Banco Nacional de Cuba v. Sabbatino

• Decision Date: 31 March 1961
• Parties: BANCO NACIONAL DE CUBA, Plaintiff, v. Peter L.F. SABBATINO as Receiver, and F. Shelton Parr, William F. Prescott, Emet Whitlock, Lawrence H. Dixon, H. Bartow Farr, Elizabeth C. Prescott, Fabio Freyre and Helen G. Downs, copartners doing business as Farr, Whitlock & Co., Defendants.
• Court: U.S. District Court — Southern District of New York

193 F. Supp. 375

BANCO NACIONAL DE CUBA, Plaintiff, v. Peter L.F. SABBATINO as Receiver, and F. Shelton Parr, William F. Prescott, Emet Whitlock, Lawrence H. Dixon, H. Bartow Farr, Elizabeth C. Prescott, Fabio Freyre and Helen G. Downs, copartners doing business as Farr, Whitlock & Co., Defendants.

United States District Court S. D. New York.

March 31, 1961.

Rabinowitz & Boudin, New York City, for plaintiff, Victor Rabinowitz, New York City, of counsel.

Harold L. Fisher and Ross J. DiLorenzo, Brooklyn, N. Y., for defendant Peter L. F. Sabbatino.

Choate, Mitchell, Baker & Nelson, New York City, for defendant Farr, Whitlock & Co., Robert L. Augenblick, Winthrop S. Emmet, New York City, of counsel.

DIMOCK, District Judge.

There are six motions before me in this complicated commercial litigation having its genesis in the Cuban nationalization situation.

The action centers about title to a sugar shipment which plaintiff, the financial agent of the Cuban government, asserts by reason of expropriation of the property of Compania Azucarera Vertientes-Camaguey, hereinafter C.A.V., a Cuban corporation, under a nationalization decree. The proceeds of the sale of this sugar shipment are now in the possession of the New York State Supreme Court for Kings County which, under section 977-b of the New York Civil Practice Act, appointed a temporary receiver for the assets of C.A.V. located in New York. The receiver has been made a defendant in this action, although leave to sue him was not obtained from the court that appointed him. The remaining defendants are members of a New York partnership, Farr, Whitlock & Co., hereinafter referred to as Farr Whitlock.

The following facts are agreed upon for the purpose of the present motions. In February and July of 1960, Farr Whitlock contracted to purchase sugar from a wholly-owned Cuban corporate subsidiary of C.A.V. The contracts called for the purchase of specified amounts of sugar at specified prices free alongside steamers. The seller was to supply cargo to vessels assigned by Farr Whitlock at a designated Cuban port. Payment was to be made by Farr Whitlock in New York upon presentation of the necessary shipping documents.

Loading of the sugar onto a German vessel assigned by Farr Whitlock commenced on August 6, 1960, a Saturday, continued on August 8th and was completed by 1 p. m. on August 9th. Since there was no wharf at the Cuban port, the sugar was carried on barges to the vessel.

On August 6, 1960, the Cuban President and Prime Minister signed a resolution nationalizing the property of C.A.V. and other named Cuban corporations. Both the resolution and the law pursuant to which it was adopted declared that nationalization of Cuban enterprises in which United States "physical and corporate persons" held a majority interest was deemed a necessary defensive measure against the recent aggressive acts of the Congress and President of the United States reducing the participation of Cuban sugars in the American sugar market.

Farr Whitlock, in order to obtain the necessary consent of the Cuban government to have the loaded vessel depart, on August 11, 1960 entered into contracts with plaintiff's assignor, a government wholly-owned corporation. The contracts purported to sell to Farr Whitlock the sugar on board the vessel. The contracts contained, insofar as here relevant, the same terms as those in the original agreements between Farr Whitlock and the C.A.V. subsidiary. The vessel departed for Casablanca, Morocco on August 11, 1960.

The sight draft and bills of lading covering the sugar shipment were delivered to Farr Whitlock, at its office in New York City, by plaintiff's agent. Farr Whitlock accepted the documents, negotiated the bills of lading to its customer and received the purchase price, in the amount of $175,250.69. Farr Whitlock did not, however, pay the proceeds to plaintiff's agent, since it had been advised that a receiver appointed by the New York State Supreme Court for C.A.V. claimed the right to the sales proceeds.

The receiver had been appointed pursuant to a statute authorizing receiverships for New York assets of foreign corporations that have been dissolved or the property of which has been nationalized. See New York Civ.Prac.Act § 977-b.

The state court which had appointed the receiver enjoined Farr Whitlock from disposing of the sales proceeds and subsequently issued an order, with which Farr Whitlock has complied, directing turnover of the sum to the receiver. The order directed the receiver to deposit the proceeds in the Kings County Trust Company "to be held by it subject to the further order of the court and not to be withdrawn except on such order."

Plaintiff in the present action, alleging conversion of the bills of lading and the sales proceeds, seeks recovery either from Farr Whitlock or from the receiver. Plaintiff also, claiming that section 977-b of the New York Civil Practice Act violates the United States Constitution, seeks appropriate relief by way of injunction and declaratory judgment. Farr Whitlock in the event that it is held liable to plaintiff seeks recovery over from the receiver.

I have before me the following six motions:

1. The receiver's motion to dismiss the complaint as against him because of failure to obtain leave from the receiver's appointing court to sue him.

2. The receiver's motion to dismiss the amended complaint on the same ground.

3. The receiver's motion to dismiss Farr Whitlock's cross-claim against him on the same ground.

4. Farr Whitlock's motion to dismiss the action against it for lack of jurisdiction over the subject matter.

5. Plaintiff's motion for summary judgment against Farr Whitlock and the receiver.

6. Farr Whitlock's motion for summary judgment against the receiver in the event plaintiff is granted summary judgment against Farr Whitlock.

I shall consider first Farr Whitlock's motion to dismiss the action against it for lack of jurisdiction of the court over the subject matter. Farr Whitlock relies on the well-established rule that, when a state court action and a federal court action are both in rem or quasi in rem and involve the same property, then the court first perfecting its jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of the other. Farr Whitlock's reasoning in support of its motion is impeccable up to a certain point. It argues that the state court receivership action is in rem or quasi in rem, which is quite true. See Oliner v. American-Oriental Banking Corp., 2nd Dept., 252 App.Div. 212, 297 N.Y.S. 432, affirmed without opinion, 277 N.Y. 588, 13 N.E.2d 783. It then argues that the state court first perfected jurisdiction over the sales proceeds here in issue, which is also true. But at this point Farr Whitlock's argument falters, since plaintiff in the present action seeks merely to hold Farr Whitlock personally liable for its alleged conversion of the documents delivered to it by plaintiff's agent as well as its alleged conversion of the sales proceeds. Application of the test laid down in United States v. Bank of New York & Trust Co., 296 U.S. 463, 477, 56 S.Ct. 343, 80 L.Ed. 331, leads to the inescapable conclusion that the present action against Farr Whitlock is not in rem or quasi in rem, for this court does not require possession or control of the sales proceeds of the sugar shipment in order to proceed with the cause and grant the relief sought, a money judgment against Farr Whitlock. Since the action against Farr Whitlock is in personam, it may proceed simultaneously with the state court action. United States v. Klein, 303 U.S. 276, 58 S.Ct. 536, 82 L.Ed. 840; see Markham v. Allen, 326 U.S. 490, 66 S.Ct. 296, 90 L. Ed. 256. Nor may this court decline to exercise or postpone exercise of its jurisdiction pending a state court determination, for such abstention here would serve no important countervailing interest. See County of Allegheny v. Mashuda, 360 U.S. 185, 79 S.Ct. 1060, 3 L. Ed.2d 1163. Farr Whitlock has had ample opportunity to protect itself from double liability in the event that it loses this law suit and the state court determines that C.A.V. had title to the sales proceeds within that court's possession. Up until now Farr Whitlock has not impleaded C.A.V. in this action and it has offered no explanation for its failure to do so.¹ Perhaps the reason lies in the fact that Farr Whitlock has an indemnification agreement with C.A.V. which protects it against double liability. Be that as it may, it is even doubtful whether a determination in the state court action would have any effect in this action. Plaintiff has not appeared in the state court action, and, although its agent who presented the documents to Farr Whitlock for collection has made an appearance, plaintiff denies that its collection agent represents its interest in the state court action. There is thus no need to decide whether the danger of double liability would indeed be sufficient reason for this court to abstain from exercising jurisdiction insofar as the claim against Farr Whitlock is concerned pending the outcome of the state court proceeding.

The motion to dismiss for lack of jurisdiction over the subject matter is therefore denied.

Since I have come to the conclusion that, on plaintiff's motion for summary judgment against defendants Farr Whitlock and the receiver, those defendants are entitled to summary judgment dismissing the complaint, all of the rest of the motions are dismissed as moot.

I turn now to plaintiff's motion for summary judgment against Farr Whitlock and the receiver. Defendants' first claim is that plaintiff lost nothing by Farr Whitlock's failure to pay the draft because the terms of the nationalization decree did not embrace the sugar shipment at issue and plaintiff therefore had no interest in the sugar or the purchase price. Defendants' second claim is that, even if the decree did purport to affect the sugar,...