First National City Bank v. Banco Para el Comercio Exterior de Cuba

PETITIONER:First National City Bank
RESPONDENT:Banco Para el Comercio Exterior de Cuba
LOCATION:Residence of Gates

DOCKET NO.: 81-984
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 462 US 611 (1983)
ARGUED: Mar 28, 1983
DECIDED: Jun 17, 1983

Henry Harfield – on behalf of the Petitioner
Michael Krinsky – on behalf of the Respondent
Richard G. Wilkins – for U.S. as amicus curiae

Facts of the case


Audio Transcription for Oral Argument – March 28, 1983 in First National City Bank v. Banco Para el Comercio Exterior de Cuba

Warren E. Burger:

We will hear arguments next in First National City Bank against Banco de Cuba.

Mr. Harfield, I think you may proceed whenever you are ready.

Henry Harfield:

Mr. Chief Justice, and may it please the Court, this case was begun by a Cuban government instrumentality in February, 1961.

The Cuban government instrumentality, Banco Para El Comercio Exterior de Cuba, which translates to Bank… the Foreign Trade Bank of Cuba, and which for convenience we are going to call Bancec, was suing to recover a sum of money.

In its answer, the defendant, which I am going to call Citibank, again for the sake of convenience, in its answer, Citibank alleged that the action was brought by and for the Republic of Cuba, Bancec being a mere segment or instrumentality, an indistinguishable and integral part of the Cuban government.

Citibank then asserted as a defensive counterclaim to curtail the sum of money that was sought by Bancec in this case its claim for an amount of money equivalent to the value of its properties in Cuba, its eleven branches that had been confiscated, taken without any compensation by the Cuban government in a manner which the Second Circuit from which this case comes has held was in violation of international law.

The issue framed, the threshold issue framed by the pleadings was therefore in this claim and counterclaim, are the claimant and the counterclaimant opposing parties?

The question here is who is the real claimant, as put in issue by that answer.

Now, some three weeks after the commencement of this action by Bancec the Cuban government dissolved Bancec and exercised direct dominion over all of Bancec’s assets, including the claim in this case.

Thereafter, some several months later, the respondent sought and obtained from the court in which the action was pending leave to substitute the Republic of Cuba as the plaintiff in the action, and that leave was granted, and leave was granted to file a supplemental complaint in which it was alleged that the claim which is the subject of this action was assumed by the Republic of Cuba.

Now, that supplemental complaint was never formally filed.

It was just approved for filing by the court at the instance of the respondent.

William H. Rehnquist:

Mr. Harfield, what does that connote in the practice of the Southern District, approval for filing by the court?

Henry Harfield:

Well, this was an application by counsel for a party to substitute another party, another person as the party plaintiff, and the Court in this case on stipulation, on the agreement of the defendant, said it is so ordered.

You may.

This was an application for leave to substitute.

So that technically it did not effect a substitution.

It was leave to substitute.

They asked for it.

They asked for permission.

They got the permission.

Then I suppose they changed their mind.

Warren E. Burger:

Are you suggesting that certain inferences can be drawn as a result of that?

Henry Harfield:

Yes, I think so, Your Honor.

Sandra Day O’Connor:

Mr. Harfield, you don’t contend that Bancec is somehow unable to proceed in the litigation because it was dissolved, I take it.

Henry Harfield:

Well, I am troubled by that, Justice O’Connor.

I should think that it would be very difficult for Bancec as such to proceed in the litigation, and if I–

Sandra Day O’Connor:

Did you take that position below?

Henry Harfield:

–We simply took the position that there was an identity between Bancec or, if you like, between Bancec’s ghost and the Republic of Cuba, the Cuban government.

Sandra Day O’Connor:

But you didn’t argue that because Bancec was dissolved, it couldn’t proceed?

Henry Harfield:

No, we did not argue that the act of dissolution was what did it.

We said that in effect there hadn’t been anything there in the first place.

Sandra Day O’Connor:

Did you argue below that regardless of Bancec’s situation, that you could assert the counterclaim in any event because the Cuban government or Banco Nacional had appeared?

Henry Harfield:

We did not put it on the ground of an appearance by the Cuban government or Banco Nacional.

We argued that there… and the District Court after trial found that at least for purposes of this litigation, there was a commonality among the Cuban government, Banco Nacional, Bancec when Bancec was in existence.

Sandra Day O’Connor:

Well, I guess the courts below didn’t really resolve the question about whether the assets had gone to Banco Nacional at one time or had gone to the Cuban government.

It seemed to base it on the fact that Bancec was an alter ego of the Cuban government.

So they didn’t decide the other–

Henry Harfield:

There is… I think it was decided, Justice O’Connor.

The language is somewhat obscure and repetitious, and I think it is a mistake, unfortunate that we talk about alter ego or the like.

What we are really talking about here is whether, as used to be the case back in the days of the alien property custodian, whether there is a cloaking operation by a corporation.

The trial judge certainly used the words “alter ego”, but his… or one of his overall statements as to his findings was that no matter how regarded, whether this was… the circumstances, the relationship of Bancec during its existence and the Cuban government, taken together with the devolution of the claim, as he put it, upon Bancec’s dissolution, made it clear that the claim was now the claim of the Republic of Cuba or of Banco Nacional which had been held to be the alter ego of the Republic of Cuba, that it was in effect… the Republic of Cuba was the party opposed in interest, the protagonist of this case.

And that is what really we were looking for down there, was what the court was looking for: who is pushing this case?

Warren E. Burger:

–Well, is the question, who is the real party in interest?

Henry Harfield:

Well, I think that’s one way of formulating it.

I have used the word “protagonist” because I am trying to avoid these mystique words or phrases of art, such as “real party in interest” and “alter ego”.

I think the question is, who is the person who is pushing this claim, and the best word I find for that in the dictionary is the protagonist.

I’m not sure that answers your question.

Warren E. Burger:

I am puzzled by why you distinguish that from real party in interest, which is common in all kinds of civil litigation.

Henry Harfield:

Yes, and I am perfectly content to accept that as the real party in interest.

Indeed, I think we used that phrase in the pleadings.

Warren E. Burger:

And your position is that the government of Cuba is the real party in interest.

Henry Harfield:

Is the real party in interest and has been throughout, and in that context, if I may, I would like to point out that… one other fact here.

After the government of Cuba had dissolved Bancec and, shall I say, retrieved the claim in this case, after this stipulation had been entered in the court in 1961, some 14 years later but still before trial, the respondent asked that another Cuban government instrumentality, short name Cubazucar, be substituted as the party plaintiff, because that was, if you like, then the real party in interest.

There had been this succession.

I think real party in interest is a proper way to examine it.

The question as I see it–

William H. Rehnquist:

Mr. Harfield–

Henry Harfield:

–is that the task of the trial judge, the factfinding task that he had was to find out who is pushing the claim and who is pushing the counterclaim.

William H. Rehnquist:

–I was just going to make that inquiry, and I gather that Judge Grant did find pretty much in your favor–

Henry Harfield:

Yes, he did.

William H. Rehnquist:

–on that point, but the Court of Appeals certainly did not affirm his finding, did it?

I had some doubt as to just what the Court of Appeals did with it.

Henry Harfield:

So did I.

What the Court of Appeals–

Byron R. White:

Except that you lost.

Henry Harfield:

–Yes, I knew that.

0 [Generallaughter.]

The Court of Appeals said that they agreed with the District Court’s description of the functions of Bancec and its status as a wholly owned instrumentality of the government of Cuba, but it disagreed with its conclusions, and there we come to what is, I think, the real mischief in this case, or of the decision of the Court of Appeals, because what they did was in effect to reverse the whole procedure, and they said Bancec is set up, notwithstanding our agreement as to the status of the functions for the District Court and found it was a cloak, but they said Bancec… the origin of Bancec’s claim was a commercial transaction.

The origin of the counterclaim was not a commercial transaction.

Bancec, when it was in existence, had nothing to do with the subject matter of the counterclaim.

Therefore you can’t oppose these.

You can understand that argument, but what they said was, because you can’t oppose these, they are not alter egos, and that leaves me completely confused.

Warren E. Burger:

If it was not a commercial transaction, how was it characterized by–

Henry Harfield:

The basis for the counterclaim?


Henry Harfield:

It was characterized as a breach of international law.

And we have… we were here before on the question… in the Banco Nacional case, on the question of whether that counterclaim could be asserted notwithstanding the active state doctrine, which is something I hope we don’t have to reargue today.

But the… at that time the holding… this Court sent that Banco Nacional case back to the Second Circuit and said, find out whether there are any other grounds for holding in favor of the Cuban instrumentality, in that case Banco Nacional, and the Second Circuit said no.

They said Banco Nacional is the alter ego, if you like, of the Cuban government.

Number Two, there was a clear violation of international law in taking Citibank’s branches, and on that basis they held for the City… for Citibank in that case.

So, there you do have… there is no question that the transaction on which the counterclaim is based is not the same counterclaim that the claim is based on.

But Rule 13(b) says that doesn’t make any difference.

The issue is not the opposition of the origin of the claims but the opposition of the parties in interest, of the claimant and counterclaimant, and the relief that is sought is precisely the same.

We are just talking about money.

This isn’t a question of trying to recapture property that was taken there.

William H. Rehnquist:

What significance do you think the Court of Appeals attached to the fact that your claim had not arisen out of the same transaction as the bank’s had?

Henry Harfield:

I think it is unwholesome to put words in the appellate court’s mouth.

My guess was that that was the only way they could think of to come out where they wanted.

I simply can’t… I can’t answer the question because I can’t understand it.

Henry Harfield:

The net effect of this was that we have a finding by the District Court that there was an identity of interest.

We have the Second Circuit saying, we find that because the transactions didn’t mesh, it didn’t… they are not the same party, and I think that is clearly… the Court of Appeals was clearly in error.

Now, the mischief of this is that what they are doing is to impose a test which in effect forms a blueprint for any foreign government that chooses to do so by arranging its own wardrobe, if you like, in a proper fashion, to come in here as a plaintiff and escape the liabilities that would attach if it came in on its own, the liabilities that would attach by reason of set off counterclaim or other defenses, other defenses.

The respondent goes a great deal farther than the Court of Appeals did.

I think the Court of Appeals was in error.

They are making new law if this decision is allowed to stand.

But what the respondent is urging is that the presumption, which everyone admits, the presumption of independence of a corporation, is in effect a conclusive presumption if it is a foreign corporation, a foreign government corporation.

He says foreign government corporations are sui generis, and in effect whatever is said about them by their parent government must be taken.

This precludes inquiry by a court–

Warren E. Burger:

But then you are back to the act of state doctrine, are you not?

Henry Harfield:

–Well, if you carry that to its extreme, it certainly is dragging the act of state doctrine in the back door and it is like dragging the cat back in the back door after the cat has had kittens, because there is a lot more to it than just the plain act of state doctrine.

My peroration of this, I sum up the situation, the position… the petitioner’s position is this, that there can be no serious doubt that the Republic of Cuba is the real protagonist, the real party in interest in this case, and that the parties opposed in interest are the Republic of Cuba and Citibank.

Neither under international law nor under federal law… Under both international and federal law, the consequence of that fact is that Citibank is entitled to curtail the recovery that is sought in this case, and that right of curtailment, the right to assert that defense effectively, should not be defeated in this case because the order to take over Citibank’s branches, which is the basis for their counterclaim, because that order was signed by Che Guevera as president of Bancec instead of Che Guevera as president of Banco Nacional.

The normal consequences flowing from both federal and international law, which is that the question of the identity of a party is a matter for the forum to determine, that can’t be and shouldn’t be averted by being bound, handicapping the court, handcuffing the court if a foreign government simply says the immunity that we confer, the characteristics that we confer on a creature of ours in our country are binding on you in your country.

There, I think, is the danger of what will come about, and that, of course, is something that I think invokes the interest of the United States, as to which I don’t pretend to speak.

I would like to reserve my time.

Warren E. Burger:

Very well.

Mr. Wilkins.

Richard G. Wilkins:

Mr. Chief Justice, and may it please the Court, the United States believes that the issue presented by this case is whether or not an instrumentality of a foreign state could bring suit in United States court should be insulated from a counterclaim properly asserted against the state on the sole basis that that state instrumentality did not play a key role in the wrongful conduct of the state.

The Court of Appeals has answered this question in the affirmative, and by so doing, has rendered irrelevant a broad range of legal and equitable factors that United States courts and foreign courts have traditionally analyzed in attributing responsibility between and among nominally separate corporate entities.

The United States has a significant interest in addressing or suggesting that this is an erroneous approach, because by limiting the alter ego question to a single narrow factor, that is, whether or not the state entity played a key role in wrongful conduct, the court below has unnecessarily and unduly restricted the ability of American defendants to raise valid counterclaims in suits brought against them by foreign governments.

Respondent in this court would go even further than the Court of Appeals.

He argues, or it argues that international law requires this Court to apply Cuban law, not only to establish its separate identity, but also its absolute non-liability for the acts of the Cuban state.

The Court of Appeals, of course, didn’t even go this far when it recognized that Bancec’s separate status under Cuban law could and would be disregarded if Bancec did indeed play a key role in the wrongful conduct of the state.

International law, moreover, although it is exhaustively examined by respondent, does no more than establish a presumption, which we recognize, that United States and other foreign courts will generally recognize the independent status of Bancec.

That presumption, however, is not conclusive.

United State courts and foreign courts have never held that foreign law is conclusive on the alter ego question.

We cite many cases in our brief where that inquiry is undertaken.

Lord Denning of the British Court of Appeals in the Trentex Trading Corporation case stated that whether a state-owned entity should be considered the alter ego of its parent should not depend on foreign law alone.

Rather, he stated, he would

Richard G. Wilkins:

“look to all the evidence to see whether the organization was under government control and exercising governmental functions. “

The error of the court below is that it pretermits this sort of inquiry that courts throughout the world have found necessary to resolve this alter ego question.

Byron R. White:

That may be, but what is the source of the law on it?

Richard G. Wilkins:

The source of the law.

In this case it is–

Byron R. White:

Well, what is the… you say courts around the world find it necessary to determine it.

By what standard do they decide?

They look at all the facts, but usually you have to have some rule that you–

Richard G. Wilkins:

–Well, the rule… generally courts who have examined the alter ego question in the context of state-owned entities have focused on two particular factors, the extent of government control and whether or not–

Byron R. White:

–Well, that may be, but where do they get those rules?

Do they make them up, or is it international law–

Richard G. Wilkins:

–Well, it’s–

Byron R. White:

–or is it federal law, or what?

Or is it forum law?

Is it the law about forum… or what?

Richard G. Wilkins:

–We are suggesting that the United States should apply federal law in the circumstances of this case.

Byron R. White:

The law of the forum.

Richard G. Wilkins:

Yes, as in this–

Byron R. White:

Not international law.

Richard G. Wilkins:


But that… but that law… but the federal rule that we suggest that this Court should apply is in conformity with the rule that we believe is generally recognized by international law.

This case–

Byron R. White:

You don’t think international law makes the law of the forum state conclusive?

Richard G. Wilkins:

–No, it doesn’t.

In fact, Lord Denning in fact in Trentex Trading said that that… foreign law could not be conclusive.

This case… the procedural context of this case simply cannot be ignored.

Cuba has… or a Cuban entity has entered a United States court to sue an American defendant on an American debt invoking American law.

In that context… But in that context they seek to raise their own law to defeat a valid counterclaim.

In the Republic of China case, this Court said that a foreign entity simply cannot invoke American law free from the claims of justice.

Byron R. White:

What error… what error did the Court of Appeals make?

Byron R. White:

In the source of the law, or the standard, or just in application of the facts?

Richard G. Wilkins:

Simply overly narrowly confining the inquiry.

The question before the Court… The United States does not dispute that as a matter of general international law or as domestic law, for that matter, Bancec should be accorded the separate status generally granted it under its organic laws, but that is not the question that is before the Court.

The petitioners have pled and proven before the Court of… before the District Court, that is, that notwithstanding the provisions of Cuban law, Bancec lacked a separate identity.

It was in reality a mere extension of the Cuban government.

That question, the alter ego question is at bottom a factual and not a legal determination.

And in making that determination, a broad range of considerations are relevant, not a single inquiry: is it… did it play a key role in the wrongful conduct of the state?

As I stated earlier, courts generally in this circumstance have looked at governmental control, whether it performed a governmental function.

That is what the District Court looked at.

The Court of Appeals was going to disregard all that on the basis of a single narrow factor.

We believe that is erroneous.

Byron R. White:

So the only issue here is sort of a mixed question of law and fact, of whether on all the facts–

Richard G. Wilkins:

No, it is a legal question.

We believe that the test is a matter of law, I mean, whether or not the legal test is the–

Byron R. White:

–Well, I know, but you said it was primarily a factual question.

Richard G. Wilkins:

–Well, the alter ego determination is a factual question.

Byron R. White:

Well, that’s what’s involved here, isn’t it?

Richard G. Wilkins:

Yes, but what the Court of Appeals has said is that the alter ego test, the legal test for alter ego is just one factor: did the state entity play a key role in the wrongful conduct of the state.

We say that is an erroneous legal test.

We are saying the proper legal test takes note and cognizance of a broad range of legal and equitable factors.

Byron R. White:

And what… Did the Court of Appeals say what the source of the test would be?

I know that you indicate that they chose the wrong test, but where were they reaching for?

Did they say–

Richard G. Wilkins:

I haven’t the foggiest idea.

Byron R. White:

–Did they think it was a matter of federal law, or–

Richard G. Wilkins:

They didn’t state.

They said… They said, our prior decision in Banco… in the Banco Nacional case had a precise basis.

We would disregard the separate entity of the state government when they played a key role in the wrongful conduct of the state.

Where they derived that test, I am not certain.

John Paul Stevens:

–Mr. Wilkins, may I ask you, looking at this case at the time the litigation started, the very day it started, what was the governmental function in your view that Bancec was performing?

Richard G. Wilkins:

You have to look at Bancec… Bancec’s overall operation at the time.

Respondents, of course, would like you to look at a snapshot of a single commercial enterprise, but when you look at the overall operation of Bancec, it was created to manage all exports and imports on behalf of the Cuban government.

It performed a banking function which the Cuban government itself said could only be performed by the state, and one of its primary purposes was to stabilize the national economy, to stabilize their currency.

It was, as the court… the District Court, looking at all these facts, said it was not a mere private corporation, it was performing the sort of a function that even in the United States economy tends to be performed by–

John Paul Stevens:

Can you give me an example of a government-owned corporation in Cuba that could be performing a non-governmental function under your view of the test?

Richard G. Wilkins:

–I am not certain.

It is, as I say, a factual sort of an inquiry.

For that reason, respondent’s citation of numerous entities–

John Paul Stevens:

No, I am just asking your view.

I am trying to understand what your position is as to how we distinguish between a governmental function and a non-governmental function in Cuban-owned entities.

Richard G. Wilkins:

–Well, it… that–

John Paul Stevens:

Or are they all governmental?

Richard G. Wilkins:

–Well, that is a very difficult inquiry, and if you read–

John Paul Stevens:

But how do we get… you say that is the key inquiry in this case.

How do we–

Richard G. Wilkins:

–It is a key inquiry.

There are precedents, and they are cited in our brief.

The House of Lords, for example, in the Rolimpex case recently struggled with that inquiry, and Lord Wilburforce, for example, said, well, it is difficult, there are many factors we have to look at, but just simply because it’s a difficult decision to make–

John Paul Stevens:

–You can’t give me an example, I take it, of a Cuban government-owned inquiry that would pass your test… enterprise that would pass your test.

Richard G. Wilkins:

–I am not familiar.

There perhaps are.

John Paul Stevens:

I don’t mean by name, but just by concept.

Can you… What–

Richard G. Wilkins:

Well, for example, a very recent case in the E Congresso De Partedel case in the House of Lords again, that… the House of Lords determined that Mambisa, a Cuban shipping company, was separate enough from the state.

It was not subject to everyday control, et cetera.

They went through several factors to determine that it was not an organ of the state.

So I suppose that Mambisa has been found to be a separate entity, and would be so found in this Court.

John Paul Stevens:

–Now, how does that differ from this export company?

Richard G. Wilkins:

Well, the factors that the Court of Appeals… that the House of Lords examined in the Congresso case and this case are very diverse.

In this case, the District Court determined that Bancec in reality, no matter… we are not looking at what Cuba says Bancec did.

Richard G. Wilkins:

The District Court looked at how Bancec operated.

And it determined on the basis of all the evidence that was before it that it performed… that it existed solely to manage exports and imports, manage it on the basis… in some–

John Paul Stevens:

Well, let me give you a hypothetical.

Supposing they had a separate entity that did nothing but supervise the export of sugar.

That is all they did.

They wanted to make as much money as they could exporting sugar.

Could that… Would that company be a government… Which category would it fall into?

Richard G. Wilkins:

–I’m not certain.

Again, you are giving me very few facts.

It is a broad-ranging sort of a consideration.

I don’t know… just because it was exporting all sugar would not necessarily tell me enough to know whether it was a governmental entity or a non-governmental entity.

That you have to look at… and in that example exactly is what respondents want you to do.

They want you to look at a snapshot.

This is merely an export… a contract for exporting sugar.

What we are suggesting is that the District Court properly looked at Bancec in its overall operation, in its overall sphere, its overall mission.

Sandra Day O’Connor:

Mr. Wilkins, the asset control regulations were developed to try to ensure that all creditors in this country of Cuba were treated fairly, I suppose, in any final settlement that the United States would make with Cuba.

Would your view in this case have a tendency to defeat the purposes of the asset control regulation approach?

Richard G. Wilkins:


No, Justice O’Connor.

In fact, we believe that the… that the interest of the United States, the overall interest of the United States is better served by allowing United States litigants to raise valid expropriation and counterclaims when they can and when they are justly founded in law and fact.

The truth of the matter is that we do not have, for example, asset control regulations or a freeze with many countries that expropriate foreign assets.

In fact, it is the exception rather than the rule that we do have such a situation, and so the overall interest of the United States is furthered by assuring that United States litigants can raise proper counterclaims in these sorts of suits rather than merely conserving these assets because we have a freeze here.

Sandra Day O’Connor:

And would it be your position that in all countries in which a corporation is owned and managed by a foreign government, that we should treat it the same way as this case and hold that company liable for any illegal acts of the government?

Richard G. Wilkins:

We suggest that on a properly formulated alter ego test, any entity, whether it be a private entity or a state-owned entity could be subject to the same test.

We are not suggesting that United States courts should willy-nilly pierce the corporate vails of state trading entities on a simple finding of state control or any other single factor.

What we are suggesting is that the presumptive separate status of these entities be subject to a well-recognized exception in international and domestic law.

That exception is developed under the general heading of alter ego law, and it holds that that presumptively separate corporate status will be disregarded if it totally fails to reflect reality, and if that disregard is necessary to prevent injustice, and that is all we are arguing, and we would–

Harry A. Blackmun:

Is your position here inconsistent with the government’s position with respect to the Iranian claims?

Richard G. Wilkins:

–Certainly not, Justice Blackmun.


Harry A. Blackmun:

Would you expand on that?

Richard G. Wilkins:

–I am not certain that I understand exactly what your concern is.

We would–

Harry A. Blackmun:

Well, as I understand it, if you prevail here, if Citibank does, there is a set off.

If you do not prevail here, the money in question will go into the general fund.

Richard G. Wilkins:


Well, as I explained, or as I tried to… attempted to explain to Justice O’Connor, the United States has no general interest in preserving per se this general fund.

Our overall interest is preserving the ability of litigants to raise valid counterclaims.

Now, in particular contexts, for example, in the Iranian context, there is a general freeze.

There is perhaps a broader freeze, and in that context perhaps the United States would have an interest in not… we don’t even allow people to bring claims.

They are being brought before a foreign arbitral tribunal.

But that is a question that is unique on its facts, and I don’t know that our position here would have any negative impact on what we wanted to do or what we… in Iran.

Byron R. White:

Your position is that this is really the Cuban government.

Richard G. Wilkins:


Byron R. White:

And if it were clear and admitted, there would be no question what the outcome of this case should be.

Richard G. Wilkins:


Byron R. White:

Wholly aside from there being a fund.

Richard G. Wilkins:


Harry A. Blackmun:

Except that there you run into the act of state doctrine.

Richard G. Wilkins:

Yes, but it is very clear… it may not be terribly clear what the rationale is, but it is very clear what the result is here, but in the context of this case there is no act of state problem.

Warren E. Burger:

Mr. Krinsky.

Michael Krinsky:

Mr. Chief Justice, and may it please the Court, I would like to begin by addressing Mr. Justice White’s question about the source of law.

In the first instance, we believe it is international law, and there is a substantial body of law, of international law precisely upon the question before the Court.

All countries, or almost all countries conduct much of their trade through government corporations.

The third world countries, 100 or so of them, have staked much of their aspirations and economies on these corporations, and the socialist countries conduct all of their trade through these enterprises.

The distinction to be drawn between this respondent and all these other enterprises does not withstand analysis.

That is an analysis indeed that is not even undertaken by the petitioner and the government in their briefs.

When one looks at those institutions, one sees exactly the same things as said here about the respondent.

There is the fact that all of their capital is provided by the government.

There is the fact that all of their profits go to the state’s treasury.

Michael Krinsky:

There is the fact that their boards are dominated by ministers or the representatives of ministers.

Warren E. Burger:

Are you speaking now of this corporation, or are you generalizing?

Michael Krinsky:

This is the points in common between this corporation and most of the government corporations of the world, particularly the third world.

They perform governmental… they pursue governmental purposes.

They implement governmental policies, just as the respondent did here, but through their commercial acts, just as the respondent did here.

And it is this last factor which is stressed perhaps most strongly by the government and petitioner in their brief.

But the focus of the inquiry is misplaced.

Congress in the Foreign Sovereign Immunities Act came to the conclusion, as every other country has, that all these government corporations pursue governmental purposes, and for that reason it held that the proper inquiry between commercial and governmental is the nature of the act involved, not its purpose.

And this indeed is a rule of international law.

The Federal Constitutional Court of Germany in the Empire of Iran case, the English courts in the Primaro Congresso case, and this court in Dunhill have said precisely that about the entire law of state training.

One must look to the nature of the act rather than its purpose.

There is no reason to identify respondent on that basis more closely with its government than there is to identify any of these hundreds of other corporations of the world with their government.

The English cases have indeed decided issues quite close to that presented here, and they have held that government corporations, including Cuban government corporations, including the successor to this respondent, is not to be identified with the state.

It is not responsible for the acts of the state, nor is the state for its acts.

And the basis upon which it reached that conclusion was one of international law.

In Trendex, Lord Denning and other members of the court, and in all of the cases, said, the question of whether or not an enterprise is to be identified with the state for purposes of sovereign immunity, and then later in the Primero Congresso case, for purposes of separate liability, is itself a question of international law, and the definition and the line given by the House of Lords in Primero Congresso, the Cuban case, was whether this is a familiar institution in the international scene.

Is this a familiar corporation, established by governments throughout the world?

And the answer in that case was yes, and the answer in this case, upon analysis and comparison, must also be yes.

I think, to answer Justice O’Connor’s question, the impact of a ruling disregarding the separate status of this enterprise indeed would be broad.

It could not be broader, because it is not different.

It is not different in its functions, and it is not different in its relationship to its government.

William H. Rehnquist:

Mr. Krinsky, I take it that the argument you are just making is not in your view… you can accept all of Judge Brant’s findings and still say that they don’t bear on it because you would apply a different legal test than he did.

Michael Krinsky:

Exactly, Your Honor.

That is exactly right.

The international practice goes beyond the fact that all of the countries have such corporations and assert a claim for the recognition of their international… their independent status.

This question, it has been thought, was settled a long time ago in international law by that extensive network of bilateral treaties between the socialist countries and the capitalist world dating back to the 1920’s, by which it was… by which two things were recognized: one, that sovereign immunity is inappropriate for commercial activity; and two, part and parcel of that accommodation that the limited liability of government corporations would be recognized, and that is the basis of international law of state trading, both in respect to sovereign immunity and in respect to limited liability.

William H. Rehnquist:

Mr. Krinsky, what corporations of the United States, analogous government corporations, would benefit in other nations from the application of the rule of international law that you describe?

Michael Krinsky:

Your Honor, the District Court stated that this corporation was closest to, in his view, the Reconstruction Finance Corporation.

William H. Rehnquist:

Is that still extant?

Michael Krinsky:

No, Your Honor, it is not, but it was for a long time, and of course–

Well, I–

Michael Krinsky:

–and of course one of its successors is the Export-Import Bank of the United States.

But the major impact of departing from this rule of international law and this international practice is not on United States government corporations, but will be in the judgment of Congress upon United States private corporations, because the multinational enterprise, the system of a United States private parent corporation owning subsidiaries incorporated abroad would be undermined, because these institutions are under attack in the international arena.

The relationship between the parent and the subsidiary has been described in precisely the same terms used to describe the respondent here.

And the judicial distinction between parent and subsidiary has been denounced… denounced fervently as a fiction which should be disregarded according to the notions of equity and international justice and national interests of the forum.

And Congress, in its consideration of the Foreign Sovereign Immunities Act, said that this is a dangerous trend, and we do not want to encourage it.

We do not want to give excuse for this essentially politically motivated chain of events.

Thurgood Marshall:

–Mr. Krinsky–

Michael Krinsky:

And there is… and the way to do that is to… and if we treated–

Thurgood Marshall:

–Mr. Krinsky–

Michael Krinsky:

–if I might just finish–

Thurgood Marshall:

–Go ahead.

Michael Krinsky:

–government corporations differently, we would provide that excuse.

Excuse me.

Thurgood Marshall:

Go ahead.

Michael Krinsky:

No, I have finished, sir.

Thurgood Marshall:

Go right ahead.

Michael Krinsky:

Now, we believe Congress has codified the separate entity principle into the Foreign Sovereign Immunities Act.

But even if the statute is not clear enough, and even if the international practice is not clear enough by their own force to provide a rule of law, we believe nonetheless they represent clear and consistent expressions of policy by Congress and by the international community.

And we think, given their source, they should prevail in the formation of any rule of common… rule of federal common law here.

If there is disagreement about those policies, if they are not clear, then we think petitioner and the executive should go to Congress, because Congress is the branch of government which resolves such policy matters.

And that is… we think that’s the teaching of the Court’s decisions on federal common law generally, and we think as well that that teaching is underlined strongly by the prior Cuban cases in this Court.

Whatever controversy there might have been over the role of the courts there, there was, I suggest, broad agreement that the role in this area is more modest and more limited than normal, and that the Court acting as a national court, as it must, is on firmer ground when it seeks to apply international law than when it is asked to frame a rule of law on its own.

And that is precisely what respondent… or what petitioner and the United States have asked.

It is, moreover, we suggest, difficult to understand the basis upon which the Court itself could come to a conclusion of what proper policy is here.

There is not the facile distinction that this respondent somehow is different than the hundreds and hundreds of other government corporations in the world.

We have shown that it is not.

But more critically, there will be… there is the question of whether the Court can make a decision as to whether or not to run the risks of fueling this chain of events that Congress… of undermining the stability of trade based upon the limited liability of these government corporations.

John Paul Stevens:

Mr. Krinsky, may I just throw out–

Michael Krinsky:

For the sake of–

John Paul Stevens:

–May I ask you just one question please?

Michael Krinsky:

–For the sake of what the petitioner seeks.

John Paul Stevens:

Mr. Krinsky, do we look at the case as of the time the complaint was filed, or as of today?

There has been about a 20-year lapse of time, and there is material in the record that suggests very strongly that the ownership of the claim now is in the government itself, or much more closely so than in Bancec.

Michael Krinsky:

Your Honor, let me address the question of where the ownership is now.

Our position is that the ownership is in a state trading corporation by the name of Cubazucar.

It is the same corporation which was involved in the Primero Congresso case in the House of Lords, and which was held to be a separate entity, not responsible for the acts of the Cuban government in that case.

We assert, and our position has always been in the District Court, that the claim went from Bancec to the state entesis.

We made a motion to substitute this state impressor as the successor.

It was denied by the District Court because it did not want to introduce into the case, which it considered a complicated case, new issues, and the new issue that was excluded was precisely what happened upon the dissolution of Bancec.

And that is how the case was tried.

It was tried by the plaintiff that way and it was tried by the defendant that way, and indeed, when one looks at the post-trial requests for findings of fact and conclusions of law by the respondent… I’m sorry, by the petitioner, there is no request for a finding as to the identity of who held the claim after Bancec.

And it is for that reason that we did not introduce expert testimony on what is a question of foreign law.

And indeed, if that issue is still in the case, despite it having been excluded in this way, we believe that we should be entitled to an opportunity of introducing that expert testimony on foreign law.

Now, on the merits of the claim, we have always taken the position that upon Bancec’s dissolution, the claim went to the succeeding state enterprise, and if one reads Law Number 934, which is the critical law here, it says Bancec is dissolved and its assets are transferred to the new state enterprises.

It is in the present tense.

We think there was no foundation, no foundation in the record for this position, and indeed, it is not procedurally proper, properly in the case any longer.

There is another aspect of the situation, however, in which the case properly should be looked at, I think, from the vantage point of the present day, and that is the impact of the freeze regulations and what Congress has done on the question of separate entity, the question of nationalizations in general and Cuba, Cuban nationalizations in particular.

It is difficult to conceive of what issue of policy or equity relevant to this case has not been addressed by Congress and answered by Congress.

Congress had ratified the freeze of all property in the United States of Cuba, of Cuban government corporations, and of Cuban nationals.

Any recovery by this respondent will become frozen, and that can hardly give foreign countries any encouragement in the belief that they can nationalize the United States’ own property without consequence for the property of their government corporations in the United States.

William H. Rehnquist:

Mr. Krinsky, what then is the motive of your client to continue to litigate this issue if you are not going to get anything out of it anyway?

Michael Krinsky:

Your Honor, we have been instructed by our client to litigate the issue, and we have not been told the reason why.

The Congress has said something else here of great importance, and that is on the question of equity.

It established a program of certifying nationalization claims, not just Citibank’s claims, all nationalization claims, and the Foreign Claims Settlement Commission has met for many years and has certified claims of individuals, of corporations.

And the reason why Congress did that was to provide an equitable basis for the distribution of all frozen funds in the United States in the event of a settlement.

The result here of a judgment in favor of petitioner would be contrary to that policy.

Equity in this case, according to the Congress, is that the funds be available for distribution to all the claimants, not that Citibank obtains a preference.

And it is, again, we suggest, the interest of the United States and the equitable notions of the United States as established by Congress which should govern this controversy.

There is, Your Honor, a notion in these cases of looking to the overall interests of the United States.

Michael Krinsky:

There is, however, counterposed to this who is to define those interests and what are the sources of law to govern.

We have argued, we believe, that international law provides that basis.

There is no distinction between this respondent and other government corporations.

The rule of law which allows each case, each government corporation to be evaluated according to the local law of the forum will leave nothing, nothing of the international law of state trading and government corporations.

All that would be left is all government corporations in doubt, and every country invited to apply its own notions of what is a proper government corporation, and indeed precisely as Congress feared, each country will be invited to apply its local notions of what is a proper private corporation and what is the proper relationship between a parent corporation, a United States parent corporation and its subsidiary.

We think that is a result which has no basis in law, and to the extent that policy concerning it is to be changed, it should be done by Congress or by the executive in the international area advocating a different position.

I believe, Your Honor, that is all I have to say.

Warren E. Burger:

Very well.

Do you have anything further, Mr. Harfield?

Henry Harfield:

Just this, that I think that what has been indicated by the respondent’s argument is that the case must be either looked at on the facts of the case where we have findings or it must be looked at in terms of the generalities.

As far as the generalities are concerned, which Mr. Krinsky has discussed, I think he is wrong on them, but I think where he is mainly wrong is in his election to speak for what the policy of the United States and what the interest of the United States ought to be.

I have really nothing to add unless the Court has further questions.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.