Cross-appeals from an order, entered in the United States District Court for the Southern District of New York (Owen, J.) on January 28, 1988, distributing an interpleaded fund owed to Industria Nacional de Clavos y Alambres de Puas, S.A., a confiscated Nicaraguan company. Held, the allocation, reflecting the pro rata shares of the stockholders before the company was seized, was equitable. The award of attorney's fees, however, cannot be justified in light of the general policy in United States courts that each party bear the cost of his own counsel's compensation. Affirmed in part, reversed in part.
Kaufman, Miner, Circuit Judges, and Conner, District Judge.*fn*
Within our nation's borders, we have adhered to the principle that government may not deprive its citizens of property without due process of law and just compensation. Of course, this ideal, embodied in the fifth and fourteenth amendments to the Constitution, constrains our federal and state governments, not those of other countries. But when a foreign sovereign, following hostilities, confiscates a defeated group's property and attempts to extend that taking to interests held here, a United States court will effectuate the seizure for only the weightiest reasons.
The dispute before us involves the expropriation of property following the Sandinista victory in Nicaragua's civil war. In late June of 1979, toward the end of that violent conflict, the Bandes family, along with numerous other associates of the tottering Somoza regime, fled the country in fear for their lives. The Bandeses left behind many of their possessions, including the steel company they largely owned and controlled, Industria Nacional de Clavos y Alambres de Puas, Sociedad Anonima ("INCA"). On July 17, 1979, General Anastasio Somoza was forced to resign as President, and, nine days later, the Sandinista forces "intervened"*fn1 the Bandeses company. Since then, INCA has been operated by David Alvarez, a representative of the Sandinista Government.
The Bandes family brought suit for title to an interpleaded sum of $420,000, representing the value of an undelivered shipment of steel billets, less offsets, produced by the Stamford, Connecticut, company Harlow and Jones, Inc. ("H&J"). The billets were ordered by INCA in 1978, before intervention. Alvarez, on behalf of the Sandinista Government, also lays claim to the interpleaded fund. Because the Sandinista Government has not presented a compelling reason for this Court to forego constitutional protections, we decline to award it any part of the fund. In addition, we find that the amount distributed to the Bandes family, representing the pro rata interest they held in INCA, was equitable, and we will not disturb that portion of the district court's judgment. The award of attorney's fees to Alvarez, however, is reversed: this representative of the Sandinista Government did not assist in creating a common fund to benefit unrepresented shareholders and hence should not be granted counsel's compensation.
Since 1960, INCA has manufactured and sold steel products, including nails, barbed wire, and steel construction wires, for domestic consumption and export. Salvador Bandes, patriarch of the Bandes family and founder of INCA, acted as its General Manager and President of its Board of Directors. His wife, Georgette Bandes ("G. Bandes"), was Vice President, and other members of the family held various positions of responsibility for INCA's operation. At full production in 1979, INCA employed nearly 350 workers and supplied in excess of 50% of the domestic Nicaraguan need for its products. In fact, in the first half of that year, INCA met 100% of Nicaragua's demand for construction steel rods, 60% of the want for nails, and 80% of the need for barbed wire.
Although much of the dispute concerns the "intervention" of INCA by the Sandinistas, this was not INCA's first involvement with Nicaragua's government. In 1976, apparently as a condition to doing business in Nicaragua, INCA issued slightly more than 18% of its stock to General Ulises Carillo and General Jose Somoza, the brother of dictator General Anastasio Somoza (collectively, the "Somoza shares"). When the Bandeses fled their homeland, they controlled 72.9% of the shares, the Somoza Generals owned 18.2%, and the remainder was held by more than fifty Nicaraguan businessmen.
The Bandes family operated INCA throughout most of the civil war. The order in question, a shipment of 2000 tons of steel billets produced by H&J, was placed in 1978, in the midst of the conflict. According to the terms of the contract, delivery was INCA's responsibility. INCA paid the purchase price of $460,000 in early 1979, but it never arranged for the goods to be transported.
After the coup, the Sandinistas wasted no time in attempting to repair Nicaragua's damaged economy. On July 20, 1979--three days after General A. Somoza resigned--the new Government Council issued Decree No. 3, empowering the Attorney General of Justice of Nicaragua "to proceed immediately with the intervention, requisition and confiscation of all assets of the Somoza family, military personnel, and civil servants who have abandoned the country since December 1977."*fn2 Thus, the Somoza shares were expropriated by the Sandinistas. Two days later, Decree No. 10 was enacted, declaring that managers of businesses who abandoned or hindered the economy's operation had committed a crime. The Bandes family was thereby subjected to criminal penalties.*fn3 In addition, Decree No. 10 authorized the state to "intervene" and take control of abandoned businesses. Within the week, the holdings of the Bandes family in INCA were confiscated, and David Alvarez, the interventor, was placed at the helm of the corporation.*fn4
On August 1, 1979, Alvarez held a general shareholders meeting and, after appointing representatives for the Bandes family, successfully removed the Bandeses from their positions as officers of INCA and stripped them of their attendant powers.
By this time, the Bandes family had resettled in Honduras. Although Alvarez met with Salvador Bandes there in August of 1979, he could not convince the former manager of INCA to return to Nicaragua without ensuring immunity from criminal prosecution--an action he was unauthorized to take. Subsequently, acting pursuant to a long--held general power of attorney on behalf of INCA, Salvador Bandes contacted H&J in Connecticut and commenced negotiations for the return of the $460,000. The two parties agreed that H&J should refund to Bandes $420,000, representing the purchase price reduced by the cost of recission and nearly $20,200 in payment of an obligation owed by INCA to H&J. INCA was also to be relieved of its contractual duty to take delivery of the shipment. On September 6, however, before payment, H&J received a telex from interventor Alvarez ...