By the 1965 modification, the words, "to property", were inserted after the words "other right", so that the clarified provision now reads, as already noted, "a claim of title or other right to property ". As the Senate Report explains, the words were inserted "to make it clear that the law does not prevent banks, insurance companies and other financial institutions from using the act of state as a defense to multiple liability upon any contract, deposit or insurance policy in any case where such liability [ sic ] has been taken over or expropriated by a foreign state." (S. Rep. No. 170 on S. 1837, 89th Cong., 1st Sess. , p. 19; emphasis supplied.) Thus, not even contract rights which are taken over and are sought to be enforced in this country are covered by the Hickenlooper Amendment, much less claims for breach of a contract in a suit between the original parties to the agreement.
We may not ignore, or leave unexplained -- as Judge Keating does -- the fact that, when Congress, in 1965, wished to assure the preservation of the act of state defense for the benefit of American insurance companies and banks who were sued on contract claims, it chose to do so not by adding a carefully limited exception, but -- as noted in the text above -- by inserting the words, " to property ", after the words, "claim of title or other right" (see supra, p. 61). The use of these unqualified words can only signify that Congress decided to eliminate all contract claims from the statute rather than attempt the more subtle task of distinguishing between contract cases in which the act of state defense might be asserted and those in which it might not. Judge Keating may disapprove of Congress' choice of a method for accomplishing its purpose, but that choice -- by the plain evidence of the 1965 amendment and of the accompanying Senate Report -- is the one that was made, and it is binding upon us.
In short, although, as Judge Keating observes, the statute may be "inexpertly drafted" or "inarticulately expressed" (opn., pp. 80, 85), it does not follow, as he intimates, that the court is relieved of the necessity of reading the language of the statute closely or of drawing plain inferences from its legislative history. Despite its evident defects of draftsmanship, we must treat the Hickenlooper Amendment as nothing less than a serious attempt by Congress to define what it did mean and what it did not mean in a complex and important area of law.
From all that has been said, it is apparent that the Hickenlooper Amendment has no application to the present case. The present lawsuit does not involve the assertion of a claim of title to property and, just as clearly, the Cuban Government's action did not involve a confiscation or taking of property. Certainly, it is not a case in which title or other right to a specific res (or its proceeds) confiscated by a foreign government is disputed on a claim either asserted by the original owner and defended by the government or asserted by the government and defended by the original owner.
It follows that the Hickenlooper Amendment is not applicable, that the act of state doctrine is decisive and that the defendant must prevail. This being so, it is not necessary to reach the further question whether the action of the Cuban Government offended principles of international law. Since, however, our dissenting brethren have concluded that such action did constitute a taking of property to which a claim of title or other right is asserted and have gone on to urge that it violated international law, we treat that question -- of international law -- briefly.*fn13 This is not an era, surely, in which there is anything novel or internationally reprehensible about even the most stringent regulation of national currencies and the flow of foreign exchange. Such practices have been followed, as the exigencies of international economics have required -- and despite resulting losses to individuals -- by capitalist countries and communist countries alike, by the United States and its allies as well as by those with whom our country has had profound differences. They are practices which are not even of recent origin but which have been recognized as a normal measure of government for hundreds of years, if not, indeed, as long as currency has been used as the medium of international exchange. (See Winkler, Foreign Bonds, an Autopsy -- A Study of Defaults and Repudiations of Government Obligations , p. 21; Mann, The Legal Aspects of Money [2d ed., 1953], p. 337.)
In short, the control of national currency and of foreign exchange is an essential governmental function; the state which coins money has "power to prevent its outflow" (Ling Su Fan v. United States, 218 U.S. 302, 311; see, also, Nortz v. United States, 294 U.S. 317, 330, supra); and, as the court observed in Perry v. United States (294 U.S. 330, 356, supra), "[the] same reasoning is applicable to the imposition of restraints upon transactions in foreign exchange." (See, also, Restatement, 2d, Foreign Relations Law of the United States, § 198, Comment b.)*fn14 The Restatement finds no violation of international law in such a currency measure "if it is reasonably necessary in order to control the value of the currency or to protect the foreign exchange resources of the state" (§ 198). The Restatement goes on to recite that "the application to an alien of a requirement that foreign funds held within the territory of the state be surrendered against payment in local currency at the official rate of exchange is not wrongful under international law, even though the local currency is less valuable on the free market than the foreign funds surrendered." Thus, if the Cuban Government could, under the example cited, have properly required an alien within its borders to surrender American dollars "against payment" in pesos, as a measure "reasonably necessary * * * to protect the foreign exchange resources of the state" (Restatement, 2d, Foreign Relations Law of the United States, § 198), the present refusal of the Cuban Government to surrender American dollars in order to protect its dollar reserves, though harsh in its effect, would also seem to be within the limits of international legality.
In the case before us -- whatever other economic measures the Cuban Government may have taken (and they are not reflected by evidence in the record) -- there is no question that the actions complained of were aimed at protecting Cuba's scarce "foreign exchange resources." The testimony of the defendant's president that these actions were essential to prevent the wiping out of Cuba's foreign currency reserves is uncontradicted. Accordingly, that country's refusal to exchange Ritter's pesos for dollars, though it may be deplored, may not be characterized as so unreasonable or unjust as to outrage current international standards of governmental conduct. Even if the present case, then, involved "a claim of title or other right to property" within the meaning of the Hickenlooper Amendment, the amendment would not permit us to disregard the act of state doctrine since the Cuban action did not violate international law.
In sum, then, it is our conclusion that the actions complained of constituted an act of state; that, under the rule announced in Sabbatino, we are required to give effect to that act of state; and that, since the record before us establishes that there was no taking of property to which a claim of title or other right is asserted, the Hickenlooper Amendment does not apply to require us to disregard the act of state doctrine. Consequently, the plaintiff or her assignor may seek a remedy in this country only through diplomatic efforts by the United States and arrangements established by Congress for the protection of the interests of all American claimants against Cuba.
The order of the Appellate Division should be reversed, with costs, and the complaint dismissed.
Order reversed, etc.
Hopkins, J. (concurring). I concur wholly in the comprehensive opinion of Chief Judge Fuld. Only because certain aspects of the case possess particular emphasis for me do I add the following. For the reasons so admirably stated by Chief Judge Fuld I do not find that the Hickenlooper Amendment controls the disposition of this case. We must then return to Banco Nacional de Cuba v. Sabbatino (376 U.S. 398) to determine whether the act of state doctrine applies. If, indeed, an act of state was committed, Sabbatino, as a statement of Federal law from which the States may not dissent (id., p. 427), obliges us to observe the rule that we may not inquire into the plaintiff's cause, no matter how meritorious it may be.
Sabbatino did not pronounce a sweeping and compendious rule; it dealt with a taking of property by a foreign sovereign within the latter's territory, and expressly limited its holding to the presence of these circumstances, in the absence of a pertinent treaty or agreement (p. 428). No operative treaty or agreement has been asserted by the parties to be decisive of the issues here. On the other hand, it is true that no taking of plaintiff's property has occurred -- for the same reasons which support the conclusion that the Hickenlooper Amendment does not govern the case.
The question then is whether the breach of contract which is plaintiff's grievance constitutes an act of a sovereign within its territory. In the setting of this litigation, the defendant was an instrumentality of the sovereign, though involved in a purely commercial transaction, and, therefore, unshielded by any immunity from the jurisdiction of our courts (cf. Victory Transp. v. Comisaria General, 336 F. 2d 354, cert. den. 381 U.S. 934; Petrol Shipping Corp. v. Kingdom of Greece, 360 F. 2d 103, cert. den. 385 U.S. 931). In the issuance of the tax exemption certificates to the plaintiff's assignor, whether accomplished during or before the Castro regime, the defendant was performing a power delegated to it, and discharging a duty cast upon it, by the Cuban Government for the advancement of Cuban interests. Quite clearly, what the defendant did vis-a-vis the plaintiff's assignor in this case served not its concerns but the concerns of Cuba.
Moreover, the contract was made by the parties in Cuba, and the performance of the contract -- the delivery of the check -- was due to occur in Cuba. Indeed, the breach of the contract occurred in Cuba. At the time the defendant refused to perform its obligation, that refusal was an act of state committed within the territory of Cuba. Thus, when the plaintiff proved the breach of contract as an essential element of her case, at the same time her proof established the commission of the act of state; and no burden rested on the defendant to do more.
The defendant did, however, do more by proving the existence of currency regulations adopted by governmental agencies to preserve the economic stability of Cuba. Those regulations prohibited the consummation of the contract. But from my view, the act of state was the defendant's refusal to perform; the currency regulations, though equally the product of an act of state, were simply the justification for the refusal.*fn1 Under this analysis, whether the defendant honored its obligation under some of the tax exemption certificates after the adoption of the currency regulations becomes immaterial: the sovereign might waive the regulations on occasion, and on another occasion enforce them. However it exercised its power, the exercise remained an act of state.
Before Sabbatino a breach of contract was considered an act of state both in the Federal courts and in our courts (Hewitt v. Speyer, 250 F. 367; Holzer v. Deutsche Reichsbahn-Gesellschaft, 277 N. Y. 474; Dougherty v. Equitable Life Assur. Soc., 266 N. Y. 71). In Holzer, for example, the act of state rule was recognized, even though the abrogation of the contract by the defendant was based on a foreign law particularly odious and offensive to our institutions. A question of the sufficiency of plaintiff's complaint and of a defense in the defendant's answer was before the court. Plaintiff, a German Jew, sued on an employment contract made before the accession of Hitler with the defendant, a German corporation and an instrumentality of the German Government formed for the purpose of operating the governmental railroad system. Plaintiff alleged two causes of action, the first of which asserted that he had been discharged prior to the terminal date of the contract on the sole ground that he was a Jew. Damages for the breach of contract were demanded. In the second cause of action plaintiff alleged that he had been seized and held in a concentration camp, so that he had been prevented from continuing his employment. He claimed that the contract provided that, if he were unable, without fault on his part, to serve during the period of the contract, the defendant would pay him a stipulated sum in satisfaction of its obligations. The defendant interposed a defense that under a German law enacted in 1933 persons of non-Aryan descent employed in the government and governmental corporations were required to be retired, and that the contract was, therefore, lawfully terminated.
After consideration of the complaint and the defense, upon certified questions, it was held that in the face of the defense the first cause of action could not survive, since the act of state rule intervened. "Within its own territory every government is supreme (United States v. Belmont, 301 U.S. 324) and our courts are not competent to review its actions." (Holzer v. Deutsche Reichsbahn-Gesellschaft, 277 N. Y. 474, 479, supra.) As to the second cause of action the court held that questions of fact arose concerning the meaning of the German words used in the contract providing for payment of the stipulated sum and concerning the interpretation of German law to be applied to the contract. That is to say, it might be found as a fact after a trial that the contract contemplated payment of the agreed sum upon the occurrence of the very act of state which prevented plaintiff's performance.*fn2
The case before us, of course, does not present the latter contingency, for the certificates owned by Ritter contained no provision for payment of any sum in the event of a dishonor by the defendant for any reason. Thus, no question of fact, either as to an act of state or as to the meaning of the language of the contract became material here. Rather, the case resembles the fact pattern in the first cause of action alleged in Holzer, which was declared to be vulnerable under the act of state rule.
Both Holzer and Dougherty (266 N. Y. 71, supra) were cited in Sabbatino as expressions of the law of New York which "echo those of federal decisions" (Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 424-425, supra), which recognized the act of state doctrine. To this limited degree, then, Sabbatino treated a breach of contract as an act of state. Nor is it without significance that Sabbatino enforced the doctrine even where the sovereign invoked the drastic course of confiscation, whereas we deal here with the exercise of a less extreme measure of sovereign power.
Accordingly, I think that Federal law may fairly be said to direct the application of the act of state rule, denying us a review of the merits of the case. Once "it is made to appear that the foreign government has acted in a given way on the subject-matter of the litigation, the details of such action or the merits of the result cannot be questioned but must be accepted by our courts as a rule for their decision." (Ricaud v. American Metal Co., 246 U.S. 304, 309.)
Burke, J. (dissenting). I concur in Judge Keating's dissent and agree with his analysis of the Hickenlooper Amendment. However, cognizant of the limited jurisdiction of this court, I do not find it necessary to reach that issue.
It has been long settled by our court (Holzer v. Deutsche Reichsbahn-Gesellschaft, 277 N. Y. 474, cited in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 425) that the applicability of the act of state doctrine in a particular litigation may be a question of fact. It is also well established that an affirmed finding of fact, based upon substantial evidence, will not be reviewed by this court. (See, e.g., the majority and dissenting opinions in Matter of City of New York [ Fifth Ave. Coach Lines ], 22 N.Y.2d 613.) Considering the present appeal in this context, I would affirm the order of the Appellate Division.
Before showing that the finding of the Trial Judge, as affirmed by the Appellate Division -- that the act of state defense was not established -- is non-reviewable, it is first essential that the entire factual background of this case be fully described. Rather than duplicate the majority's recitation of the "undisputed facts" of this case, I begin by supplementing that effort with additional "undisputed facts".
Alexander Ritter, at the invitation of Cuba's Agricultural Department, purchased a 350-acre farm in Cuba in 1957. In August of that year, he obtained certificates of tax exemption for $345,000 from the Currency Stabilization Fund of the Cuban Government.*fn1 In January, 1959, Fidel Castro's revolutionary forces seized control of the Cuban Government. On January 7, 1959, the United States extended recognition to the Castro regime as the "provisional government of the Republic of Cuba." Such recognition merely noted that Castro had seized control of the country and that he had indicated his intention to comply with the international obligations and agreements of Cuba.*fn2 In extending recognition in this manner, we in effect insured the revolutionary forces of an ample supply of American dollars as a result of our continued underwriting of the sugar subsidy and through the virtually uninterrupted patronage of American tourists. Shortly thereafter, in either February or March of 1959, Ritter approached Mr. Betancourt, director of the afore-mentioned Currency Stabilization Fund, to ascertain whether Banco Nacional was going to fulfill its contractual agreement with him, as embodied in the certificates of August, 1957. In uncontroverted testimony, he related that Mr. Betancourt advised him that Banco Nacional would" definitely honor the obligation" IF UPON INVESTIGATION he was found not to be politically implicated (presumably with the overthrown government) and if his business was conducted without graft. In June, 1959, the eight certificates involved in this litigation were given to Ritter by the Currency Stabilization Fund in exchange for his 1957 certificates, purportedly conveying a "guarantee" that Banco Nacional would indeed honor its obligation.
On July 23, 1959, eight days after Decision No. 346 was enacted by the Fund, Ritter presented one of his "guaranteed certificates" and immediately received payment on it, thus confirming the guarantee given him by Mr. Betancourt. On December 11, he tendered his remaining certificates to Mr. Betancourt. As he recalled the event at trial," Mr. Betancourt then said to me that he was sorry * * * he thought he would be able to give us [he and his representative bank] the dollars for the certificates but that he could not." He further testified that the only reason then offered by Mr. Betancourt for not making the payment was that "he didn't have the money." He also noted that he had waited until December to tender his certificates at the request of the Currency Stabilization Fund. "In the early Fall of 1959 [after Decision No. 346 was enacted] Mr. Betancourt said to me that the dollar account of the Banco Nacional was low on funds and that he would appreciate it if I would wait until the sugar harvest * * * they would have more funds available later in the year."
While Ritter patiently waited for Banco Nacional to acquire these funds, the economic condition of Cuba was continuously deteriorating as Castro repeatedly indicated his willingness to accept Communist assistance with its attached philosophy. Thus, the economic crisis which precipitated Decision No. 346 was brought about by the government itself. This self-imposed financial plight was not lessened by Decision No. 346. Indeed, the Cuban Government effectively seized all property of the United States and its nationals, with the exception of our naval base at Guantanamo Bay, by the end of 1960.*fn3 It was in accordance with this general policy of confiscation that they first informed Ritter, in a letter dated January 8, 1960, that his certificates were within the ambit of Decision No. 346.
I now turn to the two claims advanced by defendant in this litigation -- (1) that it was entitled to sovereign immunity from suit as an agency of the Cuban Government and (2) that Decision No. 346 was an act of the sovereign Government of Cuba, an act of state immune from examination by our court.
As the majority quite properly declares (p. 51), "the entire court is in agreement" in rejecting the sovereign immunity claim. I am opposed, however, to the majority's acceptance of the act of state claim as a matter of law in this litigation. Their conclusion, in effect, contradicts even the position adopted by the defendant at the time of the trial. At that time defendant presented only one witness, a Cuban lawyer, who gave expert testimony concerning both Decision No. 346 and its applicability to Ritter. It would, therefore, appear that even the defendant considered the applicability to be a question of fact. Moreover, while testimony was presented by an expert witness, it cannot be said that this alone proved conclusively that Decision No. 346 applied here as a matter of law. As Judge Bergan stated so recently in another case "few things are better settled than that the trier of the fact is not bound helplessly by opinion evidence offered by a party having the burden [of proof]." (Matter of City of New York [ Fifth Ave. Coach Lines ], 22 N.Y.2d 613, 629, supra.)
It is plaintiff's contention that Decision No. 346, an act of the Cuban Government, was not intended to and did not apply to these eight "guaranteed certificates".
While plaintiff's certificates bear the legend that they were issued "in accordance with the provisions of Law-Decree No. 548 of November 20, 1952" plaintiff has distinguished them from the other certificates in many ways. Thus, Law-Decree No. 548 and Decision No. 346 both specifically limit their applicability to money imported into Cuba for the purpose of investment. Ritter's certificates were not issued as a direct result of such investment. Rather, they were issued by the Currency Stabilization Fund solely because, upon investigation, Ritter was found free from political implication and because his business was conducted without graft. Plaintiff has shown that nothing was invested at the time these certificates were issued. She intimates that, had this guarantee not been given by the Castro officials of the Currency Stabilization Fund, Ritter would have redeemed his certificates in February or March of 1959 -- prior to the proclamation of Decision No. 346.
Whether or not these specific eight certificates are within the ambit of Decision No. 346 as stated above is and was treated by all parties at the trial, as a question of fact. Thus, when Supreme Court Justice Markewich dismissed the act of state defense for failure of proof, he concluded that the record before him which included expert testimony was inadequate to establish defendant's claim that Decision No. 346 applied to these eight certificates. The singular issue before this court with respect to the act of state defense is whether there is sufficient evidence in this record to sustain the determination of our lower courts. If there is, then we, an appellate court, possessing very limited jurisdiction, must affirm. The significance of determining who has the burden of proof in this case is now academic, since proof has been presented. The majority nevertheless takes issue with the lower court's determination that defendant had the burden of proof by stating that "It was incumbent on the plaintiff to prove that the Cuban authorities themselves would deem Decision No. 346 invalid and would disregard it. This she was obviously unable to do." (Emphasis added.) Employing the majority's criteria, the act of state claim will hinge upon whether plaintiff has shown that the Cuban authorities -- in this case, the Currency Stabilization Fund -- had treated Decision No. 346 as either invalid or inapplicable to her eight certificates. The record, I submit, establishes that the Cuban authorities did disregard Decision No. 346 when dealing with the plaintiff's certificates.
On July 23, 1959, eight days after Decision No. 346 was enacted, Ritter received a check for $45,000, as payment for a certificate of that amount. Plaintiff has established that payment. Defendant has not denied that the payment was made, it has not suggested that the payment was made in error. Is this evidence that the Cuban authorities did disregard Decision No. 346 insofar as Ritter was concerned? Could this indicate that his certificates were unaffected by Decision No. 346? Can we then say that the trial court had sufficient evidence before it to consider the application of the act of state doctrine as a question of fact? The answer in each instance must be in the affirmative.
Other acts of the Fund raise doubts regarding the genuineness of the act of state defense, tardily invoked by the defendant.
Five months after his first certificate was honored by the Currency Stabilization Fund, Ritter tendered his remaining certificates to Mr. Betancourt of the Currency Stabilization Fund. According to Ritter's undisputed testimony, he waited until December to tender his certificates at the request of the Currency Stabilization Fund. This Fund is the official instrumentality of the Cuban Government. This Fund issued the first set of certificates in 1957, and later replaced them with new certificates at Ritter's insistence. This Fund issued Decision No. 346 temporarily suspending the "processing of certificates of exemption". Nevertheless, despite the clear terms of Decision No. 346, this is the Fund that honored one of Ritter's certificates on July 23, and then, in the fall, expressed an intention to honor his remaining certificates. Thus plaintiff has shown how the Cuban authorities, specifically the Currency Stabilization Fund, at times did disregard Decision No. 346 in dealing with Ritter's certificates.
The majority has assumed that because the courts in the United States will not inquire into the validity of the acts of a foreign sovereign done within its own territory, then a fortiori, neither can it question whether a conceded act of state applies in a particular instance. If this be so, then prior decisions of our courts, cited with approval by the Federal courts, are this day overruled.
A prior decision of this court, cited at the outset of this opinion, Holzer v. Deutsche Reichsbahn-Gesellschaft (277 N. Y. 474, supra) seems directly in point with this present litigation. The plaintiff in that case, a German Jew, was employed by a German corporation which was an instrumentality of the German Government, under a contract of employment which provided that "in the event the plaintiff should die or become unable, without fault on his part, to serve during the period of the contract the defendants would pay to him or to his heirs the sum of 120,000 marks, in discharge of their obligations, under the hiring aforesaid". On April 7, 1933, the German Government issued a law, allegedly intended to "purify" the Civil Service System of that country. In effect, that law required that persons of non-Aryan descent, engaged in any of the leading commercial, industrial or transportation enterprises, be retired immediately. Plaintiff spent his first months of retirement in prison, and was then removed to a concentration camp. Upon his release, he brought an action in this country, against his employer, acquiring jurisdiction by attaching property. Plaintiff's complaint set forth alternative causes of action. In his first cause of action, he stated that he had fulfilled all the requirements of this contract and that "defendants discharged [him] * * * upon the sole ground that [he] is a Jew." He further pleaded that "As a result of such discharge the plaintiff was damaged in the sum of upwards of $50,000, no part of which has been paid although duly demanded." His second cause of action stated in part that he "became unable, without any fault on his part, to continue his services from the month of April, 1933, when he was imprisoned * * * The plaintiff accordingly became entitled under his contract to the sum of 120,000 marks, the payment of which was prescribed in the terms of his hiring for that event, no part of which has been paid to him although duly demanded. * * * By reason of the premises the plaintiff was damaged in the sum of about $50,000."
The responsive pleadings in that case are also significant. The second separate defense, interposed against both causes of action, was as follows: "The plaintiff was of non-Aryan descent and was within the classes specified and required to be retired by said laws and decrees of said Government, and the plaintiff was duly retired * * * and the plaintiff's employment thereunder [was] duly and lawfully terminated * * * under and pursuant to said Law * * * and the further performance of the plaintiff's alleged contract of employment by all parties thereto was thereby prohibited and made unlawful ". (Emphasis added.) In sum, defendant argues that they were relieved entirely from further performance of the contract by an act of state. The case came before this court solely on the sufficiency of the complaint and the effect of the second defense upon the entire action. It was the unanimous opinion of this court that "in respect to the first cause of action, we are bound to decide, as a matter of pleading, that the complaint does not state facts sufficient to constitute a cause of action and that the second separate defense of the answer is sufficient in law upon its face. Defendants did not breach their contract with plaintiff. They were forced by operation of law to discharge him." (277 N. Y., p. 479; emphasis added.) The court then proceeded to sustain the second cause of action, noting the existence "of questions of fact which must be determined on the trial." (277 N. Y., p. 480; emphasis added.) Thus, the mere allegation that the act of state defense applied to all the clauses of the German contract did not preclude this court from requiring proof that the act of state did in fact apply in a particular situation. Hence, the reference in Holzer to "questions of fact which must be determined". To require a determination of whether the act of state defense applied to the severance provision of this German contract seems identical to the burden imposed on the respondent in this case; specifically to show by credible evidence that the act of state defense applied to Ritter's eight certificates. As the Supreme Court clearly stated in Ricaud v. American Metal Co. (246 U.S. 304, 309): "When it is made to appear that the foreign government has acted in a given way on the subject-matter of the litigation, the details of such action or the merit of the result cannot be questioned but must be accepted by our courts as a rule for their decision." By concluding that Ritter cannot recover on his certificates because there was no provision for payment of any sum in the event of dishonor, Justice Hopkins has misapplied the test. The sole factual question here to be determined is whether the act of state applied to the subject matter of the litigation -- Ritter's eight certificates. The interpretation of Holzer, proposed in the concurring opinion, that it "might be found as a fact * * * that the contract contemplated payment of the agreed sum upon the occurrence of the very act of state which prevented plaintiff's performance" seems illogical as the act of the German Government prohibited and made unlawful any further performance of the contract BY EITHER PARTY and directed that its provisions be enforced "without recourse to courts and other legal remedies". Moreover, it appears to conflict with the act of state doctrine, as expressed in the majority opinion.
Here we do not have mere pleadings, as in Holzer. The case is before us after a trial where plaintiff proved part performance of the guarantee given Ritter when his replacement certificates were issued in 1959. Thus, it was shown that after Decision No. 346 was enacted, payment was made on one certificate by defendant and that Ritter was thereafter requested twice to refrain from presenting his remaining certificates for payment for reasons altogether unrelated to, and inconsistent with, Decision No. 346. This evidence presented a triable issue of fact, i.e., whether Decision No. 346 was at all relevant to these specific certificates. To establish its relevancy, the defendant relied on the testimony of an expert witness. The Trial Judge, who passes on both the credibility of a witness and the weight of the evidence in general, found this testimony insufficient. In so doing, he acted within the bounds of his authority. While the concurring opinion acknowledges the present vitality of both Holzer and Ricard, it has failed to apply the principle of those cases in this instance.
In summary, I am of the opinion that a question of fact was presented as to the applicability of the act of state defense to the subject matter of this litigation; that there is evidence to support the finding of the trial court, and that, in reviewing the record, this court may not review this affirmed finding of fact. The words of Chief Judge Crane in Dougherty v. Equitable Life Assur. Soc. (266 N. Y. 71, 88), another decision by this court involving the act of state defense, seem particularly pertinent: "The language of any opinion must be confined to the facts before the court."
Keating, J. (dissenting). I am in agreement with Judge Burke that the evidence does not establish that Decision No. 346 was applicable to plaintiff's certificates because of their unique character. But even if these certificates were within the ambit of Decision No. 346, it seems unalterably established that the act of state defense is inapplicable because what is involved here is no mere "breach of contract", but a confiscation clothed in the disguise of a valid currency regulation.
Whatever may be said of the interpretation in the majority opinion of the Hickenlooper-Sparkman Amendment and the approval of a confiscation in violation of international law, the view that the right to receive $150,000 is something other than "property" and the dismissal of the evaporation of plaintiff's money simply as a "serious loss" is difficult to comprehend.
There is a strong element of irony in the majority's approach. The first half of the opinion dwells on the need to avoid any judicial intrusion into the prerogatives of the President and the Congress in the area of international relations. There can be no possible quarrel with this argument. In the second half, this principle, however, is then used to thwart the will of a Congress which regarded the fears expressed by the Supreme Court in Sabbatino (Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398), as unjustified, if not groundless, and, therefore, sought to overrule Sabbatino and to demand that, absent an expressed indication by the President to the contrary, the courts should "make a determination on the merits" where an act of state defense is raised. We should strive to give full and fair effect to the congressional design. Because Congress' adoption of the Hickenlooper Amendment was considered unwise by many is no justification to rely on Sabbatino as if Hickenlooper -- whatever it covers -- had never been passed (see pp. 53-57 of the majority opinion). Why the word "property" in the Hickenlooper Amendment should not include contractual rights remains a complete mystery. Nowhere does the majority explain what social policy is of such grave importance that plaintiff must be deprived of her just judgment to further that policy.
Also, I cannot endorse a view which treats Decision No. 346 as legitimate under international law when it is nothing other than an act of confiscation. "[Most] of all I would not declare that if ever there were a clear consensus in the international community, the courts must close their eyes to a lawless act and validate the transgression by rendering judgment for the foreign state at its own request * * * I cannot so cavalierly ignore the obligation of a court to dispense justice to the litigants before it." (Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 456, supra [Justice White's dissent].)
Nor can I endorse a result which both consigns the plaintiff to nonexistent remedies she might obtain through the intervention of the Federal Government and which asks us to complete the process of confiscation commenced a decade ago by the Castro Government.
Before proceeding to outline my approach to the questions raised here, I feel compelled to analyze some of the techniques by which the majority reaches the conclusion that the Hickenlooper Amendment is inapplicable here.
The majority opinion defines the scope of the Hickenlooper Amendment in one of two ways. It encompasses situations "exemplified by the Sabbatino case itself" (p. 58) where confiscated property is brought to the United States and the original owner seeks to assert his rights to the property (see, also, p. 61). The alternative position is that it covers "a claim to the very property which has been confiscated." This definition, if literally read, is applicable here, except that the majority has excluded "contractual rights" from its definition of property. The ambiguity in the majority's definition of "property" results from the fact, as we shall see, that either definition alone creates impossible problems of statutory construction.
1. The majority opens its discussion of the Hickenlooper Amendment with a brief quote from the statute in which the words upon which the majority rely -- "claim of title or other right to property" -- are italicized. This is preceded by a brief quotation from the Senate Foreign Relations Committee Report on the Hickenlooper Amendment to the effect that the statute was enacted to "reverse in part" the decision in Sabbatino (S. Rep. No. 1188, Pt. I, 88th Cong., 2d Sess., p. 24 ). One might assume that, if this reference to the Senate Report is examined, one would find there a statement supporting the majority's interpretation of the reach of the Hickenlooper Amendment. Such is not the case, however. The bill the Senate was reporting out of committee did not even contain the phrase "claim of title or other right to property". That phrase did not come into the statute until much later in the legislative process.*fn1 The full context in which the statement appears is most instructive and presents quite a different picture from that suggested by the majority (see post, p. 84).
2. Next, the majority argues that "In the strictest sense, and within the terms of the [Hickenlooper Amendment], just as no one has 'taken' the pesos from Ritter, so no one has 'taken' the contract from him" (p. 59). If the majority means that the pesos or the certificates have not been physically taken from Ritter's possession, no one will dispute this. Since when, however, must there be a physical taking for there to be a "confiscation"? Likewise the majority's argument that a breach of contract by a foreign state cannot constitute a confiscation is surely incorrect. (Sulyok v. Penzintezeti Kozpont Budapest, 279 App. Div. 528, mod. on other grounds 304 N. Y. 704; see, also, Matter of Wa-Wa-Yanda v. Dickerson, 18 A.D.2d 251.) The majority's strict definition of taking could never have been intended by the Congress since such a limited definition of confiscation is unknown in our law (Perry v. United States, 294 U.S. 330 [holding unconstitutional the repudiation of the Gold Clause insofar as it affected obligations of the United States Government]). Nor does it exist in international law (Restatement, 2d, Foreign Relations Law of the United States, §§ 192, 195).
When a zoning law has been held unconstitutional as confiscatory, there is never an actual taking (Arverne Bay Constr. Co. v. Thatcher, 278 N. Y. 222). The zoning analogy here is perfect. The police power may not be used to deprive a property owner of all enjoyment of his property. Likewise, the need to preserve a country's international economic position does not permit the destruction of all benefits of contractual rights without limit.
3. In its discussion of Banco Nacional de Cuba v. First Nat. City Bank of N. Y. (270 F. Supp. 1004) the difficulties in the majority's definition of "property" become manifest. First of all, the money which was the res of the lawsuit was not expropriated property. Thus, the first definition of "property" offered by the majority fails. Secondly, the confiscation decree in First Nat. City Bank involved the taking of contractual rights, precisely contrary to the majority's position here (see supra, pp. 1009-1010, n. 6).
We could go on to point out the other similar errors in the majority's analysis, but it would be a pointless exercise. The most grievous error is that it completely fails to give one reason why it finds it so absolutely necessary to interpret the statute so as to exclude "contractual rights". It certainly is not required by the statutory language nor policy. A natural reading of the amendment, giving every word its normal value, would certainly result in its application here.
Immediately after the Supreme Court's decision in Sabbatino, an amendment to the Foreign Assistance Act of 1961 was cosponsored by Senators Hickenlooper and Sparkman. It sought to reverse the effect of the Supreme Court's Sabbatino decision. Strong opposition to the proposal was immediately expressed by the Department of State. (See Hearings of Senate Committee on Foreign Relations on Foreign Assistance Act of 1964, pp. 618-619.)
The State Department pointed out that, under the terms of the proposal, unless the President interposed an objection, the courts would be required to pass on the validity under international law of an act of a foreign state within its own borders. This, said the department, would greatly embarrass the President in his conduct of the nation's foreign affairs because his decision to or not to intervene would subject him to a charge of discrimination by United States nationals or the foreign governments involved. Also, important foreign policy considerations could be adversely affected by the happenstance of private litigation.
Other critics of the proposal and of the amendment later adopted have argued vigorously that the proposal was based upon a misunderstanding of the act of state doctrine and upon the erroneous belief that the Supreme Court had gone far beyond any foreign decision in expanding the scope of the doctrine. (See Reeves, The Sabbatino Case and the Sabbatino Amendment: Comedy -- or Tragedy -- of Errors, 20 Vand. L. Rev. 429 .) There were, however, many eminent scholars who supported the proposal, believing that Senators Hickenlooper and Sparkman's proposal was sound in principle and would advance the "rule of law" in international affairs (see 110 Cong. Record 19548 ).
Whatever the merits of the controversy, Congress rejected the view of the State Department, the Hickenlooper Amendment was adopted and its constitutionality sustained (Banco Nacional de Cuba v. Farr, 243 F. Supp. 957 [S. D. N. Y., 1965], affd. 383 F. 2d 166 [2d Cir. 1967], cert. den. 390 U.S. 956 ).
At the outset, it is readily apparent that the statute is inexpertly drafted. Nevertheless, we are required to interpret the statute in a manner which is both sensible and consistent with the policy expressed in the amendment's language and its legislative history. The majority proposes to do complete violence to the intent of Congress.
In its original form, Senator Hickenlooper's proposal provided that it covered a case in which "an act of a foreign state occurring after January 1, 1959 is alleged to be contrary to international law".
Had this proposal been enacted, there would be no question that the act of state defense could not be invoked here.
The Congress, however, was troubled by certain practical problems created by the broad language of the initial proposal. When the problems were brought to its attention, it set out to correct them but in doing so, it created other difficulties in interpretation. But at no time did the Congress intend to limit the effect of the statute to the cases where the confiscating state itself seeks to gain or retain control over property it had previously confiscated. The particular language of the amendment which became law was a result of Congress' desire to protect innocent third parties -- which is not the case here. (See 110 Cong. Record 19557, Ques. 6.)
Senator Hickenlooper's original proposal was tacked onto the House-passed Foreign Assistance Act of 1964 (H. R. 11380), and was reported out of the Senate Committee on Foreign Relations on July 10, 1964 (S. Rep. 1188, p. 24). The Senate Report contained the following statement (U. S. Code Cong. and Adm. News, 1964, p. 3852):
"The amendment is intended to reverse in part the recent decision of the Supreme Court in Banco Nacional de Cuba v. Sabbatino, D. C. N. Y., 193 F. Supp. 375. The act-of-state doctrine has been applied by U. S. courts to determine that the actions of a foreign sovereign cannot be challenged in private litigation. The Supreme Court extended this doctrine in the Sabbatino decision so as to preclude U. S. courts from inquiring into acts of foreign states, even though these acts had been denounced by the State Department as contrary to international law.
"The effect of the amendment is to achieve a reversal of presumptions. Under the Sabbatino decision, the courts would presume that any adjudication as to the lawfulness under international law of the act of a foreign state would embarrass the conduct of foreign policy unless the President says it would not. Under the amendment, the Court would presume that it may proceed with an adjudication on the merits unless the President states officially that such an adjudication in the particular case would embarrass the conduct of foreign policy."
Thus, when the Senate Committee stated the proposal was intended "to reverse in part" Sabbatino, it was referring to its intent to overrule the Supreme Court where the act of state is alleged to have violated international law. In those cases, the Senate Report clearly indicates a purpose that the courts declare the act unlawful if it violates international law and give effect to that declaration of illegality. Only where the President explicitly states that an "adjudication on the merits" would embarrass his conduct of foreign policy should the courts refrain from inquiring into the acts of foreign states.
Up to this point, therefore, there is no question that, in a case such as the one at bar, we would be required under the original proposal to determine whether Decision No. 346 violates international law and, if it does, to give no effect to the act of state defense here. This at a minimum is what Congress intended.
The question immediately arises whether the subsequent history of the proposal and the change in language was intended to change this result. After H. R. 11380 passed the Senate on September 24, 1964, a Senate-House conference was held to iron out differences between the two versions of the bill. In conference, changes were made in the language of the original Hickenlooper proposal, which became law. The Conference Report sets forth the purposes of the change in the following language (H.R. Rep. No. 1925, 88th Cong., 2d Sess., p. 16 ):
"AMENDMENT NO. 39: EXPROPRIATIONS BY FOREIGN STATES
"The Senate amendment added a new paragraph (2) to subsection 620(e) of the act, providing that no U. S. court shall refuse, on the ground of the 'act of state' doctrine, to examine the validity of acts of foreign states occurring after January 1, 1959, which are alleged to be contrary to international law, unless the President determines and notifies the court that application of the 'act of state' doctrine is required by U. S. foreign policy interests.
"The House bill did not contain a comparable provision.
"The House recedes with an amendment.
"The managers on the part of the House regretted that there had not been an opportunity for thorough study and full hearings on the subject. The committee of conference amended the Senate language to pinpoint its precise effect, making it clear that it does not apply if no violation of international law principles is found, or if the case involves a short term irrevocable letter of credit issued in good faith prior to the taking of property by a foreign state." (Italics supplied.)
The purpose of the second change, therefore, was to protect innocent third parties. What troubled the Congress was a possible suit brought against an innocent third party who seeks to raise the act of state defense to avoid suffering an unjust loss. That this is what concerned Congress is confirmed by the Congressional Record (110 Cong. Rec. 19557, Ques. 6) and by the later 1965 amendments. Thus, nothing in the Conference Report can justify the conclusion that we should not apply principles of international law here where we have the wrongdoer or its agent before our courts.
The particular concern of Congress, of course, was that the United States should not become a "thieves market" for confiscated or expropriated property (110 Cong. Rec. 19548).*fn2 But there was also broader motivation which was a strong desire to give added protection to American citizens from expropriation without compensation by seeking to nullify wherever possible the effects of such expropriation. Finally, there was the thought that the amendment would strengthen the development of international law. For this reason, the amendment was often referred to as the "rule of law" amendment.
In general, the congressional design was to overrule Sabbatino in accordance with Justice White's view that the act of state doctrine should not apply where there has been a violation of international law (Bleicher, The Sabbatino Amendment in Court: Bitter Fruit, 20 Stan. L. Rev. 858 ). This can be seen from the debates in the Senate on the Hickenlooper Amendment (110 Cong. Rec. 19546-19560; 23674-23682). Justice White's dissent is recorded in the Congressional Record in full (110 Cong. Rec. 19548-19554). It is evident from the repeated references to it that the Congress was adopting Justice White's views.
In 1965 the Committee on Foreign Relations of the House of Representatives held hearings on the amendment which was scheduled to expire on January 1, 1966. The Committee's Report contains the following statement indicating its understanding of the effect of the amendment (Report on Foreign Affairs on H. R. 7750; H. R. Rep. No. 321, 89th Cong., 1st Sess., p. 31 ): "Section 301(c)(2) amends section 620(e)(2) of the act which relates to the application of the Federal act of state doctrine by extending for an additional year the provisions of a Senate amendment added to the Foreign Assistance Act of 1964, which provide that no U. S. court shall refuse, on the ground of the act of state doctrine, to examine the validity of acts of foreign states occurring after January 1, 1959, which are alleged to be contrary to international law, unless the President determines and notifies the court that application of the act of state docrine is required by U. S. foreign policy interests."
Again, there is not a hint that the court will examine the validity of foreign acts only where the expropriated property comes to our shores or that it applies only to specific property as distinguished from contractual rights.
During that session, the amendment was made permanent. The second change is described in the Senate Report as follows (S. Rep. No. 170, 89th Cong., 1st Sess., p. 19 ):
"The existing law applies to cases pending at the time of its enactment or brought since then in which 'a claim of title or other right' is asserted based upon a confiscation or other taking after January 1, 1959, by an act of a foreign state in violation of the principles of international law. The bill amends this so that it will apply only to cases in which 'a claim of title or other right to property ' is asserted. The same change is made in the proviso in existing law which exempts cases with respect to such claims acquired pursuant to an irrevocable letter of credit of not more than 180 days issued in good faith prior to the time of the confiscation.
"The words 'to property' have been inserted to make it clear that the law does not prevent banks, insurance companies, and other financial institutions from using the act of state doctrine as a defense to multiple liability upon any contract or deposit or insurance policy in any case where such liability has been taken over or expropriated by a foreign state. In such cases, it is not intended to affect any defense previously available to such institutions."
Congress thus contemplated lawsuits in which third parties might assert claims against banks, insurance companies and other financial institutions. If no effect at all were given to act of state defenses, there would be a strong possibility of multiple liability. The explicit desire was to protect persons from this hazard. There is no such possibility here since the defendant here is an arm of the Cuban Government.
According to the majority, if Cuba were now to sue in our courts to enforce a contractual right which it had taken over through an act of expropriation, we would be required to enforce that act of confiscation. If this is an accurate statement of the net effect of Congress' attempt to legislate in this area, and if indeed Hickenlooper has the narrow scope which the majority claim, the Congress has surely labored in vain.
The only fair reading of the amendment and the only one which will give effect to the clear intent of Congress, however inarticulately expressed, is to construe the key phrase "right to property" broadly to include any property of the confiscating state now in the control or possession of our courts. The majority state that it was the manifest intent of Congress to exclude " all " contract claims when it added the words "to property". Nowhere in the entire Senate Report upon which the majority rely so heavily is there the remotest implication that Congress desired that an arm of the Cuban Government should be able to raise an act of state defense.
Property is a term that is normally used both in law and in everyday language in its broadest sense. Why there should be a presumption in favor of a definition limiting the term to "specific" property is never explained. To protect innocent parties from multiple liability, there is no need to narrow the definition of property.
In this connection, a footnote in Justice White's dissent in Sabbatino is most relevant (376 U.S., p. 456, n. 17):
"In the only reference in the Court's opinion to fairness between the litigants, and a court's obligation to resolve disputes justly, ante, p. 435, the Court quickly disposes of this consideration by assuming that the typical act of state case is between an original owner and an 'innocent' purchaser, so that it is not unjust to leave the purchaser's title undisturbed by applying the act of state doctrine. Beside the obvious fact that this assumption is wholly inapplicable to the case where the foreign sovereign itself or its agent seeks to have its title validated in our courts -- the case at bar -- it is far from apparent that most cases represent suits between the original owner and an innocent purchaser. The 'innocence' of a purchaser who buys goods from a government with knowledge that possession or apparent title was derived from an act patently in violation of international law is highly questionable. More fundamentally, doctrines of commercial law designed to protect the title of a bona fide purchaser can serve to resolve this question without reliance upon a broad irrebuttable presumption of validity."
In my view, Justice White's approach should be applied here.
As noted above, the limited reading which the majority places on the phrase "claim of title or other right to property" has already been rejected in the one Federal case interpreting the statute. In Banco Nacional de Cuba v. First Nat. City Bank of N. Y. (270 F. Supp. 1004 [U. S. Dist. Ct., S. D. N. Y., 1967]) the Banco Nacional, the defendant here, sued the First National City Bank to recover, first, the excess realized by the bank on the sale of collateral held as security for a loan and, second, the deposits of nationalized Cuban banks which First National City Bank held.
First National's defense was that the Banco Nacional was only an agent for the Republic of Cuba, the real party in interest, that Cuba had expropriated its property in Cuba without compensation and that the bank was, therefore, entitled to set off the amount of its claim against Cuba against the excess on the collateral. Banco Nacional argued in part that the setoff was not permitted by the Federal act of state doctrine as defined in the Supreme Court's decision in Sabbatino. Judge Bryan held that "the holding in Sabbatino was for all practical purposes overruled by the Hickenlooper amendment" (270 F. Supp. 1004, 1007).
In reaching his conclusion Judge Bryan necessarily gave the phrase "claim of title or other right to property" a broad reading since it is apparent that the property which the First National had in its possession was not and had never been confiscated property. Banco Nacional's claim to the excess was not based upon a confiscation, but the normal rights of a debtor to recover his collateral. Moreover, part of the confiscated res included contractual rights.
Judge Bryan's opinion correctly states that 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" (270 F. Supp. 1004, 1007-1008, supra).
It is also evident that the nub of the issue here is whether Decision No. 346 is a legitimate exercise of a sovereign nation's right to protect its international economic position, in which case we are here dealing with a simple breach of contract, or whether it is rather a disguised act of confiscation. If it is the former, then there is no problem here, since our law has always recognized the validity of regulations by foreign countries to protect their economies. If it is the latter, however, then Hickenlooper applies, and the conflict of laws question is also automatically resolved for we have never given effect to a nation's act of confiscation insofar as that nation seeks to raise that act either by way of offense or defense.
Briefly stated, the ultimate issue is whether the defendant's refusal to give the plaintiff "a check on New York for an equal amount of United States dollars, exempt from the Tax on Exportation of Money" constitutes a confiscation and, if so, whether it is a violation of international law.
We all accept the defendant's strenuously urged position that it is a "governmental instrumentality" of Cuba. In fact, no one disputes this. It has been nationalized by the Cuban Government and all its property is that of the Government of Cuba. Being an instrumentality of the Cuban Government, it is not an innocent third party, which -- under the clear intent of the Congress -- can invoke the act of state doctrine to protect itself from multiple liability or to plead impossibility of performance.
Decision No. 346 is an act of defendant's master and, if that act constitutes a confiscation in contravention of international law, it should be no defense here.
There is sufficient authority in international law for the proposition that a taking of property can occur without first depriving the owner of legal title if the foreigner is effectively deprived of all benefit of the property. (Restatement, 2d, Foreign Relations Law of the United States, § 192 .) Moreover, simply because Decision No. 346 was initially necessitated by Cuba's need to protect its foreign exchange, it does not follow that it remains valid under international law permanently. (Restatement, 2d, Foreign Relations Law of the United States, § 192, Reporters' Note 2 .) I see no reason to determine the validity of Decision No. 346 by a simple reference to the date it was enacted, July 15, 1959. Though this might be justified when the currency regulations of a country are in accord with the principles of the International Monetary Fund, even though the enacting country is not a member or has subsequently withdrawn, this view is not justified when these monetary policies are inconsistent with the purpose of the Fund. (International Monetary Fund [U. S. Stat. 1401, 1409], art. VI, § 3. This section contains the limitation that "no member may exercise these controls in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments".)
In determining the correct character of Decision No. 346, it must be examined along with a host of other fiscal and economic regulations presently in force in Cuba, which are inextricably intertwined with the Cuban currency laws, in order to ascertain their true effect on respondent's property. When these other regulations are taken into account, the pernicious character of Decision No. 346 becomes apparent. It is in line with Cuba's consistent quest to acquire the last remnants of foreign private capital in the country.
As the majority points out, currency regulations which only purport to protect a country's balance of payments problem by preventing the flight of capital which could be usefully invested domestically or devaluation of the national currency are not violations of international law. But the Cuban monetary and economic regulations we are forced to consider in this case cannot be classified within the ambit of the afore-mentioned category.
The history of the Cuban regime in the last eight years discloses that investment in whatever remains of the private sector of the economy has become impossible. The Cuban Government, by rescinding the tax certificates, has simply added to its currency reserves by this ploy. This, of course, distinguishes this case from the situations considered by the majority (pp. 55-56).*fn3
None of the cases cited by the appellant refute the contention that the currency control regulations of a country must be viewed together with its other fiscal regulations in order to determine the actual effect of one regulation and in fact appellant's counsel on oral argument conceded that this must be done. Appellant cites four cases arising out of Czech currency regulations. However, there is no discussion in these cases of the effect of Czech nationalization orders on these currency controls. These cases were merely decided without reference to other fiscal regulations in force at the time on the basis that the contracts were controlled by the law of the state with the most meaningful contacts (Kahler v. Midland Bank, 2 All E. R. 621 [House of Lords, 1949]; Zivnostenska Banka Nat. Corp. v. Frankman, 2 All E. R. 671 [House of Lords, 1949]; Kraus v. Zivnostenska Banka, 187 Misc. 681 [Sup. Ct. 1946]).
In Perutz v. Bohemian Discount Bank (304 N. Y. 533 ), this court states: "A contract made in a foreign country by citizens thereof and intended by them to be there performed is governed by the law of that country. * * * Our courts may, however, refuse to give effect to a foreign law that is contrary to our public policy. * * * But the Czechoslovakian currency control laws in question cannot here be deemed to be offensive on that score, since our Federal Government and the Czechoslovakian Government are members of the International Monetary Fund" (p. 537; emphasis added).*fn4
A case more nearly in point perhaps than the cases cited in footnote 4 is Matter of Claim of Schwartzenbach Huber Co. (Claim No. Cu-21 [Foreign Claims Settlement Comm., Nov. 30, 1966]; Foreign Claims Settlement Comm., 23 Semiannual Report 58 ). In this case United States goods were shipped to Cuba prior to the passage of Currency Law No. 568. A sight draft attached to the shipment was not honored on the basis of the law. The commission stated: "after having considered this matter, the Commission holds that Cuban Law 568 and the Cuban Government's implementation thereof with respect to the rights of the claimants herein was not in reality a legitimate exercise of its sovereign authority to regulate its foreign exchange. Rather, the Commission concludes that the application of this law insofar as the rights of claimant are concerned constituted an intervention by the Government of Cuba into the contractual rights which, in effect, resulted in the taking of American owned property" (emphasis added).
Cuba's currency restrictions, when analyzed, make it abundantly clear that no funds can be taken out of Cuba by a foreigner to be exchanged for another foreign currency nor can he purchase goods for export and sell them abroad and thereby get his pesos exchanged into some other currency.*fn5 It is also equally clear that no blocked funds can be invested by an American in Cuban industry, and that Decision No. 346 is part of a scheme started March 4, 1959 to purge all American ownership from the Cuban economy.*fn6
In light of these facts the validity of Decision No. 346 under international law could not conceivably be determined without
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--> considering the effect of other Cuban currency and economic regulations upon it. Nor can its validity be sustained merely by referring to the circumstances which justified its enactment or what presently exists as the theoretical justification for its existence. Decision No. 346 must be viewed as one of a great number of regulations enforced to implement the Cuban Government's policy of expropriating the property of foreigners. Despite the unsettled nature of many international law questions, one certain conclusion is that Cuba's nationalization program without compensation constitutes a violation of international law (Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 [dissent, pp. 455-456], supra; First Nat. City Bank v. Banco Nacional de Cuba, supra ; Restatement, 2d, Foreign Relations Law of United States, § 192; see, also, Banco Nacional de Cuba v. Farr, supra).
Under the guise of what the majority chooses to call a currency regulation, there has been an expropriation here, and no amount of discussion concerning the currency problems of the postwar world can make it otherwise. This is no devaluation or temporary suspension. Eight years of no payments and no substitute arrangements for making adequate compensation is a sufficient period in which to establish an unlawful taking. Plaintiff's claim here to the property that she has attached has now become a claim "based upon * * * a confiscation or other taking * * * in violation of principles of international law". Consequently, the act of state defense may not be interposed by defendant here. The plaintiff is entitled to judgment.
The order should be affirmed, with costs.