Libra Bank Ltd. v. Banco Nacional de Costa Rica

• Decision Date: 12 August 1983
• Docket Number: No. 81 Civ. 7624 (CBM).,81 Civ. 7624 (CBM).
• Citation: 570 F. Supp. 870
• Parties: LIBRA BANK LIMITED, Libra International Bank, S.A., Banco De La Provincia De Buenos Aires, Banco Espirito Santo E Comercial De Lisboa, Banco De Vizcaya, S.A., Banque Internationale A Luxembourg, S.A., Banque Rothschild, and the National Bank of Washington, Plaintiffs, v. BANCO NACIONAL DE COSTA RICA, S.A., Defendant.
• Court: U.S. District Court — Southern District of New York

570 F. Supp. 870

LIBRA BANK LIMITED, Libra International Bank, S.A., Banco De La Provincia De Buenos Aires, Banco Espirito Santo E Comercial De Lisboa, Banco De Vizcaya, S.A., Banque Internationale A Luxembourg, S.A., Banque Rothschild, and the National Bank of Washington, Plaintiffs, v. BANCO NACIONAL DE COSTA RICA, S.A., Defendant.

No. 81 Civ. 7624 (CBM).

United States District Court, S.D. New York.

July 6, 1983.

Memorandum Opinion and Order August 12, 1983.

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Sage, Gray, Todd & Sims by Jerry J. Strochlic, Stuart A. Krause, New York City, for plaintiffs.

White & Case by Jeffrey A. Barist, Diane Dimond, New York City, for defendant.

AMENDED AND SUPPLEMENTAL OPINION

MOTLEY, Chief Judge.

Plaintiffs bring this action to recover their share of principal amounts, plus interest, of a $40 million loan made by sixteen banks, including seven of the plaintiffs herein, to defendant Banco Nacional de Costa Rica (Banco Nacional). Plaintiffs have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, seeking an order requiring Banco Nacional to repay the principal amounts, plus interest, allegedly due under the promissory notes issued in connection with the loan. As its sole defense, Banco Nacional asserts that it is barred from repayment by an act of the Costa Rican government and that this court is barred from entering the requested order by the act of state doctrine. Also before the court is plaintiff's motion for an order compelling Banco Nacional to return and deposit $2.5 million with the Clerk of the Court as partial security for any judgment entered against Banco Nacional. Plaintiffs claim that this order is warranted because defendant allegedly absconded with such funds in an effort to avoid an order of attachment. For the reasons set forth below, plaintiffs' motion for summary judgment is granted but the motion to compel defendant to return its assets is denied.

Background

In or about December, 1980, Libra Bank Limited (Libra Bank), a banking corporation organized under the laws of the United Kingdom with a representative office in New York City, acted as an agent for sixteen banks¹ in the making of a $40 million loan to Banco Nacional, a banking concern wholly owned by the Costa Rican government, in order to provide pre-export and export financing of sugar and sugar products from Costa Rica. In connection with this loan, Banco Nacional entered into a loan agreement with plaintiffs. The agreement provided, inter alia, that the loan would be repaid in four successive installments to occur on July 30, August 30, September 30 and October 30, 1981.

After the loan agreement was executed, Banco Nacional drew down the full $40 million loan proceeds by requesting Libra Bank to credit Banco Nacional's account at a bank in New York City with such funds. Libra Bank subsequently honored that request pursuant to paragraph two of the loan agreement. On July 30, 1981, Banco Nacional paid Libra Bank the sum of $5 million plus interest in satisfaction of the first installment due under the loan agreement and the promissory notes executed thereon. Banco Nacional continued to pay interest until August 18, 1981. From that day forward, Banco Nacional has made no further payments.

According to Banco Nacional, it was prevented from honoring the loan agreement by a resolution adopted by the Central Bank of Costa Rica on August 27, 1981, three days before the second payment was due.² The resolution was adopted in an effort to remedy Costa Rica's problems in servicing its external debts, i.e. debts to foreign creditors in foreign currency.³ According to Banco Nacional, Costa Rica's banking laws require all foreign exchange transactions to be authorized by the Central Bank of Costa Rica. The August 27th resolution adopted by the Central Bank provided that only repayments of external debts to multilateral international agencies would be authorized.⁴ Banco Nacional's requests for foreign currency in order to repay plaintiffs' loan was denied by the Central Bank.⁵ On November 24, 1981, the President and the Minister of Finance issued a decree providing that the Republic and all public sector entities, including Banco Nacional, could not pay principal or interest on external debt in foreign currency without the prior approval of the Central Bank in consultation with the Minister of Finance.⁶ The alleged effect of these decrees was to prevent Banco Nacional from repaying its loan to plaintiffs.

On September 14, 1981, plaintiffs obtained an order issued by the Supreme Court of the State of New York, County of New York, requiring defendant to show cause why an order of attachment should not be entered attaching the property of Banco Nacional in New York State. Defendant subsequently defaulted. On November 12, 1981, the application for an order of attachment was granted. Thereafter, the Sheriff of New York County levied upon the bank accounts of Banco Nacional in various banks in New York. Plaintiffs were able to attach approximately $800,000 held by defendant in various accounts.

On December 8, 1981, after levy had been made by the Sheriff, defendant removed the action to this court. Defendant also moved to dismiss for lack of in personam jurisdiction based on insufficiency of process⁷ and to vacate the order of attachment. On December 11, 1981, plaintiffs moved to remand this case to the state court on the ground that this court lacked subject matter jurisdiction. The motion was denied. See Libra Bank Limited, et al. v. Banco Nacional de Costa Rica, S.A., No. 81 Civ. 7624 (S.D.N.Y. Dec. 18, 1981). Before the scheduled date for argument on defendant's motion to vacate the attachment, defendant brought on by order to show cause a motion to expedite consideration of its motion. This court granted the motion to expedite and by opinion dated December 22, 1981, this court granted the motion on the ground that Banco Nacional had not waived its immunity to pre-judgment attachment. Libra Bank Limited, et al. v. Banco Nacional de Costa Rica, S.A., No. 81 Civ. 7624 (S.D. N.Y. Dec. 22, 1981).

On April 12, 1982, the Second Circuit vacated this court's order noting, inter alia, that the authority relied on by the District Court, is "not controlling on this Court." Libra Bank Limited, et al. v. Banco Nacional de Costa Rica, S.A., 676 F.2d 47, 50 (2d Cir.1982). Thereafter, plaintiffs attempted to have the United States Marshal levy on the same banks upon which the New York Sheriff had levied as well as a number of other banks. Plaintiffs discovered, however, that Banco Nacional no longer maintained accounts at any of those banks and had no other accounts in any New York banks.

Plaintiffs then brought the instant motions for summary judgment and for an order requiring defendant to return its assets.

I.

A motion for summary judgment may be granted when 1) there are no disputed issues of material fact requiring trial and 2) the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); New York State Energy Research and Development Authority v. Nuclear Fuel Service, 666 F.2d 787, 789 (2d Cir.1981).

Banco Nacional has submitted the affidavit of its Assistant General Manager, Alvaro Santisteban Castro, in opposition to plaintiffs' motion for summary judgment. An examination of Santisteban's affidavit and defendant's memoranda indicates that Banco Nacional's opposition to the motion is based on its view that the events occurring on August 27 and November 24, 1981, in Costa Rica constitute a defense to repayment under the act of state doctrine and that in any event material issues of fact exist with respect to these events. Plaintiffs claim that any factual disputes with respect to these events are immaterial. They claim that even if the court credits Banco Nacional's version of the facts that the Costa Rican decrees prevented it from obtaining foreign currency, the act of state doctrine is no defense to liability in this case because 1) the act of state doctrine applies only when the foreign state expropriates property within its own territorial boundaries — since the situs of the property in question is in the United States this court need not abstain from examining the acts' validity; and 2) even if the act of state doctrine does apply, this case falls within the commercial activity exception to that doctrine so that the court need not abstain from examining those acts.

A. The Act of State Doctrine

The early cases charting the development of the act of state doctrine viewed that doctrine as being rooted in principles of sovereign immunity. See 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."); Oetjen v. Central Leather Co., 246 U.S. 297, 38 S.Ct. 309, 62 L.Ed. 726 (1918); Ricaud v. American Metal Co., 246 U.S. 304, 38 S.Ct. 312, 62 L.Ed. 733 (1918); see generally Note, Rehabilitation and Exoneration of the Act of State Doctrine, 12 N.Y.U.L.J. Int'l Law & Pol. 599, 600-610 (1977) (early history and development of the doctrine). Some forty years after the doctrine's first pronouncement by Chief Justice Fuller in Underhill v. Hernandez, the Cuban revolution and the legal disputes arising from those events led the Supreme Court to rethink the doctrine. See Banco Nacional de Cuba v. Sabbatino, 193 F.Supp. 375 (S.D.N.Y.1961), aff'd, 307 F.2d 845 (2d Cir.1962), rev'd, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), on remand sub nom. Banco Nacional de Cuba v. Farr, 243 F.Supp. 957 and 272 F.Supp. 836 (S.D.N.Y.1965), aff'd, 383 F.2d 166 (2d Cir. 1967), cert. denied, 390 U.S. 956, 88 S.Ct. 1038, 19 L.Ed.2d 1151 (1968).

In Banco Nacional de Cuba v. Sabbatino, 376 U.S....