Republic of China v. National City Bank of New York

• Decision Date: 08 December 1953
• Docket Number: Docket 22773.,No. 44,44
• Citation: 208 F.2d 627
• Parties: REPUBLIC OF CHINA et al. v. NATIONAL CITY BANK OF NEW YORK.
• Court: U.S. Court of Appeals — Second Circuit

208 F.2d 627 (1953)

REPUBLIC OF CHINA et al. v. NATIONAL CITY BANK OF NEW YORK.

No. 44, Docket 22773.

United States Court of Appeals Second Circuit.

Argued November 10, 1953.

Decided December 8, 1953.

Kirlin, Campbell & Keating, New York City (Cletus Keating, New York City, Robert E. Kline, Jr., Washington, D. C., and Louis J. Gusmano, New York City, of counsel), for Republic of China.

Shearman & Sterling & Wright, New York City (Chauncey B. Garver and W. Harvey Reeves, New York City, of counsel), for National City Bank of New York.

Before SWAN, FRANK and MEDINA, Circuit Judges.

FRANK, Circuit Judge.

The plaintiffs, the Republic of China (with its National Government now located in Formosa) and others, brought this suit under section 25(b) of the Federal Reserve Act, 12 U.S.C.A. § 632, to recover $200,000 which, according to the complaint, was deposited with the defendant bank and which defendant refuses to pay. The complaint alleges that the deposit was made by plaintiff, the Shanghai-Nanking Railway Administration, an agency of the Republic of China, and that the Secretary of State of the United States, pursuant to section 25(b) has certified to defendant that the deposit belongs to the Republic of China. Defendant's amended answer includes not only denials and affirmative defenses but also two counterclaims which Judge Kaufman in his opinion — 108 F.Supp. 766 — summarized as follows: "The first counterclaim alleges that on or about August 9, 1920, defendant participated in a loan made by J. P. Morgan & Co. to the Pacific Development Co. in the face amount of $5,000,000, said loan being secured by a $5,500,000 Chinese Government Treasury Note, being the note of the plaintiff herein, The Republic of China. Said loan was not paid on its maturity date by Pacific Development Company and subsequently Pacific Development Company was liquidated. In the course of said liquidation, J. P. Morgan & Co. offered the collateral for sale at public auction and purchased the collateral on behalf of the participants in the loan to the Pacific Development Company. The Chinese Government Treasury Note is still held by J. P. Morgan & Co. and is now past due, and by virtue thereof there is said to be owing to the defendant the sum of $317,720.93 plus interest of $590,386.53. For a second counterclaim against plaintiff, The Republic of China, the defendant alleges that between April and August 1947 defendant began the purchase of Chinese Government 36th Year Short Term Treasury Notes of The Republic of China. On these notes, the plaintiff, The Republic of China, is said to be indebted to the defendant in the sum of $391,033.60 principal together with interest thereon in the sum of $335,290.94. Defendant demands judgment against the plaintiffs dismissing the complaint with costs, and against the plaintiff, The Republic of China, for the sum of $1,634,432."

Each counterclaim contained this allegation: "The plaintiff, The Republic of China, is, and at all times hereinafter mentioned was, a sovereign government recognized as such by the duly appointed Executive Department of the United States."

The defendant's amended answer also shows the following: Regulations issued by the Republic of China in connection with the 36th Year Short-Term Treasury Notes provided that the "Fiscal Agents" for the payment of those Notes were the Central Bank of China, and its "appointed banks"; a branch of defendant in Shanghai, China, was one of these "appointed banks"; it continued to be such when in 1948, because of a default, the principal of those Notes became payable, and thereafter until the seizure of Shanghai by the People's Government of China in May 1949.

On the motion of plaintiff, the Republic of China, the counterclaims were dismissed by an order entered January 8, 1953. Some thirteen days later, defendant moved for leave to submit a further amendment of its answer to include amendments of the counterclaims designating each as a "set off" and specifically alleging that defendant's Shanghai branch was one of the banks at which the 36th Year Short-Term Notes were payable. An affidavit accompanying this motion stated that the Treasury Note described in the first counterclaim was payable at the Chase National Bank, New York. This motion was denied by an order entered February 27, 1953. This appeal is from the orders of January 8 and February 27, 1953. For the purposes of this appeal, we shall consider the counterclaims as if they had been further amended in the manner proposed by defendant.

1. As the defendant in each of its counterclaims, specifically alleged that the Republic of China was a sovereign government recognized as such by our government, there was no need, in passing on the motion to dismiss, to have a trial to determine that fact.¹ We recently stated, in Republic of China v. American Express Co., 2 Cir., 195 F. 2d 230, 233, that a "friendly, foreign sovereign, recognized by the United States, cannot be sued in the courts of this country without its consent." We went on to say, however, that, when a sovereign sues in our courts to enforce a claim, "it so far takes the position of a private suitor as to agree by implication that justice may be done with regard to the subject matter. * * * Accordingly, we have held that a sovereign who sues in our courts so submits itself to the jurisdiction it has invoked that defenses by way of set-off and of counterclaim are available against it. * * * But the waiver of immunity² does not extend beyond, at most, counterclaims which are based upon the subject matter of the suit." We think the trial judge correctly held that the counterclaims here were not based on the subject matter of the suit. We reach the same result if we regard the counterclaims as but set-offs.³ For the assertion against a sovereign government of a counterclaim or set-off, unrelated to the claim asserted by the sovereign in its suit, is the equivalent of an independent suit against that sovereign brought without its consent.⁴ Wherefore we think the district court's orders were correct.

Defendant has referred us to a letter dated May 19, 1952, from Mr. Tate, Acting Legal Adviser to the State Department, to the Attorney General,⁵ calling attention to a so-called "trend" or "shift of policy" on the part of our State Department tending to restrict the sovereign immunity of foreign governments to "governmental" or "public" acts and to exclude "private acts" or "commercial activities." Defendant, as we understand it, does not argue that this new trend, if adopted by our courts, would here serve to deprive plaintiff of its sovereign immunity. Defendant's position seems to be that the alleged new trend indicated in this letter should be further extended judicially so as to validate the counterclaims in the instant case. Assuming, arguendo, that this letter could and should affect judicial decisions, we see nothing in it to justify the suggested extension. We have no...