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Banco Nacional De Cuba v. Chemical Bank New York Trust Co.

February 3, 1986

BANCO NACIONAL DE CUBA, PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
CHEMICAL BANK NEW YORK TRUST COMPANY, DEFENDANT-APPELLEE, CROSS-APPELLANT



Motion to modify mandate previously issued, see 658 F.2d 903 (1981), in light of United States Supreme Court decision in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983). Motion denied.

Author: Kearse

KEARSE, CIRCUIT JUDGE:

Defendant Chemical Bank New York Trust Company ("Chemical") has moved for modification of the decision of this Court in Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903 (2d Cir. 1981) ("Chemical"), in order to reinstate its counterclaim against plaintiff Banco Nacional de Cuba ("Banco Nacional") in light of the decision of the United States Supreme Court in First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 77 L. Ed. 2d 46, 103 S. Ct. 2591 (1983) ("Bancec"), reversing the decision of this Court in Banco Para el Comercio Exterior de Cuba v. First National City Bank, 658 F.2d 913 (2d Cir. 1981) ("Citibank"). We conclude that Bancec does not require modification of the decision in Chemical, and we deny Chemical's motion.

BACKGROUND

We assume familiarity with our decision in Chemical and with the events there described. Briefly, in 1960, the Republic of Cuba expropriated the assets of the Cuban Electric Company ("Cuban Electric"), which then had an outstanding balance on a loan from Chemical. The present action was commenced in 1961 by Banco Nacional for, to the extent pertinent here, recovery of funds it had previously deposited with Chemical. Chemical counterclaimed, seeking to set off against Banco Nacional's claim the debt owed Chemical by Cuban Electric, contending that the Cuban government had assumed the debts of Cuban Electric and that Banco Nacional was the alter ego of the Cuban government. Although Chemical prevailed on this theory in the district court, we reversed on appeal.

We ruled that Chemical was not entitled to offset its Cuban Electric debt claim against Banco Nacional's claim to recover its deposited funds because there was neither a basis for imputing to Banco Nacional the acts of the Cuban government in expropriating Cuban Electric nor a basis for imputing to the Cuban government a right to the funds deposited by Banco Nacional. We noted that the resolution providing for the nationalization of Cuban Electric by the Cuban government made no mention of Banco Nacional and that apparently Banco Nacional did not participate in that expropriation. We noted that Banco Nacional had been formed in 1948 to engage in domestic and international banking, and since that time apparently had opened many accounts with foreign banks. Banco Nacional's account with Chemical apparently had never been owned by the Cuban government. In ruling that these facts precluded the assertion of Chemical's counterclaim against Banco Nacional, we stated the general principle, which we noted was explored in greater detail in our same-day decision in Citibank, that

when a state has created a separate and distinct juridical entity in commercial activities, we will not ordinarily find the state and the instrumentality alter egos with respect to acts done by the instrumentality in the normal course of its commercial activities.

Chemical, 658 F.2d at 910.

In Citibank, we disallowed the attempt of defendant First National City Bank ("Citibank"), whose Cuban branches had been expropriated by the Cuban government, to set off its claim for compensation for that expropriation against the claim of plaintiff Banco Para el Comercio Exterior de Cuba ("Bancec") on a letter of credit. That ruling was based on the fact that Bancec had had no role in the expropriation of the Citibank Cuban assets.

Citibank sought Supreme Court review of our ruling in its case. Chemical did not seek such review, but when the Supreme Court granted certiorari in Citibank, the Chemical parties agreed to place the remainder of their action on the district court's suspense calendar, pending the Supreme Court's review of Citibank.

As discussed in greater detail below, the Supreme Court reversed our decision in Citibank, ruling that the application of equitable principles, in the circumstances of that case, required that Citibank be permitted to set off its claim against Bancec. Bancec, 462 U.S. 611, 103 S. Ct. 2591, 77 L. Ed. 2d 46. Eventually, Chemical moved in this Court for recall and modification of our mandate in Chemical, contending that the type of reasoning used in Bancec requires the reinstatement of Chemical's counterclaim against Banco Nacional. We recalled the mandate and requested that the parties submit briefs with respect to the effect of the Supreme Court's decision in Bancec.

Having considered the arguments presented by the parties and reviewed our decision in Chemical in light of the Supreme Court's decision in Bancec, we conclude that our decision in Chemical should stand as rendered.

Discussion

The teaching of the Supreme Court in Bancec is that, while "government instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such," 462 U.S. at 627-27, the determination in each case of whether to allow a setoff against a foreign government instrumentality must be made in light of the circumstances of the case, and that determination must be informed by principles of equity and common law, id. at 628-30. Taking care to state that its "decision . . . announce[d] no mechanical formula for determining the circumstances under which the normally separate juridical status of a government instrumentality is to be disregarded," id. at 633, the Court concluded that the application of equitable ...


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