First National City Bank v. Banco Nacional Cuba 8212 295

• Decision Date: 07 June 1972
• Docket Number: No. 70,70
• Parties: FIRST NATIONAL CITY BANK, Petitioner, v. BANCO NACIONAL de CUBA. —295
• Court: U.S. Supreme Court

406 U.S. 759

92 S.Ct. 1808

32 L.Ed.2d 466

FIRST NATIONAL CITY BANK, Petitioner, v BANCO NACIONAL de CUBA

No. 70—295.

Argued Feb. 22, 1972.

Decided June 7, 1972.

Rehearing Denied Oct. 10, 1972.

See 93 S.Ct. 92.

Syllabus

This case involves a claim by respondent for excess collateral it had pledged with petitioner to secure a loan, and a counterclaim by petitioner for that excess as an offset against the value of petitioner's property in Cuba expropriated by Cuba without compensation. The District Court recognized that this Court's decision in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804, holding that generally the courts of one nation will not sit in judgment on the acts of another nation within the latter's territory (act of state doctrine) would bar assertion of the counterclaim but concluded that post-Sabbatino congressional enactments had in effect overruled that decision. The court issued summary judgment for petitioner on all issues except the amount available for possible setoff. The Court of Appeals reversed, holding that Sabbatino barred assertion of the counterclaim. Held: The judgment is reversed. Pp. 762—776.

Mr. Justice REHNQUIST, joined by THE CHIEF JUSTICE and Mr. Justice WHITE, concluded that since the Executive Branch, which is charged with the primary responsibility for the conduct of foreign affairs, has (contrary to the position it took in Sabbatino) expressly represented to the Court that the application of the act of state doctrine in this case would not advance the interests of American foreign policy, the decision in Bernstein v. N.V. Nederlandsche-Amerikaansche, etc., 2 Cir., 210 F.2d 375, should be adopted and approved, thus permitting judicial examination of the legal issues raised by the act of a foreign sovereign within its own territory. Pp. 762—770.

Mr. Justice DOUGLAS concluded that the central issue in this case is governed by National City Bank v. Republic of China, 348 U.S. 356, 75 S.Ct. 423, 99 L.Ed. 389 (holding that a sovereign's claim may be offset by a counterclaim or setoff), rather than by the Bernstein exception to Sabbatino, and accordingly would allow the setoff up to the amount of respondent's claim. Pp. 770—773.

Mr. Justice POWELL, believing that Sabbatino's broad holding was not compelled by the principles underlying the act of said doctrine, concluded that federal courts have an obligation to hear cases such as this one and to apply applicable international law. Pp. 773—776.

442 F.2d 530, reversed and remanded.

Henry Harfield, New York City, for petitioner.

Victor Rabinowitz, New York City, for respondent.

Mr. Justice REHNQUIST announced the judgment of the Court, and delivered an opinion in which THE CHIEF JUSTICE and Mr. Justice WHITE join.

In July 1958, petitioner loaned the sum of $15 million to a predecessor of respondent. The loan was secured by a pledge of United States Government bonds. The loan was renewed the following year, and in 1960 $5 million was repaid, the $10 million balance was renewed for one year, and collateral equal to the value of the portion repaid was released by petitioner.

Meanwhile, on January 1, 1959, the Castro government came to power in Cuba. On September 16, 1960, the Cuban militia, allegedly pursuant to decrees of the Castro government, seized all of the branches of petitioner located in Cuba. A week later the bank retaliated by selling the collateral securing the loan, and applying the proceeds of the sale to repayment of the principal and unpaid interest. Petitioner concedes than an excess of at least.$1.8 million over and above principal and unpaid interest was realized from the sale of the collateral. Respondent sued petitioner in the Federal District Court to recover this excess, and petitioner, by way of setoff and counterclaim, asserted the right to recover damages as a result of the expropriation of its property in Cuba.

The District Court recognized that our decision in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), holding that generally the courts of one nation will not sit in judgment on the acts of another nation within its own territory would bar the assertion of the counterclaim, but it further held that congressional enactments since the decision in Sabbatino had 'for all practical purposes' overruled that case. Following summary judgment in favor of the petitioner in the District Court on all issues except the amount by which the proceeds of the sale of collateral exceeded the amount that could properly be applied to the loan by petitioner, the parties stipulated that in any event this difference was less than the damages that petitioner could prove in support of its expropriation claim if that claim were allowed. Petitioner then waived any recovery on its counterclaim over and above the amount recoverable by respondent on its complaint, and the District Court then rendered judgment dismissing respondent's complaint on the merits.

On appeal, the Court of Appeals for the Second Circuit held that the congressional enactments relied upon by the District Court did not govern this case, and that our decision in Sabbatino barred the assertion of petitioner's counterclaim. We granted certiorari and vacated the judgment of the Court of Appeals for consideration of the views of the Department of State which had been furnished to us following the filing of the petition for certiorari. 400 U.S. 1019, 19 S.Ct. 581, 27 L.Ed.2d 630 (1971). Upon reconsideration, the Court of Appeals by a divided vote adhered to its earlier decision. We again granted certiorari, First National City Bank v. Banco Nacional de Cuba, 404 U.S. 820, 92 S.Ct. 79, 30 L.Ed.2d 48 (1971).

We must here decide whether, in view of the substantial difference between the position taken in this case by the Executive Branch and that which it took in Sabbatino, the act of state doctrine prevents petitioner from litigating its counterclaim on the merits. We hold that it does not.

The separate lines of cases enunciating both the act of state and sovereign immunity doctrines have a common source in the case of The Schooner Exchange v. M'Faddon, 7 Cranch 116, 146, 3 L.Ed. 287 (1812). There Chief Justice Marshall stated the general principle of sovereign immunity: sovereigns are not presumed without explicit declaration to have opened their tribunals to suits against other sovereigns. Yet the policy considerations at the root of this fundamental principle are in large part also the underpinnings of the act of state doctrine. The Chief Justice observed:

'The arguments in favor of this opinion which have been drawn from the general inability of the judicial power to enforce its decisions in cases of this description, from the consideration, that the sovereign power of the nation is alone competent to avenge wrongs committed by a sovereign, that the questions to which such wrongs give birth are rather questions of policy than of law, that they are for diplomatic, rather than legal discussion, are of great weight, and merit serious attention.' (Emphasis added.)

Thus, both the act of state and sovereign immunity doctrines are judicially created to effectuate general notions of comity among nations and among the respective branches of the Federal Government. The history and the legal basis of the act of state doctrine are treated comprehensively in the Court's opinion in Sabbatino, supra. The Court there cited Chief Justice Fuller's 'classic American statement' of the doctrine, found in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897):

'Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.'

The act of state doctrine represents an exception to the general rule that a court of the United States, where appropriate jurisdictional standards are met, will decide cases before it by choosing the rules appropriate for decision from among various sources of law including international law. The Paquete Habana, 175 U.S. 677, 20 S.Ct. 290, 44 L.Ed. 320 (1900). The doctrine precludes any review whatever of the acts of the government of one sovereign State done within its own territory by the courts of another sovereign State. It is clear, however, from both history and the ipinions of this Court that the doctrine is not an inflexible one. Specifically, the Court in Sabbatino described the act of state doctrine as 'a principle of decision binding on federal and state courts alike but compelled by neither international law nor the Constitution,' 376 U.S., at 427, 84 S.Ct., at 940, and then continued:

'(I)ts continuing vitality depends on its capacity to reflect the proper distribution of functions between the judicial and political branches of the Government on matters bearing upon foreign affairs.' Id., at 427—428, 84 S.Ct., at 940.

In Sabbatino, the Executive Branch of this Government, speaking through the Department of State, advised attorneys for amici in a vein which the Court described as being 'intended to reflect no more than the Department's then wish not to make any statement bearing on this litigation.' Id., at 420, 84 S.Ct., at 936. The United States argued before this Court in Sabbatino that the Court should not 'hold, for the first time, that executive silence regarding the act of state doctrine is equivalent to executive approval of judicial inquiry into the foreign act.'

In the case now before us, the Executive Branch has taken a quite different position. The Legal Adviser of the Department of State advised this Court on November 17, 1970, that as a matter of principle where the Executive publicly advises the Court that the act of...