Banco Nacional de Cuba v. Farr

• Citation: 383 F.2d 166
• Decision Date: 31 July 1967
• Docket Number: No. 59,Docket 30341.,59
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Parties: BANCO NACIONAL de CUBA, Plaintiff-Appellant, v. F. Shelton FARR, William F. Prescott, Emmet Whitlock, Lawrence H. Dixon, H. Bartow Farr, Elizabeth C. Prescott, Fabio Freyre and Helen G. Downs, copartners doing business as Farr, Whitlock & Co., Defendants and 3rd-Party Plaintiffs-Appellees, v. COMPANIA AZUCARERA VERTIENTES-CAMAGUEY de CUBA and Lehman Brothers, 3rd-Party Defendants-Appellees.

383 F.2d 166 (1967)

BANCO NACIONAL de CUBA, Plaintiff-Appellant, v. F. Shelton FARR, William F. Prescott, Emmet Whitlock, Lawrence H. Dixon, H. Bartow Farr, Elizabeth C. Prescott, Fabio Freyre and Helen G. Downs, copartners doing business as Farr, Whitlock & Co., Defendants and 3rd-Party Plaintiffs-Appellees, v. COMPANIA AZUCARERA VERTIENTES-CAMAGUEY de CUBA and Lehman Brothers, 3rd-Party Defendants-Appellees.

No. 59, Docket 30341.

United States Court of Appeals Second Circuit.

Argued November 14, 1966.

Decided July 31, 1967.

COPYRIGHT MATERIAL OMITTED

Victor Rabinowitz, Leonard B. Boudin, Rabinowitz & Boudin, New York City (P. Kent Spriggs, New York City, on the brief), for plaintiff-appellant.

C. Dickerman Williams, Harold d'O. Baker, Baker, Nelson, Williams & Mitchell, New York City, for defendants and third-party plaintiffs-appellees.

Whitney North Seymour, Sr., Eastman Birkett, John A. Guzzetta, Gerald M. Levin, Simpson, Thacher & Bartlett, New York City, for third-party defendants-appellees.

Arthur H. Dean, New York City, Erwin N. Griswold, Cambridge, Mass., Max Chopnick, G. W. Haight, Doris Carroll, Benjamin Busch, New York City, for amicus curiae, The American Bar Association.

Peter J. Kooiman, George W. Haight, New York City, John G. Laylin, Monroe Leigh, Washington, D. C., Myres S. McDougal, New Haven, Conn., Cecil J. Olmstead, New York City, William A. Dobrovir, Washington, D. C., for Amicus Curiae, the Executive Committee of the American Branch of the International Law Association.

Before WATERMAN, MOORE and HAYS, Circuit Judges.

WATERMAN, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the Southern District of New York dismissing the appellant's complaint and the defendant's complaint against impleaded third parties. This litigation has been the subject of three much-discussed previous opinions. In the original hearing of the action before the district court summary judgment was granted in favor of the defendants, D.C., 193 F.Supp. 375 (1961). This disposition was affirmed by this court (307 F.2d 845 (1962)), but reversed by the Supreme Court, Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964). The facts have been fully stated in these opinions, see e.g., the opinion of Mr. Justice Harlan for the Court, 376 U.S. 398 at 401-408, 84 S.Ct. 923. On remand the district court has again ruled in favor of the defendants in an opinion reported at 243 F.Supp. 957 (July 30, 1965), later supplemented by opinion of November 16, 1965, 272 F.Supp. 836, at the time judgment was entered.

This action, which has served as the test case¹ for litigation concerning Cuban expropriations, involves the disposition of the proceeds of the sale of a cargo of sugar which was expropriated by the Castro government while the cargo was in Cuban territorial waters.

During February and July of 1960 appellee Farr, Whitlock & Co. (a copartnership hereinafter referred to as Farr, Whitlock) an American commodity broker, contracted with a wholly-owned Cuban subsidiary of appellee Compania Azucarera Vertientes-Camaguey de Cuba (C. A. V.) for the purchase of Cuban sugar. The sugar was to be delivered free alongside the steamer in Cuba, and payment was to be made in New York by Farr, Whitlock upon presentation of shipping documents and a sight draft.

Pursuant to the contracts, 22,000 bags of sugar were loaded on board the German vessel S.S. Hornfels which was standing offshore at the Cuban port of Jucaro. The loading took place between August 6 and August 9, 1960. On August 6, 1960 the Cuban government passed a resolution² providing for the compulsory expropriation of all property located within Cuban territory of appellee C. A. V., a corporation organized under Cuban law but owned to the extent of more than ninety per cent of its capital stock by residents of the United States. As a result of the resolution the consent of the Cuban government was necessary before the S.S. Hornfels was allowed to sail from Cuban waters. This consent was obtained on August 11 when Farr, Whitlock entered into contracts identical to its prior contracts with the subsidiary of C. A. V. with Banco Para el Commercio Exterior de Cuba (Banco Exterior), an instrumentality of the Cuban government. On August 12 the S.S. Hornfels sailed to Morocco with its cargo of sugar.

Banco Exterior assigned the bills of lading to appellant Banco Nacional de Cuba (Banco Nacional), the financial agent of the Cuban government. Banco Nacional sent them to Societe Generale, a French bank which acted as its New York agent, for presentation to Farr, Whitlock in New York. Farr, Whitlock gained possession of the bills of lading on August 29, 1960 without making payment upon presentation. The funds were claimed from Farr, Whitlock on behalf of C. A. V.,³ and Farr, Whitlock for this reason refused to make payment to Societe Generale or to return the bills of lading.

The present action was commenced by Banco Nacional in the United States District Court for the Southern District of New York on October 10, 1960, alleging that Farr, Whitlock had converted the bills of lading by its refusal to return them or to pay over their proceeds to Societe Generale. On October 24, 1960, pursuant to an order of the New York Supreme Court, Kings County, Farr, Whitlock transferred the proceeds of the bills of lading, a total of $173,936.31, to a New York court appointed Temporary Receiver, Sabbatino. The complaint in the present action was amended on October 31, 1960 to include Sabbatino as a defendant.

On March 31, 1961 the district court, acting on various motions of the parties before it, held that it had jurisdiction over the subject matter of the action despite state court control of the funds at issue. It granted summary judgment for the defendants, holding that the taking of the sugar by the Cuban government violated international law in three respects: it was motivated by a retaliatory purpose, not a legitimate public purpose; it discriminated against nationals of the United States; and it failed to provide adequate compensation for the property taken; and inasmuch as the taking violated international law, Cuba did not acquire good title to the sugar upon which to base its claim of conversion.

We affirmed this judgment on July 6, 1962, holding that the failure of the Cuban government to pay adequate compensation to C. A. V. for the taking of its property, combined with the evident retaliatory purpose and the discriminatory effect of the taking upon the rights of American nationals, constituted a violation of international law. We rejected, just as the district court had previously rejected, the appellant's contention that the act of state doctrine applied to this case; and we based in part our conclusion on two letters written by State Department officers evidencing the fact that the Executive Branch had no objection to a judicial determination of the merits of the controversy.

The Supreme Court granted certiorari, 372 U.S. 905, 83 S.Ct. 717, 9 L.Ed.2d 715 (1963), and reversed us on March 23, 1964, 376 U.S. 398, 84 S.Ct. 923, 11 L. Ed.2d 804. The Court held that the act of state doctrine did apply to this case, and therefore the courts of the United States were prevented from examining the validity of the acts of the Cuban government under international law "in the absence of a treaty or other unambiguous agreement regarding controlling legal principles * * *." 376 U.S. at 428, 84 S.Ct. at 941. The Court declared that the act of state doctrine had "`constitutional' underpinnings" arising out of the "basic relationships between branches of government in a system of separation of powers." 376 U.S. at 423, 84 S.Ct. at 938.⁴ The Court did not reach the issue of whether the taking in this case violated international law. See 376 U.S. at 433, 84 S.Ct. 923. It remanded the case to the district court to hear and decide any litigable issues of fact which might develop and for "proceedings consistent with this opinion." 376 U.S. at 439, 84 S.Ct. at 946.

On March 28, 1963, one year before the decision of the Supreme Court was handed down, Banco Nacional, Farr, Whitlock, C. A. V., and Sabbatino agreed that Lehman Brothers would hold a sum of money in escrow to satisfy the final judgment in this case, and Sabbatino transferred $225,000 to Lehman Brothers for this purpose. The agreement also provided that C. A. V. would indemnify Farr, Whitlock for any excess of any judgment against it over the amount in the escrow fund. Thereafter the New York state Temporary Receivership was terminated by order of the New York Supreme Court and Sabbatino was eliminated as a party to this case by a stipulation of the parties.

After this case was remanded to the district court appellant moved for final judgment in its favor but judgment was not entered due to a miscellany of complications, see 243 F.Supp. 957, at 961-962, and while the proceedings relative to the entry of judgment on remand were pending the Hickenlooper Amendment⁵ was enacted into law on October 7, 1964. It provided:

Notwithstanding any other provision of law, no court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other right is asserted by any party including a foreign state (or a party claiming through such state) based upon (or traced through) a confiscation or other taking after January 1, 1959, by an act of that state in violation of the principles of international law, including the principles of compensation and the other standards set out in this subsection: Provided, That this subparagraph shall not be applicable (1) in any case in which an act of a foreign state is not contrary to international law or with respect to a claim of title or other right acquired pursuant to an irrevocable

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