French v. Banco Nacional de Cuba

• Decision Date: 15 October 1968
• Citation: 295 N.Y.S.2d 433,23 N.Y.2d 46,242 N.E.2d 704
• Parties: , 242 N.E.2d 704 Hazel W. FRENCH, Respondent, v. BANCO NACIONAL de CUBA, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 433

295 N.Y.S.2d 433

23 N.Y.2d 46, 242 N.E.2d 704

Hazel W. FRENCH, Respondent, v. BANCO NACIONAL de CUBA, Appellant.

Court of Appeals of New York.

Oct. 15, 1968.

Victor Rabinowitz and Leonard B. Boudin, New York City, for appellant.

Edward G. Bathon and John N. Regan, New York City, for respondent.

FULD, Chief Judge.

On this appeal from a judgment in favor of the plaintiff in an action for a breach of contract, two questions were originally briefed and argued--first, whether the defendant is entitled to sovereign immunity and, second, whether the defendant may invoke the 'act of state' doctrine. We ordered reargument, requesting the parties to address themselves to further questions, the primary one being whether the Hickenlooper Amendment to the Federal Foreign Assistance Act of 1961 (hereafter referred to as the Hickenlooper Amendment) ¹ covers this case and bars application of the act of state doctrine.

The case stems from a regulation of the Cuban Government--adopted after Fidel Castro's accession to power in January of 1959--which, in effect, prevented American and other foreign investors from receiving currency other than Cuban pesos on their Cuban investments. The investor here involved was the plaintiff's assignor, Alexander Ritter, an American citizen, now living in Florida, who resided in Cuba at the time of the events from which this lawsuit arises. In 1957, some two years before the events in question, he invested about $350,000 in a Cuban farm. At that time, the Cuban Government permitted foreign investors to turn the proceeds from their enterprises into American dollars, or other foreign currency, and exempted such proceeds from Cuba's tax on the exportation of money. To this end, the Currency Stabilization Fund of the Cuban Government was authorized to issue 'certificates of tax exemption.' In June, 1959, six months after the inception of the Castro regime, Ritter acquired eight such certificates, aggregating $150,000. ²

Each certificate recites that

'ALEXANDER S. RITTER or a member Bank of the System, as endorsee hereof, will receive from Banco Nacional de Cuba (defendant herein) against delivery to said Bank of $ Cuban Pesos and surrender of this Certificate, a check on New York for an equal amount of United States Dollars, exempt from the Tax on Exportation of Money.

'This Certificate is issued and delivered inasmuch as the importation and investment in Cuba of the said funds have been duly accredited in accordance with the provisions of Law-Decree No. 548 of November 20, 1952 and its Regulations.'

Although the certificates state that their owner 'will receive from (defendant bank)' the appropriate 'amount' of American dollars, they are signed by both the defendant and the Cuban Government's Currency Stabilization Fund.

On July 15, 1959, the Currency Stabilization Fund issued 'Decision No. 346.' Aimed at stopping the flow of foreign currency from Cuba and thereby preventing a situation 'very dangerous' to that country, the Decision suspended 'for the time being processing of' tax exemption certificates 'until reorganization of the system of exemptions'. The redemption of such outstanding certificates, according to the president of defendant bank, would have wiped out Cuba's dollar reserves. When, in December of 1959, Ritter tendered his certificates for redemption, together with the appropriate number of pesos, payment in American dollars was refused under the mandate of the Decision.

The plaintiff, Ritter's assignee, brought the present action, late in 1960, in Supreme Court, New York County, and obtained a judgment against defendant bank in the amount of $150,000, with interest. ³ A closely divided Appellate Division affirmed, rejecting the defendant's claims (1) that it was entitled to sovereign immunity from suit as an agency of the Cuban Government and (2) that the Decision in question 'had the force of law' and was an act of the sovereign Government of Cuba to which our courts will not deny legal effect.

On the first of these questions, that of sovereign immunity, the entire court is in agreement with the Appellate Division, and we dispose of the point very quickly. In view of the State Department's conclusion (set forth in a note not included in the record) that the activities out of which the present action arose 'were of a Jure gestionis (commercial) * * * nature' and its position that immunity should not be granted in such cases, we must decline to accord the defendant sovereign immunity from suit. It is 'not for the courts to * * * allow an immunity' on grounds 'which the government has not seen fit to recognize.' (Republic of Mexico v. Hoffman, 324 U.S. 30, 35, 65 S.Ct. 530, 533, 89 L.Ed. 729; see, also, National City Bank of New York v. Republic of China, 348 U.S. 356, 360, 75 S.Ct. 423, 99 L.Ed. 389; Victory Trans. v. Comisaria General, etc., 2 Cir., 336 F.2d 354, 360, cert. den. 381 U.S. 934, 85 S.Ct. 1763, 14 L.Ed.2d 698.)

This brings us to the second question presented, namely, whether the act of state doctrine bars the plaintiff's claim.

It has long been settled, ⁴ and recently reaffirmed by the Supreme Court in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 416, 84 S.Ct. 923 et seq., that the courts in the United States will not inquire into the validity of the acts of a foreign government done within its own territory. As the Supreme Court stated in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83--quoted in Sabbatino, 376 U.S., at p. 416, 84 S.Ct., at p. 934--'(e)very 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 though the means open to be availed of by sovereign powers as between themselves.'

Our courts will not examine a foreign law to determine whether it was adopted in conformity with the internal procedures and requirements of the enacting state. The act of state doctrine, it has been well said, is not limited to situations in which 'the foreign act is committed in a manner 'colorably valid' under foreign law. It should make no difference whether the foreign act is, under local law, partially or wholly, technically or fundamentally, illegal. * * * So long as the act is the act of the foreign sovereign, It matters not how grossly the sovereign has transgressed its own laws.' (Banco de Espana v. Federal Reserve Bank, 114 F.2d 438, 444; emphasis supplied.) The opinion in Sabbatino itself is unequivocal on this point. 'The courts below', the Supreme Court wrote (376 U.S., at p. 415, 84 S.Ct. at p. 933, n. 17), 'properly declined to determine if issuance of the expropriation decree complied with the formal requisites of Cuban law. * * * If no institution of legal authority would refuse to effectuate the decree, its 'formal' status--here its argued invalidity if not properly published in the Official Gazette in Cuba--is irrelevant. It has not been seriously contended that the judicial institutions of Cuba would declare the decree invalid.' Nor, it should be noted, does the plaintiff before us make any such claim.

Consequently, there is no basis whatever for the plaintiff's contention that the action dishonoring and repudiating the certificates held by Ritter was not an 'act of state.' Regardless of whether or not Decision No. 346 was published in the Official Gazette or otherwise complied with internal Cuban standards of regularity, it was issued by the Currency Stabilization Fund, an official instrumentality of the Cuban Government. Moreover, in compliance with that Decision--or even if only in purported compliance--Banco Nacional, also an agency of the Cuban Government, refused and continues to refuse to exchange pesos for dollars as the certificates had required. These undisputed facts establish, as matter of law, that the breach of contract, of which the plaintiff complains, resulted from and, indeed, itself constitutes an act of state. ⁵

On this analysis, there is no issue of burden of proof. Rather, the question is, what need be proved. The defendant introduced evidence showing that Decision No. 346 had been issued by the Currency Stabilization Fund, that it was adopted as a measure to control currency and foreign exchange and that defendant bank had regarded the Decision as binding upon it and as prohibiting performance of the agreement in the tax exemption certificates. The plaintiff adduced evidence to the effect that the Decision did not conform to Cuba's fundamental law and that it had not been published in the 'Official Gazette.' But that was insufficient, as matter of law, to establish that the action dishonoring and repudiating the certificates was not an act of state. It was incumbent on the plaintiff to prove that the Cuban authorities themselves would deem Decision No. 346 invalid and would disregard it. This she was obviously unable to do.

Since it is thus apparent that there was an act of state, it follows--unless the Hickenlooper Amendment requires the court not to apply the act of state doctrine (infra, p. 444)--that we are barred from all further inquiry in this case concerning Cuba's action and, in particular, from any inquiry that would test such action by the standards of international law or the public policy of this forum.

In Sabbatino, where the Supreme Court most recently considered the act of state doctrine, it was confronted with a complete and outright expropriation of American property, a quantity of sugar, by Cuba. Nevertheless, taking into consideration the 'fluidity of present world conditions' and the division of opinion upon the 'limitations on a state's power to expropriate the property of aliens', the court was of the opinion that, whether or not an 'international standard in this area' might be discerned, the 'matter is not meet for adjudication by...