Ampac Group Inc. v. Republic of Honduras

• Decision Date: 05 August 1992
• Docket Number: No. 92-0382-CIV.,92-0382-CIV.
• Citation: 797 F. Supp. 973
• Parties: AMPAC GROUP INC., Plaintiffs v. The REPUBLIC OF HONDURAS, the Ministry of the Treasury and Public Credit of the Republic of Honduras, Corporacion Nacional De Inversiones, an agency or instrumentality of the Republic of Honduras, Comision Negociadora Especial, an agency or instrumentality of the Republic of Honduras, and Benjamin Villanueva, Cesar Batres, Arturo Alvarado, Ramon Sarmiento, Arturo Morales Funez, Boris Zelaya Rubi, Arturo Venegas and Rene Bendana Martinez in their official capacities and against Benjamin Villanueva, individually and personally, Defendants.
• Court: U.S. District Court — Southern District of Florida

797 F. Supp. 973

AMPAC GROUP INC., Plaintiffs v. The REPUBLIC OF HONDURAS, the Ministry of the Treasury and Public Credit of the Republic of Honduras, Corporacion Nacional De Inversiones, an agency or instrumentality of the Republic of Honduras, Comision Negociadora Especial, an agency or instrumentality of the Republic of Honduras, and Benjamin Villanueva, Cesar Batres, Arturo Alvarado, Ramon Sarmiento, Arturo Morales Funez, Boris Zelaya Rubi, Arturo Venegas and Rene Bendana Martinez in their official capacities and against Benjamin Villanueva, individually and personally, Defendants.

No. 92-0382-CIV.

United States District Court, S.D. Florida.

August 5, 1992.

COPYRIGHT MATERIAL OMITTED

Rene A. Sotorrio, Miami, Fla., for plaintiffs.

Patricia M. Menendez, Patton, Boggs & Blow, Miami, Fla. and Steven M. Schneebaum and Benjamin G. Chew, Patton, Boggs & Blow, Washington, D.C., for defendants.

ORDER DENYING MOTION TO DISMISS, AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT

JAMES LAWRENCE KING, District Judge.

THIS CAUSE is before the Court upon Defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment. Plaintiff has responded, and Defendant has filed a reply. For the reasons which follow, this Court will deny Defendants' Motion to Dismiss, and will deny without prejudice Defendant's Motion for Summary Judgment.

I. BACKGROUND

This is a contract action. Plaintiff, a corporation whose principal place of business is Florida, entered into negotiations in 1989 with the Republic of Honduras, through its "agents or instrumentalities," for the purchase of an enterprise known as Cementos De Honduras, S.A. ("CEHSA"). CEHSA was offered for sale by Honduras' Corporacion Nacional de Inversiones ("CONADI"), a government corporation that owned approximately 51% of the outstanding capital stock of CEHSA. The sale was part of a program of privatization of previously state-owned industries.

Ampac submitted a bid for CEHSA on or about April 30, 1991. As the only bidder, Ampac was awarded the bid. Plaintiff alleges that CONADI thereafter transferred to itself certain assets of CEHSA, including shares of stock in other corporations, thereby reducing the value of CEHSA. CONADI allegedly failed to disclose this transfer. On June 25, 1991, the Republic of Honduras allegedly "bought out" several private creditors of CEHSA and took title to CEHSA in the name of the state, thereby making the approval of Honduras' Congress a prerequisite to the sale to Ampac. On July 10, 1991, the parties concluded an "Acta de Compromiso," which set out certain terms of the agreement for the sale of CEHSA. The legal significance of the July 10 document is disputed by the parties. Plaintiff contends that the "Acta" is a binding and enforceable contract of sale. Defendants, in turn, argue that the July 10 document is merely an agreement in principle, a "memorandum of intent." After the "Acta" was signed, Ampac allegedly tendered $2.7 million in Honduran foreign debt for CEHSA.

CEHSA was never transferred to Plaintiff. The Honduran Congress did not approve the sale, and nullified the bid solicitation process by which Ampac obtained the right to purchase CEHSA. Honduras is presently in the process of accepting new bids for the sale of CEHSA.

Defendants seek to dismiss on the grounds that (1) the Court lacks subject matter jurisdiction under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. ("FSIA"); (2) The Act of State Doctrine precludes adjudication of Plaintiff's claims; (3) The Court lacks personal jurisdiction over the Defendants; and (4) venue does not properly lie in this Court. Defendants also have moved for summary judgment.

II. MOTION TO DISMISS

A. The Foreign Sovereign Immunities Act

Under the FSIA, a "foreign state shall be immune from the jurisdiction of the courts of the United States" unless an exception to Act applies. 28 U.S.C. § 1604. A finding of immunity under the Act deprives the court of subject matter jurisdiction, and requires dismissal of the action. Plaintiff relies on the "commercial activities" exception to the FSIA. A foreign state is not immune from suit in any case:

in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.

28 U.S.C. § 1605(a)(2).

Interpretation of the foregoing grant of immunity therefore turns on the definition of "commercial activity." That term is defined in the FSIA as follows:

"Either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

28 U.S.C. § 1603(d) (emphasis added). By statute, the Court must focus on the type of transaction, rather than what entity is a party to it, or its ultimate objective.

Here, Defendants argue that privatizing a national cement industry is an action that could only be taken by a foreign sovereign, and is thus not "commercial activity." Privatization, Defendants argue, is merely the "flip side" of nationalization, a quintessentially sovereign prerogative. See Baglab Ltd. v. Johnson Matthey Bankers Ltd., 665 F.Supp. 289, 294 (S.D.N.Y.1987). If nationalization is an activity that cannot be challenged in the courts of the United States, Defendants contend, so too is privatization.

This syllogism is flawed when considered against the FSIA's distinction between the nature and purpose of the transaction. The purpose of the transaction — devolution of a state-owned business as a part of a planned return to a market economy — is irrelevant to the inquiry. The sale of a company from its owners to the highest bidder is a routine commercial transaction.

The very recent Supreme Court decision of Republic of Argentina v. Weltover, Inc., ___ U.S. ___, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), disposes of the issue.

In Weltover, foreign bond holders brought an action in the Southern District of New York against Argentina arising out of Argentina's unilateral rescheduling of the maturity dates for payment on its bonds. Argentina lacked sufficient foreign exchange to retire certain bonds, and issued a Presidential Decree extending the time for payment. The governmental action was part of an emergency currency stabilization plan.

A unanimous Supreme Court held Argentina's emergency measure to stabilize its own currency enjoyed no immunity in United States courts under the FSIA. In determining whether governmental conduct constitutes "commercial activity," the decision reaffirmed and clarified the distinction between the nature and purpose of the activity:

the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in "trade and traffic or commerce."

Id., ___ U.S. at ___, 112 S.Ct. at 2166 (emphasis added). After setting out the proper inquiry, the Court concluded that "it is irrelevant why Argentina participated in the bond market in the manner of a private actor; it matters only that it did so." Id., ___ U.S. at ___, 112 S.Ct. at 2167.

Honduras' motivations are similarly irrelevant here. Engaging in a program of privatization does not automatically insulate Honduras from suit in the United States. The issue is whether Honduras' sale of property is a type of transaction by which a private party engages in commerce.

Here, framing the question provides a clear answer. Accepting the allegations of the Complaint as true, a contract was executed between Ampac and the Republic of Honduras (and certain of its agents or instrumentalities) for the purchase of 50% of the shares of a company owned by CEHSA, and all of CEHSA's other assets. Compl. at ¶ 34. By commercial standards, such an agreement between corporations is routine and simple. It is the type of contract entered into by private parties that engage in commerce. Like the issuance of debt instruments by Argentina, "there is nothing about the government's action (except perhaps its purpose) that is not analogous to a private commercial transaction." Weltover, ___ U.S. at ___, 112 S.Ct. at 2167.

Defendants' second challenge under the FSIA is similarly unavailing. Defendants contend that the activities alleged do not bear a significant nexus to the United States, as required by 28 U.S.C. § 1605(a)(2) (quoted above). The FSIA in relevant part provides no immunity for acts outside the United States "in connection with a commercial activity of the foreign state elsewhere" where those acts cause a "direct effect in the United States." Id.

Again, Weltover provides guidance. The Supreme Court rejected a suggestion in the legislative history of the FSIA that an effect is not "direct" unless it is both "substantial" and "foreseeable." Weltover, ___ U.S. at ___, 112 S.Ct. at 2168. Rather, the Court held that "an effect is `direct' if it follows as an immediate consequence of the defendant's activity." Id. (citations omitted). Plaintiffs in that case were all foreign corporations with no other connections to the United States. The Supreme Court held that the effect of Argentina's action was sufficiently "direct" where "money that was supposed to have been delivered to a New York bank for deposit was not forthcoming." Id. Weltover therefore teaches that the effect in the United States need only be slight. Although the effect cannot be speculative, the contact with the United States may indeed be...