De Sanchez v. Banco Central De Nicaragua

• Decision Date: 19 September 1985
• Docket Number: No. 84-3247,84-3247
• Parties: Josefina Najarro DE SANCHEZ, Plaintiff-Appellant, v. BANCO CENTRAL DE NICARAGUA, A Foreign Banking Corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1385

770 F.2d 1385

54 USLW 2230

Josefina Najarro DE SANCHEZ, Plaintiff-Appellant, v. BANCO CENTRAL DE NICARAGUA, A Foreign Banking Corporation et al., Defendants-Appellees.

No. 84-3247.

United States Court of Appeals Fifth Circuit.

Sept. 19, 1985.

DeRussy & Matthews, John G. DeRussy, New Orleans, La., and Armstrong & Mejer, Timothy J. Armstrong, Coral Gables, Fla., for plaintiff-appellant.

Liskow & Lewis, Joe B. Norman, New Orleans, La., Paul S. Reichler and Judith C. Appelbaum, Washington, D.C., for Banco.

Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Warren M. Schultz, Jr., New Orleans, La., for Citizens & Southern.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before GOLDBERG, RUBIN and HILL, Circuit Judges.

GOLDBERG, Circuit Judge:

Clausewitz once described war as politics carried on by other means. Here it could be said that litigation is war carried on by other means. The plaintiff's faction having lost on the battlefield, she now seeks to move the conflict to the courtroom, hoping that, in this case at least, the pen is mightier than the sword.

In July 1979, the Nicaraguan government of General Anastasio Somoza fell to the Sandinista revolutionaries. As usually occurs, members of the old regime fled the country to escape the reach of "revolutionary justice." But where defeated aristocracies once emigrated to London or Paris, now they seem to wind up in Miami. One of these emigres--Mrs. Josefina Navarro de Sanchez, the wife of President Somoza's former Minister of Defense--brought the present suit to collect on a check for $150,000 issued to her by the Nicaraguan Central Bank (Banco Central de Nicaragua) shortly before Somoza's fall. Mrs. Sanchez was unable to cash this check after the new government assumed power and placed a stop-payment order on it.

Initially, the district court denied Banco Central's motion to dismiss, finding that it had jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. Secs. 1605(a)(3), (5) (1982), and that the act of state doctrine did not apply. De Sanchez v. Banco Central de Nicaragua, 515 F.Supp. 900, 910-14 & n. 10 (E.D.La.1981). After discovery was completed, however, the district court reversed itself on the act of state issue, and granted Banco Central's motion for summary judgment.

In reviewing a lower court's decision, we must affirm a correct judgment even when it is based on an inappropriate ground or a wrong reason. Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 158, 82 L.Ed.2d 224 (1937); Sapp v. Renfroe, 511 F.2d 172, 175 n. 2 (5th Cir.1975). Because we find that Banco Central is immune from suit under the doctrine of sovereign immunity, we affirm the judgment below.

I

On September 7, 1978, Mrs. Josefina Najarro de Sanchez, a Nicaraguan national, purchased a certificate of deposit worth $150,000 from Banco Nacional de Nicaragua, a then privately-owned commercial Nicaraguan bank. The certificate was payable in United States dollars and had a scheduled maturity date of October 6, 1982. It specified that Banco Nacional would redeem the certificate only at or after this date.

In June 1979, as the Nicaraguan government of General Somoza was on the verge of collapse, Mrs. Sanchez left Nicaragua for Miami, Florida. To raise money for her resettlement expenses, Mrs. Sanchez decided to redeem her certificate of deposit three years prior to its maturity date. She therefore contacted her husband, General Herberto Sanchez, who was still in Nicaragua, and requested that he redeem the certificate.

At the time, Nicaragua was suffering from a critical shortage of foreign exchange. In September 1978, the Nicaraguan government had adopted exchange control regulations limiting sales of foreign exchange by Banco Central to ten specific purposes and requiring that sales of foreign exchange for other purposes be authorized by Banco Central's Board of Directors. Decree 332-MEIC, 4 Rec. at 273-74, 278-80. In May 1979, even tighter restrictions on the use of foreign exchange were imposed pursuant to a standby agreement between Nicaragua and the International Monetary Fund. Despite these restrictions, by July 1979 the nation had a net foreign exchange deficit of over $200 million, and the total liquidity available to the country was no more than $3.5 million, barely enough to meet one average day's worth of import requirements.

Because of the shortage of foreign exchange, redeeming Mrs. Sanchez's certificate of deposit was easier said than done. President Somoza himself, two weeks before fleeing the country, took time from his presumably busy schedule to write a personal letter to the President of Banco Nacional recommending that the certificate be redeemed "as a special case" and stating that he would be "grateful ... for a favorable decision." ¹ 4 Rec. at 327, 334. When this proved unavailing due to Banco Nacional's shortage of dollars, the President of Banco Nacional contacted Banco Central requesting that Banco Central sell the dollars necessary to redeem the certificate. Dr. Roberto Incer, the President of Banco Central and a cousin of General Sanchez, personally authorized the sale of the dollars by telephone from Guatamala, where he was negotiating a line of credit to a National Guard officer from the Guatamalan Central Bank. Pursuant to Dr. Incer's instructions, Banco Central issued a check directly in favor of Mrs. Sanchez for $150,000, drawn on Banco Central's account with Citizens and Southern International Bank ("C & S Bank") in New Orleans, Louisiana. Although it is unclear whether Banco Nacional ever reimbursed Banco Central for this money, Banco Nacional did cancel Mrs. Sanchez's certificate after the check to Mrs. Sanchez was issued by Banco Central.

By the time the check reached Mrs. Sanchez in Miami, however, the political situation in Nicaragua had deteriorated even further. Although the new government did not formally come to power in Nicaragua until July 19, 1979, persons purporting to represent the Sandinista government contacted C & S Bank on July 11-13, claiming control over Banco Central's account. To protect the Bank, the President of C & S decided on July 13 not to clear further checks issued by Banco Central. Dr. Arturo Cruz, the new President of Banco Central, telephoned C & S on July 17, reiterating that C & S should freeze Banco Central's account. He confirmed this stop-payment order by telex on July 23, the day after being formally appointed to office.

As a result of these events, when Mrs. Sanchez attempted to cash the check first at C & S's Miami office and later at C & S's New Orleans office, the Bank would not honor it. In Miami, Mrs. Sanchez's son, despite being accompanied by Dr. Incer, the outgoing President of Banco Central, was told on July 16 that the check must be deposited at C & S's New Orleans office, where Mrs. Sanchez had her account. In New Orleans, however, the bank informed her on the following day that there were insufficient funds in Banco Central's account to cover the check. When Mrs. Sanchez re-presented the check three days later on July 20, it was returned to her marked "refer to maker." That day, Mr. Kenneth Moore, President of the C & S Bank in New Orleans, wrote to Mrs. Sanchez:

In reference to Banco Central de Nicaragua check number 20110 payable to you in the amount of U.S. Dlrs. 150,000.00, the check payment was refused by us on presentation on July 17, 1979. Due to the fact we had no knowledge of which was the legitimate government of the country on that date due to the civil war in the country, we suspended all payments from [Banco Central's] account, our legal right under the terms of the Uniform Commercial Code of the United States. We were subsequently instructed by Mr. Arturo Cruz, President of the Central Bank, to suspend all payments.

After Dr. Cruz's telephone call was confirmed by the July 23 telex, payment was indefinitely stopped on Mrs. Sanchez's check.

Upon assuming power, the new government of Nicaragua immediately began to establish priorities to govern the use of the country's remaining foreign exchange resources. These priorities were enumerated in a regulation adopted by Banco Central on September 6, 1979. Resolution CD-BCN-VIII-B-79, 4 Rec. at 282-90. In addition, Dr. Cruz ordered the staff of Banco Central to conduct an audit of each check on which payment had been stopped. The purpose was to determine which checks were properly issued and consistent with the national priorities for the use of foreign exchange. Based on the audit, Mrs. Sanchez's check was placed in the category, "[s]ales of foreign exchange to the National Guard ... and to those who are associated or friends of the National Guard." Deposition of Arturo Cruz at 30, 4 Rec. at 105. Although the auditors found that the check was correct "from a purely accounting point of view," id. at 42, 4 Rec. at 112, Dr. Cruz determined that the check to Mrs. Sanchez should not be paid since payment would be inconsistent with the national priorities governing the use of foreign exchange. ² 2] He made this recommendation to the Government Junta--a three-member board that exercises the role of chief executive in the Nicaraguan government--and the Junta agreed.

Mrs. Sanchez brought the present suit to collect on the check issued by Banco Central, alleging breach of the duty to honor the check, misrepresentation, conversion, and breach of contract, and claiming $150,000 plus interest and costs. She named both Banco Central and C & S Bank as defendants. However, she did not contest C & S's motion for summary judgment, which was granted by the district court on October 21, 1981, and which has not been appealed.

The district court initially determined that it had jurisdiction over the suit under the FSIA and denied Banco Central's motion to dismiss. Specifically, the court found that two exceptions to the doctrine of sovereign immunity applied:...