NATIONAL CITY BANK OF NEW YORK v. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT. No. 30. Argued November 9, 1954.- 1. The Republic of China sued an American bank in a Federal District Court to recover $200,000 deposited in the bank by a governmental agency of the Republic. The bank interposed counterclaims seeking an affirmative judgment for $1,634,432 on defaulted treasury notes of the Republic. The Republic pleaded sovereign immunity. Held: The counterclaims should not have been dismissed. Pp. 357-366. (a) Having been recognized as a sovereign by the Executive, the Republic of China and its governmental agencies enjoy a foreign sovereign's immunities to the same extent as any other country recognized by the United States. P. 358. (b) This case does not involve an attempt to bring a recognized foreign government into court as a defendant. A foreign government is invoking our law but resisting a claim against it which fairly would curtail its recovery. Pp. 361-362. (c) The contention that the counterclaim here involved is not based on the subject matter of the Republic's suit does not require a different result. Pp. 364–365. 2. That the bank, on certiorari, dropped its demand for affirmative relief did not reduce the counterclaim to a mere defense or deprive this Court of jurisdiction. P. 358, n. 2. 208 F. 2d 627, reversed and remanded. Wm. Harvey Reeves argued the cause for petitioner. With him on the brief was Chauncey B. Garver. Louis J. Gusmano argued the cause for respondents. With him on a brief for the Republic of China were Cletus Keating and Robert E. Kline, Jr. MR. JUSTICE FRANKFURTER delivered the opinion of the Court. The Shanghai-Nanking Railway Administration, an official agency of respondent Republic of China, established a $200,000 deposit account in 1948 with the New York head office of petitioner National City Bank of New York. Subsequently, respondent sought to withdraw the funds, but petitioner refused to pay, and respondent brought suit in Federal District Court under 48 Stat. 184, as amended, 12 U. S. C. § 632. In addition to various defenses, petitioner interposed two counterclaims seeking an affirmative judgment for $1,634,432 on defaulted Treasury Notes of respondent owned by petitioner. After a plea of sovereign immunity, the District Court dismissed the counterclaims, 108 F. Supp. 766, and entered judgment on them pursuant to Rule 54 (b), Federal Rules of Civil Procedure. Petitioner appealed, and while the appeal was pending sought leave from the District Court to amend the counterclaims by denominating them setoffs and including additional data. The District Court denied leave. 14 F. R. D. 186. The Court of Appeals for the Second Circuit affirmed the dismissal and the denial on the ground that the counterclaims were not based on the subject matter of respondent's suit (whether they be treated as requests for affirma 1 The Treasury Note on which the first counterclaim is based was pledged by the Republic of China in 1920 to secure a loan to the Pacific Development Company by a banking syndicate in which petitioner participated. The loan was not repaid, and during the liquidation of the Development Company the syndicate bought the collateral at a public sale. The Treasury Notes on which the second counterclaim is based were purchased by petitioner's Shanghai branch at the time of issue in 1947-1948. The record allows us to assume that the petitioner gave full value as its share of the loan to the Development Company and bought the notes in the second counterclaim at par. tive relief or as setoffs) and, therefore, it would be an invasion of respondent's sovereign immunity for our courts to permit them to be pursued. 208 F. 2d 627. Because of the importance of the question and its first appearance in this Court, we granted certiorari. 347 U. S. 951. The status of the Republic of China in our courts is a matter for determination by the Executive and is outside the competence of this Court. Accordingly, we start with the fact that the Republic and its governmental agencies enjoy a foreign sovereign's immunities to the same extent as any other country duly recognized by the United States. See Guaranty Trust Co. v. United States, 304 U. S. 126, 137-138. The freedom of a foreign sovereign from being haled into court as a defendant has impressive title-deeds. Very early in our history this immunity was recognized, De Moitez v. The South Carolina, Bee 422, 17 Fed. Cas. 574, No. 9,697 (Admiralty Court of Pa., 1781, Francis Hopkinson, J.), and it has since become part of the fabric of our law. It has become such solely through adjudications of this Court. Unlike the special position accorded our States as party defendants by the Eleventh Amend 2 At the outset respondent argues that since petitioner on certiorari has dropped its demand for affirmative relief, the case is not properly before us. It is conceded that dismissal of independent counterclaims would ordinarily contain the requisite finality on which to base our jurisdiction, but respondent contends that when petitioner reduced its counterclaims to mere demands for setoff, the claims became defenses and, as such, nonreviewable until the respondent's suit had been concluded below. We reject this view. A counterclaim does not dwindle to a defense solely because it is confined as a result of the accepted jurisprudence of sovereign immunity, see United States v. Shaw, 309 U. S. 495—to reducing the sovereign's recovery. The District Court's judgment, as affirmed by the Court of Appeals, terminated a separable and distinct segment of the litigation. 356 Opinion of the Court. ment, the privileged position of a foreign state is not an explicit command of the Constitution. It rests on considerations of policy given legal sanction by this Court. To be sure, the nonsuability of the United States without its consent is likewise derived from considerations of policy. But these are of a different order from those that give a foreign nation such immunity. It is idle to repeat or rehearse the different considerations set forth in Mr. Chief Justice Marshall's classic opinion in The Schooner Exchange v. M'Faddon, 7 Cranch 116. But even the immunity enjoyed by the United States as territorial sovereign is a legal doctrine which has not been favored by the test of time. It has increasingly been found to be in conflict with the growing subjection of governmental action to the moral judgment. A reflection of this steady shift in attitude toward the American sovereign's immunity is found in such observations in unanimous opinions of this Court as "Public opinion as to the peculiar rights and preferences due to the sovereign has changed," Davis v. Pringle, 268 U. S. 315, 318; "There is no doubt an intermittent tendency on the part of governments to be a little less grasping than they have been in the past White v. Mechanics Securities Corp., 269 U. S. 283, 301; ". . . the present climate of opinion . . . has brought governmental immunity from suit into disfavor 'Keifer & Keifer v. Reconstruction Finance Corp., 306 U. S. 381, 391. This chilly feeling against sovereign immunity began to reflect itself in federal legislation in 1797. At that early day Congress decided that when the United States sues an individual, the individual can set off all debts properly due him from the sovereign. And because of the objections to ad hoc legislative allowance of private claims, Congress a hundred 3 Act of Mar. 3, 1797, §§ 3, 4, 1 Stat. 514-515. The present version appears in 28 U. S. C. § 2406. Opinion of the Court. 4 348 U.S. years ago created the Court of Claims, where the United States, like any other obligor, may affirmatively be held to its undertakings. This amenability to suit has become a commonplace in regard to the various agencies which carry out "the enlarged scope of government in economic affairs," Keifer & Keifer v. Reconstruction Finance Corp., supra, at 390. The substantive sweep of amenability to judicial process has likewise grown apace." The outlook and feeling thus reflected are not merely relevant to our problem. They are important. The claims of dominant opinion rooted in sentiments of justice and public morality are among the most powerful shaping-forces in lawmaking by courts. Legislation and adjudication are interacting influences in the development of law. A steady legislative trend, presumably manifesting a strong social policy, properly makes demands on the judicial process. See James M. Landis, Statutes and the Sources of Law, in Harvard Legal Essays (1934), p. 213 et seq.; Harlan F. Stone, The Common Law in the United States, 50 Harv. L. Rev. 4, 13-16. More immediately touching the evolution of legal doctrines regarding a foreign sovereign's immunity is the restrictive policy that our State Department has taken toward the claim of such immunity. As the responsible agency for the conduct of foreign affairs, the State Department is the normal means of suggesting to the courts that a sovereign be granted immunity from a particular suit. Ex parte Republic of Peru, 318 U. S. 578, 581. Its failure or refusal to suggest such immunity has been accorded significant weight by this Court. See Compania Espanola de Navigacion Maritima, S. A. v. The Navemar, * Act of Feb. 24, 1855, 10 Stat. 612, as amended, 12 Stat. 765, 14 Stat. 9; see United States v. Jones, 119 U. S. 477. The most recent development is the subjection of the Government to tort liability. Act of Aug. 2, 1946, now 28 U. S. C. § 1346 (b). |