Banco Nacional de Cuba v. First National City Bank of NY, 798

• Decision Date: 27 April 1971
• Docket Number: No. 798,33864.,799,Dockets 32533,798
• Citation: 442 F.2d 530
• Parties: BANCO NACIONAL de CUBA, Plaintiff-Appellant, v. The FIRST NATIONAL CITY BANK OF NEW YORK, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

442 F.2d 530 (1971)

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

Nos. 798, 799, Dockets 32533, 33864.

United States Court of Appeals, Second Circuit.

Argued March 18, 1971.

Decided April 27, 1971.

Victor Rabinowitz, New York City (Rabinowitz, Boudin & Standard, New York City, on the brief), for plaintiff-appellant.

Henry Harfield, New York City (Shearman & Sterling, Herman E. Compter and James B. Keenan, New York City, on the brief), for defendant-appellee.

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

LUMBARD, Chief Judge:

This case comes to us on remand from the Supreme Court for our reconsideration in light of the views of the Department of State expressed subsequent to our original decision which was filed on July 16, 1970. Banco Nacional de Cuba v. First National City Bank of New York, 431 F.2d 394 (2d Cir. 1970). For the reasons stated below, we adhere to our prior decision and reverse and remand to the district court.

In the original action, Banco Nacional de Cuba brought suit against First National City Bank of New York in the Southern District. After the Castro government of Cuba had expropriated First National City's properties there pursuant to Cuban Law No. 851, First National City had sold collateral securing a ten-million-dollar loan it had made to Banco Nacional prior to the change in Cuba's government. From the sale of that collateral, First National City had received 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 four per cent interest thereon. Banco Nacional's suit was to recover the excess realized on that sale.

In the district court, First National City raised a series of counterclaims and setoffs based principally on the contention that, since the Cuban government had confiscated its properties in Cuba in violation of international law, it was entitled to retain the excess on the sale of the collateral as an offset against the value of its confiscated properties. Judge Bryan in the Southern District granted summary judgment to First National City. Banco Nacional de Cuba v. First National City Bank of New York, 270 F.Supp. 1004 (S.D.N.Y. 1967).

On appeal, we reversed the district court's judgment, holding that Cuba's confiscation of First National City's properties in Cuba was an act of state and that under Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), the act of state doctrine foreclosed judicial inquiry into the validity of that confiscation under international law. We held further that the Hickenlooper Amendment to the Foreign Assistance Act of 1964¹ did not apply here so as to defeat the act of state doctrine and thereby to give 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 concluded that allowing First National City its claimed offset against the allegedly unlawful expropriation was error; and we remanded to the district court for a factual finding as to the amount by which the proceeds of the sale of the collateral exceeded the amount then owing on the loan — which excess we directed should then be paid to Banco Nacional.

First National City petitioned for a writ of certiorari on October 13, 1970; and on November 17, 1970, the Legal Advisor to the Department of State wrote a letter to the Supreme Court expressing the views of that Department with respect to this case. The State Department's letter is set out in full in an appendix to this opinion. By order dated January 25, 1971, 400 U.S. 1019, 91 S.Ct. 581, 27 L.Ed.2d 630 the Supreme Court granted certiorari and remanded the case to us without taking any position on the merits. The Supreme Court's order stated in full:

"846 First National City Bank v. Banco National de Cuba. The petition for a writ of certiorari is granted. The judgment of the Court of Appeals is vacated and the case is remanded to the Court of Appeals for reconsideration in light of the views of the Department of State expressed in its letter dated November 17, 1970, and transmitted to this Court by the Solicitor General. In taking this action, the Court is expressing no views on the merits of the case." 39 U.S. L.W. 3321 (January 26, 1971).

Upon reconsideration, we see no reason to change our initial decision on this appeal.

Basically, the State Department's letter of November 17 expresses the view that the act of state doctrine does not bar consideration of a claim for compensation asserted as a defensive counterclaim or offset limited to the amount of a claim made in a United States court by a foreign government, arising out of a relationship between the parties when the act of state occurred, and where the foreign policy interests of the United States do not require application of the doctrine. It suggests that this Court is relieved from any restraint upon the exercise of its jurisdiction to adjudicate First National City's counterclaim arising out of the confiscation of its Cuban assets. The letter states that in his case

"the foreign policy interests of the United States do not require the application of the act of state doctrine to bar adjudication of the validity of a defendant\'s counterclaim or set-off against the Government of Cuba in these circumstances.

The Department of State believes that the act of state doctrine should not be applied to bar consideration of a defendant\'s counterclaim or set-off against the Government of Cuba in this or like cases."

First National City argues that this letter constitutes the requisite statement by the Executive Branch which under our decision in Bernstein v. N.V. Nederlandsche-Amerikaansche, etc., 210 F.2d 375 (2d Cir. 1954), relieves the courts from applying the act of state doctrine to bar examination of the validity of the law in question. Because the interpretation of Bernstein will be crucial to our determination of the instant case, we set forth the background of Bernstein in some detail.

That case involved the alleged confiscation of the property of a single plaintiff, a Jewish German national, by the Nazi German government between 1937 and 1939. Plaintiff alleged that he was compelled by officials of that government, acting through threats of bodily harm, indefinite imprisonment, and death for plaintiff and his family, to assign his property to the German government. Beginning in 1946 the plaintiff sought to attach and recover some of the proceeds of his former property in a suit brought in a state court in New York and removed to the federal district court. In the first Bernstein case, Bernstein v. Van Heyghen Freres Societe Anonyme, 163 F.2d 246 (2d Cir.), cert. denied, 332 U.S. 772, 68 S.Ct. 88, 92 L.Ed. 357 (1947), we held, in an opinion by Judge Learned Hand, that the act of state doctrine prevented us from inquiring into the validity of the confiscation of the plaintiff's property by the Nazi government; and we therefore affirmed the district court's dismissal of the complaint. However, in the course of his opinion, Judge Hand said that it was a relevant question "whether since the cessation of hostilities with Germany our own Executive, which is the authority to which we must look for the final word in such matters, has declared that the commonly accepted doctrine which we have just mentioned does not apply." 163 F.2d at 249. After full consideration, we concluded that the Executive Branch had not in fact acted to relieve the courts of the restraint imposed by the act of state doctrine.

In the second Bernstein case, the same plaintiff brought a conversion action against another defendant — a Dutch corporation which, in participation in a plan with officials of the Nazi government, had confiscated and converted his stock in a German liability corporation. In that case, we reaffirmed our holding in the first Bernstein case that, because of the lack of a definitive expression of Executive policy, the act of state doctrine prevented judicial examination of official acts of the Nazi government. Bernstein v. N. V. Nederlandsche-Amerikaansche, etc., 173 F.2d 71 (2d Cir. 1949). We did remand the case for the purpose of allowing the plaintiff to allege, if he could, that his property had been seized by persons acting in a private capacity; but we ordered him to refrain from alleging matters which would cause the court to pass on the validity of acts of officials of the German government.

Following that decision, the State Department issued a press release quoting a letter from its Acting Legal Advisor. As the release stated, that letter

"repeats this Government\'s opposition to forcible acts of dispossession of a discriminatory and confiscatory nature practiced by the Germans on the countries or peoples subject to their controls; states that it is this Government\'s policy to undo the forced transfers and restitute identifiable property to the victims of Nazi persecution wrongfully deprived of such property; and sets forth that the policy of the Executive, with respect to claims asserted in the United States for restitution of such property, is to relieve American courts from any restraint upon the exercise of their jurisdiction to pass upon the validity of the acts of Nazi officials."

When the case came before us again, we stated that "in view of this supervening expression of Executive Policy, we amend our mandate in this case by striking out all restraints based on the inability of the court to pass on acts of officials in Germany during the period in question." 210 F.2d 375, 376 (2d Cir. 1954).

First National City argues that Bernstein requires that we change our prior decision in the instant case, as we did there, to conform with the State Department suggestions. It...