Dean Witter Reynolds, Inc. v. Fernandez

• Citation: 741 F.2d 355
• Decision Date: 10 September 1984
• Docket Number: No. 82-6152,82-6152
• Parties: DEAN WITTER REYNOLDS, INC., Plaintiff, v. Marilyn Kay FERNANDEZ, etc., et al., Defendants, Banco Nacional De Cuba, et al., Defendants-Cross-Claimants-Appellees, Gilbert McDonald, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 355

741 F.2d 355

DEAN WITTER REYNOLDS, INC., Plaintiff, v. Marilyn Kay FERNANDEZ, etc., et al., Defendants, Banco Nacional De Cuba, et al., Defendants-Cross-Claimants-Appellees, Gilbert McDonald, Defendant-Appellant.

No. 82-6152.

United States Court of Appeals, Eleventh Circuit.

Sept. 10, 1984.

Philip Glatzer, Coconut Grove, Fla., for defendant-appellant.

Michael Krinsky, Rabinowits, Boudin, Standard, Krinsky & Lieberman, New York City, for defendants-cross-claimants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and CLARK, Circuit Judges, and GOLDBERG ^*, Senior Circuit Judge.

CLARK, Circuit Judge:

Appellant, Gilbert McDonald, appeals from a final judgment entered November 2, 1982, awarding two Cuban government corporations, Banco Nacional de Cuba and Empresa Cubana Exportadora de Alimentos y Productos Varios (hereinafter "CUBAEXPORT"), a judgment in the sum of $1,334,250 against McDonald and dismissing his counterclaim. The district court had previously granted the Cuban parties' motion for summary judgment on the ground that McDonald had been unjustly enriched by receipt of his portion of the proceeds of a fraud committed against the Cuban parties. On appeal, McDonald argues that the Cuban parties' failure to comply with the Cuban Assets Control Regulations ¹ and obtain authorization to sue from the United States Department of Treasury prior to commencing the action deprived the district court of subject matter jurisdiction and, therefore, the judgment is void. ² We have jurisdiction. 28 U.S.C. Sec. 1291 (1982).

I.

A.

In an effort to stifle Cuban efforts to destabilize governments in the Western Hemisphere, the President, on July 8, 1963 issued the Cuban Assets Control Regulations (hereinafter "Regulations"). The Regulations, originally promulgated pursuant to Sec. 5(b) of the Trading With the Enemy Act ³ (TWEA) but now authorized by the International Emergency Economic Powers Act of 1976, ⁴ prohibit all unlicensed financial and commercial transactions with Cuba or Cuban nationals. ⁵ A "transaction" generally includes "[a]ny payment or transfer" of property to Cuba or a national thereof. ⁶ More specifically, a "transfer" includes "the issuance, docketing, filing, or the levy of or under any judgment, decree, attachment, execution, or other judicial or administrative process or order." ⁷

The Regulations, in connection with Sec. 5(b) of the TWEA, ⁸ make it unlawful to effect any of the described transactions unless a license authorizing the transaction has been issued by the Office of Foreign Assets Control acting on behalf of the Secretary of the Treasury or by the Federal Reserve Bank of New York. ⁹ Licenses can be either general or specific. A general license authorizes a broad class of transactions which the Regulations would otherwise prohibit. All general licenses are set forth in Subpart E. ¹⁰ A specific license authorizes an individual transaction not authorized by a general license. ¹¹ Any person having an interest in a transaction or proposed transaction may apply for a specific license. ¹² The Office of Foreign Assets Control considers applications on an individual basis and advises each applicant of its decision. The decision to approve or disapprove the application constitutes final agency action. ¹³

B.

On January 10, 1979, Dean Witter Reynolds, Inc. (hereinafter "Reynolds"), a brokerage firm, filed a complaint in interpleader naming Banco Nacional de Cuba and CUBAEXPORT as defendants along with Karl Fessler and others. Banco Nacional de Cuba and CUBAEXPORT are wholly owned corporations of the Government of Cuba with offices in Havana, Cuba.

Reynolds alleged that the defendants had made conflicting claims to the funds and securities standing in Fessler's name on its books and that it was unable to determine to whom the funds and property were due and payable. In a February 9, 1978 order, the district court found that Reynolds' complaint stated a proper claim for interpleader and that the court had jurisdiction over the action. On October 15, 1979, the court ordered Reynolds to use the balance in Fessler's cash credit account to purchase shares in a money market fund in the names of the Clerk of the United States District Court for the Southern District of New York and Karl Fessler, and to deliver the money market shares and the other securities held by it for Fessler's Reynolds account to the Clerk of the Court. The Clerk was ordered to maintain same and all dividends resulting therefrom in his custody subject to further order of the court.

In response to the February 9, 1978 order, Banco Nacional de Cuba and CUBAEXPORT, jointly, and Karl Fessler filed claims to the fund; none of the other parties did. The Cuban parties also filed a cross-claim against the defendants Fessler and Tanvest, N.V., naming Peter Franklin Paul and the appellant here, Gilbert McDonald, as additional defendants. On December 10, 1979, the court denied the motions of Paul and McDonald to dismiss the cross-claims for want of jurisdiction and other grounds. 489 F.Supp. 434.

The same allegations of fact and law supported the Cuban parties' claim to the interpleaded fund and their cross-claim. Banco Nacional de Cuba and CUBAEXPORT alleged that McDonald, Fessler and Paul, together with others, successfully defrauded them of the proceeds of a letter of credit in the sum of $8,775,000. In essence, they alleged that the defendants on the cross-claim, knowing and intending that there would be no shipment of coffee, induced CUBAEXPORT to enter into a purchase contract which provided for payment of the coffee in advance of delivery. They further alleged that these defendants induced Banco Nacional de Cuba to issue a letter of credit at the request of its customer, CUBAEXPORT, for the payment of the purchase price of the coffee upon presentation of documents manifesting that the coffee had been loaded on board a vessel in a port of the Dominican Republic bound for Havana, Cuba; that they knowingly caused documents to be presented under the letter of credit falsely representing that the coffee had been loaded as required by the contract and the letter of credit; and they thereby induced Banco Nacional de Cuba through its agent to issue the letter of credit in the sum of $8,775,000. ¹⁴

McDonald asserted a counterclaim alleging that the Cuban parties had tortiously caused Banco de Iberoamerica of Panama City, Panama, to deliver to them a $700,000 certificate of deposit owned by McDonald. On January 24, 1980, the Cuban parties filed a reply alleging that the certificate of deposit had been delivered to them by order of the Attorney General of Panama. They maintained that the act of state doctrine barred a court of the United States from entertaining the counterclaim in those circumstances and, further, that they were not liable as a matter of substantive law even if the merits of the counterclaim were reached.

On February 23, 1982, the Cuban parties filed a motion for summary judgment. On October 1, 1982, the district court granted the motion, concluding that Banco Nacional de Cuba and CUBAEXPORT were entitled to summary judgment against McDonald and Fessler on the theory of unjust enrichment ¹⁵ and that McDonald's counterclaim was without merit. Accordingly, the court ordered that the Cuban parties have judgment against McDonald for the sum of $1,334,250, this amount being equal to the portion of the letter of credit proceeds McDonald had obtained. With regard to Fessler, the court awarded a constructive trust in favor of Banco Nacional de Cuba and CUBAEXPORT over property within the jurisdiction traceable to the letter of credit proceeds, viz. the interpleaded fund and certain other tangible property. In addition, the court awarded judgment against Fessler in the sum of $276,396, that amount being equal to the portion of the proceeds received by Fessler which he had not invested in the brokerage account or tangible property within the jurisdiction. On November 2, 1982, the court entered a final judgment consistent with its disposition of summary judgment. McDonald filed a notice of appeal on November 24, 1982.

Subsequently, appellees apparently became concerned over the lack of Treasury Department authorization of their actions in the U.S. District Court. Probably out of an abundance of caution, on April 22, 1983, appellees' counsel contacted by letter the Office of Foreign Assets Control, requesting that a license be issued with respect to the action captioned Dean Witter Reynolds v. Fernandez v. McDonald & Paul, No. 79-112 CIV-CA (S.D.Fla.). On May 12, 1983, the office issued license No. C-10024, authorizing the following:

All transactions relating to the prosecution of the Reynolds case up to and including entry of final judgment, provided that any monies or funds awarded to Cuba or a Cuban national must be deposited into an interest-bearing account in a domestic bank, with such account designated as blocked pursuant to the Cuban Assets Control Regulations, and further provided that any other property or assets awarded to Cuba or a Cuban national must be maintained in a blocked status pursuant to the Cuban Assets Control Regulations. (italics original).

The license further provided that the authorization extends "retroactive[ly] to the date of the filing of the Reynolds action [i.e., January 10, 1979]."

Appellant raised no challenge to the jurisdiction of the district court based on the absence of a license issued prior to filing suit until the case reached this court.

II.

This appeal presents both important substantive and procedural issues. The substantive question presented is whether a Cuban national must obtain a license pursuant to the Cuban Assets Control Regulations before initiating an in personam lawsuit in a U.S. court. The threshold procedural question is whether this question can be raised for the first time on appeal.

In...