Allied Bank Intern. v. Banco Credito Agricola de Cartago

• Decision Date: 18 March 1985
• Docket Number: No. 225,225
• Citation: 757 F.2d 516
• Parties: ALLIED BANK INTERNATIONAL, For Itself and As Agent For American Fletcher National Bank, American Fletcher Bank (Suisse) A.G., Atlantic International Bank, Banco Exterior De Espana, Banco De Madrid, Bank of Miami, Intercontinental Bank of Miami Beach, Bank of Montreal, Bank of New Orleans, Bank of Virginia International, Bayerische Vereins-bank Int'l, S.A., Bayerische Vereinsbank, A.G., Bremar Holdings Limited, Cleveland Trust Company, Columbia Union National Bank, Credit Lyonnais, Deutsche Bank A.G., Export-Import Bank of the United States, Federal Deposit Insurance Corp., Fidelity National Bank of South Miami, Fidelity Union Trust Company, First Commercial Bank of Taiwan, First National Bank of Fort Worth, First National City Bank (Interamerica), First Pennsylvania Bank, N.A., Hartford National Bank, International Commercial Bank of China, Irving Inter-American Bank, Irving Trust Company, Kyowa Bank Limited, National Westminster Bank Ltd., Overseas Investors Inc., the Royal Bank of Canada, the Sanwa Bank Limited, Equibank N.A., Southeast First National Bank of Miami, Stockholms Sparbank, and United California Bank, Plaintiffs, Allied Bank International, Plaintiff-Appellant, v. BANCO CREDITO AGRICOLA DE CARTAGO, Banco Anglo Costarricense and Banco Nacional De Costa Rica, Defendants-Appellees. ; Docket 83-7714.
• Court: U.S. Court of Appeals — Second Circuit

Page 516

757 F.2d 516

77 A.L.R.Fed. 281

ALLIED BANK INTERNATIONAL, For Itself and As Agent For American Fletcher National Bank, American Fletcher Bank (Suisse) A.G., Atlantic International Bank, Banco Exterior De Espana, Banco De Madrid, Bank of Miami, Intercontinental Bank of Miami Beach, Bank of Montreal, Bank of New Orleans Bank of Virginia International, Bayerische Vereins-bank Int'l, S.A., Bayerische Vereinsbank, A.G., Bremar Holdings Limited, Cleveland Trust Company, Columbia Union National Bank, Credit Lyonnais, Deutsche Bank A.G., Export-Import Bank of the United States, Federal Deposit Insurance Corp Fidelity National Bank of South Miami, Fidelity Union Trust Company, First Commercial Bank of Taiwan, First National Bank of Fort Worth, First National City Bank (Interamerica) First Pennsylvania Bank, N.A., Hartford National Bank International Commercial Bank of China, Irving Inter-American Bank, Irving Trust Company, Kyowa Bank Limited, National Westminster Bank Ltd., Overseas Investors Inc., the Royal Bank of Canada, the Sanwa Bank Limited, Equibank N.A., Southeast First National Bank of Miami, Stockholms Sparbank, and United California Bank, Plaintiffs, Allied Bank International, Plaintiff-Appellant, v. BANCO CREDITO AGRICOLA DE CARTAGO, Banco Anglo Costarricense and Banco Nacional De Costa Rica, Defendants-Appellees.

No. 225; Docket 83-7714.

United States Court of Appeals, Second Circuit.

Argued Oct. 17, 1984.

Decided March 18, 1985.

Robert B. McKay, New York City (Salvatore A. Ranieri, Michael S. Allen, Santora, McKay & Ranieri, New York City, of counsel), for plaintiff-appellant.

Jeffrey Barist, New York City (James B. Hurlock, Robert M. Kelly, F. Ellen Zeifer, Owen C. Pell, White & Case, New York City, of counsel), for defendants-appellees.

John L. Warden, H. Rodgin Cohen, Michael Straus, Steven H. Reisberg, Sullivan & Cromwell, New York City, for amicus curiae The New York Clearing House Association.

John M. Rogers, Dept. of Justice, Civil Div., Washington, D.C. (Richard K. Willard, Acting Asst. Atty. Gen., Robert E. Kopp, Dept. of Justice, David H. Small, Asst. Legal Adviser for Economic & Business Affairs, Harold G. Maier, Counselor on International Law, James V. Hackney, Jane P. Dana, Attorney-Advisers, Dept. of State, Margery Waxman, Acting Gen. Counsel, Ricki Rhodarmer Tigert, Sr. Counsel for International Finance, Dept. of the Treasury, Michael Bradfield, Gen. Counsel, Nancy P. Jacklin, Asst. Gen. Counsel, Board of Governors of the Federal Reserve System, Washington, D.C., of counsel), for the United States as amicus curiae.

Monroe Leigh, Cecil J. Olmstead, Timothy B. Atkeson, Alice L. Mattice, Steptoe & Johnson, Washington, D.C., for The Rule of Law Committee and The National Foreign Trade Council, Inc. as amici curiae.

Before MESKILL and PIERCE, Circuit Judges, and METZNER, ^* District Judge.

ON REHEARING

MESKILL, Circuit Judge:

This matter is before us on rehearing. We vacate our previous decision dated April 23, 1984. We reverse the dismissal of the cause by the United States District Court for the Southern District of New York, Griesa, J. We also reverse the district court's denial of plaintiff-appellant Allied Bank International's (Allied) motion for summary judgment. Both district court rulings were predicated solely on the act of state doctrine. Because that doctrine is not applicable, we remand to the district court for entry of summary judgment for Allied.

I

Allied is the agent for a syndicate of thirty-nine creditor banks. Defendants-appellees are three Costa Rican banks that are wholly owned by the Republic of Costa Rica and subject to the direct control of the Central Bank of Costa Rica (Central Bank). Allied brought this action in February 1982 to recover on promissory notes issued by the Costa Rican banks. ¹ The notes, which were in default, were payable in United States dollars in New York City. The parties' agreements acknowledged that the obligations were registered with Central Bank which was supposed to provide the necessary dollars for payment.

The defaults were due solely to actions of the Costa Rican government. In July 1981, in response to escalating national economic problems, Central Bank issued regulations which essentially suspended all external debt payments. In November 1981, the government issued an executive decree which conditioned all payments of external debt on express approval from Central Bank. Central Bank subsequently refused to authorize any foreign debt payments in United States dollars, thus precluding payment on the notes here at issue. In accordance with the provisions of the agreements, Allied accelerated the debt and sued for the full amount of principal and interest outstanding.

The Costa Rican banks moved the district court to dismiss the complaint, claiming lack of subject matter jurisdiction due to sovereign immunity, lack of in personam jurisdiction and insufficiency of process and service. Allied moved for summary judgment. The sole defense raised by appellees in response was the act of state doctrine.

The district court denied all of the motions. 566 F.Supp. 1440 (S.D.N.Y.1983). Reasoning that a judicial determination contrary to the Costa Rican directives could embarrass the United States government in its relations with the Costa Rican government, the court held that the act of state doctrine barred entry of summary judgment for Allied.

While the action was still pending before the district court, the parties began to negotiate a rescheduling of the debt. In July 1982, the suit was dismissed by agreement after the parties stipulated that no issues of fact remained with respect to the act of state doctrine issue. In September 1983, appellees, Central Bank and the Republic of Costa Rica signed a refinancing agreement with the coordinating agent for Costa Rica's external creditors. Fidelity Union Trust Company of New Jersey, one of the members of the Allied syndicate, did not accept the agreement. On behalf of Fidelity, the only creditor that refused to participate in the restructuring, Allied has prosecuted this appeal. The refinancing went into effect nonetheless and appellees have been making payments to the remaining thirty-eight members of the syndicate.

II

In our previous decision, we affirmed the district court's dismissal. We did not address the question of whether the act of state doctrine applied because we determined that the actions of the Costa Rican government which precipitated the default of the Costa Rican banks were fully consistent with the law and policy of the United States. We therefore concluded that principles of comity compelled us to recognize as valid the Costa Rican directives.

Our interpretation of United States policy, however, arose primarily from our belief that the legislative and executive branches of our government fully supported Costa Rica's actions and all of the economic ramifications. On rehearing, the Executive Branch of the United States joined this litigation as amicus curiae and respectfully disputed our reasoning. The Justice Department brief gave the following explanation of our government's support for the debt resolution procedure that operates through the auspices of the International Monetary Fund (IMF). Guided by the IMF, this long established approach encourages the cooperative adjustment of international debt problems. The entire strategy is grounded in the understanding that, while parties may agree to renegotiate conditions of payment, the underlying obligations to pay nevertheless remain valid and enforceable. Costa Rica's attempted unilateral restructuring of private obligations, the United States contends, was inconsistent with this system of international cooperation and negotiation and thus inconsistent with United States policy.

The United States government further explains that its position on private international debt is not inconsistent with either its own willingness to restructure Costa Rica's intergovernmental obligations or with continued United States aid to the economically distressed Central American country. Our previous conclusion that the Costa Rican decrees were consistent with United States policy was premised on these two circumstances.

In light of the government's elucidation of its position, we believe that our earlier interpretation of United States policy was wrong. Nevertheless, if, as Judge Griesa held, the act of state doctrine applies, it precludes judicial examination of the Costa Rican decrees. Thus we must first consider that question.

III

The act of state doctrine operates to confer presumptive validity on certain acts of foreign sovereigns by rendering non-justiciable claims that challenge such acts. The judicially created doctrine is not jurisdictional; it is "a rule of decision under which an act meeting the definition ... is binding on the court." Restatement (Revised) of Foreign Relations Law Sec. 428 comment c (Tent. Draft No. 4, 1983); Empresa Cubana Exportadora de Azucar y Sus Derivados v. Lamborn & Co., 652 F.2d 231, 239 (2d Cir.1981). The applicability of the doctrine is purely a matter of federal law. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427, 84 S.Ct. 923, 939, 11 L.Ed.2d 804 (1964).

The classic statement of the doctrine was delivered in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 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. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

The modern formulation derives from the Supreme Court's opinion in Sabbatino :

[R]ather than laying down or reaffirming an inflexible and all-encompassing rule in this case, we decide only that the Judicial Branch will...