Republic of Argentina v. Weltover, Inc

• Decision Date: 12 June 1992
• Docket Number: No. 91-763,91-763
• Parties: REPUBLIC OF ARGENTINA and Banco Central De La Republica Argentina, Petitioners, v. WELTOVER, INC., et al
• Court: U.S. Supreme Court

112 S.Ct. 2160

504 U.S. 607

119 L.Ed.2d 394

REPUBLIC OF ARGENTINA and Banco Central De La Republica Argentina, Petitioners,

v WELTOVER, INC., et al.

No. 91-763.

Argued April 1, 1992.

Decided June 12, 1992.

Syllabus

As part of a plan to stabilize petitioner Argentina's currency, that country and petitioner bank (collectively Argentina) issued bonds, called "Bonods," which provided for repayment in U.S. dollars through transfer on the market in one of several locations, including New York City. Concluding that it lacked sufficient foreign exchange to retire the Bonods when they began to mature, Argentina unilaterally extended the time for payment, and offered bondholders substitute instruments as a means of rescheduling the debts. Respondent bondholders, two Panamanian corporations and a Swiss bank, declined to accept the rescheduling and insisted on repayment in New York. When Argentina refused, respondents brought this breach-of-contract action in the District Court, which denied Argentina's motion to dismiss. The Court of Appeals affirmed, ruling that the District Court had jurisdiction under the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. § 1602 et seq., which subjects foreign states to suit in American courts for, inter alia, acts taken "in connection with a commercial activity" that have "a direct effect in the United States," § 1605(a)(2).

Held: The District Court properly asserted jurisdiction under the FSIA. Pp. 610-620.

(a) The issuance of the Bonods was a "commercial activity" under the FSIA, and the rescheduling of the maturity dates on those instruments was taken "in connection with" that activity within the meaning of § 1605(a)(2). When a foreign government acts, not as a regulator of a market, but in the manner of a private player within that market, its actions are "commercial" within the meaning of the FSIA. Cf. Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 695-706, 96 S.Ct. 1854, 1861-1867, 48 L.Ed.2d 301 (plurality opinion). Moreover, because § 1603(d) provides that the commercial character of an act is to be determined by reference to its "nature" rather than its "purpose," 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 government's particular actions (whatever the motive behind them) are the type of actions by which a private party engages in commerce. The Bonods are in almost all respects garden-variety debt instruments and, even when they are considered in full context, there is nothing about their issuance that is not analogous to a private commercial transaction. The fact that they were created to help stabilize Argentina's currency is not a valid basis for distinguishing them from ordinary debt instruments, since, under § 1603(d), it is irrelevant why Argentina participated in the bond market in the manner of a private actor. It matters only that it did so. Pp. 612-617.

(b) The unilateral rescheduling of the Bonods had a "direct effect in the United States" within the meaning of § 1605(a)(2). Respondents had designated their accounts in New York as the place of payment, and Argentina made some interest payments into those accounts before announcing that it was rescheduling the payments. Because New York was thus the place of performance for Argentina's ultimate contractual obligations, the rescheduling of those obligations necessarily had a "direct effect" in this country: money that was supposed to have been delivered to a New York bank was not forthcoming. Argentina's suggestion that the "direct effect" requirement cannot be satisfied where the plaintiffs are all foreign corporations with no other connections to this country is untenable under Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 489, 103 S.Ct. 1962, 1969, 76 L.Ed.2d 81. Moreover, assuming that a foreign state may be a "person" for purposes of the Due Process Clause of the Fifth Amendment, Argentina satisfied the "minimum contacts" test of International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 by issuing negotiable debt instruments denominated in U.S. dollars and payable in New York and by appointing a financial agent in that city. Pp. 617-620.

941 F.2d 145 (CA2 1991), affirmed.

SCALIA, J., delivered the opinion for a unanimous Court.

Richard J. Davis, New York City, for petitioners.

Richard W. Cutler, New York City, for respondents.

Jeffrey P. Minear, Washington, D.C., as amicus curiae for U.S. by special leave of Court.

Justice SCALIA delivered the opinion of the Court.

This case requires us to decide whether the Republic of Argentina's default on certain bonds issued as part of a plan to stabilize its currency was an act taken "in connection with a commercial activity" that had a "direct effect in the United States" so as to subject Argentina to suit in an American court under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602 et seq.

I

Since Argentina's currency is not one of the mediums of exchange accepted on the international market, Argentine businesses engaging in foreign transactions must pay in U.S. dollars or some other internationally accepted currency. In the recent past, it was difficult for Argentine borrowers to obtain such funds, principally because of the instability of the Argentine currency. To address these problems, petitioners, the Republic of Argentina and its central bank, Banco Central (collectively Argentina), in 1981 instituted a foreign exchange insurance contract program (FEIC), under which Argentina effectively agreed to assume the risk of currency depreciation in cross-border transactions involving Argentine borrowers. This was accomplished by Argentina's agreeing to sell to domestic borrowers, in exchange for a contractually predetermined amount of local currency, the necessary U.S. dollars to repay their foreign debts when they matured, irrespective of intervening devaluations.

Unfortunately, Argentina did not possess sufficient reserves of U.S. dollars to cover the FEIC contracts as they became due in 1982. The Argentine government thereupon adopted certain emergency measures, including refinancing of the FEIC-backed debts by issuing to the creditors government bonds. These bonds, called "Bonods," provide for payment of interest and principal in U.S. dollars; payment may be made through transfer on the London, Frankfurt, Zurich, or New York market, at the election of the creditor. Under this refinancing program, the foreign creditor had the option of either accepting the Bonods in satisfaction of the initial debt, thereby substituting the Argentine government for the private debtor, or maintaining the debtor/creditor relationship with the private borrower and accepting the Argentine government as guarantor.

When the Bonods began to mature in May 1986, Argentina concluded that it lacked sufficient foreign exchange to retire them. Pursuant to a Presidential Decree, Argentina unilaterally extended the time for payment, and offered bondholders substitute instruments as a means of rescheduling the debts. Respondents, two Panamanian corporations and a Swiss bank who hold, collectively, $1.3 million of Bonods, refused to accept the rescheduling, and insisted on full payment, specifying New York as the place where payment should be made. Argentina did not pay, and respondents then brought this breach-of-contract action in the United States District Court for the Southern District of New York, relying on the Foreign Sovereign Immunities Act of 1976 as the basis for jurisdiction. Petitioners moved to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction, and forum non conveniens. The District Court denied these motions, 753 F.Supp. 1201 (S.D.N.Y.1991), and the Court of Appeals affirmed, 941 F.2d 145 (CA2 1991). We granted Argentina's petition for certiorari, which challenged the Court of Appeals' determination that, under the Act, Argentina was not immune from the jurisdiction of the federal courts in this case. 502 U.S. ----, 112 S.Ct. 858, 116 L.Ed.2d 766 (1992).

II

The Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602 et seq. (FSIA), establishes a comprehensive framework for determining whether a court in this country, state or federal, may exercise jurisdiction over a foreign state. Under the Act, a "foreign state shall be immune from the jurisdiction of the courts of the United States and of the States" unless one of several statutorily defined exceptions applies. § 1604 (emphasis added). The FSIA thus provides the "sole basis" for obtaining jurisdiction over a foreign sovereign in the United States. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-439, 109 S.Ct. 683, 688-690, 102 L.Ed.2d 818 (1989). The most significant of the FSIA's exceptions and the one at issue in this case—is the "commercial" exception of § 1605(a)(2), which provides that 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 in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." § 1605(a)(2).

In the proceedings below, respondents relied only on the third clause of § 1605(a)(2) to establish jurisdiction, 941 F.2d, at 149, and our analysis is therefore limited to considering whether this lawsuit is (1) "based . . . upon an act outside the territory of the United States"; (2) that was taken "in connection with a commercial activity" of Argentina outside this country; and (3) that "cause[d] a direct effect in the United States." ¹ The complaint in this case alleges...