Banco Para el Comercio Exterior de Cuba v. First Nat. City Bank
| Decision Date | 04 August 1981 |
| Docket Number | D,No. 106,106 |
| Citation | 658 F.2d 913 |
| Parties | BANCO PARA EL COMERCIO EXTERIOR DE CUBA, Plaintiff-Appellant, v. FIRST NATIONAL CITY BANK, Defendant-Appellee. ocket 80-7297. |
| Court | U.S. Court of Appeals — Second Circuit |
Victor Rabinowitz, New York City (Michael Krinsky, Judith Levin, Rabinowitz, Boudin, Standard, Krinsky, & Lieberman, New York City, on the brief), for plaintiff-appellant.
Henry Harfield, New York City (Herman E. Compter, Charles B. Manuel, Jr., Cary M. Kittle, Shearman & Sterling, New York City, on the brief), for defendant-appellee.
Before LUMBARD, VAN GRAAFEILAND, and KEARSE, Circuit Judges.
This appeal is one of six decided today 1 arising from the revolution in the Republic of Cuba in the late 1950's and the ensuing expropriation of properties owned by American companies. In this action, plaintiff-appellant Banco Para el Comercio Exterior de Cuba ("Bancec") brought suit against defendant First National City Bank ("Citibank") to recover $193,280 on an unpaid letter of credit. 2 Citibank counterclaimed, seeking dismissal of the complaint on the ground that Citibank's losses resulting from the expropriation of its assets by the Cuban government exceeded the amount of Bancec's claim. The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, ruled, in a decision reported at 505 F.Supp. 412, that Citibank's counterclaim was justiciable and could properly be asserted against Bancec, and that the value of Citibank's counterclaim exceeded the value of Bancec's claim. Accordingly the district court dismissed the complaint on its merits. Bancec has appealed, challenging the district court's decision in a number of respects. Since we find merit in the argument that Citibank's counterclaims could not properly be asserted against Bancec, we reverse and
remand for entry of an appropriate judgment in favor of Bancec in the amount of $193,280.
The events surrounding the Cuban revolution of the late 1950's have been reviewed by this Court, as well as others, on several occasions. We assume familiarity with the historical discussion in the cases set out in the margin, 3 as well as that in our decision today in Banco Nacional de Cuba v. Chase Manhattan Bank, No. 80-7375, 658 F.2d 875 (2nd Cir.) ("Chase").
Bancec was organized under the laws of the Republic of Cuba by virtue of Law No. 793 of April 25, 1960, as the successor to Banco Cubano del Comercio Exterior which had been created in 1954. Law No. 793 established Bancec as "(a)n official autonomous credit institution for foreign trade ... with full juridical capacity and capital of its own." The bank was capitalized at 6,000,000 pesos ($6,000,000), subscribed and paid for by the Republic, which transferred capital that it owned in Banco Cubana del Comercio Exterior ($3,500,000) and in Banco de Desarrollo EconEomico y Social ($2,500,000), the former bank for social and economic development. Its purposes included the encouragement of production of goods for export, the increase of exports without affecting essential national sources of supply, and the stimulation and diversification of foreign markets for Cuban products. In order to fulfill these objectives, Bancec was empowered, inter alia, "(t)o buy in the country and sell abroad all kinds of national agricultural, industrial or mining products ... (and) to finance and grant loans and advances to national concerns or organizations that produce or may produce for foreign markets," and "to engage in all manner of active banking operations." Law No. 793, Bylaws IX(b), (f). Bancec was to be run by a Governing Board and a General Manager to be appointed by the Board. The Governing Board consisted of delegates from the Ministries of Commerce and Economy, the Department of Mines and Petroleum of the Ministry of Agriculture, and the National Agrarian Reform Institute ("INRA"). Although Bancec was required to deposit its profits with the treasury of the Republic semi-annually, the Governing Board was empowered to deduct from fiscal revenues such amounts as were deemed "essential for the proper operation" of the bank.
On August 12, 1960, Bancec entered into two written agreements relevant to its present claim. It agreed to purchase a quantity of sugar from INRA, and to sell that sugar to the Cuban Canadian Sugar Company. The contract between Bancec and Cuban Canadian Sugar was supported by an irrevocable letter of credit in favor of Bancec issued by Citibank on August 18, 1960, which Bancec assigned, for collection, to Banco Nacional de Cuba ("Banco Nacional"), the central bank of Cuba which is described in greater detail in part B, infra. After a series of events not here material, Citibank was called on to pay $193,280 to Banco Nacional as Bancec's agent on the letter of credit on September 21, 1960. Citibank, whose Cuban branches had been expropriated by the Cuban government just days before, credited that amount to the account of Banco Nacional, but refused to pay it to Banco Nacional and instead applied it against the amount lost in the expropriation.
On February 1, 1961, Bancec brought this action against Citibank to recover the $193,280. 4
Citibank does not appear to dispute here the validity of Bancec's claim.
As set forth in greater detail in our opinion today in Chase, following the installation of the revolutionary Cuban government on January 1, 1959, relations between Cuba and the United States deteriorated seriously. On July 6, 1960, Cuba enacted Law No. 851 which, inter alia, authorized the President and Prime Minister of the Republic, "acting jointly through appropriate resolutions ... (to) proceed to nationalize, through forced expropriation, the properties or enterprises owned by physical and corporate persons who are nationals of the United States of North America ...." 5 Under this law Cuba nationalized numerous American-owned corporations, branches, and businesses. On September 16, 1960, under an executive order denominated "Resolution No. 2," pursuant to Law No. 851, the Cuban government expropriated and nationalized the eleven Cuban branches of Citibank. 6 Resolution No. 2 designated Banco Nacional as the instrumentality to take over these assets.
Banco Nacional, since its formation in 1948, had functioned as the central Bank of Cuba. It engaged in domestic and international banking and was the sole depository of state funds. In addition it had extensive powers both to control and protect the Cuban currency in international trade and to regulate all commercial banks operating in Cuba. Following the revolution, Banco Nacional was placed in control of the assets and businesses of all nationalized private banks.
Citibank counterclaimed against Bancec for losses resulting from the expropriation of its branches by the Cuban government, contending that Bancec was indistinguishable from the Cuban government. Alleging that its losses far exceeded the amount of Bancec's claim, Citibank sought dismissal of the complaint. It did not seek an affirmative award of damages.
A bench trial was held before the late Judge Frederick van Pelt Bryan who died before being able to render a decision. Thereafter the case, along with several companion cases, was reassigned to Judge Brieant who, upon consent of the parties, rendered a decision on the basis of the record made before Judge Bryan. Judge Brieant held that Citibank's counterclaim was justiciable and was properly asserted against Bancec. Because he found that the value of Citibank's losses far exceeded the value of Bancec's claim, judgment was entered dismissing Bancec's complaint on the merits.
On appeal, Bancec attacks the judgment of the district court in several respects. It contends, inter alia, that Bancec is not an alter ego of the Cuban government for purposes of Citibank's counterclaims, that the counterclaim, even if asserted against the proper party, is nonjusticiable under the act of state doctrine, and that Citibank's losses from the expropriations have been compensated by setoffs in prior litigation. Since we agree that the counterclaim for expropriation of the branches was not assertable against Bancec, we reverse on that ground.
Bancec's contention that Citibank's counterclaim may not be asserted against it is based on the premise that the expropriations were carried out by the Cuban government without participation by Bancec, and that Bancec was a distinct juridical entity in its own right, separate and apart from the Cuban government. It argues that the counterclaim must therefore be asserted against the Cuban government, and not against Bancec.
The district court rejected this proposition for a variety of reasons. First, it noted that all of Bancec's capital had been contributed by the Cuban government, and that Bancec had no function except to manage the export of commodities for the account of the government. Thus, it was a creature of the Cuban government, engaged in a state function. 505 F.Supp. at 425. The court stated that it saw no legal or factual basis for distinguishing between Bancec and Banco Nacional insofar as the identity of either with the Cuban government was concerned, 505 F.Supp. at 427, and found Bancec to be an alter ego of the Cuban government to the same extent and "for essentially the same reasons" as Banco Nacional was such an alter ego, id. at 423; in ruling that Banco Nacional was an alter ego of the Cuban government, 7 the district court relied on our opinion in Banco Nacional v. First National City Bank, 478 F.2d 191, 193-94 (2d Cir. 1973), as dispositive. 505 F.Supp. at 429-30. Finally, apparently recognizing that Law No. 793 had created Bancec as a separate juridical entity, the court stated that since the equities were so strongly in favor of Citibank, it would...
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