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FULD 23 N.Y.2d 46 French v. Banco Nacional de Appeal from the
(N.Y. 1968) | Cuba Appellate Division of
295 N.Y.S.2d the Supreme Court
433 | 242 in the First Judicial
N.E.2d 704 Department
Oct 15, 1968
Nature of Case: Act of State Doctrine
Facts:
Victor Rabinowitz and Leonard B. Boudin for appellant.
Edward G. Bathon and John N. Regan for respondent.
The plaintiff, Ritter's assignee, brought the an action for a breach of contract,
in Supreme Court, New York County.
The case stems from a regulation of the Cuban Government — adopted after Fidel
Castro's accession to power in January of 1959 — which, in effect, prevented American
and other foreign investors from receiving currency other than Cuban pesos on their
Cuban investments.
investor here involved was the plaintiff's assignor, Alexander Ritter, an American citizen,
now living in Florida, who resided in Cuba at the time of the events from which this
lawsuit arises.
In 1957, some two years before the events in question, he invested about $350,000 in a
Cuban farm. At that time, the Cuban Government permitted foreign investors to turn
the proceeds from their enterprises into American dollars, or other foreign currency,
and exempted such proceeds from Cuba's tax on the exportation of money.
To this end, the Currency Stabilization Fund of the Cuban Government was authorized
to issue "certificates of tax exemption." In June, 1959, six months after the inception of
the Castro regime, Ritter acquired eight such certificates, aggregating $150,000.
On July 15, 1959, the Currency Stabilization Fund issued "Decision No. 346." Aimed at
stopping the flow of foreign currency from Cuba and thereby preventing a situation
"very dangerous" to that country, the Decision suspended "for the time being
processing of" tax exemption certificates "until reorganization of the system of
exemptions". The redemption of such outstanding certificates, according to the
president of defendant bank, would have wiped out Cuba's dollar reserves.
When, in December of 1959, Ritter tendered his certificates for redemption, together
with the appropriate number of pesos, payment in American dollars was refused under
the mandate of the Decision.
The plaintiff, Ritter's assignee, brought the present action, late in 1960, in Supreme
Court, New York County, and obtained a judgment against defendant bank in the
amount of $150,000, with interest.
A closely divided Appellate Division affirmed, rejecting the defendant's claims
03242024-036 –Esteves, Matthew Evan M.
(1) that it was entitled to sovereign immunity from suit as an agency of the
Cuban Government; and
(2) that the Decision in question "had the force of law and was an act of the
sovereign Government of Cuba to which our courts will not deny legal effect.
Issue:
Whether the act of state doctrine bars the plaintiff's claim.
Whether the Hickenlooper Amendment covers this case and bars the court from
applying the act of state doctrine.
SC’s ruling:
Yes, it has long been settled, and recently reaffirmed by the Supreme Court in Banc
Nacional de Cuba v. Sabbatino that the courts in the United States will not inquire into
the validity of the acts of a foreign government done within its own territory.
As the Supreme Court stated in Underhill v. Hernandez— quoted in Sabbatino — "every
sovereign State is bound to respect the independence of every other sovereign State,
and the courts of one country will not sit in judgment on the acts of the government of
another done within its own territory. Redress of grievances by reason of such acts must
be obtained through the means open to be availed of by sovereign powers as between
themselves."
Our courts will not examine a foreign law to determine whether it was adopted in
conformity with the internal procedures and requirements of the enacting state.
The act of state doctrine, it has been well said, is not limited to situations in which "the
foreign act is committed in a manner `colorably valid' under foreign law. It should make
no difference whether the foreign act is, under local law, partially or wholly, technically
or fundamentally, illegal.
So long as the act is the act of the foreign sovereign, it matters not how grossly the
sovereign has transgressed its own laws." ( Banco de Espana v. Federal Reserve) The
order of the Appellate Division should be reversed, with costs, and the complaint
dismissed.
The opinion in Sabbatino itself is unequivocal on this point. "The courts below", the
Supreme Court wrote "properly declined to determine if issuance of the expropriation
decree complied with the formal requisites of Cuban law.
Moreover, in compliance with that Decision — or even if only in purported compliance
— Banco Nacional, also an agency of the Cuban Government, refused and continues to
refuse to exchange pesos for dollars as the certificates had required. These undisputed
facts establish, as matter of law, that the breach of contract, of which the plaintiff
complains, resulted from, and, indeed, itself constitutes, an act of state that we are
barred from all further inquiry in this case concerning Cuba's action and, in particular,
from any inquiry that would test such action by the standards of international law or the
public policy of this forum.
In Sabbatino, where the Supreme Court most recently considered the act of state
doctrine, it was confronted with a complete and outright expropriation of American
property, a quantity of sugar, by Cuba. Nevertheless, taking into consideration the
03242024-036 –Esteves, Matthew Evan M.
"fluidity of present world conditions" and the division of opinion upon the "limitations
on a state's power to expropriate the property of aliens", the court was of the opinion
that, whether or not an "international standard in this area" might be discerned, the
"matter is not meet for adjudication by domestic tribunals"
In the present case, although there are circumstances which undoubtedly imposed
serious losses upon the plaintiff's assignor, manifestly, they do not reach the level of an
outright "taking" or "expropriation" with which the court was confronted in Sabbatino.
In the light of Sabbatino, we must recognize that the currency regulations of a foreign
state — at least when presented in a context such as this one — are not appropriate
subjects for evaluation by state courts applying local conceptions of public policy. The
"continuing vitality" of the act of state doctrine, the Supreme Court wrote in Sabbatino
"depends on its capacity to reflect the proper distribution of functions between the
judicial and political branches of the Government on matters bearing upon foreign
affairs."
2.No, the Hickenlooper Amendment is inapplicable. The statute was enacted to "reverse
in part" the decision in Sabbatino. So far as relevant, the amendment declares that "no
court in the United States shall decline on the ground of the federal act of state doctrine
to make a determination on the merits giving effect to the principles of international law
in a case in which a claim of title or other right to property is asserted by any party
including a foreign state based upon (or traced through) a confiscation or other taking,
by an act of that state in violation of the principles of international law".
The basic terms of the statute — to come directly to its wording — simply cannot be
made to fit the present case. The amendment applies only if there is a "claim of title or
other right to property" and that claim is "based upon (or traced through) a confiscation
or other taking" of such property.
Ritter's loss is due not to a taking of property but, rather, to the breach of a promise
upon which he had relied. What had happened — and undoubtedly to Ritter's financial
loss — was that the Cuban law which governed the contract had been changed by the
adoption of a government regulation which "suspended," perhaps permanently, the
conversion of pesos into dollars.
In the strictest sense, and within the terms of the statute we are construing, just as no
one has "taken" the pesos from Ritter, so no one has "taken" the contract from him; it is
still his or his assignee's to enforce, or attempt to enforce, as the present action bears
witness.
it is apparent that the Hickenlooper Amendment has no application to the present case.
The present lawsuit does not involve the assertion of a claim of title to property and, just
as clearly, the Cuban Government's action did not involve a confiscation or taking of
property. Certainly, it is not a case in which title or other right to a specific res (or its
proceeds) confiscated by a foreign government is disputed on a claim either asserted by
the original owner and defended by the government or asserted by the government and
defended by the original owner.
It follows that the Hickenlooper Amendment is not applicable, that the act of state
doctrine is decisive and that the defendant must prevail. This being so, it is not
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necessary to reach the further question whether the action of the Cuban Government
offended principles of international law.
Since, however, our dissenting brethren have concluded that such action did constitute a
taking of property to which a claim of title or other right is asserted and have gone on to
urge that it violated international law, we treat that question — of international law —
briefly.
The plaintiff, in order to prevail under the Hickenlooper Amendment must show not only
that the action complained of constituted a taking of property but also that it violated
principles of international law.
In short, the control of national currency and of foreign exchange is an essential
governmental function; the state which coins money has "power to prevent its outflow",
"the same reasoning is applicable to the imposition of restraints upon transactions in
foreign exchange."
The Restatement finds no violation of international law in such a currency measure "if it
is reasonably necessary in order to control the value of the currency or to protect the
foreign exchange resources of the state" . The Restatement goes on to recite that "the
application to an alien of a requirement that foreign funds held within the territory of
the state be surrendered against payment in local currency at the official rate of
exchange is not wrongful under international law, even though the local currency is less
valuable on the free market than the foreign funds surrendered."
Thus, if the Cuban Government could, under the example cited, have properly
required an alien within its borders to surrender American dollars "against payment" in
pesos, as a measure "reasonably necessary to protect the foreign exchange resources of
the state", the present refusal of the Cuban Government to surrender American dollars
in order to protect its dollar reserves, though harsh in its effect, would also seem to be
within the limits of international legality.
It may be noted that this country's Cuban Assets Control Regulations (Code of Fed. Reg.,
tit. 31, Pt. 515) — promulgated by the Secretary of the Treasury — provide that all
transactions in foreign exchange between the United States and Cuba or the citizens of
those countries are prohibited unless licensed by the Treasury Department.
In the case before us — whatever other economic measures the Cuban Government
may have taken (and they are not reflected by evidence in the record) — there is no
question that the actions complained of were aimed at protecting Cuba's scarce "foreign
exchange resources." The testimony of the defendant's president that these actions
were essential to prevent the wiping out of Cuba's foreign currency reserves is
uncontradicted.
Accordingly, that country's refusal to exchange Ritter's pesos for dollars, though it may
be deplored, may not be characterized as so unreasonable or unjust as to outrage
current international standards of governmental conduct. Even if the present case, then,
involved "a claim of title or other right to property" within the meaning of the
Hickenlooper Amendment, the amendment would not permit us to disregard the act of
state doctrine since the Cuban action did not violate international law.
In sum, then, it is our conclusion that the actions complained of constituted an act of
state; that, under the rule announced in Sabbatino, we are required to give effect to that
03242024-036 –Esteves, Matthew Evan M.
act of state; and that, since the record before us establishes that there was no taking of
property to which a claim of title or other right is asserted, the Hickenlooper
Amendment does not apply to require us to disregard the act of state doctrine.
Consequently, the plaintiff or her assignor may seek a remedy in this country only
through diplomatic efforts by the United States and arrangements established by
Congress for the protection of the interests of all American claimants against Cuba.
The order of the Appellate Division should be reversed, with costs, and the complaint
dismissed.
Doctrine Relevant to the Topic Being Discussed:
As the Supreme Court stated in Underhill v. Hernandez— quoted in Sabbatino — "every
sovereign State is bound to respect the independence of every other sovereign State,
and the courts of one country will not sit in judgment on the acts of the government of
another done within its own territory. Redress of grievances by reason of such acts must
be obtained through the means open to be availed of by sovereign powers as between
themselves."
