Document: 462 U.S. 611 103 S.Ct. 2591 77 L.Ed.2d 46 FIRST NATIONAL CITY BANK, Petitionerv.BANCO PARA EL COMERCIO EXTERIOR DE CUBA. No. 81-984. Argued March 28, 1983. Decided June 17, Syllabus In 1960, the Cuban Government established respondent to serve as an official autonomous credit institution for foreign trade with full juridical capacity of its own. Respondent sought collect on a letter issued by petitioner bank in respondent's favor support contract delivery sugar buyer United States. Shortly thereafter, all petitioner's assets Cuba were seized and nationalized Government. When brought suit Federal District Court, counterclaimed, asserting right set off value assets. After was but before filed counterclaim, dissolved capital split between Banco Nacional, Cuba's central bank, certain enterprises or houses Ministry Foreign Trade. Rejecting contention that separate status shielded it from liability acts Government, Court held since exceeded claim, setoff could be granted favor, therefore dismissed complaint. The Appeals reversed, holding w § not alter ego purpose counterclaim. Held: Under principles equity common international law federal law, may apply claimed setoff, notwithstanding fact entity. Pp.619-633. (a) Sovereign Immunities Act 1976 does control determination whether setoff. That intended affect substantive determining state instrumentality, attribution among such instrumentalities. Pp. 619-621. (b) Duly created instrumentalities are accorded presumption independent status. This overcome, however, where giving effect corporate form would permit sole beneficiary claim pursued States courts while escaping opposing party imposed law. 623-630. (c) Thus, here, status, even though has long been dissolved, real action, obtain relief our own without waiving sovereign immunity answering seizure violation will blindly adhered doing so cause injustice. Having transferred entities liable cannot escape simply retransferring entities. To hold otherwise governments avoid requirements creating whenever need arises. 630-633. 658 F.2d 913 (2nd Cir.1981), reversed remanded. Henry Harfield, New York City, petitioner. Richard G. Wilkins, Washington, D.C., U.S., amicus curiae, pro hac vice, special leave Court. Michael Krinsky, respondent. Justice O'CONNOR delivered opinion 1 1960 Republic Para El Comercio Exterior de (Bancec) "[a]n . ." Law 793, Art. (1960), App. Pet. Cert. 2d. September Bancec First National City Bank (now Citibank) Within days after Citibank received request collection, question us is Applying we conclude 2 * Resolution presented this case requires describe some detail events rise current controversy. 3 April 25, legal successor Cubano del (Cuban Trade Bank), trading 1954 jointly owned private banks. 793 contains detailed "By-laws" specifying Bancec's purpose, structure, administration. stated "to contribute to, collaborate with, policy application measures concerning adopted 'Banco Nacional Cuba,' " (Banco Nacional). 1, VIII, 4d. empowered act Government's exclusive agent trade. supplied stock. General Treasury profits, deduction amounts reserves. A Governing Board consisting delegates governmental ministries governed managed Bancec. Its president Ernesto Che Guevara, who also Minister State Nacional. Manager appointed charged directing day-to-day operations manner consistent enabling statute. 4 contracts signed August 12, agreed purchase quantity Institutio Reforma Agraria (INRA), instrumentality which operated industry, sell Canadian Sugar Company. latter sale agreement supported irrevocable 18, assigned collection. 5 Meanwhile, July enacted 851, provided nationalization properties citizens. By ordered property three banks, including Citibank, through forced expropriation. "Bank Nationalization Law," 891, October 13, declared banking function carried only State, nationalization. 6 On about 15, banks nationalized, draft payment amount $193,280.30 at Pascagoula, Mississippi. 20, branches credited requested Nacional's account applied balance against branches. 7 February 1961, diversity action recover Southern York. 8 23, 930, "the Trade," 934 same day.1 16d. All rights, claims, "peculiar business" vested succeeded obligations. Ibid. "trading functions" assumed Trade." dated Empresa Cubana Exportaciones Enterprise Exports) (Empresa), conduct commercial export transactions formerly conducted "remaining subrogated rights obligations said [Bancec] regards activities." 26d. Three hundred thousand two million pesos distributed when Empresa. Id., 27d. 102, December 31, January 1962, relating commerce Exportadora Azucar y sus Derivados (C ba Zucar), company, apparently still existence. 9 8, had answer, branches, affirmative recovery damages.2 7, stipulation parties stating Trade, agreeing substituted plaintiff. approved stipulation, no amended complaint filed. 10 Apparently lay dormant until May 1975, motion seeking order substituting Zucar affidavit counsel passed Zucar, operation laws resolutions cited above. Counsel opposed motion, denied substitution multiply complications already complicated litigation." 160. 11 bench trial 19773, Court4 judgment Citibank. 505 F.Supp. 412 (1980). court rejected 12 "Under relevant circumstances shown record, clear lacked existence, mere arm performing purely function. exclusively hands solely further Governmental purposes. Moreover, totally dependent financing required remit profits 13 14 corporation, stock agency sort matters country characterized capitalism, tend supervised Where equities strong counter-claiming defendants, they case, should recognize practicalities transactions. concludes Government." 427-428. 15 Without exact Citibank's Cuba, confiscated substantially exceeds sums recovered, set-off pleaded here Citibank." 467. It entered dismissing complaint.5 16 Second Circuit reversed. Cir.1981). While expressing Court's "descriptions functions wholly-owned government," concluded "Bancec government [Citibank's] counterclaims." 917. that, general matter, respect identity "a distinct entity under owns it"—except "when subject matter counterclaim assertible key role." 918. As example situation v. Bank, 478 191 (CA2 1973), ruled Naciona way because role played expropriations. But declined corporation wholly government, operating entity, wrongs unrelated operations, authority instrumentality." F.2d, 920.6 17 moved rehearing, arguing, inter alia, panel ignored 1961. suggestion rehearing en banc, denied. certiorari. --- ----, 253, 74 198 (1982). We reverse, remand proceedings. II A. 18 initial contends 1976, 28 U.S.C. §§ 1602-1611 (1976 ed.) (FSIA), immunizes based actions taken government. correctly concedes 1607(c)7, bringing entitled "with any counterclaim—. extent seek exceeding differing kind [instrumentality.]" contends, FSIA prohibits controlled responsible 19 disagree. language history clearly establish state. Section 1606 provides part "[a]s ., shall individual like circumstances. House Report states: 20 "The bill liability. Nor responsibility state; example, proper sued, sued whole wrong." H.R.Rep. 94-1487, p. (1976), U.S.Code Cong. & Admin.News pp. 6604, 6610.8 21 claim. Nevertheless, resolution guided policies articulated Congress enacting FSIA. See infra, 627-628. B 22 must next decide body determines given internationally recognized conflict-of-law require establishes instrumentality—here Cuba—to determine sovereign. 23 agree. incorporation normally issues internal affairs corporation. Application achieves certainty predictability result generally protecting justified expectations interests Restatement (Second) Conflict Laws 302, Comments e, (1971). Cf. Cort Ash, 422 66, 84, 95 2080, 2090, 45 26 (1975). Different conflicts apply, third external issue. Laws, supra, 301.9 give conclusive chartering respected violate impunity effectively insulating itself courts.10 decline result.11 24 alternative presented. other hand, suggests governs. expropriation seeks interpose arises which, have frequently reiterated, "is Paquete Habana, 175 677, 700, 290, 299, 44 L.Ed. 320 (1900). forth below, see 624-630 nn. 19-20, governing both these necessarily informed congressional policies. III 25 Before examining controlling principles, preliminary observation appropriate. amici repeatedly referred phrases tended dominate discussion separately constituted entities, debating pierce veil," "alter ego" "mere instrumentality" Berkey Third Avenue Railway Co., 244 N.Y. 155 N.E. 58 (1926), (then Judge) Cardozo warned similar those permitting worn epithets substitute rigorous analysis. problem relation parent subsidiary corporations one enveloped mists metaphor. Metaphors narrowly watched, starting devices liberate thought, end often enslaving it." 94, N.E., 58. 27 With mind, examine briefly nature instrumentalities.12 Increasingly during century, throughout world perform variety tasks.13 organization vary considerably, many possess number features. typical if can exist, statute prescribes powers duties specifies board selected typically sue sued. Except appropriations provide cover losses, primarily finances. run economic enterprise; budgetary personnel agencies comply.14 29 These distinctive features manage their enterprise basis granting them greater degree flexibility independence close political than enjoyed agencies.15 prompt developing countries vehicles financial resources needed make large-scale national investments. 30 "[P]ublic enterprise, largely development corporations, become essential instrument economically backward insufficient venture develop utilities industries priority plan. Not infrequently, public directly subsidiaries, enter into partnerships enterprises, offer shares public." Friedmann, "Government Enterprise: Comparative Analysis" Study 333-334 (W. Friedmann J.F. Garner eds. 1970). 31 Separate personality described "an almost indispensable aspect corporation." 314. Provisions charter construed waive activities, thereby deal knowing courts.16 Similarly, instrumentality's liabilities treated facilitate parties. 315. Thus what Anderson Abbott, 321 349, 64 531, 88 (1944), true corporations: 32 "Limited rule, exception; assumption large undertakings rested, vast launched, huge attracted." 362, S.Ct., 537. 33 Freely ignoring substantial uncertainty over diverted satisfy sovereign, might hesitate extending government's guarantee.17 result, efforts soverei n nations structure activities deemed necessary promote efficient administration surely frustrated. Due sovereigns comity nations, Hilton Guyot, 159 113, 163-164, 139, 143, 40 (1895), leads conclude—as Great Britain circumstances18—that such. 34 find conclusion legislative Act. During deliberations, expressed intention duly 1610(b), provision dealing creditor execute upon 35 "Section 1610(b) execution another, instrumentality. There compelling reasons this. If did identities different instrumentalities, encourage jurisdictions disregard divisions subsidiary. However, really another." 29-30, 6628-6629 (citation omitted). 36 buttressed determination. overcome 37 discussing States19 abroad20, incorporated entity—described Chief Marshall artificial being, invisible, intangible, existing contemplation law"21—is regarded legally owners extensively owner relationship principal created, other. NLRB Deena Artware, Inc., 361 398, 402-404, 80 441, 443, 400 (1960). addition, cases broader equitable principle doctrine most purposes, do work fraud injustice." Taylor Standard Gas 306 307, 322, 59 543, 550, 83 669 (1939). Pepper Litton, 308 295, 310, 60 238, 246, 84 281 (1940). particular, consistently refused interposed defeat E.g., Abbot, 362-363, 537-38. And, Bangor Punta Operations, Inc. Aroostook Railroad 417 703, 94 2578, 41 418 (1974), concluded: 38 "Although shareholders disregarded justice used overriding policy. [W]here preclude maintaining right, precluded. [T]he estopped complaining petitioners' alleged wrongs, command guise proceeding name controls." 713, 2584 (citations C 39 today here. China, 348 356, 75 423, 99 389 (1955), asserts court, consideration fair dealing" bars defense 365, 429. 1607(c). therefore, bring subjecting adversary's Here there dispute found, agreed, 916, n. 4, devolution [Bancec's] however viewed, brings [of Trade], Nacional," each F.Supp., 425.22 194. answer consolidation social conquests Revolution," particularly 891.23 relied identity, beneficiaries recovery.24 view, china case. "We invoking resisting fairly curtail recovery. wants litigant, free claims justice." 361-362, 427 (footnote omitted).25 42 Giving circumstances, assets—a previously violated law.26 adhere 2584. 43 transfer insulates entitles. Germany Elicofon, 358 747, 757 (EDNY 1972), aff'd, 231 cert. denied, 415 931, 1443, 489 (1974). supra. IV Our decision announces mechanical formula disregarded.27 Instead, product injustice reap benefits avoiding law.28 determined challenged appeal, reach question. remains open remand. remanded proceedings opinion. ordered. 47 STEVENS, whom BRENNAN BLACKMUN join, concurring dissenting part. 48 Today rejects American readily "pierce veils" functions. Accordingly, I join Parts I, II, III-A, III-B respectfully dissent Part III-C, endeavors enunciated. Instead vacate 49 acknowledges, evidence focus factual issue now dispositive. Only single witness testified Bancec' operational autonomy. record included English translations various statutes resolutions, expert testimony significance documents. Finally, notes, includes 1961 1975 Ante, 616-617, 3. me materials made available sufficient enable 50 relies heavily statement Nacional." dispositive significance, inquiry either account, arguably six most, interval promulgation 930 issuance 1. thus possible documents reflected single, integrated plan reorganization out six-day period, resulted vesting specified new, juridically Empresa.1 Respondents argue trustee, "entrusted bound new empresa [foreign enterprise]. having acted capacity." Brief 57. 51 Of course, reached correct assessment continue believe resolved more accurately judges, sparse uninformative.2 "[a]ll mercantile character heretofore hereby up hereunder, former pursuance assignment Minister." 24d. "brought benefit integral indistinguishable Cuba." 113. bulk directed recovered successfully asserted 1973) ), 406 759, 92 1808, 466 (1972). witness, Raul Lopez, touching (A second Juan Sanchez, predecessor. 185-186.) called Bancec, served lawyer 1953 1965, he went Ministry. He 197. According Lopez net reserves, paid Treasury, pay taxes 196. took well file "for worth," acknowledged representation "erroneous" interpretation 207-209. Judge vanPelt Bryan, tried, died issuing decision. parties' consent, Brieant decided earlier 412, surrounding dissolution "naturally inject 'real interest' claim," attached "no validity arguments concept." 425. indicated asset, peculiar business, accordingly, probably 424. Noting Appeals, affirmed ruling assets, "[T]he Ministry, [W]e accept present plaintiff's 6th [1961] permitting, requiring, service appear plaintiff lieu counsel's erroneous assumption, providing Assuming true, moment. minister member." 425 (emphasis original). footnote, listed successors, event. 4. part, 1607 provides: "In counterclaim— state." 1607, "foreign state" "agency 1603(a). 1607(c) codifies (1955). (1976). 6627 (in deciding immune attachment 1610(a)(2), "[t]he 'in custody of' 'of' whethe [and] state.") Hadari, Choice Applicable Multinational Nationality Such Enterprises, 1974 Duke L.J. 15-19. 539, (1944) (declining complied endow creatures power place themselves above announced"). Pointing 1606, ante, 620, identical Tort Claims (FTCA), 2674 ed.), alternatively FSIA, FTCA, forum state—here York—including principles. circumstances." rule individuals, states silent, Sabbatino, 376 425, 923, 938, 804 (1964), York's state, concluding bearing nation's relations "should left divergent perhaps parochial interpretations." expressly importance uniform law" amenability courts. 32. Verlinden B.V. Central Nigeria, 1969, 81 (1983). considerations Although never consider considered contexts, none See, e.g., Keifer Reconstruction Finance Corp., 381, 516, 784 (1939) (determining intend chartered Corporation suit). 306-307 D. Coombes, Business Politics? (1971) (United Kingdom); Dallmayr, Public Semi-Public Corporations France, Con emp. Prob. 755 (1961); J. Quigley, Soviet Monopoly 48-49, 119-120 (1974); Seidman, "Government-sponsored States," Political Economy 85 (B. Smith ed. 1975); Supranowitz, State-Owned Enterprises Socialist Contemp.Prob. 794 Nations Department Economic Social Affairs, Organization, Management Supervision Developing Countries 63-69 (1974) (hereinafter Study); A.H. Walsh, Public's Business: Politics Practices 313-321 (1978) (Europe). 334; Study, 63-65. President Franklin Roosevelt Tennessee Valley Authority, best known clothed possessed initiative enterprise." Cong.Rec. 1423 (1933). Thurston, Proprietary English-Speaking (1937). 43-44. nations. Planters' Georgia, (22 U.S.) Wheat. 904, (1824); Tamlin Hannaford, [1950] K.B. (C.A.). Posner, Rights Creditors Affiliated Corporations, U.Chi.L.Rev. 499, 516-517 (1976) (discussing corporations). British courts, applying embraced universally acceptable, marked reluctance attribute Congreso Partido, [1983] A.C. 244, so-called "restrictive" state-owned Cubazucar, Lord Wilberforce instrumentalities: "State-controlled personality, ability well-known feature modern scene. distinction them, artificial: accepted states. Quite state-controlled acting directions exercising functions, other." 258 Later his opinion, organizations attributed familiar answerable actions." 271. Trendtex Trading Corp. [1977] Q.B. 529 Appeal Nigeria organ" Nigerian assert immunity. 559. C. Czarnikow, Ltd. Rolimpex, [1979] 351, Lords Polish sold overseas, force majeure breach sugar. Rolimpex defended ground instituted ban below absence "clear definite findings" "purely extricate contractual liability," organ concluded, closely connected Poland precluded relying [on sales] intervention. 364. W.M. Fletcher, Cyclopedia Private (rev. perm. 1974): "[A] looked reason contrary appears; but, notion convenience, justify wrong, protect fraud, defend crime, regard association persons." 166 (footnotes generally, H. Henn, Handbook 146 (2d 1970); I.M. Wormser, Disregard Corporate Fiction Allied Problems 42-85 (1927). Case Concerning Barcelona Traction, Light Power 1970 I.C.J. 3, International exceptional circumstances: "Forms sometimes employed purposes serve; unable entrusted it; inevitably arisen dangers abuse, institutions Here, then, elsewhere, confronted realities, protective remedies within outside dealings it: existence absolute. context process 'lifting veil' 'disregarding entity' found wealth practice accumulated municipal indicates veil lifted, instance, prevent misuse privileges malfeasance, persons purchaser, evasion accordance expounded above, lifting veil, being admitted making, equally admissible play 38-39. European Cohn Simitis, "Lifting Veil" Company Continent, Int. Comp.L.Q. 189 (1963); Structure Enterprise, 71 Mich.L.Rev. 729, 771, 260 (1973). Trustees Dartmouth College Woodward, (17 514, 636, 629 (1819). failure findings aftermath, denying precludes dissolution. hear credit, inquiry. rely counterclaim—undisputed facts ascertainable orders offered Zucar. dissolving following recitations: "WHEREAS, Revolutionary Program Revolution resulted, short time, profound changes considerable institutional transformations economy. specially significant due transcendence fields, virtue hereafter province restructuration centralized system, [Banco Nacional], foster stimulation productive Nation accumulation thereof, reasonable utilization. 14d-15d. agree Assets Control Regulations, CFR 515 (1982), frozen pending settlement Cuba. 770-773, 1814-1816 (Douglas, J., result); 747 court. holding, reasoned, "would non-recognized use 'juridical entities' arises." 757. adopted, Solicitor urge standard turns performed "governmental function." adopt grounds. observe concept "usual" "proper" time varies nation nation. States, 326 572, 580, 66 313, 90 (1945) (opinion Frankfurter, J.) ("To rest taxing 'normally' contradiction 'usual' too shifting constitutional entangled expediency dependable criterion"); id., 586, 316 (Stone, C.J., concurring); 591, 318 dissenting). Legal Status Organization Corporation, 576, 589-591 (1951). suggest, believe, doctrine, contend inquiring motives incorporating 16-18. contention, assessment. provided, "trade 16d, 104. 934, correspondingly, stated, "All preamble explained "that Bank." Nothing elucidates precise transactions, explains how exercised interval. 132-137. 632. Petitioner citizens whose minimize losses retaining purchaser deposited paying merchandise, course. won lawsuit, retain money. contentions rejected, money placed fund comprised d stributed equitably victims nationalizations. 632, 24. Even suffered serious militate preference participation discrete, completed, transaction involving load

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