Callejo v. Bancomer, S.A.

• Citation: 764 F.2d 1101
• Decision Date: 08 July 1985
• Docket Number: No. 84-1270,84-1270
• Parties: , Fed. Sec. L. Rep. P 92,201 William F. CALLEJO, Individually and as Trustee, and Adelfa B. Callejo, as Trustee, Plaintiffs-Appellants, v. BANCOMER, S.A., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1101

764 F.2d 1101

54 USLW 2056, Fed. Sec. L. Rep. P 92,201

William F. CALLEJO, Individually and as Trustee, and Adelfa

B. Callejo, as Trustee, Plaintiffs-Appellants, v. BANCOMER, S.A., Defendant-Appellee.

No. 84-1270.

United States Court of Appeals,

Fifth Circuit.

July 8, 1985.

As corrected July 16, 1985.

Worsham, Forsythe, Samples & Woodridge, Robert K. Wise, Dallas, Tex., for plaintiffs-appellants.

Clark, West, Keller, Butler & Ellis, Mike Tabor, Dallas, Tex., Curtis, Mallet-Prevost, Colt & Mosle, Manuel R. Angulo, New York City, for Bancomer.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, JOHNSON and DAVIS, Circuit Judges.

GOLDBERG, Circuit Judge:

This suit is one of several arising from the promulgation by Mexico of exchange control regulations on August 13, 1982, and from the subsequent nationalization of privately-owned Mexican banks on September 1, 1982. The exchange control regulations mandated that all deposits in Mexican banks, however denominated, be repaid in Mexican pesos at specified rates of change. Because the dollar rate of exchange was well below the market rate, the regulations constituted a Montezuma's revenge on American investors who had dollar deposits in Mexican banks. A number of these indisposed investors, including the plaintiffs in the present suit, have brought claims against Mexican banks for breach of contract.

Thus far, the courts that have passed on these cases have been unanimous in dismissing the plaintiffs' claims, either on the ground that the banks are immune from suit under the doctrine of sovereign immunity, Braka v. Nacional Financiera, No. 83-4161 (S.D.N.Y. July 9, 1984); Frankel v. Banco Nacional de Mexico, No. 82-6457 (S.D.N.Y. May 31, 1983), or on the ground that suit is barred by the act of state doctrine, Braka v. Bancomer, S.A., 589 F.Supp. 1465 (S.D.N.Y.1984), aff'd, 762 F.2d 222 (2d Cir.1985); Braka v. Multibanco Comermex, 589 F.Supp. 802 (S.D.N.Y.1984). In the present case, the district court relied on sovereign immunity, holding that Bancomer is an instrumentality of the Mexican Government, that the Callejos' suit is based on sovereign not commercial activities, and that therefore Bancomer is immune from suit under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C Secs. 1330, 1332(a)(2)-(4), 1391(f), 1441(d), 1602-1611 (1982). Because the district court dismissed the Callejos' claim for lack of jurisdiction, it did not reach the act of state question.

We agree with the result reached by the district court, but disagree with its rationale. We believe that Bancomer is not immune from suit under the FSIA and that the case is properly analyzed in act of state terms. Because we are barred under the act of state doctrine from inquiring into the validity of acts of foreign states performed in their own territory--including the validity of Mexico's exchange control regulations--we affirm the district court's dismissal of the present suit.

I. FACTS

William Callejo and his wife Adelfa are United States citizens who reside in Texas. Beginning in 1979 or 1980, the Callejos purchased certificates of deposit ("CDs") issued by Bancomer, S.A., a then privately-owned Mexican bank. ¹ The record is unclear about how this business relationship originated--in particular, whether it resulted from Bancomer's solicitations in Texas. During the course of the Callejos' relationship with Bancomer, however, Bancomer regularly engaged in commercial activity in the United States, operating a branch office in Los Angeles and an agency in New York City. In Texas, Bancomer maintained accounts with both Republic Bank Dallas and Laredo National Bank.

The procedure used by the Callejos and Bancomer to make deposits and payments, although labyrinthine in course, is fairly clear in broad outline. To make deposits, the Callejos would direct their bank in Dallas to wire funds to Laredo National Bank in Laredo, Texas, where they would be credited to Bancomer's account. Bancomer would then direct Laredo National to debit Bancomer's account in the same amount, and would credit the amount to the Callejos' account at Bancomer's branch in Nuevo Laredo, Mexico. To cover this credit by Bancomer to the Callejos' account, Laredo National would transfer the funds (by an undisclosed mechanism) to Bancomer's Nuevo Laredo branch. It is undisputed that Laredo National acted as a correspondent bank in effectuating these deposits, that Bancomer's account with Laredo National did not show a net increase as a result of the transactions, and that the Callejos' money ultimately was deposited in an account in Bancomer's Nuevo Laredo branch, where the certificates of deposit were issued.

The means by which Bancomer paid interest and principal to the Callejos are the subject of somewhat greater dispute. The Callejos claim that Bancomer effectuated the payments by directing Laredo National to draw funds from Bancomer's Laredo National account and to transfer them to the Callejos' bank in Dallas. According to the Callejos, this method of payment was established specifically to ensure that they would receive the payments in Texas rather than Mexico. Bancomer, in contrast, claims that it would issue cashier's checks in Mexico payable to the Callejos and would hold the checks at its Nuevo Laredo branch pending receipt of instructions from the Callejos as to how the funds should be remitted. Usually, the funds would be remitted by means of interbank transfers; on occasion, however, they would be redeposited in Mexico, or would be sent in the form of a cashier's check to a third person, or would be remitted to one of the Callejos' accounts with another Mexican bank. Although these descriptions of the method of payment differ in emphasis, they are not directly contradictory; the payments drawn on Bancomer's account with Laredo National, which the Callejos highlight, were merely one link in a larger chain by which Bancomer transferred funds from its Nuevo Laredo branch to the Callejos' American accounts. As with the method of making deposits, Laredo National's role appears to have been that merely of a correspondent bank.

The four certificates of deposit at issue in the present suit were purchased by the Callejos on May 31 and June 3, 1982. Two were renewals of prior certificates and two were new certificates; all had terms of three months, were denonimated in United States dollars, and called for payment of principal and interest in United States dollars. Together, they had a value of approximately $300,000. Like the other certificates of deposit purchased by the Callejos, they specified on their face Mexico City as the place of payment.

In August 1982, facing a severe monetary crisis brought on by a decline in the world price of oil, the Government of Mexico promulgated exchange control regulations. These were supplemented by further regulations in September 1982. The regulations required Mexican banks to pay principal and interest on U.S. dollar-denominated certificates of deposit in pesos rather than dollars, at a specified rate of exchange. ² The regulations also required that payment be made in Mexico and limited the number of pesos that foreigners could remove from the country. On September 1, 1982, the Government of Mexico nationalized all privately-owned Mexican banks, including Bancomer.

Pursuant to the new exchange control regulations, on August 13, 1982, Bancomer notified the Callejos that it would pay the principal and interest on the Callejos' four certificates of deposit in pesos at a rate of exchange substantially below the market rate. To forestall this, the Callejos renewed the two certificates of deposit due to mature on August 31, 1982, and filed the present suit. ³

As amended, the Callejos' complaint alleged breach of contract and securities act violations ⁴ and sought either rescission of the sale of the certificates of deposit or money damages. In response, Bancomer filed a motion to dismiss, which the district court granted on February 27, 1984. The district court held that the Callejos' suit was not based on Bancomer's commercial activities and that therefore Bancomer, as an instrumentality of the Mexican Government, was entitled to sovereign immunity. The Callejos then brought the present appeal.

II. SOVEREIGN IMMUNITY

Along with other privately-owned Mexican banks, Bancomer was nationalized by the Mexican Government on September 1, 1982. Consequently, Bancomer is now an "agency or instrumentality of a foreign state" within the meaning of 28 U.S.C. Sec. 1603(b)(2), and would ordinarily be entitled to immunity from the jurisdiction of American courts under the FSIA, 28 U.S.C. Sec. 1604. The FSIA, however, contains a number of exceptions to the jurisdictional immunity of foreign states. One of these is found in 28 U.S.C. Sec. 1605(a)(2), which states:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case--

....

(2) 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 in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. ⁵

The Callejos claim that this exception applies in the present case, since their suit is based upon a commercial activity by Bancomer that was both carried on and caused a direct effect in the United States.

The FSIA has aptly been called a "remarkably obtuse" document, a "statutory labyrinth that, owing to the numerous interpretive questions engendered by its bizarre structure and its many deliberately vague provisions, has during its brief lifetime been a financial boon for the private bar but a constant bane of the federal...