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BANCO NACIONAL DE CUBA v. CHEMICAL BANK NEW YORK T

October 16, 1984

BANCO NACIONAL de CUBA, Plaintiff, against CHEMICAL BANK NEW YORK TRUST CO., Defendant; BANCO NACIONAL de CUBA, Plaintiff, against MANUFACTURERS TRUST CO., Defendant; BANCO NACIONAL de CUBA, Plaintiff, against IRVING TRUST CO., Defendant.


The opinion of the court was delivered by: BRIEANT

MEMORANDUM AND ORDER

Brieant, J.

 Pursuant to Rule 56, F.R.Civ.P., plaintiff moves for an order granting summary judgment in its favor on both its claims against the three defendant banks and on the counterclaims asserted by each of the defendants.

 These three actions, not consolidated but being litigated together, arise from events connected with the Cuban Revolution of 1959. Familiarity with this Court's opinion in Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F. Supp. 412 (S.D.N.Y. 1980), aff'd as modified, 658 F.2d 875 (2d Cir. 1981), and the cases cited in the margin, all of which describe the social, political and economic changes that took place in Cuba subsequent to the Revolution, is assumed. *fn1"

 The present litigation was instituted by plaintiff Banco Nacional de Cuba, in its own right, and as successor in interest of certain private Cuban banks, to recover amounts deposited in New York with defendants Chemical Bank New York Trust Company ("Chemical Bank"), Manufacturers Trust Company ("Manufacturers") and Irving Trust Company ("Irving"). *fn2" Defendants counterclaimed, asserting a right to set off losses they incurred as a result of the expropriation by Cuba of Cuban Electric, a corporation indebted to the defendants on loans totalling over Two Million Dollars. *fn3"

 Each of these cases was assigned for all purposes to the Honorable Frederick vanPelt Bryan. They were subsequently tried without a jury before Judge Bryan, who died on April 17, 1978 before rendering a decision. Thereafter, the actions were reassigned to me. The parties stipulated and agreed through counsel that the Court might render a decision based upon the proceedings and papers before the late Judge Bryan without reopening the trial record or accepting additional proof.

 On January 12, 1980, this Court, in an unpublished opinion, rendered partial summary judgment in favor of the defendant banks, holding that Banco Nacional de Cuba had not acquired choses in action of the private banks located in New York, and thus could not assert the claims pleaded in the complaint on their behalf. Banco Nacional de Cuba v. Chemical Bank New York Trust Co., Dkt. No. 61 Civ. 0485-CLB (S.D.N.Y. January 4, 1980). On appeal, the Court of Appeals for the Second Circuit reversed. Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903 (2d Cir. 1981). That Court remanded the three actions to this Court solely for consideration of the defendants' counterclaims for set-off which, due to the earlier dismissal of the primary claims, had been dismissed as moot. Inasmuch as each of the present motions for summary judgment involves identical issues of law, they will be addressed collectively.

 I

 On October 13, 1960, the Government of Cuba enacted Law No. 891, which nationalized substantially all of that nation's private banks. The law declared that the expropriation would be carried out through Banco Nacional de Cuba as "the legal successor, substitute[d] in lieu and stead of the [private banks]", and also reorganized Banco Nacional, which had previously been a private concern, making it a constitutent part of the Government of Cuba "in charge of the banking function of the state." Thus, as this Court found, see Chemical Bank, supra, slip op. at 3, under Law No. 891 Banco Nacional, in succeeding the private banks, effectively became the alter ego of the Government of Cuba. Accord, Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903, 910 (2d Cir. 1981) ("with respect to Banco National's claim as successor to the Private Banks . . . Banco Nacional must be viewed as pursuing those claims on behalf of the Cuban government."); Banco Nacional de Cuba v. First National City Bank of New York, 478 F.2d 191, 193 (2d Cir. 1973); see also, First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 103 S. Ct. 2591, 2603, 51 U.S.L.W. 4820, 4826, 77 L. Ed. 2d 46 (June 17, 1983) ("Cuba cannot escape liability for acts in violation of international law simply by retransferring the assets to separate juridical entities").

 At the time of the expropriation several of the private banks had substantial sums on deposit in New York in various accounts with the defendants. *fn4" When Banco Nacional, as successor to the private banks, demanded payment of the funds, the defendants refused. This litigation was commenced by Banco Nacional to recover those deposits.

 Defendants claim the right to set off the deposits against their own claims against Cuba for expropriation of the debts owed them in Cuba by the Cuban Electric Company. Two months prior to the nationalization of the private banks and on August 6, 1980, Cuban Electric, a public utility controlled in Cuba by American nationals, was expropriated by Resolution No. 1 of Law No. 851, along with other American-owned enterprises located in the Republic of Cuba. This was done by the Cuban government in retaliation for conduct of the American government in making adjustments to the import quota for sugar, as described in this Court's opinion in Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F. Supp. 412, 420 (S.D.N.Y. 1980), aff'd, 658 F.2d 875 (2d Cir. 1981). Thus, defendants charge, the Government of Cuba became the successor in interest of the Cuban Electric Company as a going concern, and assumed its assets, properties and liabilities (Memorandum of Defendants at 14-15), all of which comprised the capital of the company. In effect the debts too, which had their situs in Cuba, were also expropriated. See infra, n. 6 and accompanying text. The amounts due, however, on the debts of Cuban Electric Company to defendants were never paid. Each of the defendants counterclaims solely for the amount of the set-off and not for any sum in excess of the amounts claimed by Banco Nacional.

 The questions of whether Banco Nacional is the owner of the New York deposits of the private banks and whether it has a right to assert against the defendants its claims to those deposits, have been answered in the affirmative of the United States Court of Appeals for the Second Circuit. Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903, 909 (2d Cir. 1981). The question now before this Court is: May this Court also entertain the defensive counterclaims asserted by the defendants as set-offs; or should the Court invoke the act of state doctrine and grant plaintiff's motion for summary judgment?

 II

 Plaintiff asserts that the prior decision of the Court of Appeals in these cases, Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903 (2d Cir. 1981) (hereinafter "Chemical"), is controlling on the motions now before this Court. In plaintiff's view, that prior panel opinion requires this Court to grant plaintiff's motions for dismissal of the defendants' counterclaims.Were it that simple, there would have been no necessity for remand. Furthermore, after the Chemical opinion, the Supreme Court of the United States decided First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 103 S. Ct. 2591, 51 U.S.L.W. 4820, 77 L. Ed. 2d 46 (June 14, 1983) (hereinafter "Bancec"), another case concerning the responsibility of courts to entertain cases involving the acts of foreign states.

 Although in Bancec the Supreme Court did not expressly overrule, nor did it mention, the panel opinion in Chemical, this Court is nonetheless required on remand to interpret and apply the Second Circuit panel opinion in light of the intervening Supreme Court decision.

 The facts of Bancec are strikingly congruent with the facts of the cases at bar. Respondent Bancec, seeking payment due on a letter of credit, presented the letter to Citibank. Citibank refused to honor the letter of credit, claiming a right to set off the amount concededly due thereon to Bancec against losses Citibank had incurred as a result of the expropriation by the Republic of Cuba of several Citibank branches located in Cuba. Bancec filed suit to recover the amount due on the letter of credit and Citibank asserted a defensive counterclaim or set-off for the unrecovered value of its seized branches. *fn5" 103 S. Ct. at 2594. At trial, Bancec had argued that it could not be held liable for the acts of the Cuban government as sovereign, since it was a separate juridical entity. This Court rejected Bancec's argument, holding that Bancec, an institution created and controlled by the Cuban government, could not avoid liability for the acts of the Government of Cuba in expropriating the Cuban branches of Citibank. Thus, finding that the unrecovered value of the expropriated Citibank branches exceeded that due on the letter of credit, this Court allowed the full value of the set-off and dismissed Bancec's complaint. On appeal, a panel of the Court of Appeals reversed 658 F.2d 913 (2d Cir. 1981). The Court of Appeals held that Bancec was not an alter ego of the Cuban government, but a separate juridical entity, and therefore could not be held liable for the acts of that government. The Supreme Court reversed the Court of Appeals.

 First, the Supreme Court in Bancec noted that Bancec had been dissolved and its operations continued by Banco Nacional de Cuba which, as was discussed earlier in this opinion, was also an instrumentality of the Government of Cuba. 103 S. Ct. at 2602. Thus, the Supreme Court in Bancec found that any recovery by the respondent would accrue either to Banco Nacional or the Government of Cuba. Having made this finding, the Supreme Court concluded that it would not permit the Cuban government, as the real party in interest, to escape liability on the counterclaim by asserting the separate juridical status of the respondent under Cuban law:

 "Our decision . . . is the product of the application of internationally recognized equitable principles to avoid the injustice that would result from permitting a foreign state to reap the benefits of our courts while avoiding the obligations of international law." 103 S. Ct. at 2603-04 (footnote omitted).

 It is clear that the Supreme Court in Bancec sought to set forth equitable principles that were to apply in any case where a foreign sovereign sued a defendant in our Courts, and at the same time attempted to avoid a defensive counterclaim based on an expropriation which is alleged to have violated international law. That is the exact situation that has occurred in the cases at bar. The plaintiff here seeks dismissal of the counterclaims for set-off, and at the same time asks that it receive a judgment in its favor for money on deposit in New York to which it has title, indistinguishable from the letter of credit proceeds to Bancec. In light of the supervening Bancec decision, therefore, defendants herein must be permitted to set off Banco Nacional's claims against the losses they incurred as a result of the expropriation in Cuba of the debts owed them by Cuban Electric and having Cuba as a their situs. *fn6"

 Inasmuch as the Supreme Court in Bancec did not address the specific act of state issues that were considered by the Second Circuit in Chemical, this Court will now review those pertinent decisions concerning the act of stae, to determine whether a different result is warranted under the circumstances, and also to comply with those portions of the Chemical decision which may survive the subsequent Supreme Court decision in Bancec.

 III

 The act of state doctrine is a judicially created exception to the rule that courts of the United States will decide cases before them where their jurisdiction has been properly invoked. First National City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 763, 32 L. Ed. 2d 466, 92 S. Ct. 1808 (1972). Historically, the doctrine was based upon the belief that courts should respect the acts of foreign sovereigns conducted within their borders. Underhill v. Hernandez, 168 U.S. 250, 42 L. Ed. 456, 18 S. Ct. 83 (1897).That view has since been refined and the doctrine is now cited more as a means of maintaining the proper balance "between the judicial and political branches of the Government on matters bearing upon foreign affairs." Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427,28, 11 L. Ed. 2d 804, 84 S. Ct. 923 (1964). Though abstention by the courts in matters involving acts of foreign states is not required by the Constitution, the doctrine does have constitutional underpinnings, reflecting the primacy of the Executive Branch in foreign affairs. Id. at 423.If this Court determines, ...


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