Banco Nacional de Cuba v. First National City Bank of NY

• Decision Date: 16 July 1970
• Docket Number: No. 480 and 481,Dockets 32533 and 33864.,480 and 481
• Citation: 431 F.2d 394
• Parties: BANCO NACIONAL de CUBA, Appellant, v. The FIRST NATIONAL CITY BANK OF NEW YORK, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

431 F.2d 394 (1970)

BANCO NACIONAL de CUBA, Appellant, v. The FIRST NATIONAL CITY BANK OF NEW YORK, Appellee.

Nos. 480 and 481, Dockets 32533 and 33864.

United States Court of Appeals, Second Circuit.

Argued March 23, 1970.

Decided July 16, 1970.

Victor Rabinowitz, New York City (Rabinowitz, Boudin & Standard, Leonard B. Boudin, and Kristin Booth Glen, New York City, on the brief), for appellant.

Henry Harfield, New York City (Shearman & Sterling, Wm. Harvey Reeves, and John J. Madden, Jr., New York City, on the brief), for appellee.

Walter J. Neylon, New York City, on the brief, for Alicio Ruiz Martinez, Sr., and others, intervenors.

Before LUMBARD, Chief Judge, HAYS, Circuit Judge, and BLUMENFELD, District Judge.^*

LUMBARD, Chief Judge:

Plaintiff-appellant Banco Nacional de Cuba appeals from an order of the District Court for the Southern District of New York which granted summary judgment to defendant-appellee First National City Bank of New York (First National City) on Banco Nacional's two causes of action. Appellant has abandoned the second cause of action on this appeal, and thus only the first cause of action, which is based on the following facts, is before us on this appeal. First National City, when the Castro government of Cuba expropriated its properties there, forthwith sold collateral securing a loan it had made to Banco Nacional prior to the change in Cuba's government. The effect of Judge Bryan's order was to allow First National City to retain, as an offset against the value of its expropriated properties, the amount by which the proceeds from the sale of the collateral exceeded the amount then owing on the loan. We hold that allowing such an offset was error. The socalled Hickenlooper Amendment does not give to a lender such as First National City the right to apply assets under its control to recoup losses it has suffered by expropriation of its properties in Cuba. Accordingly, we reverse and remand to the district court for a factual finding as to the amount of the excess. Once this factual determination is made, we direct entry of summary judgment in favor of Banco Nacional on its first cause of action.

I.

On July 8, 1958, First National City made a fifteen million dollar secured loan to Banco de Desarrallo Economico y Social (Bandes), a corporate agency of the government of the Republic of Cuba. Collateral for the loan was pledged by Banco Nacional de Cuba (Banco Nacional) and another Cuban government agency, Fondo de Estabilizacion de la Moneda (Fondo); this security was held in New York and consisted of bonds of the United States government and obligations of the International Bank of Reconstruction and Development.

The Castro forces seized control of the government of Cuba on January 1, 1959. Thereafter, on July 8, 1959, First National City renewed the fifteen million dollar loan to Bandes for another year. During the course of the ensuing year, two Cuban laws went into effect which resulted in the dissolution of Bandes and the succession by Banco Nacional to many of its rights and obligations, including the obligation to repay the fifteen million dollars, plus interest, to First National City. The Republic of Cuba also guaranteed that the loan would be repaid.¹

First National City and Banco Nacional renegotiated the loan for the second time on July 7, 1960. Banco Nacional repaid one-third of the loan — five million dollars — and First National City released approximately one-third of the collateral. At Banco Nacional's request, First National City agreed not to demand repayment of the ten million dollar balance for one year.

On September 16, 1960, the Cuban militia occupied the eleven First National City branch offices in Cuba. Executive Power Resolution No. 2, issued by the Castro government the following day, formally confirmed that the branches had in fact been nationalized.²

First National City retaliated almost immediately. On September 20, 1960, it notified Banco Nacional that it had closed Banco Nacional's accounts as of September 17 and that it was claiming the amounts on deposit therein as an offset against the nationalization of its properties in Cuba.³ What is more important to the present appeal, on September 21 and 22, 1960, First National City sold the collateral held in New York as security on the ten million dollar loan. First National City received from that sale an amount — conceded to be at least $11,892,448 and perhaps as much as $12,412,000 — which was substantially in excess of that required to discharge the ten million dollar principal sum and the interest thereon at the annual rate of 4 per cent for the period July 8, 1960, through the time of the sale.

II.

Banco Nacional instituted suit in November, 1960, against First National City to recover the excess realized on the sale of the collateral held as security for the loan. Its complaint also set forth a second cause of action for recovery of the deposits of the Cuban banks which First National City had retained. As Judge Bryan described it, First National City's answer raised "a series of defenses, set-offs and counterclaims based principally on the confiscation of First National City's Cuban branches." 270 F.Supp. at 1005. Both parties moved for summary judgment on both causes of action and on the counterclaims.

As to the second cause of action, Judge Bryan granted First National City's motion for summary judgment. Banco Nacional filed a notice of appeal from that portion of his order, but is not pressing that appeal at this time.⁴ In dealing with the first cause of action, Judge Bryan denied Banco Nacional's motion for summary judgment on its claim and on First National City's counterclaim. However, as to defendant First National City's motion for summary judgment on the first cause of action and the counterclaim, Judge Bryan ruled:

"Defendant\'s motion for summary judgment on the first claim is denied since there are triable issues of fact and law with respect to the amount of defendant\'s set-off. However, I hold that defendant is entitled to set-off as against Banco Nacional\'s first claim for relief any amounts due and owing to it from the Cuban Government by reason of the confiscation of First National City\'s Cuban properties."

270 F.Supp. at 1011.

It is this latter holding that is before us on this appeal. After Judge Bryan's order was filed, the parties entered into a stipulation providing that the value of First National City's property which had been confiscated in Cuba exceeds any amount which Banco Nacional could be awarded on its first cause of action to recover from First National City the excess amount realized on the sale of the collateral.⁵

III.

First National City claims that it is entitled to retain the excess amount realized on the foreclosure of the collateral as a set-off because the Cuban government confiscated its branch banks without providing adequate compensation, and that this act was a violation of international law. Judge Bryan properly observed that under the United States Supreme Court's decision in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), "inquiry into the legality vel non of the expropriations here involved would be foreclosed by the act of state doctrine which forbids the courts of one country from sitting `in judgment on the acts of the government of another, done within its own territory.'" 270 F.Supp. at 1007. However, Judge Bryan then concluded that the Sabbatino decision had been legislatively overruled "for all practical purposes," by the Hickenlooper Amendment to the Foreign Assistance Act of 1964, 22 U.S.C. § 2370(e) (2), as amended, 79 Stat. 658-59 (Sept. 6, 1965). He also noted that the Hickenlooper Amendment had been held constitutional in the Southern District of New York in the sequel to the Sabbatino litigation, Banco Nacional de Cuba v. Farr, 243 F. Supp. 957 (S.D.N.Y.1965); we add that the district court decision in Farr was affirmed in a lengthy opinion by Judge Waterman, 383 F.2d 166 (2d Cir. 1967), and that Banco Nacional's petition for a writ of certiorari in that case was denied, 390 U.S. 956, 88 S.Ct. 1038, 20 L. Ed.2d 1151 (1968).

Judge Bryan also held that the Hickenlooper Amendment directed him, regardless of the act of state doctrine, to determine "the merits in cases involving a confiscation after January 1, 1959, by an act of a foreign state `in violation of the principles of international law, including the principles of compensation.'" 270 F.Supp. at 1007. Proceeding to the merits, Judge Bryan held that the confiscation of First National City's branches did violate international law because adequate compensation was not provided and because the confiscation was a reprisal evincing discrimination against nationals of the United States, 270 F.Supp. at 1007-1010. In light of this, he concluded that First National City was entitled to a set-off against Banco Nacional's claim to recover the amount left from the sale of the collateral after deduction of the principal and interest due and owing.

On this appeal, Banco Nacional makes three principal arguments. First, it claims that the act by which the Cuban government confiscated First National City's branches in Cuba was an act of state, that the Hickenlooper Amendment is not applicable to the facts in this case, and thus that the district court should have followed Mr. Justice Harlan's opinion for the Court in Sabbatino and not inquired into the validity of the Cuban expropriation under international law.⁶ Second, Banco Nacional argues that the Hickenlooper Amendment is unconstitutional.⁷ Third, Banco Nacional contends, with some justification, that summary judgment on First National City's counterclaim was improper because: (1) the counterclaim was invalid procedurally in that it was directed at the Republic of Cuba, which is not an "opposing party" in the present suit under Rule 13 of the Federal Rules of Civil Procedure...