Cavac v Board for the Validation of German Bonds in the US

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Date02 November 1960
United States, District Court, Southern District, New York.
Board for the Validation of German Bonds in the United States et Al.

Treaties — Operation and enforcement of — Necessity for municipal legislation — Validation of German bonds after Second World War — Arbitration of disputes concerning — Treaty as source of power of court to compel arbitration — The law of the United States of America.

The Facts.—This was an action by Compania Anonima Venezolana de Administracion y Comercio (Cavac) against the Vereinigte Stahlwerke Aktiengesellschart (United Steel Works Corporation), the Board for the Validation of German Bonds in the United States, the members of the Board, and others, in which Cavac sought to compel the respondents to proceed to arbitration with respect to the validity of certain German dollar bonds. Cavac, a Venezuelan company, was the owner of $97,000 face value of United Steel Works mortgage gold bonds. The Validation Board, which had been constituted pursuant to subsection 2a of the Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany regarding the Validation of Dollar Bonds of German Issue, signed at Bonn on February 27, 1953 (4 U.S.T. 797, T.I.A.S. No. 2793, 223 U.N.T.S. 167), had denied validation to the bonds held by Cavac. Cavac first instituted a civil action to review the action of the Board but, before the summons and complaint were served, decided that it would prefer arbitration to action in the courts. Despite a timely request, the Validation Board refused to proceed with arbitration unless the consent of Steel Works was obtained. The reasons why the Board refused to act on the request for arbitration are set forth in the supplemental opinion.1

The German Law for the Promulgation of German Foreign Currency Bonds ([1952] I BGB1. 553), which was annexed to the Agreement of February 27, 1953, provided in Article 29, paragraph (2):

“In respect of a decision denying validation, the registrant has only the legal remedies specified in this Law (Articles 30, 31, 33 to 35); if more than one is available he may elect. As soon as the decision is

no longer subject to any review, it becomes binding upon all concerned …”

Article 35 of the Law provided for the constitution of arbitration boards to review denials of validation.

On Cavac's motions to proceed to arbitration and to stay proceedings in the civil action (and on a motion of United Steel Works not here relevant),

Held: that the motions for an order directing arbitration and for an order staying all proceedings in the civil action...

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