Banco Nacional Cuba v. Sabbatino, 16

Decision Date23 March 1964
Docket NumberNo. 16,16
PartiesBANCO NACIONAL de CUBA, Petitioner, v. Peter L. F. SABBATINO, etc., et al
CourtU.S. Supreme Court

[Syllabus from 399 intentionally omitted]

Victor Rabinowitz, New York City, for petitioner.

Nicholas deB. Katzenbach, Washington, D.C., for the United States, as amicus curiae, by special leave of Court.

C. Dickerman Williams, New York City, for respondent, Farr, Whitlock & Co.

Whitney North Seymour, New York City, for respondent Compania Azucarera Vertientes-Camaguey de Cuba.

Mr. Justice HARLAN delivered the opinion of the Court.

The question which brought this case here, and is now found to be the dispositive issue, is whether the so-called act of state doctrine serves to sustain petitioner's claims in this litigation. Such claims are ultimately founded on a decree of the Government of Cuba expropriating certain property, the right to the proceeds of which is here in controversy. The act of state doctrine in its traditional formulation precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.


In February and July of 1960, respondent Farr, Whitlock & Co., an American commodity broker, contracted to purchase Cuban sugar, free alongside the steamer, from a wholly owned subsidiary of Compania Azucarera Vertientes-Ca aguey de Cuba (C.A.V.), a corporation organized under Cuban law whose capital stock was owned principally by United States residents. Farr, Whitlock agreed to pay for the sugar in New York upon presentation of the shipping documents and a sight draft.

On July 6, 1960, the Congress of the United States amended the Sugar Act of 1948 to permit a presidentially directed reduction of the sugar quota for Cuba. 1 On the same day President Eisenhower exercised the granted power.2 The day of the congressional enactment, the Cuban Council of Ministers adopted 'Law No. 851,' which characterized this reduction in the Cuban sugar quota as an act of 'aggression, for political purposes' on the part of the United States, justifying the taking of countermeasures by Cuba. The law gave the Cuban President and Prime Minister discretionary power to nationalize by forced expropriation property or enterprises in which American nationals had an interest.3 Al- though a system of compensation was formally provided, the possibility of payment under it may well be deemed illusory.4 Our State Department has described the Cuban law as 'manifestly in violation of those principles of international law which have long been accepted by the free countries of the West. It is in its essence discriminatory, arbitrary and confiscatory.'5

Between August 6 and August 9, 1960, the sugar covered by the contract between Farr, Whitlock and C.A.V.6 was loaded, destined for Morocco, onto the S.S. Hornfels, which was standing offshore at the Cuban port of Jucaro (Santa Maria). On the day loading commenced, the Cuban President and Prime Minister, acting pursuant to Law No. 851, issued Executive Power Resolution No. 1. It provided for the compulsory expropriation of all property and enterprises, and of rights and interests arising therefrom, of certain listed companies, including C.A.V., wholly or principally owned by American nationals. The preamble reiterated the alleged injustice of the American reduction of the Cuban sugar quota and emphasized the importance of Cuba's serving as an example for other countries to follow 'in their struggle to free themselves from the brutal claws of Imperialism.'7 In consequence of the resolution, the consent of the Cuban Government was necessary before a ship carrying sugar of a named company could leave Cuban waters. In order to obtain this consent, Farr, Whitlock, on August 11, entered into contracts, identical to those it had made with C.A.V with the Banco Para el Comercio Exterior de Cuba, an instrumentality of the Cuban Government. The S.S. Hornfels sailed for Morocco on August 12.

Banco Exterior assigned the bills of lading to petitioner, also an instrumentality of the Cuban Government, which instructed its agent in New York, Societe Generale, to deliver the bills and a sight draft in the sum of $175,250.69 to Farr, Whitlock in return for payment. Societe Generale's initial tender of the documents was refused by Farr, Whitlock, which on the same day was notified of C.A.V.'s claim that as rightful owner of the sugar it was entitled to the proceeds. In return for a promise not to turn the funds over to petitioner or its agent, C.A.V. agreed to indemnify Farr, Whitlock for any loss.8 Farr, Whitlock subsequently accepted the shipping documents, negotiated the bills of lading to its customer, and received payment for the sugar. It refused, however, to hand over the proceeds to Societe Generale. Shortly thereafter, Farr, Whitlock was served with an order of the New York Supreme Court, which had appointed Sabbatino as Temporary Receiver of C.A.V.'s New York assets, enjoining it from taking any action in regard to the money claimed by C.A.V. that might result in its removal from the State. Following this, Farr, Whitlock, pursuant to court order, transferred the funds to Sabbatino, to abide the event of a judicial determination as to their ownership.

Petitioner then instituted this action in the Federal District Court for the Southern District of New York. Alleging conversion of the bills of lading it sought to recover the proceeds thereof from Farr, Whitlock and to enjoin the receiver from exercising any dominion over such proceeds. Upon motions to dismiss and for summary judgment, the District Court, 193 F.Supp. 375, sustained federal in personam jurisdiction despite state control of the funds. It found that the sugar was located within Cuban territory at the time of expropriation and determined that under merchant law common to civilized countries Farr, Whitlock could not have asserted ownership of the sugar against C.A.V. before making payment. It concluded that C.A.V. had a property interest in the sugar subject to the territorial jurisdiction of Cuba. The court then dealt with the question of Cuba's title to the sugar, on which rested petitioner's claim of conversion. While acknowledging the continuing vitality of the act of state doctrine, the court believed it inapplicable when the questioned foreign act is in violation of international law. Proceeding on the basis that a taking invalid under international law does not convey good title, the District Court found the Cuban expropriation decree to violate such law n three separate respects: it was motivated by a retaliatory and not a public purpose; it discriminated against American nationals; and it failed to provide adequate compensation. Summary judgment against petitioner was accordingly granted.

The Court of Appeals, 307 F.2d 845, affirming the decision on similar grounds, relied on two letters (not before the District Court) written by State Department officers which it took as evidence that the Executive Branch had no objection to a judicial testing of the Cuban decree's validity. The court was unwilling to declare that any one of the infirmities found by the District Court rendered the taking invalid under international law, but was satisfied that in combination they had that effect. We granted certiorari because the issues involved bear importantly on the conduct of the country's foreign relations and more particularly on the proper role of the Judicial Branch in this sensitive area. 372 U.S. 905, 83 S.Ct. 717, 9 L.Ed.2d 715. For reasons to follow we decide that the judgment below must be reversed.

Subsequent to the decision of the Court of Appeals, the C.A.V. receivership was terminated by the State Supreme Court; the funds in question were placed in escrow, pending the outcome of this suit. C.A.V. has moved in this Court to be substituted as a party in the place of Sabbatino. Although it is true that Sabbatino's defensive interest in this litigation has largely, if not entirely, reflected that of C.A.V., this is true also of Farr, Whitlock's position. There is no indication that Farr, Whitlock has not adequately represented C.A.V.'s interest or that it will not continue to do so. Moreover, insofar as disposition of the case here is concerned, C.A.V. has been permitted as amicus to brief and argue its position before this Court. In these circumstances we are not persuaded that the admission of C.A.V. as a party is necessary at this stage to safeguard any claim either that it has already presented or that it may present in the future course of this litigation. Accordingly, we are constrained to deny C.A.V.'s motion to be admitted as a party,9 without prejudice however to the renewal of such a motion in the lower courts if it appears that C.A.V.'s interests are not adequately represented by Farr, Whitlock and that the granting of such a motion will not disturb federal jurisdiction. Cf. Strawbridge v. Curtiss, 3 Cranch 267, 2 L.Ed. 435; City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, at 69, 62 S.Ct. 15, at 16, 86 L.Ed. 47; Ex parte Edelstein, 2 Cir., 30 F.2d 636, at 638.

Before considering the holding below with respect to the act of state doctrine, we must deal with narrower grounds urged for dismissal of the action or for a judgment on the merits in favor of respondents.


It is first contended that this petitioner, an instrumentality of the Cuban Government, should be denied access to American courts because Cuba is an unfriendly power and does not permit nationals of this country to obtain relief in its courts. Even though the respondents did not raise this point in the lower courts we think it should be considered here. If the courts of this country should be closed to the government of a foreign state, the underlying reason is one of national policy transcending the interests of the parties to the action, and this Court should give...

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