Appeal from a final judgment of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, dismissing complaint of Cuban state-owned bank on the merits on the basis that the amount claimed was exceeded by the amount of the defendant's validly asserted counterclaim for losses due to Cuban expropriation of assets. Reversed and remanded.
Before Lumbard, Van Graafeiland, and Kearse, Circuit Judges.
This appeal is one of six decided today*fn1 arising from the revolution in the Republic of Cuba in the late 1950's and the ensuing expropriation of properties owned by American companies. In this action, plaintiff-appellant Banco Para el Comercio Exterior de Cuba ("Bancec") brought suit against defendant First National City Bank ("Citibank") to recover $193,280 on an unpaid letter of credit.*fn2 Citibank counterclaimed, seeking dismissal of the complaint on the ground that Citibank's losses resulting from the expropriation of its assets by the Cuban government exceeded the amount of Bancec's claim. The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, ruled, in a decision reported at 505 F. Supp. 412, that Citibank's counterclaim was justiciable and could properly be asserted against Bancec, and that the value of Citibank's counterclaim exceeded the value of Bancec's claim. Accordingly the district court dismissed the complaint on its merits. Bancec has appealed, challenging the district court's decision in a number of respects. Since we find merit in the argument that Citibank's counterclaims could not properly be asserted against Bancec, we reverse and remand for entry of an appropriate judgment in favor of Bancec in the amount of $193,280.
The events surrounding the Cuban revolution of the late 1950's have been reviewed by this Court, as well as others, on several occasions. We assume familiarity with the historical discussion in the cases set out in the margin,*fn3 as well as that in our decision today in Banco Nacional de Cuba v. Chase Manhattan Bank, No. 80-7375, 658 F.2d 875 (2nd Cir.) ("Chase").
Bancec was organized under the laws of the Republic of Cuba by virtue of Law No. 793 of April 25, 1960, as the successor to Banco dCubano del Comercio Exterior which had been created in 1954. Law No. 793 established Bancec as "(a)n official autonomous credit institution for foreign trade ... with full juridical capacity and capital of its own." The bank was capitalized at 6,000,000 pesos ($6,000,000), subscribed and paid for by the Republic, which transferred capital that it owned in Banco Cubana del Comercio Exterior ($3,500,000) and in Banco de Desarrollo Economico y Social ($2,500,000), the former bank for social and economic development. Its purposes included the encouragement of production of goods for export, the increase of exports without affecting essential national sources of supply, and the stimulation and diversification of foreign markets for Cuban products. In order to fulfill these objectives, Bancec was empowered, inter alia, "(t)o buy in the country and sell abroad all kinds of national agricultural, industrial or mining products ... (and) to finance and grant loans and advances to national concerns or organizations that produce or may produce for foreign markets," and "to engage in all manner of active banking operations." Law No. 793, Bylaws IX(b), (f). Bancec was to be run by a Governing Board and a General Manager to be appointed by the Board. The Governing Board consisted of delegates from the Ministries of Commerce and Economy, the Department of Mines and Petroleum of the Ministry of Agriculture, and the National Agrarian Reform Institute ("INRA"). Although Bancec was required to deposit its profits with the treasury of the Republic semi-annually, the Governing Board was empowered to deduct from fiscal revenues such amounts as were deemed "essential for the proper operation" of the bank.
On August 12, 1960, Bancec entered into two written agreements relevant to its present claim. It agreed to purchase a quantity of sugar from INRA, and to sell that sugar to the Cuban Canadian Sugar Company. The contract between Bancec and Cuban Canadian Sugar was supported by an irrevocable letter of credit in favor of Bancec issued by Citibank on August 18, 1960, which Bancec assigned, for collection, to Banco Nacional de Cuba ("Banco Nacional"), the central bank of Cuba which is described in greater detail in part B, infra. After a series of events not here material, Citibank was called on to pay $193,280 to Banco Nacional as Bancec's agent on the letter of credit on September 21, 1960. Citibank, whose Cuban branches had been expropriated by the Cuban government just days before, credited that amount to the account of Banco Nacional, but refused to pay it to Banco Nacional and instead applied it against the amount lost in the expropriation.
On February 1, 1961, Bancec brought this action against Citibank to recover the $193,280.*fn4 Citibank does not appear to dispute here the validity of Bancec's claim.
As set forth in greater detail in our opinion today in Chase, following the installation of the revolutionary Cuban government on January 1, 1959, relations between Cuba and the United States deteriorated seriously. On July 6, 1960, Cuba enacted Law No. 851 which, inter alia, authorized the President and Prime Minister of the Republic, "acting jointly through appropriate resolutions ... (to) proceed to nationalize, through forced expropriation, the properties or enterprises owned by physical and corporate persons who are nationals of the United States of North America ...."*fn5 Under this law Cuba nationalized numerous American-owned corporations, branches, and businesses. On September 16, 1960, under an executive order denominated "Resolution No. 2," pursuant to Law No. 851, the Cuban government expropriated and nationalized the eleven Cuban branches of Citibank.*fn6 Resolution No. 2 designated Banco Nacional as the instrumentality to take over these assets.
Banco Nacional, since its formation in 1948, had functioned as the central Bank of Cuba. It engaged in domestic and international banking and was the sole depository of state funds. In addition it had extensive powers both to control and protect the Cuban currency in international trade and to regulate all commercial banks operating in Cuba. Following the revolution, Banco Nacional was placed in control of the assets and businesses of all nationalized private banks.
C. Citibank's Counterclaims
Citibank counterclaimed against Bancec for losses resulting from the expropriation of its branches by the Cuban government, contending that Bancec was indistinguishable from the Cuban government. Alleging that its losses far exceeded the amount of Bancec's claim, Citibank sought ...