Banco Nacional De Cuba v. Chase Manhattan Bank

Citations: 505 F. Supp. 412; 1980 U.S. Dist. LEXIS 9669Docket: 60 Civ. 4663-CLB, 61 Civ. 0410-CLB

Court: District Court, S.D. New York; January 4, 1980; Federal District Court

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Banco Nacional de Cuba filed suit against Chase Manhattan Bank on November 28, 1960, and Banco Para el Comercio Exterior de Cuba brought a case against First National City Bank on February 1, 1961, both stemming from changes in Cuba's economic and political landscape following the Cuban Revolution. These cases were among several similar actions pending in the U.S. District Court for the Southern District of New York and were assigned to Judge Frederick vanPelt Bryan, who passed away on April 17, 1978. The current presiding judge has been authorized to resolve the issues based on the prior trial records without reopening the cases for new evidence. The court has subject matter jurisdiction under 28 U.S.C. § 1332(a)(2), and the counterclaims are acknowledged as recoverable solely as set-offs. Although the cases are not consolidated, they involve related factual and legal issues, allowing for joint post-trial hearings. The plaintiffs have reserved the right to appeal certain legal points previously decided in Banco I, but concede that these issues are precluded in this court based on Supreme Court plurality opinions and a remand determination. References are made to earlier related cases and legislative developments, including the Hickenlooper or Sabbatino Amendment (22 U.S.C. § 2370(e)(2)), which was enacted to counter the Supreme Court's ruling in the Sabbatino case.

The revolution in Cuba, which began in December 1956 and is widely recognized to have culminated on January 1, 1959, resulted in the establishment of a national government led by Fidel Castro and Che Guevara. This government consolidated executive and legislative powers and claimed continuity with the previous Cuban government. It implemented significant but gradual social changes, introducing stringent currency control regulations and restructuring Banco Nacional, which became the sole authority for foreign payments and profit remittances from foreign enterprises. These measures increasingly restricted international trade and domestic business, impacting property rights for foreigners. Following the revolution, many members of the professional and propertied classes fled Cuba, leading to a transition from private to state-controlled economic ownership, often referred to as "state capitalism" rather than socialism, which traditionally implies worker ownership of production means. The Cuban government appropriated the properties of those who left, enacting an agrarian reform law on May 17, 1959, aimed at nationalizing large land holdings, particularly in sugar production. This reform was managed by INRA, a government entity acting as a state trading corporation. Additionally, the Banco Nacional was reorganized in November 1959, with Che Guevara appointed as its president. These changes were characterized by significant rhetoric and promises of further transformations to come.

Sugar was a surplus commodity in the world market for many years, with Cuban sugar producers receiving a U.S. import quota that was politically administered and adjusted annually. The U.S. maintained sugar prices above global competitive levels to protect domestic producers. These import quotas played a significant role in U.S. foreign policy, influencing diplomatic relations with Cuba and other sugar-producing countries. Following a decline in U.S.-Cuba relations, the Soviet Union established a barter agreement with Cuba on February 13, 1960, allowing substantial Cuban sugar exports to Russia in exchange for goods, including armaments. In response, the U.S. eliminated Cuba's sugar quota, effectively barring Cuban sugar from its market, as detailed in the law enacted on July 6, 1960. Subsequently, the Cuban government enacted Law No. 851, nationalizing U.S. businesses and properties in Cuba, starting with the seizure of twenty-six corporations on August 6, 1960, without compensation to American owners. On September 16, 1960, U.S. banking operations in Cuba were confiscated. Diplomatic relations ceased, and financial transactions between the two nations were halted. 

Banco Nacional, established by Law No. 13 in 1948, served as Cuba's central bank before the revolution, possessing powers akin to those of the Federal Reserve in the U.S. The Cuban government held half of its stock, while the remaining shares were owned by private banks. The government appointed key officials and shared in the bank's profits after dividend payments. Banco Nacional had exclusive authority to issue currency, which was recognized as a state obligation.

Maximum interest rates were established for private banks, with Banco Nacional serving as the fiscal agent and economic advisor to the Cuban Government and as the agent for the Currency Stabilization Fund under Law No. 13 of 1948. Before the Cuban Revolution, Banco Nacional represented Cuba in international financial institutions, was tax-exempt, the sole depositary of state funds, and authorized to make loans to the Currency Stabilization Fund. It had the capacity to sue and be sued, with its liability limited to its own capital and assets, ensuring that the Government was not liable for its debts. Banco Nacional regulated existing commercial banks, which had to register with it to continue operations.

Post-Revolution, Banco Nacional gained additional governmental functions through Resolution No. 2 of Law No. 851 and Law No. 891 in 1960, transitioning to a state-owned entity with all assets and profits belonging to the Cuban Government. It became an essential arm of the Government, confirmed by judicial rulings. The "Fundamental Law," enacted on February 7, 1959, regulated property confiscation, generally requiring judicial authority and indemnity for deprivation, but allowed exceptions for properties linked to Batista and his collaborators.

Following this, Law No. 851 was enacted on July 6, 1960, granting the President and Prime Minister the authority to nationalize properties owned by U.S. nationals through forced expropriation, with appraisals determining compensation. Specifically, Resolution No. 2 mandated the nationalization of Chase, Citibank, and The First National Bank of Boston, assigning Banco Nacional to manage these assets and banking operations.

The resolution specified that the representative of "foreign" banks on the Board of Directors of Banco Nacional, appointed under Law No. 13, Article 23 (December 23, 1948), would no longer represent nationalized banks while serving on the Board. Subsequently, Citibank, Chase, and The First National Bank of Boston had their Cuban branches and assets expropriated. Law No. 851 and Resolution No. 2 were enacted to defend national sovereignty, promote economic development, and counter perceived imperialist threats from these banks. 

Further steps in nationalization included Laws No. 890 and 891, enacted on October 13, 1960. Law No. 890 aimed to nationalize large industrial and business enterprises, while Law No. 891, the "Bank Nationalization Law," emphasized that banking functions should be public, managed exclusively by the State, to align with the country's economic planning and revolutionary context. The law required the nationalization of all national private banking institutions, establishing Banco Nacional de Cuba as the sole legal banking entity. 

Article I defined banking as a public function under the State’s control, and Article III mandated the nationalization process to be carried out by Banco Nacional, which was designated the legal successor of affected banks. Article V provided for indemnification of dissolved bank partners or shareholders based on corporate valuations as of December 31, 1960, with provisions for bond issuance for partial payments. Banco Nacional assumed responsibility for existing bank deposits and was tasked with ensuring their proper management. The Board of Directors of Banco Nacional was dissolved, transferring authority to the President and a Consultative Council, while the Currency Stabilization Fund was reorganized.

Article XVI exempted two Canadian banks, Royal Bank of Canada and Bank of Nova Scotia, from nationalization. Law No. 930, enacted on February 23, 1961, reorganized Banco Nacional de Cuba, maintaining its independent legal status while granting it the authority to issue currency and exercise monetary sovereignty. Banco Nacional, as plaintiff, claims against Chase as the successor of Cuban banking institutions owned by the government. Chase had extended a $30,000,000 loan to Banco de Desarollo Economeco y Social ("Bandes") and Fonda de Establizascion de la Moneda ("Fonda") on August 19, 1958, which was secured by U.S. obligations. Following the dissolution of Bandes and Fonda on February 17, 1960, Banco Nacional assumed their assets and liabilities. By August 17, 1960, Banco Nacional made a $5,000,000 payment to Chase, reducing the debt to $10,000,000 at the time Chase's Cuban branches were nationalized. Banco Nacional also had a deposit of $2,500,000 with Chase, plus $37,622 in accrued interest. After Chase sold the collateral for the Bandes loan for over $17,000,000, it was left with a surplus of $7,256,398, creating a total debt of $9,794,020 owed to Banco Nacional, which Chase does not dispute. Chase acknowledges its liability but presents four counterclaims. 

Banco Para el Comercio Exterior de Cuba ("Bancec"), established under Law No. 793 on May 4, 1960, is treated as an alter ego of the Cuban Government, similar to Banco Nacional. Following the Agrarian Reform Act of May 17, 1959, INRA owned a cargo of animal feed sugar sold by Bancec, supported by an irrevocable letter of credit from Citibank. Citibank received a sight draft from Banco Nacional for $193,280.30 for sugar delivered in the U.S. and, after the intervention of its Cuban branches on September 17, 1960, set off the proceeds against the value of those branches. Law No. 930 dissolved Bancec, transferring all its assets, rights, and claims to Banco Nacional.

Law No. 930 did not address the disposition of other assets or claims of Bancec. At the time of its enactment, the claim involved was considered a draft on an irrevocable letter of credit, an asset typically associated with the banking industry, and likely vested in Banco Nacional as of February 23, 1961. Banco Nacional had previously asserted a claim against Citibank as the collecting agent. Subsequently, Law No. 934, enacted on the same day, transferred Bancec's non-banking assets and claims to the Ministry of Foreign Trade of Cuba, which was authorized to create state trading corporations for foreign trade but was not liable for their obligations. On March 1, 1961, the Ministry established Empresa Cubana de Exportaciones, responsible for the nation’s commercial export operations previously handled by Bancec, and inherited its rights and obligations regarding these activities. However, this delegation was deemed irrelevant as the sugar in question had already been delivered and had become a debt by the time of the Resolution. Empresa Cubana de Exportaciones was dissolved on December 31, 1961, and replaced on January 1, 1962, by Empresa Cubana Exportadora de Azucar y sus Derivados (Cuba Zucar), which took over Bancec's rights and obligations related to sugar exports. On May 2, 1975, the plaintiff sought to substitute Cuba Zucar as the plaintiff in the case, but the defendant contended that the new entities were not immune from counterclaims against the Cuban Government and could not claim better title than Bancec or the Ministry. Prior to this motion, the parties had agreed to substitute the Republic of Cuba as plaintiff, but a formal amendment or substitution was never completed. Judge Bryan denied the motion to substitute Cuba Zucar, stating that substitution under Rule 25(c) is within the court's discretion. The court concluded that Bancec and its successors should be regarded as the Cuban Government, as Bancec was a government-created entity with all capital supplied by the government, functioning solely to manage commodity exports on its behalf.

The claim has devolved to the Ministry and Banco Nacional, both considered alter egos of the Cuban Government. Plaintiff's counsel argues that a court order allowing the Republic of Cuba to be substituted as a party plaintiff was based on a misunderstanding of the laws governing the transfer of Bancec's assets. Regardless, the Ministry of Foreign Trade is equivalent to the Government. Citibank contends that Banco Nacional is the real party in interest since it deposited the draft for collection and demanded payment from Citibank in New York. Citibank asserts that it honored the draft in favor of Banco Nacional and offset its claims against the funds owed to Banco Nacional, not Bancec. If accepted, this would classify Bancec as a beneficiary of Citibank's promise to Banco Nacional, exposing it to Citibank's defenses against Banco Nacional. However, the Court rejects this theory of set-off between banks. The relationships are governed by New York's former Negotiable Instruments Law, specifically section 350-a, which outlined the agency relationship between banks and the revocability of credits until actual money was received. This legal framework, established in 1929, reaffirmed prior case law indicating that a collecting bank could not be considered a bona fide holder for value if the consideration was an antecedent debt. This principle was previously a point of contention between state courts and federal courts, particularly illustrated by cases like Swift v. Tyson and Erie R. R. v. Tompkins.

In Carnegie Trust Co. v. First Nat. Bank of the City of New York, the New York Court of Appeals considered the rights of a collecting bank regarding applying collections to its deposits with a plaintiff bank. The court noted that if the collecting bank acted merely as an agent or trustee for the depositor, it could not apply claims in its own right to offset its fiduciary liability, referencing Morris v. Windsor Trust Co. In Dakin v. Bayly, the Supreme Court held that due to the agency relationship between the depositor and forwarding bank, mutuality was lacking, thus prohibiting set-off claims by the collecting bank. This principle was echoed in Friedman v. Irving Trust Co., where the court determined that the depositary bank acted solely as a collecting agent, and any transactions post-suspension of the depositary bank were not valid payments or unconditional credits as defined under the New York Negotiable Instruments Law (NIL). The court clarified that an "unconditional credit" must be irrevocable and not provisional. The Full v. Fasig-Tipton Co. case reiterated that one cannot set off an agent's personal debts against amounts owed to a disclosed principal, emphasizing the importance of recognizing agency relationships in such transactions.

Citibank cannot fulfill its obligation to Bancec by offsetting the debt owed to it by Banco Nacional concerning the sight draft implicated in the plaintiff's claim. The Court will assess the situation's realities, treating Bancec and its successors similarly to Banco Nacional and the Cuban Government based on precedents from Banco I, Sabbatino, and Farr. There is no legal or factual distinction between these two government-owned banks. Although Bancec is described in its founding law as an autonomous institution with its own capital, the Court finds that it lacks independent existence and functions merely as an arm of the Cuban Government, which maintains exclusive control over Bancec, requiring it to remit all profits. Unlike the Tennessee Valley Authority (TVA), which possesses significant financial independence, Bancec is more akin to the Reconstruction Finance Corporation (RFC) and its subsidiaries, which have been recognized as agents of the U.S. Government. While comparisons to American governmental agencies have limited relevance, they bolster the argument that Bancec operates as a Cuban Government entity, not as a private corporation. The legal context provided by the Foreign Sovereign Immunities Act further supports this conclusion. Given the strong equities favoring the defendants, the Court emphasizes the need to acknowledge the practicalities of the transactions involved.

Justice in this case should not be hindered by the Cuban Government's self-serving statutes. The Court has determined that Bancec is an alter ego of the Cuban Government. Chase acknowledges a debt to Banco Nacional of $9,793,021.70, subject to set-offs. Citibank admits a debt of $193,280.30 to various Cuban entities due to an accepted draft against its letter of credit to Bancec, also subject to set-offs. The issue of pre-judgment interest on these claims and counterclaims is under consideration.

The counterclaims primarily arise from the nationalization of Chase and Citibank's branches in Cuba. Citibank had 11 branches and Chase had 4, with Citibank operating in Cuba since 1915 and Chase since 1925. Chase's claims include the alleged confiscation of its branches on September 17, 1960, which it argues violates international law, holding the Cuban Government liable for the property’s value. Chase contends that the Cuban Government and Banco Nacional are indistinguishable for liability purposes, as Banco Nacional assumed control over the confiscated assets. Additionally, Chase claims a set-off for the value of its properties, including goodwill.

Chase was also acting as a trustee for American investors when the Cuban Government expropriated railroad equipment on October 13, 1960, resulting in claimed damages of $4,073,497.00, which are likewise asserted as a set-off. Chase and Citibank recognize they cannot pursue affirmative claims against the plaintiffs or the Cuban Government, only set-offs.

Chase has presented its claims on alternative theories of liability, and Banco Nacional has defended against these claims based on several theories: asserting its separateness from the Cuban Government, claiming sovereign immunity applies, and invoking the Act of State doctrine to bar claims concerning assets located in Cuba.

The expropriation of Chase's Cuban branches and the seizure of its leased railroad equipment by the Cuban Government did not constitute violations of international law, therefore Chase is not entitled to claim compensation for the property. Claims made by Chase as a trustee for the confiscated railroad property cannot be used as a counterclaim in this lawsuit due to the "opposing party doctrine" outlined in Rule 13(b) of the Federal Rules of Civil Procedure. The liability theory Chase relies upon has been previously affirmed in the Citibank litigation (Banco I), which allows Chase to set off the full value of its branches and assets against claims. The court acknowledges that plaintiffs seek to challenge the validity of Banco I, but prior appellate decisions limit the court's ability to reconsider that case. Banco I established that Banco Nacional and the Cuban Government are equivalent for litigation purposes, and the doctrine of sovereign immunity does not prevent set-offs against claims by foreign sovereigns. Furthermore, the Act of State doctrine does not bar Chase's set-off claims, as they are permitted under the Hickenlooper Amendment to the Foreign Assistance Act of 1964. The government’s taking of Citibank's Cuban branches was deemed unlawful due to lack of compensation, retaliatory motives against U.S. citizens, and discrimination against American nationals compared to other foreign banks. Both Chase and Citibank possess "Bernstein letters" from the U.S. Secretary of State, reinforcing the argument that the Act of State doctrine does not impede their claims for set-offs. The Supreme Court's decision in Banco I supports that courts may scrutinize the legality of foreign government expropriations affecting American citizens.

The Banco I case indicates that the Bernstein exception to the Act of State doctrine is still recognized by Chief Justice Burger and Justices Rehnquist and White. Justice Douglas opines that a foreign sovereign suing in U.S. courts waives its sovereign immunity defense and, to some extent, the Act of State doctrine regarding counterclaims up to the amount of its claim. This perspective aligns with 28 U.S.C. § 1607(c) and was supported by the Yessenin-Volpin v. Novosti Press Agency case, which interpreted the Foreign Sovereign Immunities Act of 1976 as retrospective for undecided cases as of January 21, 1977. Justice Powell's view, suggested in Banco I, implies that the Bernstein letter exception may infringe upon the separation of powers, although he concurred that the Act of State doctrine was inapplicable in that case.

Following the Supreme Court's decision to remand Banco I for further consideration, the Court of Appeals upheld the district court's ruling that Citibank could set off amounts owed by the Cuban Government against Banco Nacional's claims, suggesting that Banco Nacional and the Cuban Government acted as a single entity in the expropriation of Citibank's properties. The expropriation was deemed a violation of international law, referencing past cases such as Banco Nacional de Cuba v. Sabbatino and Banco Nacional de Cuba v. Farr. The court sees no reason to diverge from these conclusions in the case involving Chase’s branches. The principles established in Banco I regarding set-off counterclaims not being barred by the Act of State doctrine have been reaffirmed in Alfred Dunhill of London, Inc. v. Republic of Cuba. Consequently, it follows that under international law, Chase is entitled to compensation for its confiscated Cuban branches. Additionally, Professor Lillich's work reinforces that Cuba's nationalizations were fundamentally unlawful under international law, necessitating no extensive analysis.

Judge Bryan's observations in Banco I highlight that the Cuban Government's actions are retaliatory and discriminatory, similar to the measures deemed violative of international law in Sabbatino. Banco Nacional argues against the necessity of compensation under international law, claiming that the principle is no longer widely accepted. The Supreme Court acknowledged in Sabbatino the significant division of opinion regarding the limitations on a state’s power to expropriate foreign property. While there exists some authority in international judicial decisions and expressions of national governments regarding compensation standards, the document concludes that this matter is unsuitable for adjudication by domestic courts. It notes that Communist countries often provide compensation post-diplomatic negotiations but do not recognize any obligation for it. Additionally, representatives from newly independent countries challenge whether established rules of state responsibility towards foreign nationals apply to nations that haven't consented to them, suggesting that traditional expropriation standards may reflect imperialist interests and may not be appropriate for emergent states.

The statements from Mr. Padilla Nervo (Mexico) and Mr. Pal (India) highlight a fundamental divergence in international law standards, reflecting the differing national interests of capital-importing versus capital-exporting countries, as well as contrasting social ideologies—specifically state-controlled versus free enterprise systems. The courts in this country are hesitant to adjudicate matters deeply intertwined with the ideological and practical objectives of diverse nations. While certain areas of international law may exhibit greater consensus, this does not preclude U.S. courts from addressing international law issues. The district court emphasizes its obligation to adhere to established precedents from higher American courts, which mandate that just compensation must be provided for the taking of an alien's property, regardless of the legality of the taking. This compensation must be adequate and promptly paid. The plaintiff's argument suggests that based on recent historical practices, only partial payment is necessary for expropriated property, drawing from prior lump-sum settlements negotiated through diplomatic channels. These settlements have often been used to smooth relations between expropriating countries and capital-exporting nations, and the plaintiff contends that this practice has become a norm in international law, as discussed in Professor Richard Lillich's series on nationalized property valuation.

The testimony before Judge Bryan indicated that lump-sum settlements typically recover 40 to 60% of outstanding claims, with plaintiffs advocating for a set-off of only 50% of the expropriated property's value based on this trend. However, it is emphasized that the specific percentage of claims recovered remains uncertain at the time of settling, as lump-sum settlements are the result of diplomatic negotiations, with their allocation determined by a receiving country's Commission. The paying country is largely indifferent to the allocation and does not have clarity on the total value of the expropriated property at the time of agreement. The recovery rate is influenced by the bargaining power of the involved parties and the unpredictable administrative processes that follow. It is noted that full recovery (100%) is rare because expropriating nations have less incentive to settle at that level, given the potential for negotiating lower amounts directly with claimants. Additionally, historical shifts in international relations have diminished the likelihood of military intervention to protect nationals' rights, leading countries to prefer partial settlements that facilitate ongoing trade over seeking full compensation. The variability of settlements does not create established legal principles, as domestic settlements in tort or contract law do not set legal precedents. Thus, lump-sum settlements between nations should not be viewed as a basis for principles of international law regarding compensation for expropriated property, due to their susceptibility to political and economic factors.

Plaintiffs’ claims in the litigation are effectively expropriated, as payment of dollars to Cuba is prohibited, mirroring restrictions on dollar payments from Cuba. The Court rejects arguments suggesting that the same logic should reduce both plaintiffs' and defendants' claims, affirming that American citizens in Cuba are entitled to full and prompt compensation in convertible dollar funds for their seized property. The Court will treat set-offs as if they had been converted and paid at the time of seizure, reflecting American decisional law and public policy.

Congressional declarations in the legislative history of the "Rule of Law Amendment" (301(d)(4) of Public Law 88-633, an amendment to the Foreign Assistance Act of 1964) are significant. This amendment, also known as the "Hickenlooper Amendment," was intended to partially reverse the Supreme Court's decision in Banco Nacional de Cuba v. Sabbatino, which limited U.S. courts from questioning the acts of foreign sovereigns, even if deemed contrary to international law by the State Department. 

The Congressional Record from the time indicates a strong public policy stance against the U.S. becoming an "international thieves' market," highlighting that the Castro regime's rise in 1959 led to extensive illegal expropriations of American property. The legislative history supports that federal and state courts should enforce principles of international law, including the necessity for prompt, adequate, and effective compensation in expropriation cases. This is underscored by specific references to the obligations of international law, emphasizing the need for speedy compensation.

The excerpt addresses the expropriation of property belonging to United States nationals by the Cuban government and the subsequent legal considerations surrounding compensation. It notes that the U.S. government has recognized the expropriation of approximately a billion dollars' worth of property, which violated international law and the rights of the affected nationals. The President's statement highlights that these seizures were conducted without regard for international standards of conduct among nations.

The text emphasizes that compensation for expropriation should be just, adequate, and provided in convertible currency, aligning with principles of international law as interpreted by U.S. courts and Congress. It clarifies that the expropriations were not universal, as some properties, particularly more productive farms and those below a certain size, were allowed to remain privately owned.

The discussion indicates that foreign nationals engaged in trade should not be treated less favorably than domestic citizens regarding property rights. The Court is urged to apply international law rather than local laws and to use the principles of eminent domain from U.S. constitutional law as a neutral reference for valuation. This approach is deemed fair, even when it requires the government to make payments.

The excerpt also details Chase's counterclaims regarding railway equipment seized by the Cuban government in 1960, establishing that Chase is acting as a trustee for American and other owners of equipment trust certificates. Chase claims a total of $4,073,497.01, referencing an oral ruling from Judge Bryan in 1974.

Plaintiff's motion to dismiss the third and fourth counterclaims has been granted, primarily because these claims are not permissible under Rule 13(b) of the Federal Rules of Civil Procedure. The court has indicated that no party requested a finding under Rule 54(b), which would allow for a final judgment on Chase's claims as Railway Equipment Trustee, making the issue separately appealable. The court noted the absence of a basis for the required finding of "no just cause for delay" for such a judgment. 

Judge Bryan concluded that counterclaims asserted by Chase in its fiduciary capacity as Railroad Equipment Trustee cannot be made in response to claims against Chase in its individual corporate capacity. He emphasized that Rule 13(b) does not permit counterclaims by parties not involved in the main action. The judge's notes indicate that a counterclaim can only be asserted against an opposing party in the same action, and both parties must be the same in name and capacity. Several precedential cases support this view, reinforcing that a counterclaim can only be made in the same capacity as the main claim. Additionally, Judge Bryan referenced the importance of maintaining separate accounts in representative capacity lawsuits to avoid prejudice or unfairness, which outweighs the desire to resolve all disputes in one proceeding.

Banco Nacional filed a lawsuit exclusively against Chase in its corporate capacity, without implicating Chase as Railroad Equipment Trustee. Thus, Chase as a corporation is the only party entitled to counterclaim against Banco Nacional in this matter. Judge Bryan remarked on this distinction, noting that Chase contends it can pursue claims as a trustee without joining its beneficiaries, citing various precedents to support its stance that New York law determines the capacity to sue under Federal Rule of Civil Procedure 17(b). However, the interpretation of ‘capacity’ is not relevant to the opposing party doctrine outlined in Rule 13(b). Federal law applies to issues of capacity based on Hanna v. Plumer. Chase argues it is asserting counterclaims in its individual capacity, but the court disagrees, stating that the cases cited by Chase pertain only to the right to sue and do not apply to the opposing party doctrine. Some courts allow counterclaims where the plaintiff would benefit from a recovery in both capacities, as illustrated in Scott v. United States, where a partnership could assert a counterclaim that would directly benefit its partners. The court emphasized that individuals acting in a representative capacity do not gain personal benefits from judgments in such suits, distinguishing them from partnerships where individual partners directly benefit from claims. The fundamental principle underlying counterclaim rules is that parties must have a personal interest in the claims made.

In Burg v. Horn, the court addressed a derivative lawsuit brought by a stockholder and director against fellow director-stockholders for breach of fiduciary duty. Although typically personal counterclaims against a stockholder in a derivative action are not allowed, the court ruled that a counterclaim against the plaintiff in her individual capacity was permissible due to the nature of the dispute, which concerned the rights of the three individual parties rather than solely the corporation. The court noted that any recovery would benefit the plaintiff personally.

Defendant Chase, however, lacked a beneficial interest in two counterclaims, as it held only bare legal title as trustee for individual certificate holders who opposed Banco Nacional. Chase would not be liable to these certificate holders for failing to collect sums from Cuba. The Trust Agreement specified that the trustee is not liable for acts unless due to negligence or willful default, and while a failure to assert a counterclaim could theoretically fall under these definitions, Chase had acted to recover for bondholders to the extent possible given the jurisdictional limitations against the Government of Cuba.

Chase's argument that equity required the counterclaims to be allowed was rejected. The cited case regarding the Republic of China clarified that a foreign sovereign waives immunity to counterclaims only to a limited extent and does not waive individual rights to object to counterclaims based on procedural doctrines. Chase failed to meet the requirements of the opposing party rule and could not invoke modern trends to bypass these procedural nuances. The excerpt also references relevant case law to support these legal principles.

Defendant seeks to eliminate the opposing party doctrine as a limitation on permissive counterclaims under Rule 13(b). The cited cases pertain to specific factual scenarios that do not apply to the current case. The defendant, Chase, argues that without the ability to assert the third and fourth counterclaims, Cuba would evade liability due to sovereign immunity preventing a separate lawsuit for the seized railroad equipment. Chase contends that these counterclaims should be included in this case to uphold moral responsibility for the expropriation of private property. However, the court cannot alter established Supreme Court rules that grant sovereign nations immunity from lawsuits, as demonstrated in *The Schooner Exchange v. McFaddon*. Allowing Chase to bypass sovereign immunity by using setoff claims would undermine the Cuban Government's rights. Judge Bryan did not resolve Banco Nacional's argument that the counterclaims should be dismissed since they would only pertain to the Republic of Cuba, not to Banco Nacional. Further discussion on this point is deemed beneficial for the parties and the Court of Appeals. The evolving rules of pleading and practice have diminished the complexity surrounding capacity issues, making the assertion of counterclaims less significant in most domestic cases. In diversity cases like this, New York substantive and possibly procedural law applies. Historically, if a counterclaim was barred due to procedural technicalities, a party could still pursue a plenary action in a different capacity or attach the plaintiff's claim to establish jurisdiction for such an action. As a result, this procedural issue rarely arose.

Chase is unable to resolve counterclaims against Banco Nacional due to the latter's immunity as an entity of the Cuban Government, which protects it from lawsuits in this jurisdiction, except where set-offs can be used as an affirmative defense. New York law historically favors set-offs, but they must be mutual, meaning they must involve the same parties in the same capacity. In the case of Beecher v. Vogt Manufacturing Co., it was established that a defendant's set-off must be against the plaintiff in the same fiduciary capacity if the plaintiff is acting in that role, not in an individual capacity. This principle is supported by New York statutes and case law, which indicate that a trustee cannot use personal claims to offset liabilities incurred in a fiduciary capacity, thereby preventing potential violations of fiduciary duties. Furthermore, the determination of whether Chase can assert a counterclaim as a trustee is governed by New York law, as outlined in federal procedural rules, which indicates that such claims cannot be used as offsets against personal claims. Thus, Chase's ability to present counterclaims is constrained by both state law and the nature of its fiduciary responsibilities.

Counterclaims or offsets by a defendant are not inherently restricted based on the defendant's different capacities. According to the doctrine established in *Hanna v. Plumer*, once a district court confirms its jurisdiction and the parties' capacity to sue, the Federal Rules of Civil Procedure govern procedural matters. In *Tolson v. Hodge*, the court noted that the facts did not involve fiduciaries asserting claims to reduce personal liability. The case at hand, involving a trustee and a corporate capacity, lacks the logical relationship required under Rule 13(a) for a compulsory set-off, despite both claims arising from the same incident, namely the Cuban Revolution. The court expressed concerns that allowing a set-off based on policy considerations could lead to significant complications and undermine established procedures. The specific identity of the trustee is emphasized; if the trustee were different or not indebted to the plaintiff, a set-off would not be available. This situation could lead to a problematic trading of claims related to Cuban corporations. Historically, common law has not permitted a trustee to litigate against themselves, necessitating either resignation or equitable resolution. In *United States Trust Company of New York v. Bingham*, the court allowed a trust company to litigate an issue against itself, establishing a distinction from prior cases.

The New York Court of Appeals upheld the principle that an estate administrator cannot account for themselves as the executor of a deceased beneficiary of the same estate. In the case of Bingham, the Trust Company, represented by different attorneys for distinct roles, faced a situation where it, as a claimant for the Ledyard estate, could not litigate against itself as the Payne trustee. The dissenting opinion by Judge Desmond emphasized that it is fundamentally impossible for one entity to act simultaneously as both plaintiff and defendant in the same litigation, regardless of the capacities they may hold. This principle is reinforced by past rulings, including Globe v. Hines, which established the incompatibility of such dual roles. 

Additionally, in Krooss v. Maue, Justice Eder confronted a related scenario in which John H. Krooss sought to substitute himself as a plaintiff after the death of his mother, Elise Krooss, who had originally initiated the suit against him and his co-defendant. Justice Eder ruled against this, highlighting the anomaly and potential prejudice of allowing someone to be both a plaintiff in a representative capacity and a defendant in an individual capacity in the same case. This ruling aligns with similar legal precedents in New Jersey and established legal doctrine, which clearly states that one cannot sue oneself in different capacities within the same action. The courts maintain that the presence of a co-representative does not alter this rule, although amendments can be made to the pleadings to correct such conflicts.

A person acting as an executor or trustee does not gain a separate entity status; they remain the same natural person in both individual and representative roles. In the case of Krooss, the Appellate Division unanimously reversed an earlier ruling, affirming that there was no conflict of interest between the appellant's individual and representative capacities, as the dispute involved the Krooss Estate represented by the appellant against respondent Maue. The court allowed the appellant to substitute as plaintiff. In the later case of Bederman v. Moskowitz, it was ruled that an individual could not sue themselves in their representative capacity if their interests conflicted. The distinction with Krooss was that there was no conflict of interest in that case. The motion in the current matter was denied but allowed to be renewed when another representative for the deceased’s estate qualified. In Murphy v. Christoffers, it was held that a father could maintain litigation against his wife as co-executor of a decedent, as there was no conflict of interest with the guardian ad litem representing the infant plaintiff. The summary of these cases suggests that a New York trustee may act independently, allowing them to sue themselves through separate counsel, indicating a potential shift in legal precedent regarding trustee representation.

Chase, as the legal title holder, is unable to sue in New York or plead claims held as trustee due to a lack of capacity. The Cuban branches of Chase and Citibank were not incorporated separately and operated as distinct entities, compliant with both American and Cuban laws. These branches were treated separately from domestic operations in financial records, which included tracking capital investments and daily balances indicating indebtedness to the main office. Chase allocated funds to its Cuban operations, including a capital reserve of $1,978,000 in compliance with Cuban regulations and historical board resolutions, enabling the branches to function effectively. The branches had resident officers appointed by New York's board but lacked independent boards of their own. Credit slips were issued to support operational liquidity, demonstrating that both banks operated their Cuban branches as separate profit centers. Prior to nationalization, these branches were regarded as independent entities by the Cuban Government and Banco Nacional for regulatory and tax purposes, and minimal banking regulations existed before Law No. 13 of 1948.

The commercial code mandated that banks maintain a minimum legal cash reserve of 25% of deposit liabilities, specifically considering only the liabilities of Cuban branches, not the entire bank. Chase and Citibank subscribed to Banco Nacional stock based solely on their Cuban branch deposits. Prior to confiscation, Banco Nacional acknowledged the Cuban branches' obligations to repay the head office for profits, overdrafts, and amounts due from letters of credit opened for Cuban businesses. While Cuba allowed remittance of these amounts to New York, profits from the last two years were not remitted due to foreign exchange restrictions. Banco Nacional supervised the banks in Cuba and accepted their financial statements as valid, reflecting liabilities owed to the head office.

Cuban taxes on profits pertained exclusively to the branches' profits, which were continuously supervised by U.S. bank examiners. Although the Havana branch was not indebted to the head office in a legal sense, all parties recognized the Cuban branches as independent banking enterprises for valuation purposes. This independence allowed for the branches to be sold or confiscated separately from the home office. Profits and losses from the branches were included in consolidated annual reports, with unremitted profits from 1959 and 1960 recorded as unearned income due to a lack of remittance permits. Economically, the branches were treated as independent entities, affecting their valuation. However, Chase's argument that the branches' debts to the home office were assumed by Banco Nacional upon confiscation does not alter the independent economic entity concept. Chase's potential damages as set-off are limited to the asset's value at the time of confiscation, without adjustments for any depreciation in value due to the confiscation.

Valuation of the expropriated Cuban bank branches raises critical issues regarding the appropriate basis for compensation. Generally, such branches, historically profitable and possessing a going concern value, should exceed their total historic debt to the home office in worth. However, the historic debt cannot logically represent the value of what was expropriated. The discussion references Judge Frank's commentary on the ambiguous nature of "value," which varies based on context and has led to extensive debate. A key question is whether the banks are entitled to compensation based on a going concern valuation, rather than merely the sum of their parts. 

The conclusion supports that the defendants can assert their valuation claims on a going concern basis due to the Cuban Government's expropriation of the branches, which included all assets and operations, and their subsequent use as part of Banco Nacional's banking system. This situation differs from cases where a business is liquidated or forced to cease operations. When a business is taken over for ongoing operation, the original owner is entitled to compensation reflective of that business's value. 

The possibility of an implied contract exists, suggesting that the Cuban Government or Banco Nacional would compensate for the seized branches. However, evidence indicates that the statutory provisions for compensation through bonds were not fulfilled, and no valuation appears to have occurred as required. Nonetheless, the banks may pursue recovery under a quasi-contract theory, which arises when one party retains benefits that, in fairness, belong to another, despite the absence of a formal agreement.

Defendants seeking recovery must demonstrate that Banco Nacional or the Cuban Government was unjustly enriched and that equity necessitates restitution. The principles of quasi-contract obligate Banco Nacional and/or the Cuban Government to make restitution for taking over branches, accounts, and assets, as discussed in case law. The valuation for restitution aligns with what the U.S. Government would compensate a domestic corporation under eminent domain laws, specifically market value, defined as the price a willing buyer would pay to a willing seller. The absence of willing buyers does not invalidate this valuation theory, which differs from scenarios where only land is taken without a transfer of business ownership. In cases where a condemning authority continues to operate a taken business, valuations include going concern value and good will, as evidenced by Supreme Court decisions. Historically, the Foreign Claims Settlement Commission (FCSC) was reluctant to grant good will recovery due to proof challenges but reversed this stance in a 1969 decision regarding the First National Bank of Boston and subsequent claims related to Cuban branches of Chase and Citibank. Additionally, the court may consider the pre-nationalization conduct of the Cuban Government, which adversely affected the value of these branches amid broader economic decline during the Cuban Revolution.

Increased currency controls hindered international trade, particularly affecting Chase and Citibank in Cuba. The Cuban government's appointment of Interventors led to the takeover of businesses owned by fleeing Cubans, resulting in a shift of domestic banking to Banco Nacional. Land reform eliminated large private agricultural producers, including American-owned entities, which required international banking services. An economic depression ensued due to reduced tourism, diminished economic activity, and adverse actions from the U.S. government. 

Legal precedents indicate that the prior threats of nationalization should not influence the valuation of expropriated property. Notable cases include the Factory at Chorzow and the Almota Farmer’s Elevator case, where the Foreign Claims Settlement Commission utilized pre-revolutionary earnings figures for valuation. The Restatement of Foreign Relations Law asserts that property value should be assessed as of the time of taking, independent of the taking’s adverse effects on property value. This valuation approach aims to prevent the nationalizing government from arbitrarily determining compensation amounts.

Plaintiffs argue against this theoretical valuation, emphasizing the unrealistic assumptions that ignore the revolution's realities, such as the continued operation of businesses and the presence of professional classes. They contend that Cuba's agrarian reform, despite lacking compensation for American owners, did not violate international law.

A nation is permitted to readjust its economy and alter its trade organization without violating international law, even if such changes negatively impact foreign investments, such as the branch banks in Cuba. The decline in these banks' values cannot solely be attributed to the Cuban Government's actions prior to expropriation, nor can foreign investors hold a country liable for damages resulting from fundamental changes in its social contract. Sovereign nations have the right to enact policies that may harm businesses without incurring compensation obligations. Historical U.S. cases illustrate that even significant regulatory changes do not automatically entitle businesses to compensation. Defendants in this case seek damages for losses incurred due to events in Cuba between 1959 and 1960, but compensation is only warranted if those losses were due to actions by the Cuban Government that violated international law, such as confiscation. Valuation of the businesses must reflect conditions immediately before their takeover, without factoring in foreseeable retaliatory actions following the Soviet barter agreement. The question of pre-judgment interest on claims will be determined by New York law, as that is where the legal obligations arose and where the defendants are located. The potential for accrued interest significantly exceeding the principal must be considered.

Section 5001 of the New York CPLR mandates the recovery of pre-judgment interest for breaches of contract or interference with property rights. However, this right is not absolute and has historically been viewed as either a penalty, compensation for delayed payment, or part of total damages needed for just indemnity. Pre-judgment interest is typically awarded from the time a debt becomes due, provided the debtor knows the payment amount and date. An exception exists where legal prohibitions prevent payment; in such cases, interest is not recoverable. This principle is illustrated in cases where federal law has blocked remittances to Cuba, making payment impossible. Courts have also traditionally denied interest in insolvency cases unless surplus funds are available, acknowledging that delays in payment due to legal actions are inherent to the settlement process. In the current case, debts owed to and from Cuba were never payable, thus precluding pre-judgment interest. Citibank's argument for the adoption of damage figures from the Foreign Claims Settlement Commission is acknowledged for its evidentiary value, but the determination is not binding on the court or the plaintiff, as the relevant statute does not impose such a requirement.

The Commission's decisions regarding claims under the specified subchapter are final and not open to review by the Secretary of State, any U.S. official, or courts. Citibank references 22 U.S.C. 1623(b), affirming that each Commission decision serves as a complete resolution of the respective case. These provisions aim to prevent judicial interference with the total loss amounts certified by the Commission, ensuring efficient distribution of funds from foreign governments to claimants. The Commission determines claim amounts based on hearings with claimants, but foreign nations are not permitted to present their case, with the intent to expedite the settlement process. If one claimant challenges the Commission's determinations, it could delay the distribution of settlement funds to all claimants, as distribution waits for the final adjudication of all outstanding claims. During Senate discussions, it was emphasized that prolonged court involvement would lead to significant delays in resolving claims, reinforcing the necessity for the Commission to operate as a court of last resort with no further recourse for claimants. The focus remains on the equitable distribution of funds among claimants based on established claims, with concerns voiced about the reliance on appointed bureaucrats to make these final decisions.

After ten years of advocating for court review of administrative agency decisions, the speaker emphasizes the importance of judicial oversight as established by the Logan-Walter law and the Administrative Procedure Act. This legislation ensures that individuals can challenge administrative decisions in court rather than relying solely on bureaucratic determinations. The speaker criticizes a proposed amendment that would exempt the State Department from this review process, arguing it undermines the principle of judicial recourse for American citizens seeking claims against their government. The amendment aims to maintain the right to court review for claimants, contrasting the limited recourse available through the Foreign Claims Settlement Commission, which does not allow for full adjudication in district courts. The speaker supports the amendment to secure equitable treatment for claimants, noting that previous cases reaffirm that the Commission’s decisions do not preclude claimants from pursuing separate judicial actions.

A ruling that the Foreign Claims Settlement Commission's ex parte determination of Citibank's loss in Cuba is binding on Bancec or the Cuban Government would contravene due process principles and cannot be applied in this case. The court will consider the Commission's decision solely as evidence of the facts found, not as a binding legal determination. Chase has submitted two distinct counterclaims regarding the confiscation of its Havana Branch. 

The first, known as the "separate entity" or "contract theory," argues that the Havana Branch should be treated as a subsidiary, claiming it was indebted to its home office for $5,780,228 at the time of confiscation. Under Cuban law, once the branch was taken, the government inherited its debts. 

The second counterclaim, referred to as the "single entity" or "conversion theory," asserts that the Havana Branch's assets were Chase's property and that the Cuban government unlawfully converted this property, seeking compensation for the value of the assets, totaling $8,213,204. This claim encompasses various components, including stated capital, unremitted profits, taxes, and goodwill. The court will not require Chase to choose between theories of liability, affirming the entitlement to full compensation for expropriated property, consistent with international law. Chase's claimed damages, detailed in a breakdown, total $8,213,204, while the plaintiff estimates recoverable damages at $3,338,326.

Chase's first counterclaim seeks damages of $5,780,228, arguing that Banco Nacional assumed the liabilities of Chase's Cuban branches under Law No. 851. The claimed damages include various categories such as a capital loan, unremitted profits, unearned discounts, tax reserves, retirement contributions, charged-off loans, overdrafts, and payments on letters of credit. The plaintiff counters that Cuba did not assume these external liabilities, and that branches cannot legally owe debts to their home office, asserting that, if valid, the total should only amount to $370,720. 

The financial implications of the first counterclaim differ from a second counterclaim primarily in the inclusion of overdrafts and letters of credit. Chase previously submitted claims to the Foreign Claims Settlement Commission regarding the confiscation of its Cuban branches, which were denied based on the finding that claims should focus on property ownership rather than creditor status. The Court concurs, asserting that the "indebtedness" between the branches and the home office lacks relevance to the valuation of the taken property. Instead, the Court emphasizes that Chase’s damages should reflect the value of the business and its assets at the time of confiscation, not historical indebtedness. Consequently, the Court will evaluate only the second counterclaim, recognizing the validity of certain claimed items while disputing others, and seeks a credit for additional charges or deductions.

Chase and Citibank are both member banks of the Federal Reserve System, with Citibank being a national bank. Chase was a national bank from 1925 to 1955 and again from 1965 to present, having been chartered by New York in between. Under 18 U.S.C. § 1005, making false entries in the records of a national or member bank with intent to deceive or defraud is a federal crime. The regulatory framework includes surprise audits by bank examiners under the Comptroller of the Currency, who can enforce strict compliance with accurate record-keeping and reporting. Non-compliance can lead to civil and criminal penalties, and findings must be published. This regulatory oversight ensures that the financial records of banks like Chase and Citibank accurately reflect their conditions. For state-chartered banks in New York, similar stringent regulations apply. Additionally, both banks' operations in Cuba were subject to oversight by the Banco Nacional, requiring adherence to generally accepted accounting principles. The dual regulatory environment minimizes the risk of "creative accounting," rendering the banks' records more reliable, particularly under the challenges of proving evidence related to Cuban operations. The Court finds that, given this oversight, the banks' records are credible unless specifically challenged. The records indicate an allocation of $4,000,000 in capital for the branch, which includes reserves of $2,021,547.55.

Chase recovered on bonds from the International Bank for Reconstruction and Development in 1969, despite the bonds being seized by the plaintiff or the Cuban Government in 1960. These bonds were registered under Chase's name, resulting in a net capital account of $3,609,000. Banco Nacional aims to decrease this amount by $761,154, representing four loans made by Chase's Cuban branches to local companies, guaranteed by solvent U.S. parent corporations. Chase argues these loans are recoverable from the U.S. guarantors, asserting it should be treated as having received a constructive recovery that would reduce the capital account. This argument is rejected, as the statutory framework allowed Banco Nacional to assume Chase's local banking assets, including claims against the obligors. The court assumes Banco Nacional collected these debts, as Chase lacked records post-1960 due to the seizure. It would be inequitable to charge Chase with constructive recovery given the circumstances of the seizure. Additionally, Chase is not obligated to seek recovery from the guarantors rather than the Cuban borrowers. The plaintiff also argues for a reduction in the capital account based on unrecorded depreciation of the investment portfolio, claiming its market value significantly decreased before nationalization. However, prior regulatory authority in Cuba did not require a write-down of the investment portfolio, a standard practice for bank regulation. All claims made by the plaintiff are rejected.

Determining the actual market value of Chase bank's securities at the time of nationalization is challenging. Chase typically valued its securities at cost unless regulatory objections or indications of permanent impairment required adjustments. As of June 30, 1960, Chase's Havana branch had written down some securities, with values set at 80% and 93% of face value for different assets. Expert witness Stephen P. Radics, a CPA with regulatory experience, testified regarding these valuations, highlighting inconsistencies. He argued that certain bonds, like the Social and Economic Development Bonds of Cuba, should have been written down by 20% based on similar securities’ valuations. Radics also suggested that both Cuban electric bonds and Marianao Aqueduct Bonds should reflect a value of approximately 93%, based on their similarities to previously adjusted securities. However, his conclusions were based on assumptions made well after the fact and lacked sufficient evidentiary support to challenge the regularity of Chase's records, which were maintained under regulatory oversight. Radics claimed a write-down of $617,070, but the court found this speculative and unproven. The evidence suggested that, despite deteriorating conditions in Cuba, the branch's cost-based valuation was appropriate, and no permanent impairment was substantiated beyond the voluntary reductions made in June 1960, prior to expropriation. Additionally, it was indicated that confiscated Cuban bonds were likely paid at face value to Banco Nacional upon maturity.

Radics' speculative testimony regarding Chase's investment valuations is deemed inadequate, leading the Court to accept Chase's valuations and conclude that there is no impairment of the branch's capital due to overvaluation of securities. On the date of the taking, Chase demonstrated an overdraft of $94,515 in its account with the home office, a regular occurrence due to bookkeeping practices between its Cuban offices and the New York main office. From 1925 to 1937, the working capital for the Cuban operation was entirely supplied through these overdrafts, which were later offset by additional capital contributions, typically in the form of bonds, securities, or dollar remittances. The overdraft should be treated as part of the capital account since it effectively functioned as a capital contribution. Additionally, there is a sum of $667,205 representing payments made by the home office after September 17, 1960, for international letters of credit issued by the branch for Cuban customers, which were not reimbursed by the branch or Banco Nacional. These payments can be interpreted either as additional capital contributions to the Cuban branches or as counterbalancing entries against loans to Cuban customers. If viewed as the latter, Banco Nacional is considered the successor to Chase regarding these loans, becoming entitled to collect payment from customers in pesos in Cuba, while Chase fulfilled its obligations by paying beneficiaries in dollars. Consequently, Banco Nacional has a quasi-contractual obligation to reimburse Chase for these incurred expenses.

Payments made under letters of credit for the Cuban branches of Chase should be considered part of the bank’s capital investment, as these payments were effectively booked as additions to the overdraft. The court favors this approach, asserting that Chase's issuance of letters of credit constituted a commitment of capital to its Cuban operations. Thus, the amounts due on these letters of credit are eligible for set-off in the case. In a hypothetical sale of the branches, these sums would adjust the seller’s net recovery, as Banco Nacional, having taken over operations, had the right to collect from customers while Chase remained liable to pay beneficiaries.

The court adds $94,515 for the overdraft and $667,205 for letters of credit paid post-seizure to Chase's capital recovery, totaling $4,370,720. The unremitted profits of $923,320, which Chase could not transfer due to a lack of a currency control permit, are not disputed by the plaintiff. 

The unearned discount, representing prepaid interest not yet accrued, cannot be considered an asset because it is essentially a reserve item. If loans are prepaid, part or all of this discount must be refunded, and it is treated as a standard adjustment during a business transfer. Consequently, recovery for this item is denied.

Lastly, the reserve for taxes reflects accrued taxes owed by the Cuban branches for earnings in the first eight months of 1960. The taxes are incurred but unpaid, not a prepayment for future taxes. Chase argues that following expropriation, the tax reserve status is irrelevant since the Cuban government wouldn't collect taxes from itself.

The reserve account in question pertains to taxes on profits accrued until August 1960, which are due to the Government despite being payable at year-end. Although the branch had possession of these assets in September 1960, they were already designated for tax payment and should be excluded from asset calculations. This treatment would apply in a hypothetical sale to another bank, reflecting an accounting adjustment favoring the buyer. 

Concerning contributions to retirement and thrift plans, the funds allocated to trustees by the home office on behalf of the branch are acknowledged as valid. Charged off loans represent losses from uncollectible loans prior to confiscation. These loans are treated as reserves for bad debts, based on management’s estimates, and are presumed to be accurately recorded. There is no evidence suggesting miscalculation or retained value, leading to the disallowance of this damage claim. Banco Nacional acquired these charged off loans but has not demonstrated any recoveries from them.

In terms of real estate, Chase reported its holdings at a depreciated cost of $110,232, while a March 1960 appraisal valued the Havana office at $165,090, indicating a market adjustment of $54,858 is warranted. The appraisal is considered valid, conducted prior to litigation. However, there is insufficient evidence to adjust the values of other real estate items further.

Regarding employee reimbursements, it was illegal for branch employees to resist the takeover by Banco Nacional. In light of the nationalization circumstances, Chase advised several employees to leave Cuba, resulting in the abandonment of personal property. Under Law No. 989, this property was confiscated, and Chase compensated its employees $154,929, reflecting the reasonable value of the confiscated property left behind.

Employees formally reported their claims for stolen items to their employer, the Bank, which acknowledged and compensated these claims before litigation commenced. Following the initiation of legal proceedings against the Cuban Government, Chase instructed its employees to assign these claims to the bank, which now seeks to recover this amount. The Court finds a basis to deny this recovery, stating that set-off rights should not extend to claims originally belonging to a third party that were assigned to a defendant in anticipation of litigation against a foreign state. Recognizing that allowing such assignments could undermine the Act of State doctrine, the Court emphasizes that this case does not involve Chase actively seeking claims to assert. While Chase had a special relationship with the claimants and a moral obligation to reimburse them, the Court determines that recovery by set-off is inappropriate. The set-off applies to Chase's own expropriated property, not to claims belonging to others, even if those claims were assigned for legitimate reasons.

In discussing "going business value" and "good will," the Court clarifies that these terms are distinct. Going business value refers to the price a knowledgeable buyer would pay to continue a business, which includes necessary physical assets and capital for operations. Conversely, good will represents the additional value or premium a buyer pays for the right to future income streams after accounting for essential investments. Chase's financial statements included unremitted profits that were not needed for ongoing operations, but the majority of its assets were essential for running the Cuban branches.

Radics testified that "going business value" is distinct from other business valuation measures and that a premium for extraordinary earning power would only apply if this value exceeded the bank's net assets. He opined that for Chase, the going business value would not surpass asset value, and it would be inappropriate to combine it with fair market asset value; instead, the higher of the two should be used as the bank's value. Any excess of going business value over asset value is considered a premium or goodwill. Radics noted that the home office provided $4 million in working capital and adequate premises, enabling Chase to generate earnings. He argued that if applying a price-earnings multiple yields a value lower than asset value, no premium exists, although this must consider necessary capital investment. Chase had excess assets at risk in Cuba, with a total capital of $4,054,858 required for operations, and any value exceeding this would indicate goodwill.

Charles Agemian, a former Executive Vice President of Chase, testified that the going concern value was estimated at $2,850,000, derived from two methods: a percentage of deposits and a multiple of earnings. The court noted the lack of logical basis for averaging these methods without evaluating each for rationality. Chase also presented the Barton Report from 1974, which suggested a going business value premium of $2.5 to $3 million based on anticipated growth, estimating the branch's value at $7.5 million in 1960, assuming normal business conditions in Cuba had persisted. However, the report did not account for the effects of the Cuban Revolution, and actual deposit figures for 1959 and early 1960 indicated that the projections were unrealistic.

The Barton Report analyzed price-earnings multiples, profit and deposit growth rates of banks in various regions, including Honduras and the Virgin Islands, to assess the value of Chase's Cuban branches. It compared these branches to banks in Puerto Rico and Panama, which shared similar conditions with Cuba. The author argued that these comparisons would accurately reflect the potential growth of the Cuban branches if they had developed without interference. However, the report's validity is questioned due to its failure to consider the specific circumstances in Cuba in 1960 unrelated to confiscation.

Agemian calculated a going concern value based on an average deposit figure of $45.5 million over the past five years, determining a value of $2.25 million by applying a 5% multiplier. The use of a five-year average is problematic, particularly as deposits declined sharply following the 1959 Revolution, with a significant portion of this decline not resulting from any violation of international law. A more reasonable valuation would consider a "normal" deposit average between 1959-1960, as the 1960 figures likely reflected deteriorating conditions and an emerging intent to push out foreign bankers.

The Court determined that a weighted average deposit figure of $40,760,000 was more representative of the bank's potential if the Cuban government had made lawful changes without confiscation. This figure would have adjusted Agemian's valuation to yield a premium of $2,038,000. Agemian derived the 5% multiple from averaging acquisition multiples from four Chase bank acquisitions, adjusting down from approximately 5.5% for conservatism. The valuation was influenced by the competitive banking environment in New York City and the favorable conditions in the Virgin Islands, which included constitutional due process and tax advantages, contrasting sharply with the political instability in post-Revolution Cuba.

Investors typically expect higher returns for greater risks, impacting lending rates. Agemian's valuation calculations included a multiple of average yearly earnings, specifically multiplying Chase's average earnings of $344,000 from 1956-1960 by ten, resulting in a business value of $3,440,000. Averaging this with a $2.25 million figure based on deposits yielded a total of $2.85 million. However, this calculation is flawed due to the inclusion of less relevant pre-revolutionary earnings and a lack of justification for the ten-times earnings multiplier, which is considered excessively high given the uncertainty surrounding future success amid social changes. The net business asset value exceeded ten times the earnings stream, indicating irrationality in Agemian's methodology. 

Agemian also provided a third calculation using a twenty-times earnings multiplier, derived from four prior acquisitions, which resulted in a total of $6,880,000. After deducting a net asset value of $4 million—deemed too low—the goodwill value calculated was $2,825,042. The court found the twenty-times multiplier inappropriate and placed no weight on this calculation. The court emphasized the need for a justified and reasonable method for determining the business's going concern value, noting that traditional valuation techniques were unsuitable due to the lack of reliable future expectations and the significant changes in Cuba's economic environment post-revolution. Thus, both the multiple and average earnings figures used by Agemian were deemed unjustifiable for future projections.

In 1959 and 1960, the earnings of the Cuban branches were evaluated amid a declining business context. Average earnings were reported for the years 1956 to 1960, showing significant fluctuations: $171,326.70 (1956), $119,208.02 (1957), $361,973.10 (1958), $492,560.02 (1959), and $448,388.85 for the first eight months of 1960. The court emphasized the importance of avoiding speculative values and noted that relying solely on future earnings capitalization is problematic due to uncertainties regarding the franchise's continuity and returns. 

A more reliable valuation method proposed was based on a percentage of the deposits, which are essential for a bank's earnings. While Agemian used a five-year average for deposits, it was noted that deposits were declining due to changes in Cuba, suggesting that a two-year average (1959 and 1960) might offer a more accurate assessment. Agemian's multiplier of 5% of deposits was considered excessively high for a Cuban branch.

Judge Bryan referenced a range of 1% to 5% for determining going concern value from deposits, ultimately selecting a 3.5% figure, albeit arbitrarily, based on his extensive experience. This selection was acknowledged as not binding but deserving of consideration. The Foreign Claims Settlement Commission's Decision No. CU-6295 from October 20, 1971, found that 3% of the average deposits over the last five years could adequately reflect the potential premium from selling or consolidating the branches. Chase had previously sought a formula for determining goodwill, involving complex calculations based on deposits and profits, but the court found such formulas inappropriate for Cuban operations post-January 1, 1959, due to their lack of probative value. The Commission's decisions are admissible and carry some weight in these assessments.

Pre-1959 deposits are deemed irrelevant to 1960 valuations, leading to a calculated premium of $1,426,600 based on a weighted average of deposits from 1959 and 1960. This figure, alongside a total of $1,592,500 from the Foreign Claims Settlement Commission’s five-year average, contributes to an award of $6,904,870 in damages to Chase for the confiscation of its Cuban branches. The breakdown of this award includes: A) Capital, net of adjustments $4,370,720; B) Unremitted Profits $923,320; C) Contributions to Retirement and Thrift Incentive Plans $129,372; D) Banking Houses and Real Estate Appreciation Over Book Value $54,858; E) Premium or Goodwill $1,426,600.

Regarding currency convertibility, the court has stated that Chase's claim and the set-off should be calculated in dollars. The plaintiff insists that any judgment on counterclaims should be rendered in pesos and converted to dollars at the time of judgment. However, given the anticipated lengthy appellate process and the current lack of value of Cuban pesos in the U.S., this conversion is not seen as relevant. The court refers to precedents that discourage forum shopping but acknowledges that requiring conversion based on an arbitrary date would result in injustice. The damages awarded are based on the exchange rate at the time of confiscation, asserting that any set-offs in dollars do not violate Cuba's currency regulations. This stance aligns with previous case law, specifically rejecting arguments similar to those in Menendez v. Saks Co.

Convertibility free from unreasonably restrictive foreign exchange controls is essential for "prompt, adequate and effective" compensation for expropriated property belonging to aliens. A court ruling in the Menendez case highlighted that receiving pesos instead of dollars would effectively result in no recovery for property owners. Citibank's claims for damages due to the nationalization of its branches include: 1) the value of the branches, appraised at $9,510,000 (going concern basis) or $5,961,037 (net worth basis); 2) $809,641 for post-nationalization liabilities; and 3) $39,491 for employee claims, where Citibank reimbursed employees who left Cuba due to nationalization. This reimbursement is disallowed as a damage item for set-off, consistent with similar disallowances for Chase. The second damage item involves approximately $721,000 in commercial letters of credit confirmed before September 16, 1960, for which Citibank was obliged to pay in dollars. This item is permissible for set-off, aligning with Chase's situation. Additionally, Citibank made payments related to items sent to Cuba for collection, which the Cuban government subsequently possessed after confiscation, benefiting from those payments while Citibank continued to honor obligations to its customers.

Quasi-contract principles justify recovery for the total amount of $809,641, as it serves as a basis for set-off against Citibank's previously recovered sum of $5,302,032. This recovery consists of U.S. Treasury Bonds reported stolen ($3,000,000), accrued interest ($38,111), set-off from Banco I ($12,100,000), private bank set-offs ($54,624), and miscellaneous recoveries ($109,297). Additionally, there is a valid book entry for $762,898 due from Citibank's head office to its Cuban branches, bringing the total recovery to $6,065,109. Citibank needs to demonstrate damages of at least $5,448,658.30 to fully set-off against $193,280.30 owed to Bancec.

In prior proceedings before the Foreign Claims Settlement Commission, Citibank's eleven Cuban branches were valued at $9,510,000 as of September 17, 1960, although Citibank sought a higher valuation based on a net asset value of $5,961,037.41 and an additional $1,700,000 for market value increases. The Court found that Citibank’s records were accurately maintained according to legal standards and generally accepted accounting principles. It recognized significant unrealized appreciation in its real estate and goodwill beyond the total asset values. The Court concluded that, if damages were calculated similarly to those for Chase, the figure would exceed six million dollars. The complexities of the case suggest that an exact monetary value for Citibank’s branches should not be determined at this time due to the incomplete nature of the record.

The Court acknowledges that, despite both parties waiving objections, it did not observe or hear the witnesses during the trial. Relevant data from Cuba that could aid either party was not presented due to access issues, particularly missing operational results through December 30, 1960, which is the date of valuation under Cuban law. Citibank reported an operating loss in August 1960, raising questions about subsequent months and the impact of the Cuban government's actions on its value. The Court suggests that the absence of this information, under the control of the plaintiff, prevents unfair inferences favoring Citibank, especially considering ongoing restrictions with Cuba. 

It is noted that the complexities between Citibank and Banco Nacional may not yet be resolved, and future interactions could arise, possibly leading to further litigation. Therefore, the Court deems it prudent to avoid unnecessary determinations regarding the precise value of Citibank's confiscated branches at this time. It concludes that the value of these branches substantially exceeds amounts already recovered, allowing for the set-off claimed by Citibank to be granted in full. The Court refrains from making additional findings beyond this determination, inviting parties to request further findings within fifteen days. Final judgments in each action will be prepared with provisions for enforcement to be stayed pending appeal, without the need for bond or additional applications.