Et Ve Balik Kurumu v. B.N.S. Intern. Sales Corp.

• Decision Date: 17 June 1960
• Citation: 25 Misc.2d 299,204 N.Y.S.2d 971
• Parties: ET VE BALIK KURUMU, a State Enterprise of the Republic of Turkey, Plaintiff, v. B. N. S. INTERNATIONAL SALES CORPORATION, Fidelity & Casualty Company of New York and American Foreign Insurance Association, Defendants.
• Court: New York Supreme Court

Page 971

204 N.Y.S.2d 971

25 Misc.2d 299

ET VE BALIK KURUMU, a State Enterprise of the Republic of Turkey, Plaintiff, v. B. N. S. INTERNATIONAL SALES CORPORATION, Fidelity &amp Casualty Company of New York and American Foreign Insurance Association, Defendants.

Supreme Court, Special Term, New York County, Part I.

June 17, 1960.

Richard Steel, New York City, for plaintiff.

Sereni, Herzfeld & Rubin, New York City (Herbert Rubin, New York City, of counsel), for defendants B. N. S. International Sales Corp. and Fidelity & Casualty Co. of New York.

MATTHEW M. LEVY, Justice.

In its complaint, the plaintiff alleges that it is a 'State Enterprise of the Republic of Turkey and as such is an integral part of the Government of the Republic of Turkey.' Its duties, among other things, 'are to develop in the Republic of Turkey the meat and fish industry and to supply the public and army with meat and fish for their consumption.' The defendant B.N.S. International Sales Corporation and the defendant Fidelity & Casualty Company of New York are domestic corporations. The plaintiff pleads a contract between it and the defendant B.N.S., a copy of which is annexed to the complaint, and which in essence provides for the purchase by the plaintiff from defendant B.N.S. of a quantity of mutton and further provides for payment to the defendant B.N.S. of dollar credits owing to the Republic of Turkey by various oil companies doing business in that county. Because of difficulty in arranging the exchange of currency for this transaction, the original contract was, by mutual agreement, subsequently modified to reduce the quantity of mutton to be supplied, to extend the period of time for shipment and to reduce the total purchase price. The plaintiff further alleges that the defendant B.N.S. obtained from the defendant Fidelity & Casualty Company on New York, a performance bond in accordance with the contract as amended. The plaintiff also alleges the payment to the account of defendant B.N.S. by Esso Standard (Turkey) Inc., upon authorization of the plaintiff and the defendant B.N.S., of $120,000, and the alleged failure of the defendant B.N.S. to make shipment of mutton in accordance with the modified contract. In consequence, the plaintiff sues to recover the said sum of $120,000. A second cause of action is alleged against B.N.S. on the grounds of unjust enrichment for $120,000. The third cause of action is on the performance bond.

In their answer the defendants B.N.S. and Fidelity 'admit that plaintiff is a State enterprise of the Republic of Turkey and as such an integral part of the Government of the Republic of Turkey.' The defendants also admit the execution of the written agreement annexed to the complaint but deny the claimed modification thereof. The defendant B.N.S. asserts a counterclaim against the plaintiff, charging in substance that the plaintiff breached the contract by failing to supply certain required documents. As a result thereof, the defendant B.N.S. contends that it sustained damage in the amount of $500,000. Judgment is demanded by the defendants dismissing the complaint, and the defendant B.N.S. demands judgment on its counterclaim for $380,000--computed by deducting the payment of $120,000 from the $500,000 damages allegedly sustained.

The plaintiff served a reply to the counterclaim, denying the material allegations thereof and setting forth two affirmative defenses. The first affirmative defense is partial in character and the plaintiff therein re-alleges that it is a 'State Enterprise of the Republic of Turkey and an integral part' of that government and, as such, 'is a sovereign power entitled to all the rights and immunities of sovereignty.' By reason thereof, the plaintiff pleads that any counterclaim asserted against the plaintiff is limited to a set-off against any amount which the plaintiff might ultimately prove as against the counterclaiming defendant. The second affirmative defense is pleaded as a complete defense, in which the plaintiff alleges that it is immune from suit in the courts of this state without its consent, that it may not, without the plaintiff's permission, be the subject of any counterclaim asserted by the defendant B.N.S. in its answer, and that the plaintiff has not permitted or consented to the assertion of a counterclaim against it, nor has it waived its sovereign immunity in that respect. The defendant B.N.S. now moves for an order, pursuant to rule 111 of the Rules of Civil Practice, to strike the defenses--whether partial or complete--interposed by the plaintiff to the counterclaim upon the ground that such defenses are insufficient in law upon the face thereof.

In consonance with the principle of comity among nations, foreign sovereigns have been given immunity from suit in our courts (1 Hyde, International Law, 2nd Rev.Ed. [1945], sec. 244); and it has long been established that a sovereign cannot be sued here without his consent (The Schooner Exchange v. M'Faddon, 7 Cranch 116, 11 U.S. 116, 3 L.Ed. 287; The Roseric, D.C., 254 F. 154). Primarily, however, the claim by a foreign sovereign of immunity from suit is a political rather than a judicial matter. The determination of the federal executive as to whether or not immunity exists in respect of any given foreign power or agency thereof is conclusive upon the courts. The issue, if raised, may be decided in the judicial sphere only where the matter has not been settled as a political question. F. W. Stone Engineering Co. v. Petroleos Mexicanos of Mexico, D.F., 352 Pa. 12, 42 A.2d 57; Miller v. Ferrocarrill del Pacifico de Nicaragua, 137 Me. 251, 18 A.2d 688; New York & Cuba Mail Steamship Co. v. Republic of Korea, D.C., 132 F.Supp. 684. It is to be noted at the outset that, as far as appears from the pleadings in the instant case, no executive action as to the forensic status of the present plaintiff has been taken by the Department of State of the United States. In such circumstances I feel free to determine the matter in the exercise of judicial responsibility.

The plaintiff here is not the Republic of Turkey. The plaintiff is not a sovereign state. It titles itself, as indicated, as a 'State Enterprise of the Republic of Turkey'. The plaintiff asserts that it is, as such, a sovereign power entitled to all the rights and immunities of sovereignty. As a general rule, an agency wholly or partly owned or controlled by a foreign government is not entitled to the immunity of the government. Hannes v. Kingdom of Roumania Monoplies Institute, 260 App.Div. 189, 20 N.Y.S.2d 825, motion for leave to appeal to Court of Appeals or for reargument denied 260 App.Div. 1006, 24 N.Y.S.2d 994; Amtorg Trading Corp. v. United States, Cust. & Pat.App., 71 F.2d 524; Coale v. Societe Co-operative Suisse des Charbons, Basle, D.C., 21 F.2d 180; Ulen & Co. v. Bank Gospodarstwa Krajowego, 261 App.Div. 1, 24 N.Y.S.2d 201, motion for leave to appeal to Court of Appeals denied 261 App.Div. 838, 25 N.Y.S.2d 1002. But where the corporation functions as a public agency or instrumentality or where evidence of corporate separateness from the government was not strong, immunity has been granted. Bradford v. Director General of Railroads of Mexico, Tex.Civ.App., 278 S.W. 251; Dunlap v. Banco Central del Ecuador, Sup., 41 N.Y.S.2d 650; F. W. Stone Engineering Co. v. Petroleos Mexicanos of Mexico, D.F., 352 Pa. 12, 42 A.2d 57, supra. Therefore, although a determination of the exact status of the plaintiff would seemingly be in order, an inquiry in that regard is not here necessary, for the defendant, in its answer, has admitted that the plaintiff is a state enterprise and as such is an integral part of the Government of the Republic of Turkey. And, for the purpose of this decision, it will be assumed that the assertion of immunity by this plaintiff's attorneys is being made by a duly authorized agent of the Turkish Government, for this court would presumptively have jurisdiction unless the Government of the Republic of Turkey itself objects (see Kunglig Jarnvagsstyrelsen v. Dexter & Carpenter, Inc., 2 Cir., 32 F.2d 195, certiorari denied 280 U.S. 579, 50 S.Ct. 32, 74 L.Ed. 629).

One of the basic issues, then, involved on this motion is whether the plaintiff comes within the 'sovereign immunity' rule, in view of the nature of the transaction sued upon by the plaintiff and counterclaimed upon by the defendant. Another issue is whether, by the commencement of this suit on its own behalf, and thus voluntarily invoking this court's jurisdiction, the plaintiff should be deemed to have waived any immunity from suit (which it may have asserted) and to have consented to the determination of the issues raised by the defendant's direct counterclaim.

Immunity has been historically granted so that a state may discharge its governmental functions without undue interference (see Block, Suits Against Government Officers and the Sovereign Immunity Doctrine, 59 Harv.L.Rev. 1060, 1062-1063). But ownership and operation of commercial undertakings are not traditional acts of sovereignty per se, and the injustice arising from enforcing a claim of sovereign immunity when the lawsuit is grounded upon a commercial transaction has led to criticism. For example, the comment by William Harvey Reeves (chairman of the Committee on Sovereign Immunity of the International Bar Association,) in his article, 'Good Fences and Good Neighbors: Restraints on Immunity of Sovereigns', 44 American Bar Association Journal 521, 524, is pointed and, in my opinion, quite sound: 'Foreign sovereigns appearing as litigants in our courts have generally been accorded immunity, if desired, but there has been a growing feeling that the foreign sovereign which, acting through its official agents, comes to the United States, buys and sells, borrows and does other commercial acts, no different from those which can be and normally are performed by private corporations, corporations which...