Opinion ID: 393942
Heading Depth: 1
Heading Rank: 3

Heading: validity of the counterclaims

Text: 34 We turn next to Banco Nacional's contention that Chemical should not have been allowed to set off its counterclaim against Banco Nacional's own claim. And having reinstated Banco Nacional's claims as successor, so that the dismissals of the counterclaims of Manufacturers and Irving cannot be sustained on grounds of mootness, we expand our discussion to treat as well the possibility of offsets by all three defendants against Banco Nacional's claims as successor.A. Banco Nacional as the Proper Counterclaim Defendant 35 Banco Nacional contends that defendants' counterclaims may not properly be asserted against it because those counterclaims are based on the Cuban government's expropriation of the assets of Cuban Electric Company, an expropriation in which Banco Nacional had no role. Thus, it argues, Banco Nacional is not an alter ego of the Cuban government for purposes of the present counterclaims. We agree with this conclusion insofar as Banco Nacional seeks to recover its own deposits from Chemical, but we disagree insofar as it seeks to recover the accounts of the Private Banks. 1. Banco Nacional in its Own Right 36 It is clear that the nationalization of the assets of Cuban Electric was an act of the Cuban government. Resolution No. 1 of Law No. 851 declared the Cuban State the owner of the expropriated property. Further, that Resolution designated the National Institute of Agrarian Reform as the manager of those properties. There was no mention of Banco Nacional, and so far as appears, Banco Nacional did not participate in that expropriation. As to Cuban Electric, therefore, Banco Nacional had no role similar to its integral part in the nationalization of banks pursuant to Resolution No. 2 of Law No. 851, see note 2 supra, and accompanying text, described in greater detail in Banco Nacional de Cuba v. First National City Bank, supra, and in our decisions today in Chase, supra, and Citibank, supra. Resolution No. 1 thus does not provide a basis for imputing to Banco Nacional the acts of the Cuban government in expropriating the property of Cuban Electric. 37 Moreover, with respect to Banco Nacional's claim to recover its own accounts from Chemical, there is no basis for imputing to the Cuban government the ownership that Banco Nacional claims for itself. Banco Nacional was formed in 1948 to engage in domestic and international banking. It apparently opened many accounts with foreign banks, and there is no suggestion that its account with Chemical was owned, or had been owned, by the Cuban government. As discussed more fully in Citibank, supra, when a state has created a separate and distinct juridical entity to engage in commercial activities, we will not ordinarily find the state and the instrumentality alter egos with respect to acts done by the instrumentality in the normal course of its commercial activities. We see no reason here to view Banco Nacional and the Cuban government as alter egos with respect to Banco Nacional's own commercial deposits. 38 In sum, therefore, there are no grounds for equating Banco Nacional with the Cuban government either on Banco Nacional's own claim or on Chemical's counterclaim. We conclude that Chemical's counterclaim with respect to the Cuban government's expropriation of Cuban Electric may not be asserted to offset Banco Nacional's claim in its own right. 2. Banco Nacional as Successor 39 We reach the opposite conclusion with respect to Banco Nacional's claims as successor to the Private Banks. Given the nature and origin of its claims as successor, we find that Banco Nacional must be viewed as pursuing those claims on behalf of the Cuban government. 40 Each of the complaints filed here alleged that Banco Nacional had the right to sue pursuant to Law No. 891, which expropriated the Private Banks. That Law, however, quoted in pertinent part in Part I.A., supra, awarded (all private Cuban banks) to the government of Cuba. It provided that the nationalization and consequent award to the government of Cuba would be carried out through Banco Nacional. (Emphasis added.) Thus the Law vested ownership of the expropriated banks in the Cuban government, and by declaring Banco Nacional the legal successor to the private banks, made Banco Nacional a tribute or agent for the Cuban government. Confirmation that Law No. 891 gave ownership of the assets of the private banks to the Cuban government itself, rather than to Banco Nacional, is found in Law No. 930 which reveals that the government did not convey ownership of those assets to Banco Nacional until several months after the nationalizations under Law No. 891. Law No. 930 stated that the State contributes to the capital of the newly reorganized Banco Nacional the capital accounts, contributions, contingency reserves and earnings of the banking institutions which have ... passed, for any reason, to the possession, administration or liquidation of Banco Nacional. 41 Thus, under Law No. 891, ownership of the New York accounts of the Private Banks passed to the Cuban government, and title was given to Banco Nacional as its agent. We conclude that the Cuban government is the real party in interest on these claims, and that counterclaims for acts of the Cuban government may properly be asserted. 42 B. Justiciability of Counterclaims against Banco Nacional as Successor 43 We have dealt at some length today with the question of justiciability, in our opinion in Chase, supra. Briefly, we there held, on the basis of the Supreme Court's decision in First National City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 92 S.Ct. 1808, 32 L.Ed.2d 466 (1972), that a counterclaim against a foreign sovereign plaintiff is justiciable if (1) the Executive Branch has provided a Bernstein letter 6 advising the courts that it believes the act of state doctrine need not be applied, (2) there is no showing that an adjudication of the counterclaim will conflict with delicate foreign relations, and (3) the counterclaim is asserted only as a setoff and does not seek affirmative relief. We are unable to determine on the record before us whether the first precondition is met. 44 In the present case, unlike Chase, the record does not contain a recent statement of the views of the State Department. Banco Nacional states in its brief on appeal that the Executive Branch has not expressed any views. The district judge here did not expressly mention the need for or the presence of a Bernstein letter; but he did state that if the successor claims were allowable, the counterclaims would be actionable by way of setoff for reasons fully discussed in the Chase-Citibank decision, 7 which is indistinguishable. Opinion at 14. In its Chase-Citibank opinion, the district court had relied on the 1970 Bernstein letter that was before the courts in First National City Bank v. Banco Nacional de Cuba, supra, 8 in which the State Department had espoused adjudication of counterclaims or setoffs against the Cuban government in this or like cases stating, in part, as follows: 45 Recent events, in our view, make appropriate a determination by the Department of State that the act of state doctrine need not be applied when it is raised to bar adjudication of a counterclaim or setoff when (a) the foreign state's claim arises from a relationship between the parties existing when the act of state occurred; (b) the amount of the relief to be granted is limited to the amount of the foreign state's claim; and (c) the foreign policy interests of the United States do not require application of the doctrine. 46 In this case, the Cuban government's claim arose from a banking relationship with the defendant existing at the time the act of state expropriation of defendant's Cuban property occurred, and defendant's counterclaim is limited to the amount of the Cuban government's claim. We find, moreover, that the foreign policy interests of the United States do not require the application of the act of state doctrine to bar adjudication of the validity of a defendant's counterclaim or set-off against the Government of Cuba in these circumstances. 47 The Department of State believes that the act of state doctrine should not be applied to bar consideration of a defendant's counterclaim or set-off against the Government of Cuba in this or like cases. 48 Id. 406 U.S. at 781, 92 S.Ct. at 1820 (Brennan, J., dissenting). 49 We find several differences between the present cases and the Chase and Citibank cases. First, unlike Chase and Citibank, the claims pressed here by Banco Nacional as successor came to Banco Nacional as fruit of the Cuban expropriations; they are not claims developed in the ordinary course of its commercial activities, and they did not belong to Banco Nacional at the time of the expropriation of Cuban Electric. More important is the difference in the nature of the counterclaims. The Chase and Citibank cases involved counterclaims for expropriation of those defendants' own property. The present counterclaims are based on expropriation not of defendants' property but of the property of a corporation that simply owed money to the defendants; the defendants' legal premise is not that the expropriation violated their rights under international law, but that there was a breach of an agreement by the Cuban government to pay assumed liabilities. We are not sure that the Executive Branch would consider these cases to be like Chase and Citibank, and we were not entirely enlightened by the following colloquy with Manufacturers' counsel at the oral argument of these appeals: 50 Mr. Landau:    51 Both I and Mr. Rabinowitz have written to the State Department at the request of the late Judge Bryan giving the whole story as to what these facts are, what is involved in the case and asking for their view. 52 We did receive a letter. However, we didn't make it part of the record simply because they said they did not see the question of an Act of State being involved and, therefore, they didn't ask for it so there was no reason for us to go back having received that reply. 53 Judge Van Graafeiland: That is the letter that is in the appendix? 54 Mr. Landau: No, it isn't. We didn't include it because it was negative. 55 In the absence of a clearer record, or at least of findings as to the views of the Executive Branch, we cannot determine whether the preconditions to justiciability of the present defendants' counterclaims have been satisfied. Accordingly, we remand these cases for further consideration of this question. C. The Merits of the Counterclaims 56 Finally, even were we to assume justiciability, we would lack an adequate basis for reviewing the merits of the counterclaims. In ruling on the parties' summary judgment motions, the district judge's dismissal of the successor claims made it unnecessary for him to reach the merits of the counterclaims. The court did state that if Banco Nacional's claims as successor were allowed, it would appear fair and reasonable to him to allow setoff by these counterclaims. To the extent that this constituted a hypothetical decision on the merits, it is unsupported by any findings of fact or conclusions of law. 9 And we note that Banco Nacional, in opposing the defendants' motions for summary judgment, contested the fundamental factual premise of the counterclaims, i. e., that the Cuban government actually assumed the liabilities of Cuban Electric. This issue alone implicates questions of intent, which are normally inappropriate for disposition by summary judgment, of the proper interpretation and the proper standard of interpretation of Cuba's own laws, and of a possible wholesale repudiation of debt such as to constitute an act of state rather than mere commercial breaches of individual contracts. See Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 695, 96 S.Ct. 1854, 1861, 48 L.Ed.2d 301 (1976). 57 If the district judge on remand should find that the Executive Branch has made the kind of statement necessary to support a conclusion, consistent with our ruling in Chase, that the present counterclaims are justiciable, he will have to explore the above questions on the merits.