United Bank Ltd. v. Cosmic International, Inc., 72 Civ. 5209-CLB

• Decision Date: 31 March 1975
• Docket Number: 73 Civ. 858-CLB,73 Civ. 2736-CLB.,No. 72 Civ. 5209-CLB,73 Civ. 393-CLB,72 Civ. 5209-CLB
• Citation: 392 F. Supp. 262
• Parties: UNITED BANK LIMITED, Plaintiff, v. COSMIC INTERNATIONAL, INC., Defendant. JANATA BANK and Amin Jute Mills, Ltd., Plaintiffs, v. COSMIC INTERNATIONAL, INC. and Irving Trust Company, Defendants. SONALI BANK and Nishat Jute Mills, Ltd., Plaintiffs, v. IRVING TRUST COMPANY and Cosmic International, Inc., Defendants. NISHAT JUTE MILLS, LTD. and National Bank of Pakistan, Plaintiffs, v. COSMIC INTERNATIONAL, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

392 F. Supp. 262

UNITED BANK LIMITED, Plaintiff, v. COSMIC INTERNATIONAL, INC., Defendant.

JANATA BANK and Amin Jute Mills, Ltd., Plaintiffs, v. COSMIC INTERNATIONAL, INC. and Irving Trust Company, Defendants.

SONALI BANK and Nishat Jute Mills, Ltd., Plaintiffs, v. IRVING TRUST COMPANY and Cosmic International, Inc., Defendants.

NISHAT JUTE MILLS, LTD. and National Bank of Pakistan, Plaintiffs, v. COSMIC INTERNATIONAL, INC., Defendant.

Nos. 72 Civ. 5209-CLB, 73 Civ. 393-CLB, 73 Civ. 858-CLB, 73 Civ. 2736-CLB.

United States District Court, S. D. New York.

March 31, 1975.

Nierenberg, Zeif & Weinstein, New York City, for Sonali Bank, Janata Bank, Amin Jute Mills, Ltd. and Nishat Jute Mills, Ltd.

Carter, Ledyard & Milburn, New York City, for United Bank Ltd. and Amin Jute Mills, Ltd.

Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for National Bank of Pakistan and Nishat Jute Mills Ltd.

Burlingham, Underwood & Lord, New York City, for Cosmic International Inc.

MEMORANDUM DECISION

BRIEANT, District Judge.

With the consent of counsel, these cases were tried jointly before me on October 21, 1974. Two stipulations of fact dated June 27, 1974 and October 18, 1974 and a supplemental stipulation, also dated October 18, 1974, have been received. The facts recited below are taken from the stipulations unless otherwise indicated.

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a). Plaintiffs in each case are aliens. The litigation is in the nature of an interpleader action, the stakeholder being Cosmic International, Inc., formerly known as "Pak-Am, Inc.", a Delaware corporation with its principal place of business in New York City ("Cosmic"). Cosmic holds the proceeds of sales to it of jute products made in and shipped from East Pakistan and received in the United States by Cosmic in 1971. Before payment was made by Cosmic, East Pakistan declared its independence from Pakistan and became Bangladesh, which has been recognized as an independent nation by the United States.

Nishat Jute Mills, Ltd., National Bank of Pakistan, Amin Jute Mills, Ltd. and United Bank Limited (the "Pakistani plaintiffs") contend the funds should be paid to them because the goods were delivered, and the right to receive payment arose in the United States, before Bangladesh achieved independence from Pakistan and before its new government nationalized banks and jute mills and confiscated all property in Bangladesh belonging to Pakistani citizens. In addition, they claim these choses in action had no situs in Bangladesh.

Sonali Bank, Nishat Jute Mills, Ltd., Janata Bank and Amin Jute Mills, Ltd. (the "Bangladesh plaintiffs") claim the funds as successors to the Pakistani plaintiffs' property and assets under various Bangladesh nationalization orders. According to the Bangladesh plaintiffs, this Court must give effect to the nationalization orders under the act of state doctrine. The classic statement of that doctrine is found in Underhill v. Hernandez, 168 U.S. 250, 18 S.Ct. 83, 42 L.Ed. 456 (1897):

"Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory." (Emphasis added)

Courts in the United States, both state and federal, may not inquire into the legality of the taking of property without compensation of Pakistan's citizens by the Bangladesh government if that property was in Bangladesh, and under the control of the Bangladesh government at the time of the taking. This is so even if such expropriations violated international law.

Events in East Pakistan

A "Proclamation of Independence" was issued in India on April 10, 1971 declaring that East Pakistan became the sovereign state of Bangladesh on March 26, 1971. The revolution began in the Spring of 1971, but most of East Pakistan continued under the control of Pakistan until Pakistani troops surrendered on December 16, 1971.

On February 28, 1972, the new government issued the "Bangladesh Abandoned Property (Control, Management and Disposal) Order, 1972", which decreed that all property owned by citizens of a state at war with Bangladesh after March 25, 1971 (i. e., Pakistan) was vested in the government of Bangladesh. There was no provision for compensation.

On March 26, 1972, the "Bangladesh Banks (Nationalisation) Order, 1972" and the "Bangladesh Industrial Enterprises (Nationalisation) Order, 1972" declared all shares of banks and industrial companies which had not already vested in the government under any other law immediately vested in the government as sole shareholder. Compensation was limited to the paid-up value of the shares. No compensation has been paid pursuant to these orders.

Transactions Between Cosmic and Nishat

Nishat Jute Mills, Ltd., incorporated under the laws of Pakistan in 1955 ("Nishat"), operated a mill for the manufacture of jute products in East Pakistan until the mill was nationalized in 1972. A new government-owned enterprise, Bangladesh Jute Mills Corporation, took over ownership and management of the mill.

From 1967 through 1970, Cosmic sold jute carpet backing for Nishat as its exclusive sales agent in the United States and Canada. After September 1970, Cosmic purchased carpet backing pursuant to individual purchase orders. This action concerns shipments of jute carpet backing loaded aboard five vessels at Chittagong, East Pakistan, between July 23, 1971 and November 1, 1971. All of the goods, bills of lading and related documents arrived in the United States before December 16, 1971, and the merchandise was resold before that date. Between September 7, 1971 and December 3, 1971, Cosmic accepted drafts drawn on it by Nishat, obligating it to pay $97,043.50 for the five shipments. Payment was to be made in New York City between March and May, 1972, to Irving Trust Company, acting as agent for Nishat's bank, National Bank of Pakistan ("National Bank"). The money was to be credited to National Bank's head office in Karachi, Pakistan, with notice to its Dacca, East Pakistan branch office, the branch with which Nishat dealt.

At the time of these transactions, Nishat was indebted to National Bank in an amount exceeding $97,043.50. Had Cosmic paid National Bank, its Dacca office would have credited Nishat's account, reducing Nishat's indebtedness by the full amount received.

Because of the intervening events in East Pakistan and the conflicting claims of the Pakistani plaintiffs and the Bangladesh plaintiffs, Cosmic did not make payment, although it admits the debt.¹

Transactions Between Cosmic and Amin

Amin Jute Mills, Ltd. ("Amin") was incorporated under the laws of Pakistan in 1953. It had a branch office in Karachi, Pakistan, with its principal office and its only jute mill in Chittagong, East Pakistan. All shares of stock and property of Amin located in East Pakistan when the new government came into power are now vested in Bangladesh Jute Mills Corporation.

This action concerns jute and hessian cloth purchased by Cosmic from Amin for a total of $433,365.96. The goods, bills of lading and related documents arrived in the United States before December 16, 1971, and the shipments were resold by Cosmic before that date.

Irving Trust Company, acting as Trustee pursuant to seven Trust Receipts dated August 11, 1971 through December 3, 1971, was to collect the purchase price in New York City and remit it to the Karachi, Pakistan, office of United Bank Limited ("United Bank"), and notify United Bank's branch at Chittagong, East Pakistan, the branch with which Amin dealt.

At the time of these transactions, Amin was indebted to United Bank in an amount in excess of $433,365.96. According to the agreement between United Bank and Amin, these funds could be paid over to Amin or used to reduce Amin's indebtedness to the Bank, as the Bank chose.²

Cosmic was to make payment to Irving Trust Company between February and June, 1972. Again, because of the events in East Pakistan and the claims being made by the respective plaintiffs, Cosmic did not pay, but admits the debt.³

From the foregoing facts, it is clear the sales transactions were complete and all that remained was the right to receive payment, which was to be made in New York City. This right existed before December 16, 1971, the date the new Bangladesh government gained control of East Pakistan. The act of state doctrine is inapplicable because the situs of the debts was New York at the time the Bangladesh government attempted to seize them.

The Supreme Court has stated that Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428, 84 S.Ct. 923, 940, 11 L.Ed.2d 804 (1963):

"There are few if any issues in international law today on which opinion seems to be so divided as the limitations on a state's power to expropriate the property of aliens."

But the Supreme Court treated that issue as irrelevant, holding Banco Nacional, supra, at 431, 84 S.Ct. at 942:

"The act of state doctrine is applicable even if international law has been violated."

There is no question that such an expropriation is "offensive to the public policy of this country and its constituent States." Banco Nacional, supra, at 436, 84 S.Ct. at 944. New York courts are in accord on this point; see Perutz v. Bohemian Discount Bank in Liquidation, 304 N.Y. 533, 110 N.E.2d 6 (1953); Vladikavkazsky Ry. Co. v. New York Trust Co., 263 N.Y. 369, 189 N.E. 456 (1934); Gonzales v. Industrial Bank (of Cuba), 12 N.Y.2d 33, 234 N.Y.S.2d 210, 186 N.E. 2d 410 (1962).

Of the many cases in which the act of state doctrine has been discussed since Hernandez, supra, two from our Court of Appeals bear directly on the issues presented here: Republic of Iraq v. First National City Bank, 353 F.2d 47 (2d Cir. 1965), cert. denied, 382 U.S. 1027, 86 S.Ct. 648, 15 L.Ed.2d 540, and Menendez v. Saks and Company, 485 F. 2d 1355 (2d Cir. 1973), cert. granted sub...