Source: https://m.openjurist.org/348/us/356
Timestamp: 2020-04-06 11:49:39
Document Index: 282863792

Matched Legal Cases: ['§ 747', '§ 747', '§ 3', '§ 2406', '§ 2406', '§ 1346', '§ 1346', '§ 2502', '§ 2502', '§ 785', '§ 785']

348 U.S. 356 - National City Bank of New York v. Republic of China
348 US 356 National City Bank of New York v. Republic of China
The NATIONAL CITY BANK OF NEW YORK, Petitioner,
The REPUBLIC OF CHINA et al.
(b) The Republic of China is apparently suable on contract claims in its onw courts,10 and Americans have the same rights as Chinese in those courts.11 No parochial bias is manifest in our courts which would make it an affront to the 'power and dignity' of the Republic of China for us to subject it to counterclaims in our courts when it entertains affirmative suits in its own. Decisions of the Chinese courts which seem to grant absolute immunity from direct suit to foreign sovereigns12 are inapposite in this context and in light of our State Department's reluctance to raise the defense of sovereign immunity in foreign courts, see 26 Dept.State Bull. 984, 985 (1952); cf. 41 Stat. 527, 46 U.S.C. § 747, 46 U.S.C.A. § 747.
(d) It is recognized that a counterclaim based on the subject matter of a sovereign's suit is allowed to cut into the doctrine of immunity.13 This is proof positive that the doctrine is not absolute, and that considerations of fair play must be taken into account in its application. But the limitation of 'based on the subject matter' is too indeterminate, indeed too capricious, to mark the bounds of the limitations on the doctrine of sovereign immunity. There is great diversity among courts on what is and what is not a claim 'based on the subject matter of the suit' or 'growing out of the same transaction.' See Clark, Code Pleading (2d ed.) 653—660; cf. United States v. National City Bank of New York, 2 Cir., 83 F.2d 236. No doubt the present counterclaims cannot fairly be deemed to be related to the Railway Agency's deposit of funds except insofar as the transactions between the Republic of China and the petitioner may be regarded as aspects of a continuous business relationship. The point is that the ultimate thrust of the consideration of fair dealing which allows a setoff or counterclaim based on the same subject matter reaches the present situation. The considerations found controlling in The SchoonerExchange are not here present, and no consent to immunity can properly be implied. This conclusion was anticipated by Mr. Justice Washington on circuit four years after he had been of the Court which decided The Schooner Exchange.14
Some data must be premised if discussion is to be confined to a reasonable space. We start with the postulate that the sovereign is released from the jurisdiction of its own courts except as it may specifically submit itself to their power.1
A sovereign's freedom from judicial control does not arise from or depend upon the will of the courts. As was said in The Schooner Exchange in speaking of the immunity of a foreign government, it depends upon 'the will of the sovereign of the territory.' '* * * all exemptions from territorial jurisdiction, must be derived from the consent of the sovereign. * * *' 7 Cranch 116, 138, 143, 3 L.Ed. 287. The immunity rests on the ground that no enforceable right exists 'against the authority that makes the law on which the right depends.'2
It might be summarized by the word 'comity.'3 The local sovereign may, of course, withdraw such consent.
'Without doubt, the sovereign of the place is capable of destroying this implication. He may claim and exercise jurisdiction either by employing force, or by subjecting such vessels to the ordinary tribunals. But until such power be exerted in a manner not to be misunderstood, the sovereign cannot be considered as having imparted to the ordinary tribunals a jurisdiction, which it would be a breach of faith to exercise.' Id., at page 146.4
An ancillary principle of law is that, in determining whether a defendant is a sovereign, the courts follow the guidance of the political branch.5 In this case the sovereignty of the Republic of China is not questioned. Furthermore, the Chinese Government Treasury Note and its 36th Year Short Term Treasury Notes upon which the City Bank's counterclaims rest are sovereign obligations, jure imperii in form, of the highest public character. Consequently, the attitude of the Department of State as to the desirability of relaxing the strict rule of immunity as to acts of commerce, jure gestionis, is inapplicable. See 26 Dept.State Bull. 984 (1952), referred to in the Court's opinion, 75 S.Ct. 427.
If the foregoing statements of law are sound, the Republic of China as a foreign sovereign is free from direct suits in our courts on the notes here in question unless the Congress of the United States has enacted a statute that restricts its immunity. This it has not done. The question in this case thus comes down to whether the Republic of China, by bringing this suit for the recovery of a bank deposit, waived its immunity and subjected itself to a counterclaim under the Fed.Rules Civ.Proc. Rule 13. Under the words of subd. (c) of that Rule, judgment over against the Republic of China would seem to be authorized if the counterclaim were for more than plaintiff's claim. But there would be no jurisdiction to render such judgment in an American court. It would violate the immunity of a foreign sovereign to do so.6 In the present case, the Court evidently feels that, since the counterclaim is limited to the amount of the Republic of China's claim, there is jurisdiction to allow a setoff to that extent. But the mere fact that a judgment over is not sought should not be relied upon to avoid the jurisdictional immunity of a foreign sovereign. I find no justification for the Court's restricting that immunity in the absence of legislative or executive action.7
Affirmative legislative action was necessary to allow such a limited setoff against the United States.8 Action of a similar nature should be required to authorize this setoff. The comity that gave the foreign sovereign full immunity from process was, as The Schooner Exchange pointed out, 7 Cranch at page 146, only to be withdrawn 'in a manner not to be misunderstood.' That is by legislation.9 The judicial creation of such jurisdiction over the property of a friendly nation might well merit the stricture of Chief Justice Marshall:
International relations are pre-eminently a matter of public policy. Judicial views of supposed public interests are not the touchstone whereby to determine the law.10 The change from a generous to a parsimonious application of the principle of sovereign immunity should come from Congress or the Executive. Our courts possess great powers and have solemn obligations. Our country allots power to the judiciary in the confidence that, in view of the separation of powers, judicial authority will not undertake determinations which are the primary concern of other branches of our Government. Differences of view exist as to the desirable scope of sovereign immunity and the necessity for nonjudicial determinations.11 But surely it is better that the decisions be left to those organs of Government that have the responsibility for determining public policy in carrying out foreign affairs. The establishment of political or economic policies is not for the courts. Such action would be an abuse of judicial power. It is only by a conscious and determined purpose to keep the functions of the various branches of government separate that the courts can most effectively carry out their duties. I would leave this question of the jurisdictional immunity of foreign sovereigns to the other branches.
The Treasury Note on which the first counterclaim is based was pledged by the Republic of China in 1920 to secure a loan to the Pacific Development Company by a banking syndicate in which petitioner participated. The loan was not repaid, and during the liquidation of the Development Company the syndicate bought the collateral at a public sale. The Treasury Notes on which the second counterclaim is based were purchased by petitioner's Shanghai branch at the time of issue in 1947—1948. The record allows us to assume that the petitioner gave full value as its share of the loan to the Development Company and bought the notes in the second counterclaim at par.
At the outset respondent argues that since petitioner on certiorari has dropped its demand for affirmative relief, the case is not properly before us. It is conceded that dismissal of independent counterclaims would ordinarily contain the requisite finality on which to base our jurisdiction, but respondent contends that when petitioner reduced its counterclaims to mere demands for setoff, the claims became defenses and, as such, nonreviewable until the respondent's suit had been concluded below. We reject this view. A counterclaim does not dwindle to a defense solely because it is confined—as a result of the accepted jurisprudence of sovereign immunity, see United States v. Shaw, 309 U.S. 495, 60 S.Ct. 659, 84 L.Ed. 888—to reducing the sovereign's recovery. The District Court's judgment, as affirmed by the Court of Appeals, terminated a separable and distinct segment of the litigation.
Act of Mar. 3, 1797, §§ 3, 4, 1 Stat. 514, 515. The present version appears in 28 U.S.C. § 2406, 28 U.S.C.A. § 2406.
The most recent development is the subjection of the Government to tort liability. Act of Aug. 2, 1946, now 28 U.S.C. § 1346(b), 28 U.S.C.A. § 1346(b).
Those cases that have dealt with the problem include: Republic of China v. American Express Co., 2 Cir., 195 F.2d 230; United States v. National City Bank of New York, 2 Cir., 83 F.2d 236; In re Patterson-MacDonald Shipbuilding Co., 9 Cir., 293 F. 192; Kingdon of Roumania v. Guaranty Trust Co., 2 Cir., 250 F. 341; Hungarian People's Republic v. Cecil Associates, Inc., D.C.S.D.N.Y., 118 F.Supp. 954; Republic of China v. Pang-Tsu Mow, D.C.D.C., 105 F.Supp. 411; United States v. National City Bank of New York, D.C.S.D.N.Y., 90 F.Supp. 448; United States v. New York Trust Co., D.C.S.D.N.Y., 75 F.Supp. 583; Kingdom of Norway v. Federal Sugar Refining Co., D.C.S.D.N.Y., 286 F. 188, Mack, J.; French Republic v. Inland Nav. Co., D.C.E.D.Mo., 263 F. 410; Union of Soviet Republics v. Belaiew, 42 T.L.R. 21 (K.B.Div.); South African Republic v. La Compagnie Franco-Belge, (1898) 1 Ch. 190; cf. Guaranty Trust Co. of New York v. United States, 304 U.S. 126, 58 S.Ct. 785, 82 L.Ed. 1224; Dexter & Carpenter, Inc. v. Kunglig Jarnvagsstyrelsen, 2 Cir., 43 F.2d 705; Strousberg v. Republic of Costa Rica, 44 L.T.R.(N.S.) 199 (C.A.); Claim of the Russian Volunteer Fleet against the British Admiralty, Annual Digest of Public International Law Cases 1925—1926, p. 210 (British Admiralty Transport Arbitration Board; affirmed by Court of Appeal).
7 Cranch at pages 136—137, 143—144, 3 L.Ed. 287. For a comprehensive critique of the doctrine as it has subsequently been applied, see Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States, 28 Brit.Y.Int'l L. 220.
The Privy Council recently rejected the view of Lord Justice Scrutton in The Jupiter, (1924) P. 236 (C.A), that the mere assertion of a claim by a foreign government to property the subject of an action by a private party compels the court to stay the action and decline jurisdiction. Juan Ysmael & Co. v. Republic of Indonesia, (1954) 3 W.L.R. 531. Earl Jowitt reviewed the decisions and indicated some of the subtleties into which the doctrine has led the English courts. Cf. Republic of Mexico v. Hoffman, 324 U.S. 30, 38—42, 65 S.Ct. 530, 534—536, 89 L.Ed. 729 (concurring opinion).
28 U.S.C. § 2502, 28 U.S.C.A. § 2502. The earliest version of this statute appears in 15 Stat. 243, Act of July 27, 1868; see United States v. O'Keefe, 11 Wall. 178, 20 L.Ed. 131; cf. 43 Stat. 1113, 46 U.S.C. § 785, 46 U.S.C.A. § 785; Westfal-Larsen & Co. v. United States, D.C.N.D.Cal., 41 F.2d 550. That an American citizen can sue the Chinese Government in Chinese courts, see Judicial Yuan, Interpretation No. 6 (Feb. 16, 1929).
Mr. Justice Washington directed a verdict for the defendants. First he held that there was no privity of contract between the defendants and the King, so that payment to Hope discharged them. But assuming that there was privity he ruled that the duties had been properly applied by Hope to reduce the King's debt to it. 'Let it be, as was argued, that the consent of the Spanish government, under the administration of Joseph (Bonaparte, who had, while in power, agreed that the duties be applied to reduce the debt), was invalid and of no obligation upon Ferdinand; still, Ferdinand, as the successor of his father (Charles IV, to whom the loan had been made), and the nation, were and are bound to pay the debt due in Holland; and if it has been in part discharged, out of funds charged with the payment of it (because they were public revenues), in the hands of Hope and Co., the payments of the duties, have in effect been made to the plaintiff, because he owes, of the debt due in Holland, less than what was originally due, by the amount of duties which were applied to its discharge by Hope and Co. After such an application, which I repeat it, Hope and Co. were authorised to make, under all the circumstances of the case, this action cannot be supported, to recover the amount of the duties so appropriated.' 14 Fed.Cas. at page 577, 1 Pet.C.C. at pages 289—290.
Probably because it is obvious that there is no tenable distinction between the setoff of an unrelated claim, a proceeding for a judgment over on a counterclaim, and a direct suit against a foreign sovereign, few cases have dealt with this phase of the immunity of a foreign sovereign from claims. None that have discussed the issue have reached the result which the Court takes today. In addition to the two cases cited in note 6 of the majority opinion, the same issue here presented was considered and decided in accord with my position in the only foreign case discussing the issue that has come to my attention. In The State of Belgium v. E.A.G. de Badts, Nederlandsche Jurisprudentie, 1923, p. 618, Am.Dig. of Pub. Int'l Law Cases 1919—1922, p. 129, the Belgian Government, a foreign sovereign, brought suit in the Dutch courts for an account of the sale of a certain cargo of wheat. The defendant sought to set off an entirely unrelated claim which he had against the Belgian Government. The court held:
Vidal v. Mayor, Alderman and Citizens of Philadelphia, 2 How. 127, 197—198, 11 L.Ed. 205; Muschany v. United States, 324 U.S. 49, 66, 65 S.Ct. 442, 451, 89 L.Ed. 744.