First National City Bank v. Banco Para El Comercio Exterior De Cuba

Background

A U.S. bank (Citibank) paid for a shipment of Cuban sugar under an irrevocable letter of credit and later had its branches and other assets in Cuba seized and nationalized by the Cuban Government. A Cuban state-owned foreign-trade bank created by Cuba (Bancec) sued Citibank in a U.S. court to collect under the letter of credit. Citibank responded by seeking a setoff for the value of its seized Cuban assets against Bancec’s claim. Bancec had been dissolved and its banking and trading functions transferred to other Cuban state entities.

Reasoning

The Court examined whether U.S. courts must respect the separate legal form of a foreign government instrumentality in a case where the government benefits from bringing suit. It held the Foreign Sovereign Immunities Act did not prevent a setoff and reasoned that equitable principles from international law and federal common law allow disregarding a separate juridical form when respect for that form would permit the sovereign to gain in U.S. courts while avoiding responsibility for its wrongful acts. Because Bancec was created, controlled, funded, and ultimately dissolved by the Cuban Government and its assets flowed to government entities, the Court concluded Citibank may assert the setoff.

Real world impact

The decision permits a U.S. bank to reduce or eliminate a foreign state-owned claimant’s recovery by offsetting the value of property that the foreign government seized. The Court did not set the exact dollar offset here and remanded for further proceedings to determine the seized assets’ value. The ruling balances respect for foreign corporate forms with equitable limits when a government uses its instrumentalities to seek relief while avoiding related liabilities.

Dissents or concurrances

A partial concurrence by three Justices agreed in principle but argued the record was too thin and would have remanded for fuller factfinding before resolving the setoff issue.