Menendez v. Saks and Company

• Decision Date: 24 September 1973
• Docket Number: 72-2391,72-2385,No. 872,72-2401 and 72-2402.,880,72-2392,72-2400,Dockets 72-2378,72-2379,72-2390,872
• Citation: 485 F.2d 1355
• Parties: Alonso MENENDEZ et al., Owner-Plaintiffs-Appellants, The Republic of Cuba and Daniel Solano Pinera as Interventors, et al., Interventor-Plaintiffs-Appellants, v. SAKS AND COMPANY et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

485 F.2d 1355 (1973)

Alonso MENENDEZ et al., Owner-Plaintiffs-Appellants The Republic of Cuba and Daniel Solano Pinera as Interventors, et al., Interventor-Plaintiffs-Appellants, v. SAKS AND COMPANY et al., Defendants-Appellants.

Nos. 872, 880, Dockets 72-2378, 72-2379, 72-2385, 72-2390, 72-2391, 72-2392, 72-2400, 72-2401 and 72-2402.

United States Court of Appeals, Second Circuit.

Argued June 19, 1973.

Decided September 24, 1973.

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Jac M. Wolff, and Myron Cohen, New York City, for owner-plaintiffs-appellants.

Allan Blumstein, New York City (Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel), for defendant-appellant Faber, Coe & Gregg, Inc.

Victor S. Friedman, New York City, (Fried, Frank, Harris, Shriver & Jacobson, New York City, of counsel), for defendant-appellant Alfred Dunhill of London, Inc. John C. Grosz, New York City (Solinger & Gordon, New York City, of counsel), for defendant-appellant Saks and Co.

Victor Rabinowitz, New York City (Dorian Bowman, Eric Lieberman, Herbert Jordan, Rabinowitz, Boudin & Standard, New York City, of counsel), for interventor-plaintiffs-appellants.

Before FRIENDLY, FEINBERG and MANSFIELD, Circuit Judges.

MANSFIELD, Circuit Judge:

This appeal presents questions arising out of the Castro government's seizure, without compensation, of the businesses and assets of five leading manufacturers of Havana cigars, whose plants were situated in Cuba and whose products were shipped to importers in this country. At the time of the take-over substantially all of the stockholders, officers, directors and partners of these enterprises were Cuban citizens. Prominent among the issues before us is the extent to which the "act of state" doctrine, see Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), requires us to give effect (1) to Cuban decrees confiscating debts payable in the United States and (2) to acts of agents of the Cuban government who repudiated quasi-contractual obligations arising out of payments mistakenly made to them by United States importers.

Since the facts are thoroughly set forth in Judge Bryan's detailed opinion, 345 F.Supp. 527-564 (S.D.N.Y.1972), we here summarize only those highlights required for an understanding of our decision. On September 15, 1960, the Castro government of Cuba nationalized ("intervened")¹ five manufacturers of Cuban cigars ("the owners"): F. Palicio y Compania, S.A. ("Palicio"); Tabacalera Jose L. Piedra, S.A. ("Tabacalera"); Por Larranga, S.A. ("Larranga"); Cifuentes y Compania ("Cifuentes"); Menendez, Garcia y Compania, Limitada ("Menendez"). For many years prior to intervention these manufacturers had produced cigars of the highest quality and reputation, bearing trademarks registered in the United States Patent Office, Cuba and other countries, and had sold the cigars to importers in the United States, principally appellants-defendants, Faber, Coe & Gregg ("Faber"), Alfred Dunhill of London ("Dunhill"), and Saks & Company ("Saks"). The importers paid for these cigars in U.S. dollars by checks drawn on New York banks and made payable either: (1) to the Cuban exporter; (2) to a New York bank acting as the exporter's collecting agent; or (3) to the order of the Cuban exporter and/or the New York collecting bank. Payments made to the New York collecting banks were transmitted by those banks to Banco Nacional de Cuba which in turn credited the exporters with pesos in their own Cuban banks.²

Upon the Cuban government's "intervention" the owners were immediately ousted and that government designated persons called "interventors" as its agents to manage the businesses. The interventors continued to export the cigars under the same names and trademarks to the same importers in the United States. The importers continued to make several payments through the usual channels but most of these payments were intended to cover only the amounts still owing for preintervention shipments. While the importers accepted the cigars shipped after intervention, they did not pay for most of them. Shipments from Cuba to the importers continued until February, 1961, when relations between the importers and interventors deteriorated for various reasons. In February, 1962, the United States declared an embargo against future trade with Cuba.

Immediately after the Cuban government's seizure of their businesses, the owners fled to the United States and retained the New York law firm of Brush & Bloch to bring several actions against the importers in New York for sums due for cigars shipped from the owners' factories in Cuba and for trademark infringement. Shortly after these actions were started, the interventors sought to enjoin Brush & Bloch from prosecuting the suits and to obtain an order substituting attorneys appointed by the interventors in lieu of Brush & Bloch as the counsel entitled to prosecute whatever claims the cigar factories had against the importers. The interventors' principal concern was to collect the sums due for cigars shipped after the intervention. They believed that the sums due for cigars shipped before the intervention were minimal, and they agreed that the owners could pursue these.

In Palicio v. Brush & Bloch, 256 F. Supp. 481 (S.D.N.Y.1966), Judge Bryan concluded that the act of state doctrine, which had been reaffirmed by the Supreme Court in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964),³ precluded him from denying legal effect to the intervention insofar as it purported to confiscate the property of Cuban nationals located within Cuba.⁴ Since the cigars shipped after the intervention had been located in Cuba at the time of the intervention, he held that the intervention was effective to transfer title to the interventors and that they rather than the owners were entitled to pursue the claims against the importers for payment for these post-intervention shipments. However, he further concluded that the intervention was not effective to deprive the owners of their trademark rights, since these trademarks were registered in the United States and had a "situs" there at the time of the intervention. Accordingly, Judge Bryan held, the owners were entitled to pursue their claims for trademark infringement. Paragraph 4 of Judge Bryan's judgment order also included the parties' agreement as to the preintervention shipment proceeds.

Palicio was concerned only with the effect of the intervention on the rights of the interventors and owners vis-a-vis each other. The several actions initially brought by the owners against the importer were held in abeyance pending a determination of these rights and then were adjusted to conform to the Palicio decision, which was affirmed by this court. 375 F.2d 1011 (2d Cir.), cert. denied, Brush v. Republic of Cuba, 389 U.S. 830, 88 S.Ct. 95, 19 L.Ed.2d 88 (1967).

After Palicio was decided, the interventors (including the Republic of Cuba) were permitted to intervene as additional parties plaintiff in the owners' actions against the importers. Ignoring their previous agreement entered into during the Palicio litigation, the interventors asserted claims for preintervention as well as post-intervention shipment proceeds. They refused to stipulate that they had received any more than $93,000 of approximately $477,000 that had been paid by the importers after intervention for cigars received before intervention. The interventors did not deny that they had received these payments. They said merely that they could not determine from their records whether they had or had not received them.

After trial of the various claims, cross-claims, and counterclaims in this three-cornered dispute, Judge Bryan, sitting without a jury, held that the earlier Palicio judgment did not bar the interventors under the doctrines of res judicata or collateral estoppel from claiming the right, as between themselves and the owners, to the payments made by the importers for the preintervention shipments. He concluded that there had not been an adjudication of this issue because at the time of the Palicio agreement the parties and the court were mistaken as to the amounts possibly still owing for preintervention shipments and the parties' agreement as to who could pursue these claims had actually taken the issue out of the case. On the merits, however, he held that the owners were entitled to these proceeds because the accounts receivable from the importers at the time of the intervention were not part of the owners' property effectively seized by the intervention. He concluded that the importers were not relieved of this liability to the owners by previous payments to the New York collecting banks because at the time when the payments were made the collecting banks were acting as agents for the interventors rather than for the owners and the interventors in fact had received the payments. The sums due from the importers to the owners for the preintervention shipment of cigars were approximately: Faber, $322,000; Dunhill, $148,000; Saks, $6,600. Judge Bryan allowed interest on these sums running from the date when the owners had instituted the various actions for their collection in 1961.

Judge Bryan held further that the importers were liable to the interventors for the value of cigars shipped after intervention. The sums due were approximately: Faber, $582,588; Dunhill, $92,949; Saks, $24,250. Interest was allowed on these amounts from the date the interventors had commenced Palicio v. Brush & Bloch. Judge Bryan ruled, however, that the importers were entitled to an offset and affirmative judgment against the interventors for the amounts that had been mistakenly paid by them to the interventors instead of to the owners for the preintervention shipments. The interventors, Judge Bryan concluded, had no right to retain these payments, and must repay them...