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Bandes v. Harlow & Jones, Inc.
Published online by Cambridge University Press: 27 February 2017
Extract
The former majority shareholders of Industria Nacional de Clavos y Alambres de Puas, S.A. (INCA), a large Nicaraguan steel company, sought to recover from Harlow & Jones, Inc. (H & J), a U.S. steel company, the purchase price of a shipment of undelivered steel billets. Following the Sandinista revolution, the Nicaraguan Government had “intervened” in INCA and it, too, demanded the funds that H & J interpleaded into the court. The district court rejected the claim of the Sandinista Government and allocated the funds to the benefit of all parties who held shares in the company prior to the intervention. On cross-appeals by the claimants, a panel of the United States Court of Appeals for the Second Circuit (per Kaufman, J.) affirmed in part and reversed in part, and held: the act of state doctrine does not bar judicial resolution of the dispute over the funds; the actions of the Sandinista Government amounted to a taking without compensation that will not be enforced by the U.S. courts; and the district court’s allocation of pro rata shares for all of the preintervention stockholders, including minority interests, was equitable.
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- International Decisions
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- Copyright © American Society of International Law 1988
References
1 570 F.Supp. 955 (S.D.N.Y. 1983).
2 Nos. 1146 and 1281, slip op. at 10-23 and 25.
3 Id. at 5–6.
4 In the district court, the claimants disputed the meaning and legal significance of the term “intervention.” The Bandes family maintained that the intervention constituted a permanent taking. The representative of the Nicaraguan Government argued that it was only a temporary measure. The appellate court, echoing the reasoning of the district court, held that “[b]ecause, during the nine years of this litigation, INCA has been solely controlled by the Sandinista Government without any attempt to indemnify the Bandes family, … the company has been expropriated to the extent of permanent ownership and control over the Bandeses’s property.” Id. at i n. 1.
5 The texts of the relevant Sandinista decrees are reprinted as notes to the district court’s opinion. 570 F.Supp. at 957–59 nn.1–2 and 5–8.
6 Later, the government intervenor held a general shareholders meeting and removed the Bandeses from their positions as officers of INCA. Slip op. at 6–7.
7 The district court allocated the funds “by creating the fiction of a corporate dissolution.” Id. at 9. The district court also provided that notice would be sent to the unrepresented shareholders, and it held that any unclaimed amount would escheat to New York pursuant to that state’s abandoned property law. N.Y. Aband. Prop. Law §§1200–1223 (McKinney 1944 & Supp. 1988). Slip op. at 9.
8 For his effort in creating the fund for the minority and preferred shareholders, the district court awarded the Nicaraguan intervenor his attorney’s fees and expenses amounting to $51,811.67 to be paid from the minority shareholders fund. Slip op. at 9. The court of appeals reversed the award of attorney’s fees to intervenor because “he did nothing to create the common fund,” and because of “the general policy in United States courts that each party bear the cost of his own counsel’s compensation.” Id. at 24–25.
9 “[T]he foreign sovereign is acting beyond its enforcement capacity when it involves itself within our nation’s jurisdiction.” Id. at 12 (emphasis in original).
10 Id.
11 Id. (citing Restatement (Second) of Foreign Relations Law of the United States §43 (1965); Restatement (Third) of Foreign Relations Law of the United States §443 comment b (1987) [hereinafter Restatement (Third)]).
12 Id. at 13.
13 Id. at 14–16. The court also found “due process problems” in depriving the generals— who were not parties to the action—of property without affording them notice and the opportunity to defend their interests in court. Because the Bandes family accepted and enjoyed the benefits of state favoritism—a practice also contrary to U.S. policy—its members lacked “clean hands” to claim the portion of the fund reserved for the generals. In addition, the court affirmed the reservation of an amount for the unrepresented minority shareholders.
14 Id. at 19.
15 Id. at 22. The court relied on United Bank Ltd. v. Cosmic Int’l, Inc., 542 F.2d 868 (2d Cir. 1976), in which the Bangladesh confiscators argued that the situs of disputed debts was in Bangladesh because they were actually security for previous debts located there. The United Bank court disagreed, holding that the Bangladesh confiscators should not be allowed to accomplish indirectly what the act of state doctrine otherwise precluded. 542 F.2d at 876.
16 Restatement (Third), supra note 11, §443 comment b.
17 E.g., compare Garcia v. Chase Manhattan Bank, N.A., 735 F.2d 645 (2d Cir. 1984) (act of state doctrine not applied in view of promise to pay at any branch worldwide), with Perez v. Chase Manhattan Bank, N.A., 61 N.Y.2d 460, 474 N.Y.S.2d 689, cert, denied, 469 U.S. 966 (1984) (act of state applied on the basis that debt could have been enforced or collected in Cuba). See generally Note, The Act of State Doctrine: Resolving Debt Situs Confusion, 86 Colum. L. Rev. 594(1986).
18 766 F.2d 1333 (9th Cir. 1985).