Arbitration of Contract Claim by Private Commercial Bank Against the Export-Import Bank

Opinion

May 22, 1979

79-36 MEMORANDUM OPINION FOR THE ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION

Arbitration—Export-Import Bank—Sovereign Immunity—Representation of Bank by Department of Justice

This responds to your request for our opinion whether arbitration o f a contract claim by a private commercial bank against the Export-Im port Bank (hereinafter “ Exim bank” ) is authorized by law and, if so, whether this Departm ent is authorized to represent Eximbank before the arbitral tribunal.

We understand the facts to be as follows: Eximbank agreed with the First National Bank o f Oregon (FNBO) to guarantee FNBO loans financ­ ing certain exports. The master guarantee agreement included a clause providing that disputes under the agreement “ would be settled by arbitra­ tion in accordance with the Rules o f the American Arbitration Associa­ tio n ,” and that any arbitration award may be judicially enforced. The FNBO has dem anded arbitration o f its claim o f $976,514.23.

Eximbank’s Authority to Arbitrate

The issue is whether the claim is one against the United States and, if so, whether the United States has waived its sovereign immunity in a way that permits arbitration.

For the purpose o f sovereign immunity, FNBO’s claim against Exim­ bank is one against the United States. Under 12 U.S.C. § 635, Eximbank is a wholly owned Governm ent corporation and an agency o f the United States. The Bank concededly has authority under 12 U.S.C. § 635(a) to guarantee loans it has made. The A ttorneys General have repeatedly ruled that a guaranty by a Governm ent corporation contracted within its statutory powers is a general obligation o f the United States, payable from the Treasury as well as from the corporation’s assets. 42 Op. A tt’y Gen. 429 (1971); id., 327 (1966); c f , id., 21 (1961); 41 Op. A tt’y Gen. 365

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(1958); id., 403 (1959). Accordingly, claims arising under such guarantees are contract claims against the United States to which sovereign immunity applies unless waived. See generally, FHA v. Burr, 309 U.S. 242 (1940); Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381 (1939); Federal Land Bank v. Priddy, 295 U.S. 229 (1935).

It is well settled that the immunity o f the United States from suit on monetary claims may only be waived by statute. See, e.g., Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972); United States v. Shaw, 309 U.S. 495 (1940). No Executive officer may waive sovereign immunity without statutory authority. See, e.g., United States v. United States Fidelity & Guaranty Co., 309 U.S. 506 (1940). W hether Eximbank could lawfully consent to have claims against it resolved by an award o f an ar­ bitral tribunal is thus a question o f statutory construction.

Exim bank’s powers in this area are derived from 12 U .S.C . § 635(a)(1), providing in pertinent part as follows:

(1) There is created a corporation with the name Export-Im port Bank o f the United States, which shall be an agency o f the United States o f America. The objects and purposes o f the bank shall be to aid in financing and to facilitate exports and imports and the exchange o f commodities between the United States or any o f its Territories or insular possessions and any foreign coun­ try or the agencies or nationals thereof. In connection with and in furtherance o f its objects and purposes, the bank is authorized and empowered to do a general banking business * * * to guarantee notes, drafts, checks, bills o f exchange, acceptances, including bankers’ acceptances, cable transfers, and other evidences o f indebtedness; to guarantee, insure, coinsure, and reinsure against political and credit risks o f loss * * * to sue and to be sued, to complain and to defend in any court o f com pe­ tent jurisdiction; to represent itself or to contract for representa­ tion in all legal and arbitral proceedings outside the United States; and the enum eration o f the foregoing powers shall not be deemed to exclude other powers necessary to the achievement o f the objects and purposes o f the bank * * *. This provision has an unusual history. According to the historical and revision note in the United States Code, the Bank was chartered as a District o f Columbia banking corporation by Executive order and in 1935 made an agency o f the United States by statute. Its status as a Governm ent corpora­ tion was conferred by the enactment o f the present version o f 12 U .S.C . § 635(a) in 1947.1 T hat statute also added the “ sue and be sued” phrase. Its legislative history states that the purpose was to continue unimpaired

1 See Act o f June 9, 1947, ch. 101, § 1, 61 Stat. 130.

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Exim bank’s powers as a District o f Columbia banking corporation while making express its previously implicit power to sue and to be sued.2 We know o f no direct authority dealing with the question whether a wholly owned Governm ent corporation with Exim bank’s powers may re­ solve contract claims by arbitration. It is our opinion, however, that 12 U.S.C. § 635(a)(1) authorizes the Bank to do so. First, the statute is a grant o f power to engage in the business o f banking in essentially the same manner as a private corporation;3 it states that it is to be construed in a m anner that will not exclude the powers necessary to achieve the B ank’s function, and its legislative history indicates that the Bank retained the powers o f a District o f Columbia banking corporation. Second, the Na­ tional Railroad Passenger C orporation (Am trak), a wholly owned Gov­ ernment corporation with statutory powers similar to Exim bank’s,4 has employed arbitration o f contract claims connected with its functions. See, National Railroad Passenger Corp. v. Chesapeake & Ohio Rwy., 551 F. (2d) 136 (7th Cir. 1977). Finally, the Supreme Court has stated as a general rule o f construction that where Congress has authorized a corporate instrumentality to engage in commercial transactions, statutory authority to “ sue and be sued” should be construed as a complete waiver of sovereign immunity for any suit not clearly shown to be inconsistent with the instrum entality’s function. “ In the absence o f such showing,” the C ourt stated, “ it must be presumed that when Congress launched a gov­ ernmental agency into the commercial world and endowed it with author­ ity to ‘sue or be sued,’ that agency is not less amenable to judicial process than a private enterprise under like circumstances would b e.” FHA v. Burr, 309 U.S. 242, 245 (1940); accord, Reconstruction Finance Corp. v. Menihan Corp., 312 U.S. 81 (1941); Keifer & Keifer v. Reconstruction Finance Corp., 306 U .S. 381 (1939).

Presumably, a banking corporation in the District o f Columbia would be free to submit contract claims arising from its banking operations to ar­ bitration. Eximbank was intended to have similar powers and the agree­ ment in this case has clearly arisen out o f its normal banking operations. We are aware o f no reason why arbitration would be inconsistent with Ex­ im bank’s functions. Accordingly, when 12 U.S.C. § 635(a)(1) is read in the light o f Burr, it is our opinion that the statute authorized Eximbank to enter into the arbitration agreement.

We must point out, however, that this opinion is primarily a construc­ tion o f Exim bank’s statutory authority. As your opinion request states, the judicial authorities and opinions o f the A ttorney General do not agree

! See H. Rept. 393, 80th C ong., 1st sess., at 2 (1947); S. Rept. 104, 80th C ong., 1st sess., at 2 (1947).

1 Eximbank is, o f course, subject to the budgetary and auditing controls imposed on whol­ ly owned Governm ent corporations by the G overnm ent C orporation C ontrol Act. 31 U .S.C. §§ 846-852.

4 See 45 U .S.C . §§ 545(a), 562(a). '

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on the circumstances in which an agency o f the United States may submit claims against it to arbitration.5 In addition, the Com ptroller General has held that clear statutory authority is required to arbitrate contract claims against the United States.6 The power o f each Government agency or in­ strumentality to submit a claim to arbitration must be considered on the facts o f the particular case.

Participation by the Department o f Justice

In a memorandum o f December 20, 1977 to the Associate Attorney General, we expressed the opinion that 28 U.S.C. §§ 516, 519 required the Department o f Justice to conduct the litigation o f Eximbank within the United States. Your second question is thus whether this extends to ar­ bitration proceedings. We conclude that the Department is authorized by the above statutes and 28 U.S.C. § 517 to represent Eximbank in any ar­ bitration involving FNBO.

Section 517 reads as follows:

The Solicitor General, or any officer o f the Departm ent of Justice, may be sent by the Attorney General to any State or district in the United States to attend to the interests o f the United States in a suit pending in a court o f the United States, or in a court o f a State, or to attend to any other interest o f the United States.

An arbitration proceeding is not, strictly, a suit pending in any court. However, any arbitration award against Eximbank would be judicially en­ forceable. See generally, FHA v. Burr, 309 U.S. 242 (1941). As you have pointed out, the award is ultimately payable by the United States. By representing the Bank in the arbitration, the Department will therefore be acting to protect a direct financial interest o f the United States. Moreover, taking part in the arbitration may be crucial in protecting that interest. Although we have not considered the m atter in detail, we note that judicial review o f arbitration awards for errors o f law, fact, or interpretation o f the contract is extremely narrow. See, e.g., National Railroad Passenger Corp. v. Chesapeake & Ohio Rwy., 551 F. (2d) 136, 141-44 (7th Cir. 1977); see also 9 U.S.C. §§ 10-11. In order effectively to represent Exim­ bank in court, it may be necessary for this Department to take part in the prelitigation proceedings that will essentially decide the controversy. We

1 Compare, George J. Grant Construction Co. v. United States, 109 F. Supp. 245 (Ct. C l. 1953), and United States v. Ames, 24 Fed. Cas. No. 14,441 (C.C. Mass. 1845); 33 O p. A tt’y Gen. 160 (1922); 17 O p. A tt’y Gen. 486 (1882).

6 See 32 Com p. Gen. 333 (1953); 19 Com p. Gen. 700 (1940); 8 Com p. Gen. 96 (1928).

therefore conclude that 28 U .S.C . §§ 516-17, 519 authorize the D epart­ ment to represent Eximbank in the arbitral proceeding.’

M ary C. Law ton

Deputy Assistant A ttorney General Office o f Legal Counsel

7 This opinion does not consider the question whether or to what extent Eximbank is re­ quired to be represented by this Departm ent in an arbitration.