Banco Nacional de Cuba v. Chase Manhattan Bank

Citation658 F.2d 875
Decision Date04 August 1981
Docket Number192,Nos. 111,D,s. 111
PartiesBANCO NACIONAL DE CUBA, Plaintiff-Appellant-Cross-Appellee, v. CHASE MANHATTAN BANK, Defendant-Appellee-Cross-Appellant. ockets 80-7375, 80-7377.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Victor Rabinowitz, New York City (Michael Krinsky, Judith Levin, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, New York City, on the brief), for plaintiff-appellant-cross-appellee.

Andrew J. Connick, New York City (Milbank, Tweed, Hadley & McCloy, New York City, on the brief), for defendant-appellee-cross-appellant.

Before LUMBARD, VAN GRAAFEILAND, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

This is an appeal from a final judgment in one of a number of cases arising out of the revolution in the Republic of Cuba in the late 1950's and the subsequent expropriation by the Cuban government of properties owned by American companies. 1 In the present action, Banco Nacional de Cuba ("Banco Nacional"), a Cuban state-owned bank, sought to recover $9,794,022 from Chase Manhattan Bank ("Chase") on claims whose validity is not in dispute. Chase asserted several counterclaims seeking damages for the expropriation by Cuba of branch banking assets owned by Chase in its own right (hereinafter sometimes "branch counterclaim"), and of railroad equipment owned by Chase as a trustee for certain American investors (hereinafter sometimes "railroad equipment counterclaims"). The United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, entered judgment in favor of Banco Nacional on its claim, less $6,904,870 allowed as a set-off on account of Chase's counterclaim for expropriation of its Cuban branches, and dismissed the remaining counterclaims. Banco Nacional has appealed, asserting that Chase's branch counterclaim was not justiciable and that the valuation of Chase's Cuban branches was, in any event, too high. Chase has cross-appealed, challenging the dismissing of its railroad equipment counterclaims and arguing that the district court did not adequately value its branches as a going concern.

While we are in agreement with most of the district court's rulings, we conclude that a realistic appraisal of conditions in Cuba required a lower valuation of Chase's Cuban branches. The judgment should be modified accordingly and as modified, it is affirmed.

I. FACTS

The events surrounding the Cuban revolution have spawned extensive litigation, giving this Court and others several opportunities to review the facts of the overthrow of the Batista regime and the organization and installation of the current government. See, e. g., Banco Nacional de

Cuba v. First National City Bank, 270 F.Supp. 1004 (S.D.N.Y.1967), rev'd, 431 F.2d 394 (2d Cir. 1970), vacated and remanded, 400 U.S. 1019, 91 S.Ct. 581, 27 L.Ed.2d 630 (1971), on remand, 442 F.2d 530 (2d Cir. 1971), rev'd 406 U.S. 759, 92 S.Ct. 1808, 32 L.Ed.2d 466 (1972), on remand, 478 F.2d 191 (2d Cir. 1973); Banco Nacional de Cuba v. Sabbatino, 193 F.Supp. 375 (S.D.N.Y.1961), aff'd 307 F.2d 845 (2d Cir. 1962), rev'd 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), on remand sub nom. Banco Nacional de Cuba v. Farr, 243 F.Supp. 957 and 272 F.Supp. 836 (S.D.N.Y.1965), 383 F.2d 166 (2d Cir. 1967), cert. denied, 390 U.S. 956, 88 S.Ct. 1038, 20 L.Ed.2d 51 (1968). Familiarity with these discussions is assumed.

A. The Expropriations

The Cuban revolution resulted in the installation of a new national government on January 1, 1959, under the leadership of Fidel Castro Ruz, Che Guevera, and others. 2 The new regime viewed itself as the lawful successor to its predecessor, the Batista government, and effected substantial changes in Cuba primarily by building on preexisting laws and institutions. A number of statutes were enacted, and decrees announced, in pursuit of two general goals: to concentrate the means of production in the hands of the Cuban government and to restrict greatly the role of foreign enterprises in the Cuban economy.

On July 6, 1960, following a serious deterioration of relations between Cuba and the United States, Cuba enacted Law No. 851 which, inter alia, authorized the President and Prime Minister of the Republic "to order( ) the nationalization through forced expropriation of the assets or firms owned by natural or legal persons of United States citizenship ...." Under this law Cuba nationalized numerous American-owned corporations, branches, and businesses. On September 17, 1960, an executive order pursuant to Law 851, denominated "Resolution No. 2," expropriated and nationalized the four Cuban branches of Chase. The Cuban assets of First National City Bank ("Citibank") and First National Bank of Boston ("First Boston") (see note 1, supra ) were expropriated by the same Resolution; 3 and thereafter, on October 13, 1960, pursuant to a new law, Law No. 891, virtually all remaining private banking firms were nationalized. 4

On October 13, 1960, the Cuban government also promulgated Law No. 890, which nationalized "through forced expropriation" all business, industrial enterprises, and other property of railroads operating in Cuba.

Each of the above laws provided that, under certain circumstances, payment would be made by the Cuban government for the expropriated assets. The parties have stipulated that no payment was made.

B. Banco Nacional and Its Claims

Since its formation in 1948, Banco Nacional has functioned as the central Bank of Cuba. Prior to the revolution, one-half of its stock was owned by the Cuban government, which appointed its president and three of its five directors. The remaining one-half of its stock was owned by private banks, which were required to subscribe thereto. Banco Nacional engaged in domestic and international banking, was the After the revolution Banco Nacional was granted additional powers and played a key part in restructuring the Cuban economy in general and the banking industry in particular. Under Resolution No. 2, Banco Nacional was designated the instrumentality to take over the assets and businesses of Chase, Citibank and First Boston. Under Law No. 891, Banco Nacional was similarly placed in control of the assets and businesses of the remaining private banks, and thereafter became wholly owned and operated by the Cuban government. Banco Nacional did not have a similar role with respect to nationalization of the railroads under Law No. 890. That law was to be administered by the CorporaciEon Nacional de Transportes.

sole depository of state funds, and was granted extensive powers both to control and protect the Cuban currency in international trade and to regulate all commercial banks operating in Cuba.

Banco Nacional commenced the present action in 1960, asserting several claims totaling $9,794,022, the validity of which is not contested by Chase. First, Banco Nacional sought to recover some $7 million as successor in interest to two other Cuban state-owned banking enterprises, Banco de Desarollo EconEomico y Social ("Bandes") and Fonda de EstablizaciEon de la Moneda ("Fonda"). In 1958 Chase had loaned Bandes $30,000,000, secured by United States Government obligations owned by Fonda and having a face value in excess of $30,000,000. Banco Nacional succeeded these two enterprises in February 1960 and made payments on the loans. On September 17, 1960, the date on which Cuba expropriated Chase's branches, the unpaid balance of the loan was $10,000,000. Within days of the expropriation, Chase sold the collateral then in its possession for more than $17,000,000, applied the proceeds against the outstanding loan balance (including accrued interest), and held a surplus of $7,256,398. Chase notified Bandes and Banco Nacional of the sale and informed them that the surplus would not be returned but rather would be retained to offset Chase's losses resulting from the expropriation.

In addition, Banco Nacional sought to recover in its own right for various sums it had on deposit with Chase on September 17, 1980, aggregating $2,537,622. Chase refused to repay those sums, and instead applied them against obligations allegedly owed it by the Republic of Cuba, its agencies and instrumentalities.

C. Chase's Counterclaims

Chase asserted four counterclaims. The branch counterclaim alleged that Chase had been engaged in branch banking in Cuba continuously since 1925 and at the time of the expropriation maintained four branches. Chase alleged that the properties, which it valued at $8,619,457, had been converted in violation of international law, and sought full recovery from Banco Nacional as the alter ego of the Cuban government. Chase also asserted an alternative counterclaim for the loss of its Cuban branches based on an implied contract theory. This counterclaim asserted that under Law No. 851 Banco Nacional succeeded to all of the liabilities of the seized branches, and that Chase's Cuban branches were indebted to Chase for approximately $6,000,000.

Chase stated two counterclaims in its capacity as trustee for American investors owning railroad equipment leased to the Cuban Railroad Company and Cuban Northern Railways Company under financing leases. This equipment, valued by Chase at $4,047,910, was nationalized on October 13, 1960, and Chase, as Trustee, sought recovery on behalf of the equipment trust certificate owners.

Chase did not seek affirmative relief on its counterclaims, the total value of which exceeded the amount sought by Banco Nacional, but merely requested that Banco Nacional's complaint be dismissed. 5

D. Decision of the District Court

The case was tried before the late Judge Frederick van Pelt Bryan who died without having rendered a decision. The action was then assigned to Judge Brieant who, with the agreement of the parties, decided the case on the basis of the record made before Judge Bryan.

In a reasoned opinion, reported at 505 F.Supp. 412, Judge Brieant ruled that, for purposes...

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