First National City Bank v. Banco Nacional De Cuba

1972-10-10

Headline: Court allows bank to press claims about Cuba’s nationalizations when the Executive says act-of-state rule should not bar them, reversing the appeals court and sending the case back for further proceedings.

Holding: The Court held that the act of state doctrine does not bar the bank’s counterclaim here because the Executive Branch advised the Court the doctrine need not apply, so the appeals court judgment is reversed and remanded.

Real World Impact:

Allows courts to hear certain counterclaims when Executive says act-of-state need not apply.
Reverses appeals court and sends case back for factual and legal determination.
Could expose businesses to offsets against foreign-government claims in U.S. courts.

Topics: foreign government seizures, banking disputes, international law, executive branch foreign policy

Summary

Background

In 1958 a U.S. bank loaned $15 million to a Cuban institution secured by U.S. government bonds. After Cuba’s 1959 revolution, Cuban authorities seized the bank’s branches in 1960. The bank sold the pledged bonds and applied the proceeds to the loan. The sale produced at least $1.8 million more than was needed to cover principal and interest. The Cuban side sued in U.S. court to recover the excess, and the bank counterclaimed for the value of its expropriated Cuban property. Lower courts split over whether the act of state doctrine — which bars U.S. courts from judging another government’s acts inside its own territory — prevented the bank’s claim.

Reasoning

The central question was whether an Executive Branch statement that the act of state doctrine need not be applied in this situation frees the courts to decide the bank’s counterclaim. The Court held it does. The majority said the doctrine is a judicially created rule grounded in concern for foreign relations and comity, and when the political branch charged with foreign affairs expressly advises that application of the doctrine would not harm U.S. interests, the courts may proceed. The Court approved the narrow "Bernstein" exception and reversed the appeals court.

Real world impact

Banks, businesses, and foreign governments that bring claims in U.S. courts may face counterclaims or setoffs where the Executive Branch indicates the act of state doctrine should not bar adjudication. The decision does not resolve the merits of the bank’s expropriation claims; the case was sent back to consider the remaining legal and factual issues.

Dissents or concurrances

Justices Douglas and Powell agreed the case should go back for further proceedings but on different grounds: Douglas would allow a setoff up to the claimant’s amount; Powell stressed judicial responsibility to decide international-law issues when no conflict with foreign policy is shown. Justice Brennan, joined by three others, dissented, warning that the majority’s rule hands too much power to the Executive and undermines Sabbatino.