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BANDES v. HARLOW & JONES

March 9, 1993

SALVADOR BANDES, Plaintiffs,
v.
HARLOW & JONES, INC., Defendant. HARLOW & JONES, INC., Interpleader-Plaintiff, v. SALVADOR BANDES and DAVID ALVAREZ, Interpleader-Defendants.



The opinion of the court was delivered by: LEONARD BERNIKOW

REPORT AND RECOMMENDATION

 TO THE HONORABLE RICHARD OWEN, U.S.D.J.:

 This is an interpleader action. Before the court are Daniel Fajardo, representing the Corporacion Industrial de Pueblo, ("COIP"), a Nicaraguan executive agency administering confiscated corporations, and Jose Somoza, each claiming interest in the interpleader fund corresponding to 25,028 shares of stock in a Nicaraguan company, Industria Nacional de Clavos y Alambres de Puas, known as INCA. Also before the court are various members of the Bandes family contesting each other's and COIP's right to share in the fund. In a previous decision, the district court apportioned the fund in question according to the claimants' pro rata stake in INCA by creating the fiction of corporate dissolution and treating the interpleaded fund as the sole corporate asset. See Bandes v. Harlow & Jones, Inc., 570 F. Supp. 955, 963 (S.D.N.Y. 1983), aff'd in pertinent part, 852 F.2d 661, 666 (2d Cir. 1988). COIP and Jose Somoza have cross-moved for summary judgment; resolution of the conflicting claims submitted by various parties will permit division of the remainder of the interpleaded fund.

 BACKGROUND

 SOMOZA/COIP ADVERSE CLAIMS

 This interpleader action relates to a debt owed INCA, a Nicaraguan steel products corporation, by Harlow & Jones, ("Harlow"), a Stamford, Connecticut corporation. The parties have litigated entitlement to the interpleaded fund and familiarity with the resulting decisions is assumed. In brief, Salvador Bandes and his family controlled INCA prior to the 1979 Sandinista victory in the Nicaraguan civil war. In 1976, apparently as a condition of doing business in Nicaragua, Bandes sold 25,028 shares, approximately 18.2 percent, of his INCA stock to Jose Somoza, Inspector General of the Nicaraguan Army (and the dictator General Anastasio Somoza's brother) and five hundred shares to General Ulises Carillo, another Nicaraguan officer. Bandes was allegedly paid for the stock, but INCA also enjoyed various tax benefits and customs duty exemptions courtesy of the ruling Somoza family following the transaction. After Somoza's purchase, Salvador Bandes and members of his family owned approximately 72.9% of INCA's stock; various others held the remainder.

 In 1978, INCA ordered steel billets from Harlow, paying $ 460,000 in three installments in early 1979. The billets, however, were never delivered. Shortly thereafter, an imminent Sandinista victory compelled Bandes to flee to Honduras. The INCA factory was almost totally destroyed in the war.

 Anastasio Somoza resigned as President of Nicaragua on July 17, 1979 and fled with his family to Paraguay. The Sandinista Government Council quickly confiscated their assets. On July 20, 1979, the Nicaraguan Government Council issued Decree No. 3, titled Confiscation of Assets: "the Attorney General of Justice is empowered to proceed immediately with the intervention, requisition and confiscation of all of the assets of the Somoza family, military personnel and civil servants who have abandoned the country since December 1977." *fn1" Two days later, the Sandinistas issued Decree No. 10, directing the Attorney General to "intervene" the property of "presidents, directors, managers . . . or those responsible for any working equipment in private business that refuse to go back to work, abandon it or hinder the working of these businesses." *fn2" Decree No. 10 also imposed criminal sanctions on those who had fled the country during or after the war. Intervention could be contested by personal appearance before the Attorney General, but failure to personally appear within thirty days of an intervention resulted in escheatment of disputed property.

 The Sandinistas intervened the INCA factory and stock held by several members of the Bandes family. The shares of Jose Somoza and Ulises Carillo were confiscated pursuant to Decree No. 3. Having fled their country at the end of the war, none of these people could return to contest the interventions without risking imprisonment under Decree No. 10.

 Following promulgation of Decrees 3 and 10, the Attorney General created the Fidiecomiso de Reconstuccion Nacional to administer intervened property and industry. David Alavarez was appointed Fideicommissary (Fiduciary) of INCA and three others were appointed to represent the INCA stock formerly owned by members of the Bandes family and Somoza. On August 1, 1979, these appointees voted to remove Somoza and the Bandeses from the Board of Directors and stripped them of power to contract or litigate on behalf of INCA. In their place, Alvarez was given general power of administration.

 Pursuant to a long-held power of attorney, Bandes subsequently negotiated INCA's release from the steel billet contract and the return of $ 420,000 INCA had already paid Harlow. Harlow agreed to keep approximately $ 40,000 for payment of an earlier debt owed Harlow by INCA and as compensation for rescission of the billet contract. Prior to consummation of this settlement, however, Alvarez contacted Harlow and informed it that he alone was authorized to represent INCA.

 Bandes filed suit against Harlow in the Southern District of New York on September 25, 1979 seeking payment of the $ 420,000; Harlow promptly interpleaded Bandes & Alavarez and paid the $ 420,000 into the court. Both parties sought summary judgment.

 Judge Owen granted Bandes's motion. *fn3" The court held that the Sandinista interventions were confiscations contrary to United States policy and unworthy of recognition; accordingly, "the appointment of Alvarez and his claims on the fund [were] a nullity." Bandes v. Harlow & Jones, Inc., 570 F. Supp. 955, 963 (S.D.N.Y. 1983). Judge Owen also ordered that unrepresented shareholders be given notice and an opportunity to claim a portion of the interpleader fund. The Second Circuit characterized the district court's decision as "creating the fiction of a corporate dissolution" and affirmed in pertinent part. Bandes v. Harlow & Jones, Inc., 852 F.2d 661, 666 (2d Cir. 1988). Consistent with the procedure for corporate dissolutions, by order dated June 22, 1987, Judge Owen referred this matter to me for the purpose of providing INCA shareholders notice of the fund and permitting them to claim that portion of the fund corresponding to their pro rata stock ownership prior to the Sandinista victory.

 Several significant developments followed the Second Circuit's decision. Defeating Sandinista leader Daniel Ortega, Violeta Chamorro was elected President of Nicaragua and inaugurated on April 24, 1990. On May 17, 1990, President Chamorro issued Government Decree 11-90, implementing a procedure to return property confiscated by the Sandinistas. Decree 11-90 established a National Review Commission of five members, headed by the Attorney General and charged with resolving claims on the basis of the commission's majority vote. Claimants were required to petition for the return of their property by December 31, 1990.

 Somoza was apparently aware of Decree 11-90. He retained an attorney in Nicaragua sometime in December 1990 but missed the Review Commission's filing deadline by two days. The parties agree that a remedy pursuant to Decree 11-90 is no longer available. Nevertheless, Decree 11-90 was declared unconstitutional in part by the Corte Suprema de Justicia [Nicaraguan Supreme Court] Ruling of Partial Unconstitutionality No. 27, May 17, 1990.

 Four days after the Corte Suprema's decision, President Chamorro enacted Decree 23-91. This decree reaffirms the goal of its predecessor, Decree 11-90, namely, to return to its owners property confiscated by the Sandinistas, and sheds some light on the jurisdictional problems of the earlier decree:

 
In accordance with the rulings of the Supreme Court of Justice, it is hereby recognized that the Executive Branch does not have the power to resolve conflicts of interests or rights between individuals, inasmuch as it is the judiciary alone that wields such power. With respect to the return of properties, the Executive can only rule on those properties which may be in its hands or under its control.

 Decreto 23-91, Articulo 6.

 The Corte Suprema's ruling on Decree 11-90 and subsequent enactment of Decree 23-91 does not appear to effect Somoza's chance for reconsideration of his belated claim. His property is currently administered by COIP, an executive agency and the institutional successor to the Fideicomiso, itself a creature of the executive branch. Decree 23-91 provides, in Articles 6 and 11, that the Executive is solely empowered to dispose of property under its control. The executive branch, in the form of the Attorney General's National Review Commission, has already ruled that Somoza procedurally defaulted by missing the December 31, 1990, filing deadline.

 Additionally, Decree 23-91 is not intended to provide those who failed to file under 11-90 a second opportunity to petition for return of their property. As reported by Radio Nicaragua on September 9, 1992, on the occasion of establishing the National Revision Commission--an apparent successor to the defunct National Review Commission created by Decree 11-90-- Attorney General Guillermo Vargas Sandino said ". . . the National Revision Commission will be reestablished with some variations regarding the Commission that existed previously . . . It will be tasked with reviewing the cases of all those persons who took advantage of Decree 11-90 published in the early stages of the Chamorro administration." British Broadcasting Corporation, Summary of World Broadcasts, September 11, 1992.

 By Order dated October 8, 1991, Judge Owen again referred this matter to me, this time for the purpose of resolving conflicting claims to the interpleaded fund. Jose Somoza and Nicaragua both claim that portion of the fund corresponding to the 25,028 shares Somoza owned prior to the intervention. Nicaragua is represented by ...


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