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TOLE S.A. v. MILLER

December 10, 1981

TOLE S.A. and Compania Anomina De Inversiones Venam, Plaintiffs,
v.
G. William MILLER, as Secretary of the Treasury of the United States, Defendant



The opinion of the court was delivered by: MOTLEY

The instant action is a challenge by two foreign corporations to the Secretary of the Treasury's refusal to unblock certain American-based assets of a Cuban corporation, Compania Petrolera Trans-Cuba (Trans-Cuba), in which plaintiffs are stockholders. Plaintiffs seek an order of mandamus requiring the Secretary of the Treasury to release their pro rata shares of Trans-Cuba's blocked assets or, in the alternative, a determination that the Secretary's blocking action is unconstitutional because it deprives them of their property without just compensation and violates the equal protection clause of the Fifth Amendment. Both parties have moved for summary judgment. For the reasons set forth below, defendant's motion for summary judgment is granted and plaintiffs' motion is denied.

The facts are stipulated for purposes of the cross-motions for summary judgment. Plaintiff Tole S.A. (Tole) is a Panamanian corporation whose stock is wholly owned by Honduran nationals. Stipulation of Facts (Stipulation) P 1. Plaintiff Compania Anomina de Inversiones Venam (CAIV) is a Venezuelan corporation whose stock is wholly owned by a Venezuelan national. Stipulation P 2. Both plaintiffs have at all material times been stockholders in Trans-Cuba, a corporation organized under the laws of Cuba in June, 1955, for the purpose of exploring for oil deposits and developing oil concessions in the Republic of Cuba. Stipulation P 3.

 In May, 1960, Trans-Cuba was nationalized by the Castro regime, and all its property and assets were purported to be appropriated by the Cuban communist state. Stipulation P 3. At the time it was nationalized, Trans-Cuba had approximately.$ 1.8 million in assets on deposit in a New York bank. Stipulation P 4.

 On or about August 1, 1960, a Trans-Cuba stockholder, Honey Mann, brought suit against Trans-Cuba in New York State Supreme Court for the appointment of a receiver pursuant to then section 977-b of the New York Civil Practice Act *fn1" to prevent the Castro Government from expropriating Trans-Cuba's New York assets. Mann v. Compania Petrolera Trans-Cuba, 28 Misc.2d 434, 215 N.Y.S.2d 894 (Sup.Ct.1961). Stipulation P 5. A temporary receiver was appointed on August 1, 1960. Amended Stipulation P 1. On April 5, 1962, the State Supreme Court appointed a permanent receiver. A co-receiver was appointed on May 3, 1963. Stipulation P 5.

 On July 8, 1963, the Secretary of the Treasury (the Secretary) issued the Cuban Assets Control Regulations, 31 C.F.R. Part 515, under authority of Section 5(b) of the Trading with the Enemy Act, 50 App.U.S.C. § 5(b). *fn2" The Cuban Assets Control Regulations (the Regulations) effected an immediate "blocking" by transfer of all American-based assets in which Cuba or any "designated national" thereof had an interest, direct or indirect, on the effective date of the Regulations. 31 C.F.R. § 515.201. A "designated national" is defined in the Regulations to include any "national" of Cuba, 31 C.F.R. § 515.305; a "national" is defined as including any corporation organized under the laws of a foreign country. 31 C.F.R. § 515.302(a)(2). Hence, under the Regulations Trans-Cuba was a "national" of Cuba, and thus a "designated national" whose American-based assets were immediately blocked. The Regulations provided that no blocked assets could be transferred without previously obtaining a "license" from the Secretary of the Treasury. 31 C.F.R. §§ 515.201(a), 515.316, 515.502.

 On June 5, 1964, the Office of Foreign Assets Control transmitted a letter to the Trans-Cuba receivers ordering that no payments from Trans-Cuba's blocked assets, other than for certain administrative expenses, could be made without first securing a license from the Secretary. Stipulation P 6. Thereafter, the receivers filed their report with the Supreme Court of the State of New York. By order of July 14, 1965, the state court appointed a referee to hear and determine various objections to the report that had been filed by certain stockholders and creditors of Trans-Cuba. Stipulation P 7.

 One of the questions before the referee, Judge Samuel C. Coleman, was whether the Regulations applied to Trans-Cuba's assets in light of the fact that the assets had been transferred to the receivers prior to the Regulations' effective date. The claimants contended that, since the Receivers had title and were not Cuban "nationals", all of Trans-Cuba's assets were free to be released, even to Cuban stockholders. The Government submitted to the referee its view that the Regulations applied to Trans-Cuba assets, the previous appointment of a receiver notwithstanding. Stipulation P 9. On January 19, 1967, the referee submitted his report to the State Supreme Court finding, inter alia, that the Regulations were applicable to Trans-Cuba's assets. Stipulation P 10. The State Supreme Court adopted the referee's report, which was affirmed by the Appellate Division of the New York Supreme Court, Mann v. Compania Petrolera Trans-Cuba, 34 A.D.2d 775, 311 N.Y.S.2d 804 (1st Dept. 1970). By resettled order dated November 12, 1968, the referee directed the Comptroller of the State of New York, in his capacity as Abandoned Property Custodian, to take charge of the Trans-Cuba assets, and to hold them for distribution subject to the Regulations.

 A portion of Trans-Cuba's assets were thereafter unblocked and distributed to certain individual shareholders, who had applied for and received a license pursuant to the Treasury Department's policy of providing for the pro rata distribution of the assets of Cuban corporations to certain United States citizens. The remainder of Trans-Cuba's New York assets remained blocked and in the possession of the State Abandoned Property Custodian.

 In July, 1974, the Regulations were amended to issue licenses unblocking assets owned by partners and sole proprietors, whether American citizens or citizens of countries in "authorized trade territories", *fn3" 31 C.F.R. § 515.557, allowing them to obtain their pro rata shares previously frozen pursuant to the Regulations. 31 C.F.R. §§ 515.557, 515.558.

 In August, 1974, and May, 1975, CAIV and Tole, respectively, filed applications with the Office of Foreign Assets Control seeking licenses to unblock their pro rata share of Trans-Cuba's New York assets. Stipulations PP 13, 14. Plaintiffs' applications were denied in September 1974, and July, 1975, respectively. Stipulation PP 13, 14.

 In January, 1980, plaintiffs filed the instant action, seeking an order requiring the Secretary of the Treasury to release to them their pro rata shares of Trans-Cuba's assets.

 BACKGROUND OF THE CUBAN ASSETS CONTROL REGULATIONS

 The Cuban Assets Control Regulations were promulgated by the Secretary of the Treasury on July 8, 1963, to prohibit all unlicensed financial and commercial transactions between residents of the United States and Cuba and its nationals. They were closely patterned on another set of Regulations, the Foreign Assets Control Regulations, 5 C.F.R. Part 500, which were issued in 1950 to block all assets in the United States belonging to Communist China and North Korea and their "nationals". *fn4" The Regulations were a direct response to the actions of the Castro regime which had, among other things, nationalized American-owned property in Cuba without paying compensation. See, e.g., Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 403, 84 S. Ct. 923, 927, 11 L. Ed. 2d 804 (1964); Sardino v. Federal Reserve Bank, 361 F.2d 106, 112 (2nd Cir.), cert. denied, 385 U.S. 898, 87 S. Ct. 203, 17 L. Ed. 2d 130 (1966) (recognizing that the Regulations were issued because "Cuba has adopted a program expropriating property within its territory owned by designated American nationals"). These Regulations were the culmination of a policy that had begun with the Executive Branch's termination of diplomatic and consular relations with Cuba and the imposition of restrictions on travel to and from that country. 26 Fed.Reg. 492 (1961).

 Subsequently, in the Foreign Assistance Act of 1961, 22 U.S.C. § 2370, Congress provided that no assistance be furnished under the Act to the Castro regime, and authorized the President to establish and maintain a total embargo upon all trade between the United States and Cuba. In February, 1962, such an embargo was proclaimed. Pres.Proc. No. 3447, 27 Fed.Reg. 1085 (February 5, 1962). Also issued in February 1962, were the Cuban Import Regulations, which prohibited imports into the United States of all goods of Cuban origin. In August, 1962, Congress enacted restrictions on the assistance to countries that furnished aid to the Castro regime. Act of August 1, 1962, 76 Stat. 260. Thereafter the Regulations under challenge in this action were issued by the Secretary of the Treasury.

 In 1965, the Senate Foreign Relations Committee urged the Treasury Department to issue licenses to American citizen stockholders unblocking their proportionate shares of the blocked assets of Cuban corporations which were wholly or substantially owned by American stockholders on July 8, 1963. The Committee stated

 
if the assets are wholly or substantially owned by citizens and residents of the United States they should be unblocked, since it is possible that such assets may be placed in a fund at some future date and used to pay the claims of American citizens against the Cuban Government. This would be tantamount to using the property of one U.S. Citizen to pay the claim of another U.S. citizen.

 Quoted in Nielsen v. Secretary of the Treasury, 137 U.S. App. D.C. 345, 424 F.2d 833, 845-46 (D.C.Cir.1970). The recommendation was accepted by the Treasury Department, but it was not until 1974 that the Regulations were formally amended to reflect the policy change. 31 C.F.R. § 515.555. At the same time the Regulations were also amended to grant licenses to unblock the blocked assets of partners in Cuban partnerships and proprietors of Cuban proprietorships residing in authorized trade territories. 31 C.F.R. §§ 515.557 and 515.558.

 In the instant action, plaintiffs make two claims: First plaintiffs say that the Regulations do not apply to Trans-Cuba's assets because all right, title and interest in those assets passed to the receiver prior to the effective date of the Regulations. In response, defendant argues that plaintiffs are precluded by the doctrine of res judicata from relitigating that claim in this action. Second, plaintiffs claim that the blocking order violates the rights guaranteed to them by the due process clause of the Fifth Amendment to the Federal Constitution and the equal protection principle implicit therein.

 I. Res Judicata

 Res judicata is a salutary doctrine that reflects "considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations." Commissioner v. Sunnen, 333 U.S. 591, 597, 68 S. Ct. 715, 719, 92 L. Ed. 898 (1948). Briefly stated, the judicial doctrine mandates that the parties to an action in which a judgment on the merits has been rendered are barred from relitigating the same cause of action in a second proceeding. Expert Electric, Inc. v. Levine, 554 F.2d 1227 ...


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