Menendez v Faber, Coe and Gregg Inc.

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Date14 June 1972
United States, District Court, Southern District, New York1

(Bryan, District Judge)

Menendez, et al.
and
Faber, Coe and Gregg, Inc., et al.

Jurisdiction In general Territorial Territorial limits of jurisdiction Expropriation Expropriation of property of Cuban nationals by Republic of Cuba Debts located in United States Whether United States courts will give effect to purported expropriation of such debts Trademark infringement Goods labelled in Cuba and sold in United States Whether infringement occurring within United States Currency regulation Whether courts of one State will give effect to exchange laws of another State The law of the United States

States as international persons In general Recognition of acts of foreign States and governments Act of State doctrine Republic of Cuba Confiscation of property of Cuban nationals in Cuba Whether act of State Whether interventors or former owners entitled to payment for property exported after date of confiscation Amounts due in respect of property exported to United States before date of confiscation Location of debts Whether United States courts will give effect to act of State in respect of debts located in United States United States public policy Currency regulations Extraterritorial effect Recovery of monies paid by mistake Jurisdiction Territorial Effects doctrine Trademark infringement Goods labelled in Cuba and sold in United States Whether infringement occurring in United States The law of the United States

Summary: The facts:On 15 September 1960 the Government of the Republic of Cuba took possession of the premises of five businesses manufacturing Havana cigars and placed them under the control of interventors. The five businesses concerned were all organized under Cuban law and almost all of the shareholders, officers, partners and owners were Cuban nationals. No compensation was paid in respect of the interventions which amounted, in effect, to expropriation. The majority of those owning

or controlling the five businesses (the owners) fled to the United States, where they commenced actions against the defendants, to whom they had supplied cigars prior to the intervention and who had subsequently obtained cigars from the interventors. The owners claimed

(1) Payment in respect of cigars supplied before the intervention;

(2) Payment in respect of cigars supplied after the intervention;

(3) Relief for infringement of the owners' trademarks in the United States.

Trial of these actions was held in abeyance pending the outcome of an action brought by the interventors against the owners' lawyers seeking to prevent the lawyers from prosecuting the owners' claims. In this action, to which the importers were not parties, the District Court held that the owners were entitled to proceed with their first and third claims but that the interventors were entitled to claim payment in respect of cigars shipped after 15 September 1960.2 The interventors and the Republic of Cuba were then permitted to become parties in the main actions. When the main actions came to trial, the principal claims were:

(1) By the owners against the importers for the price of cigars supplied prior to the date of intervention. Since the importers had paid these sums to New York banks acting for the interventors, further questions arose as to whether (a) such payment discharged the liability of the importers and (b) the importers were entitled to recover the sums thus paid from the interventors.

(2) By the interventors against the importers for the price of cigars supplied after the date of the intervention.

(3) By the owners against the interventors and the importers for alleged infringement of the owners' United States trademarks.

Held:(1) The interventors were entitled to recover from the importers the amounts due for cigars shipped by the inventors after the date of the intervention. The act of the Cuban Government in taking over the property of Cuban nationals in Cuba was an act of State and the United States courts would not question its validity.

(2) The owners were entitled to recover from the importers the price of the cigars shipped prior to the date of the intervention. The debts owed by the United States importers to the Cuban suppliers at the date of the intervention were situated not in Cuba but in the United States. The United States courts would only give effect to a confiscation of property which was within the United States at the time of the purported confiscation if that confiscation was consistent with the law and policy of the United States. The decrees of intervention in the present case were clearly contrary to the United States policy against confiscation without compensation.

(3) The fact that currency regulations in force in the Republic of Cuba restricted the right of Cuban nationals to deal in United States dollars had no bearing on the case. Such regulations did not have extraterritorial effect and could not deprive the owners of their rights in respect of debts situated in the United States.

(4) Payment by the importers to the interventors did not discharge the importers' liability to the owners. The monies paid to the interventors in

respect of the pre-intervention shipments had been paid under a mistake. The importers were, therefore, entitled to recover these sums from the interventors by way of setoff against their liability for the price of the post-intervention shipments. The act of State doctrine did not prevent this result, because the interventors' obligation to make restitution was a quasi-contractual obligation which arose in the United States. It was not a case of a contractual obligation located in Cuba, the breach of which had resulted from an act of State of the Cuban Government. Moreover, there had been no repudiation of the obligation by the Republic of Cuba, merely a failure to pay

(5) In the case of one importer, Dunhill, the amount paid to the interventors by mistake exceeded the amount due to the interventors in respect of post-intervention shipments. The act of State doctrine did not bar Dunhill from claiming this excess amount from the interventors by way of counterclaim.

(5) There had been an infringement of the owners' United States trademarks during a short period immediately after the intervention, when the interventors had supplied and the importers had marketed cigars bearing these marks. It was possible, at that time, that the owners would once again participate in the cigar business. Moreover, the fact that the cigars had been packaged and labelled in Cuba did not mean that the infringement had taken place outside the jurisdiction of the United States. Application of United States trademark law here was consistent with international law, because the harm had occurred in the United States where the cigars were sold. However, no relief would be granted, because (a) the claim for an injunction to prevent further breaches was unnecessary in view of the United States embargo on trade with Cuba, and (b) the owners were not entitled to damages as they had suffered no loss as a result of the infringement.

The following is the text of the relevant parts of the judgment:

These nine consolidated actions were tried without a jury.1 They involve complicated controversies arising out of the take-over by the Castro Government of Cuba of the five leading manufacturers of Havana cigars whose factories, businesses and principal assets were situated in Cuba, and whose products were shipped to importers in this country.

Three of these five Cuban business entities, F. Palicio y Compania, S.A. (Palicio), Tabacalera Jose L. Piedra, S.A. (Tabacalera) and Por Larranga, S.A. (Larranga), are corporations organized and existing under Cuban law.

The fourth, Cifuentes y Compania (Cifuentes), is a Cuban partnership. The fifth, Menendez, Garcia y Campania, Limitada (Menendez) is an entity unfamiliar to American law, designated as a limited liability company or a limited partnership under Cuban law. At the time of the take-over substantially all of the stockholders, officers and directors of the three corporations, the partners in the partnership and the owners of the limited liability company were Cuban citizens residing in that country. None were American citizens.

For many years these entities manufactured, in Cuba, Havana cigars which were of the highest quality and reputation throughout the cigar-smoking world.2 These cigars, sold under trademarks registered in the United States Patent Office, Cuba and other countries, were sold in large quantities to importers in the United States, principally the defendants, Faber, Coe & Gregg (Faber), Alfred Dunhill of London (Dunhill) and Saks & Company (Saks).

On September 15, 1960, the Castro Government of Cuba, acting under Cuban law, intervened these five entitiestook possession of their businesses and assets and ousted the owners and those who had managed and controlled the enterprises on their behalf. The Cuban Government designated so-called interventors for each of the entities, who assumed complete possession and control of the businesses and assets and continued to operate them on behalf of the Government, to the exclusion of the officers, directors, shareholders, partners or other persons who otherwise would have continued to manage and conduct them.

The interventions, in practical effect, were complete confiscations. The owners were ousted without their consent from all properties and excluded from any participation in the businesses. Their rights to any receipts or profits were eliminated and no compensation was provided.

Subsequent to intervention, the interventors, acting on behalf of the Cuban Government, continued to manufacture cigars in the Cuban plants taken over and continued to export them under the same names and trademarks to the defendant-importers in the United States. The importers accepted the cigars shipped by the interventors but have not as yet paid for them and substantial sums remain...

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