National City Bank of New York v. Republic of China/Dissent Reed

by Stanley Forman Reed

United States Supreme Court

348 U.S. 356

National City Bank of New York  v.  Republic of China

 Argued: Nov. 9, 1954. --- Decided: March 7, 1955

Mr. Justice REED, with whom Mr. Justice BURTON and Mr. Justice CLARK join, dissenting.

Some data must be premised if discussion is to be confined to a reasonable space. We start with the postulate that the sovereign is released from the jurisdiction of its own courts except as it may specifically submit itself to their power. ^[1]

That does not create a situation of irresponsibility. Satisfaction of sovereign liability may be had through the legislative organ which recognizes a moral obligation to pay the creditors of the government and to compensate those injured by it.

A sovereign's freedom from judicial control does not arise from or depend upon the will of the courts. As was said in The Schooner Exchange in speaking of the immunity of a foreign government, it depends upon 'the will of the sovereign of the territory.' '* * * all exemptions from territorial jurisdiction, must be derived from the consent of the sovereign. * * *' 7 Cranch 116, 138, 143, 3 L.Ed. 287. The immunity rests on the ground that no enforceable right exists 'against the authority that makes the law on which the right depends.' ^[2]

The reason for the sovereign's consent to the exclusion of foreign sovereignties from the general jurisdiction of its courts was said by Chief Justice Marshall to rest on this proposition:

'The world being composed of distinct sovereignties, possessing equal rights and equal independence, whose mutual benefit is promoted by intercourse with each other, and by an interchange of those good offices which humanity dictates and its wants require, all sovereigns have consented to a relaxation in practice, in cases under certain peculiar circumstances, of that absolute and complete jurisdiction within their respective territories which sovereignty confers.

'This consent may, in some instances, be tested by common usage, and by common opinion, growing out of that usage.' 7 Cranch at page 136.

It might be summarized by the word 'comity.' ^[3] The local sovereign may, of course, withdraw such consent.

'Without doubt, the sovereign of the place is capable of destroying this implication. He may claim and exercise jurisdiction either by employing force, or by subjecting such vessels to the ordinary tribunals. But until such power be exerted in a manner not to be misunderstood, the sovereign cannot be considered as having imparted to the ordinary tribunals a jurisdiction, which it would be a breach of faith to exercise.' Id., at page 146. ^[4]

An ancillary principle of law is that, in determining whether a defendant is a sovereign, the courts follow the guidance of the political branch. ^[5] In this case the sovereignty of the Republic of China is not questioned. Furthermore, the Chinese Government Treasury Note and its 36th Year Short Term Treasury Notes upon which the City Bank's counterclaims rest are sovereign obligations, jure imperii in form, of the highest public character. Consequently, the attitude of the Department of State as to the desirability of relaxing the strict rule of immunity as to acts of commerce, jure gestionis, is inapplicable. See 26 Dept.State Bull. 984 (1952), referred to in the Court's opinion, 75 S.Ct. 427.

If the foregoing statements of law are sound, the Republic of China as a foreign sovereign is free from direct suits in our courts on the notes here in question unless the Congress of the United States has enacted a statute that restricts its immunity. This it has not done. The question in this case thus comes down to whether the Republic of China, by bringing this suit for the recovery of a bank deposit, waived its immunity and subjected itself to a counterclaim under the Fed.Rules Civ.Proc. Rule 13. Under the words of subd. (c) of that Rule, judgment over against the Republic of China would seem to be authorized if the counterclaim were for more than plaintiff's claim. But there would be no jurisdiction to render such judgment in an American court. It would violate the immunity of a foreign sovereign to do so. ^[6] In the present case, the Court evidently feels that, since the counterclaim is limited to the amount of the Republic of China's claim, there is jurisdiction to allow a setoff to that extent. But the mere fact that a judgment over is not sought should not be relied upon to avoid the jurisdictional immunity of a foreign sovereign. I find no justification for the Court's restricting that immunity in the absence of legislative or executive action. ^[7]

Affirmative legislative action was necessary to allow such a limited setoff against the United States. ^[8] Action of a similar nature should be required to authorize this setoff. The comity that gave the foreign sovereign full immunity from process was, as The Schooner Exchange pointed out, 7 Cranch at page 146, only to be withdrawn 'in a manner not to be misunderstood.' That is by legislation. ^[9] The judicial creation of such jurisdiction over the property of a friendly nation might well merit the stricture of Chief Justice Marshall:

'A nation would justly be considered as violating its faith, although that faith might not be expressly plighted, which should suddenly and without previous notice, exercise its territorial powers in a manner not consonant to the usages and received obligations of the citilized world.' 7 Cranch at page 137.

International relations are pre-eminently a matter of public policy. Judicial views of supposed public interests are not the touchstone whereby to determine the law. ^[10] The change from a generous to a parsimonious application of the principle of sovereign immunity should come from Congress or the Executive. Our courts possess great powers and have solemn obligations. Our country allots power to the judiciary in the confidence that, in view of the separation of powers, judicial authority will not undertake determinations which are the primary concern of other branches of our Government. Differences of view exist as to the desirable scope of sovereign immunity and the necessity for nonjudicial determinations. ^[11] But surely it is better that the decisions be left to those organs of Government that have the responsibility for determining public policy in carrying out foreign affairs. The establishment of political or economic policies is not for the courts. Such action would be an abuse of judicial power. It is only by a conscious and determined purpose to keep the functions of the various branches of government separate that the courts can most effectively carry out their duties. I would leave this question of the jurisdictional immunity of foreign sovereigns to the other branches.

The Court determines, however, that the question of changing the limitation of the immunity of foreign sovereigns pertains to its functions. Even on the assumption that such is a proper matter for judicial concern, I would reach a different conclusion than does the Court. If a direct suit cannot be brought against a foreign sovereign (as is conceded), why should we allow the same claim to be used as an offset to destroy the sovereign's right to recover? Why should the City Bank be able to assert its notes against the Republic of China, even defensively, when other noteholders not obligated to the sovereign are prevented from collecting their notes? Here we have an entirely disconnected claim on overdue national notes brought forward as a defense to an action to recover a bank deposit. The Court recognizes that the counterclaim is not related to China's cause of action against the City Bank. It says:

'The point is that the ultimate thrust of the consideration of fair dealing which allows a setoff or counterclaim based on the same subject matter reaches the present situation.'

The counterclaim here is of much the same character as a suit against a foreign sovereign. Deposits may be the lifeblood necessary for national existence. It is not wise for us to tell the nations of the world that any assets they may have in the United States, now or in the future, upon which suit must be brought, are subject to every counterclaim their debtors can acquire against them at par or at a discount. It is unfair to our foreign friends and detrimental to our own financial and mercantile interests. For fairness we need not go beyond the allowance of counterclaims arising out of transactions foreign sovereigns seek to enforce in our courts. It seems to me that the Court sanctions a circuitous evasion of the well-established rule prohibiting direct suits against foreign sovereigns.

I would affirm.

Notes

1. United States v. Clarke, 8 Pet. 436, 444, 8 L.Ed. 1001; State of Kansas v. United States, 204 U.S. 331, 341, 27 S.Ct. 388, 390, 51 L.Ed. 510; Larson v. Domestic & Foreign Com. Corp., 337 U.S. 682, 703, 69 S.Ct. 1457, 1468, 93 L.Ed. 1628.
2. Kawananakoa v. Polyblank, 205 U.S. 349, 353, 27 S.Ct. 526, 527, 51 L.Ed. 834; United States v. Shaw, 309 U.S. 495, 501, 60 S.Ct. 659, 661, 84 L.Ed. 888. Cf. Duff Development Co. v. Government of Kelantan, (1924) A.C. 797.
3. Compania Naviera Vascongado v. S. S.C.ristina, (1938) A.C. 485, 498.
4. See Berizzi Bros. Co. v. Steamship Pesaro, 271 U.S. 562, 571 et seq., 46 S.Ct. 611, 70 L.Ed. 1088.
5. Ex parte Republic of Peru, 318 U.S. 578, 588, 63 S.Ct. 793, 799, 87 L.Ed. 1014; Republic of Mexico v. Hoffman, 324 U.S. 30, 35, 65 S.Ct. 530, 532, 89 L.Ed. 729. Cf. Duff Development Co. v. Government of Kelantan, supra, at page 815.
6. Cf. United States v. Shaw, 309 U.S. 495, 502, 60 S.Ct. 659, 662, 84 L.Ed. 888. In South African Republic v. La Compagnie Franco-Belge, (1898) 1 Ch. 190, 198, a foreign sovereign sued to enjoin the use of deposited funds. On a counterclaim not connected with the issue concerning the funds, Mr. Justice North held the foreign government could not be sued, citing Duke of Brunswick v. King of Hanover, 6 Beav. 68, and Strousberg v. Republic of Costa Rica, 29 Weekly Reporter 125, 44 L.T.R.(N.S.) 199.
7. Probably because it is obvious that there is no tenable distinction between the setoff of an unrelated claim, a proceeding for a judgment over on a counterclaim, and a direct suit against a foreign sovereign, few cases have dealt with this phase of the immunity of a foreign sovereign from claims. None that have discussed the issue have reached the result which the Court takes today. In addition to the two cases cited in note 6 of the majority opinion, the same issue here presented was considered and decided in accord with my position in the only foreign case discussing the issue that has come to my attention. In The State of Belgium v. E.A.G. de Badts, Nederlandsche Jurisprudentie, 1923, p. 618, Am.Dig. of Pub. Int'l Law Cases 1919-1922, p. 129, the Belgian Government, a foreign sovereign, brought suit in the Dutch courts for an account of the sale of a certain cargo of wheat. The defendant sought to set off an entirely unrelated claim which he had against the Belgian Government. The court held:
8. See United States v. Shaw, 309 U.S. 495, 501, 60 S.Ct. 659, 661, 84 L.Ed. 888.
9. See Lauterpacht, The Problem of Jurisdictional Immunities of Foreign States, British Year Book of International Law, 1951, vol. XXVIII, at pp. 239, 269; Republic of Mexico v. Hoffman, 324 U.S. 30, 38, 65 S.Ct. 530, 534, 89 L.Ed. 729; Berizzi Bros. Co. v. Steamship Pesaro, 271 U.S. 562, 573, 576, 46 S.Ct. 611, 612, 613, 70 L.Ed. 1088.
10. Vidal v. Mayor, Alderman and Citizens of Philadelphia, 2 How. 127, 197-198, 11 L.Ed. 205; Muschany v. United States, 324 U.S. 49, 66, 65 S.Ct. 442, 451, 89 L.Ed. 744.
11. Dissents in Great Northern Life Ins. Co. v. Read, 322 U.S. 47, 57, 64 S.Ct. 873, 878, 88 L.Ed. 1121, and Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 723, 69 S.Ct. 1457, 1478, 93 L.Ed. 1628; concurring opinion in Republic of Mexico v. Hoffman, 324 U.S. 30, 40, 65. S.Ct. 530, 535, 89 L.Ed. 729.