Appeal from an order of the United States District Court for the Southern District of New York, Brieant, Judge, allowing plaintiff to amend its complaint and from a judgment awarding plaintiff $32,088 plus interest and dismissing defendant's counterclaim against plaintiff as well as its third-party claim against the Republic of Cuba. Affirmed on the ground that the act of state doctrine bars defendant from interposing the Cuban government's seizure of assets as an affirmative defense or counterclaim to the claim for money due and owing on a sale of sugar.
Before Kaufman and Mansfield, Circuit Judges, and Ward, District Judge.*fn*
Defendant Lamborn & Co. (Lamborn), a Delaware corporation engaged in the sugar brokerage business at the time this action was brought, appeals from an order entered by Judge Charles L. Brieant, Jr., of the Southern District of New York*fn1 allowing the original plaintiff in this case, the Republic of Cuba, to amend its complaint so as to substitute Empresa Cubana Exportadora de Azucar y Sus Derivados (Cubazucar) as plaintiff, and from a judgment pursuant to a second memorandum and order*fn2 awarding Cubazucar $32,088 plus interest and dismissing Lamborn's counterclaim against Cubazucar as well as its third-party claim against the original plaintiff, the Republic of Cuba. The judgment awarding $32,088 to plaintiff Cubazucar turned principally on Judge Brieant's decision that Lamborn should not be permitted to advance the assigned claim of its principal, Lamborn, Craig & Co. (Craig), against Cubazucar or the Republic of Cuba, for the seizure of Craig's assets in Havana. Lamborn's third-party claim against the Republic of Cuba was denied on the basis of the act of state doctrine.
We affirm, but on somewhat different grounds than those adopted by the district court. We conclude that Lamborn was not precluded because of the assignment from asserting against Cubazucar the claim assigned to it by Craig and that the Cuban seizure of Craig's Havana assets did not constitute payment of Lamborn's debt to Cubazucar. However, Lamborn's attempt to assert the seizure as a counterclaim or third-party claim is barred by the act of state doctrine.
In 1960, when the events which precipitated this action occurred, Lamborn was engaged in the sugar brokerage business, handling purchases and sales for others but not for its own account. Many of its trades were made on behalf of Craig, a New York partnership with offices in New York and Havana. Although juridically separate entities, Lamborn and Craig were closely related through equity positions which the Craig partners held in Lamborn.
On March 4, 1960, Lamborn, acting on behalf of Craig,*fn3 agreed to purchase a quantity of sugar from Banco Cubano del Comercio Exterior, an independent juridical entity wholly owned by the Cuban state. The contract called for the buyer to pay 95% of the estimated purchase price upon shipment, with the final 5% to be paid after adjustments had been made to reflect the exact weight and polarization of the sugar received. On May 24, 1960, the sugar arrived in the United States and payment representing 95% of the estimated purchase price was made by Lamborn. A balance of $32,088, representing the final 5% of the purchase price, remained due to the seller and has never been paid. In October, 1960, a Cuban official requested that Craig make arrangements to have Lamborn pay the final 5% of the contract. When no payment was forthcoming, this action to recover on the debt was filed on May 24, 1961.*fn4
In the meantime, on December 30, 1960, the Cuban Minister of Labor issued Resolution No. 25187 designating an "interventor" to take over the management of the Havana offices of Craig for a period of one year. The intervention was undertaken pursuant to Law No. 647 of November 14, 1959, which authorized the Minister of Labor "to provide for the intervention, whenever he deems it necessary, of the work centers or enterprises at which the normal production rate is ostensibly altered."*fn5 Resolution 25187, in announcing the takeover by intervention of Craig, declared that the decision to intervene had been made in response to a November 15, 1960, petition sent to the Minister of Labor by Craig's Cuban labor representatives, who sought intervention "owing to the problem that arises concerning the displacement of its workers upon the complete discontinuance of the operations of that firm." When the Labor Minister's appointed interventor, Jose Joaquin Garcia Esquerre, took control of Craig's Cuban offices on January 5, 1961, he prepared and signed an inventory of the Craig assets being seized. Included in that inventory was a bank account showing a balance of 91,353 pesos.*fn6 Despite the fact that Law No. 647 provided for an eventual accounting to the original owners of assets, no such accounting has ever been made. On January 9, 1961, four days after the formal takeover of its Havana offices, Craig assigned to Lamborn any and all claims which it might have against the Cuban government or any of its agencies as a result of the intervention. In return, Lamborn agreed to pay Craig any net proceeds that it might recover in litigation with Cuba.
In the district court, Lamborn's principal argument*fn7 was that it should be permitted to assert the assigned Craig claim as a payment defense or as a counterclaim to Cubazucar's action on the debt. The district court rejected this argument on two grounds. First, it felt controlled by its own recent resolution of a similar question in Banco Nacional de Cuba v. Chase Manhattan Bank.*fn8 In that case Chase employees who had been forced to flee Cuba were compensated by Chase for the value of any property which they had left behind (all of which had been confiscated by the Cuban government). The compensated employees assigned to Chase any claims they might have against Cuba arising out of the confiscation, and Chase attempted to assert these assigned claims as a set-off against its liability to plaintiff Banco Nacional as a result of Chase's failure to return to Banco Nacional a $7,256,000 surplus which had remained after Chase liquidated Banco Nacional's loan collateral in the aftermath of the Cuban Revolution. The district court refused to allow the set-off, reasoning that:
"The entitlement to set-off found in (Banco Nacional de Cuba v. First National City Bank, 270 F. Supp. 1004 (S.D.N.Y.1967), rev'd, 431 F.2d 394 (2d Cir. 1970), vacated, 400 U.S. 1019, 91 S. Ct. 581, 27 L. Ed. 2d 630 (1971), on remand, 442 F.2d 530 (2d Cir. 1971), rev'd, 406 U.S. 759, 92 S. Ct. 1808, 32 L. Ed. 2d 466 (1972), on remand, 478 F.2d 191 (2d Cir. 1973)) should not be regarded to embrace counterclaims or set-offs originally belonging to a third party and acquired by a defendant in anticipation of litigation, or after it has been sued by a foreign state, and in order to set-off. To hold otherwise would call up a brisk trade in claims against foreign states, and would in effect nullify the Act of State doctrine, and prevent access by the Government of Cuba to the United States courts against any United States defendant having the willingness and creativity to buy up Cuban claims of others to assert as assignee. This case is not one where Chase went out shopping for claims to assert against plaintiff, but we cannot allow a result here which would permit that to be done in the next case. Here, the assignors of the claims had a special relationship to Chase, and indeed Chase had a moral obligation, and perhaps a legal one (Cohn v. Lionel Corp., 21 N.Y.2d 559, 563, 289 N.Y.S.2d 404, 408, 236 N.E.2d 634, 636-37 (1968)), to reimburse them for their losses, and did so. However, the Court concludes that this is not a proper item for recovery by way of set-off. The set-off extends to Chase's property expropriated by Cuba, and not the property of others expropriated, even when such assignments were given to Chase for a proper purpose and for full value paid. This item is disallowed." Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F. Supp. at 459.
The district court also decided in the present case that dismissal of Lamborn's defense based on the assignment to it of Craig's claim was called for by New York Judiciary Law §§ 489 and 495, which prohibit corporations from taking the assignment of claims with intent to bring suit thereon. Turning to Lamborn's third-party claim against the Republic of Cuba, the district court found that it was barred by the act of state doctrine.
At the outset we do not share the district court's view that Lamborn was barred from advancing on its own behalf any claim Craig had against the Cuban government as a result of the Havana intervention. The district court's holding in Chase is clearly distinguishable. The assigned claims in Chase were personal claims originally belonging to Chase employees who had fled Cuba, and were totally unrelated to the transaction which had given rise to Banco Nacional's direct claim. Here, by contrast, Craig was not a stranger to the commercial transaction giving rise to Cubazucar's claim, but was instead intimately involved in it, both as putative broker and actual buyer. Moreover, Lamborn and Craig were at all times closely affiliated in the same sugar business as well as being linked by a formal principal-agent relationship in the transaction under consideration. In fact, since Lamborn was acting as Craig's agent here, plaintiff itself had the clear option of suing Craig directly. Restatement (Second) of Agency § 186 (1958). Under these circumstances, the district court's decision in Chase is not controlling, and the fears there expressed that a different result would "call up a brisk trade in claims against foreign states" are not relevant.
Nor does this case involve a champertous assignment of the kind outlawed by § 489 of the New York Judiciary Law. The purpose of § 489 (and its predecessor, § 275 of the Penal Law)
"is to aid in the enforcement of "time honored public policies' against champertous agreements and real or implied practice of law by corporations." American Hemisphere Marine Agencies, Inc. v. Kreis, 244 N.Y.S.2d ...