Riedel v. Bancam, S.A., 85-3517

• Decision Date: 12 June 1986
• Docket Number: No. 85-3517,85-3517
• Citation: 792 F.2d 587
• Parties: Blue Sky L. Rep. P 72,401 W. Christian RIEDEL, Plaintiff-Appellant, v. BANCAM, S.A., a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 587

792 F.2d 587

Blue Sky L. Rep. P 72,401

W. Christian RIEDEL, Plaintiff-Appellant, v. BANCAM, S.A., a corporation, Defendant-Appellee.

No. 85-3517.

United States Court of Appeals Sixth Circuit.

Argued March 11, 1986.

Decided June 12, 1986.

Charles E. Brown, argued, Alliance, Ohio, for plaintiff-appellant.

Manuel R. Angulo, argued, Curtis, Mallet-Prevost, Colt, & Mosle, New York City, for defendant-appellee.

Before KENNEDY and RYAN, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

Cornelia G. KENNEDY, Circuit Judge.

This appeal primarily raises the question whether plaintiff-appellant, W. Christian Riedel, can maintain an action for alleged violations of Ohio securities law against defendant-appellee, Bancam, S.A. ("Bancam"), a Mexican bank that the Government of Mexico has nationalized.

This action arose when the Government of Mexico promulgated currency exchange control regulations on August 13, 1982 and subsequently nationalized privately-owned Mexican banks on September 1, 1982. In January 1981, Riedel, a resident of the State of Ohio, asked Unibanco, S.A. ("Unibanco"), Mexican bank, to transfer $100,000 to Banca Metropolitana, S.A. ("Bamesa"), another Mexican bank and a predecessor of Bancam, so that Riedel could purchase a dollar-denominated certificate of deposit from Bamesa. On January 6, 1981, Unibanco sent Bamesa a $100,000 check. On that same date, Bamesa issued to Riedel a $100,000 "Certificado de Deposito a Plazo No. 32919" (Certificate of Term Deposit No. 32919) maturing on July 5, 1981 and bearing interest payable monthly at the rate of 20.8857 percent per annum. Dealing with the Mexico City offices of Bamesa or Bancam, Riedel renewed the original certificate on three occasions. On July 6, 1981, Bamesa issued "Certificado de Deposito a Plazo No. 42217" containing a January 5, 1982 maturity date and 22.9426 percent per annum interest rate. On January 1, 1982, Bamesa and another Mexican bank merged, forming Bancam. On January 5, 1982, Bancam, using Bamesa forms, sent Riedel "Deposito de Dolares en Administracion a Plazo Fijo con Tasa Fija No. 68734" (Custody of Dollars Deposited at Fixed Rate for Fixed Period No. 68734) bearing a 18.5914 percent per annum interest rate and maturing on July 5, 1982. On July 6, 1982, Riedel renewed the certificate for the last time and Bancam sent Riedel "Deposito de Dolares en Administracion a Plazo Fijo con Tasa Fija No. 077996" acknowledging an interest rate of 20.1737 percent per annum and a new maturity date of January 20, 1983. Neither Bamesa nor Bancam registered any of the certificates of deposit with either the Securities and Exchange Commission or the Ohio Division of Securities.

On August 13, 1982, the Government of Mexico issued rules governing the payment of bank deposits denominated in foreign currency which prohibited Mexican banks from using dollars to repay the holders of dollar-denominated certificates of deposit. The rules required Mexican banks to pay principal and interest on dollar-denominated deposits in pesos, at a rate of exchange substantially below the financial market exchange rate, rather than in dollars. On September 1, 1982, the Government of Mexico nationalized all privately-owned Mexican banks. Consequently, Bancam, like every other banking institution in Mexico, became wholly-owned by the Government of Mexico.

At maturity of the final renewal of the certificate of deposit, Bancam sent appellant a check in repayment of his certificate of deposit in the amount of 7,434,000 pesos in accordance with the exchange rate of 74.34 pesos to the dollar, the current legal exchange rate. Since the financial market exchange rate was approximately 149.5 pesos to the dollar, Riedel could only convert the 7,434,000 pesos to $53,276.63. Nevertheless, Riedel cashed the check.

On January 19, 1984, Riedel brought this action in the United States District Court for the Northern District of Ohio alleging violations of federal and Ohio securities laws. Riedel further alleged "breach of contract, denial of rightful possession of property to owner, nondisclosure of potential exposure to damage for property on loan to Defendant, obstruction of justice, [and] coercion." On June 7, 1984, Bancam filed a motion to dismiss the complaint on five grounds. Initially, Bancam argued that section 4(a) of the Foreign Sovereign Immunities Act of 1976 ("FSIA"), Pub.L. No. 94-583, 90 Stat. 2892, codified at 28 U.S.C. Sec. 1604, precluded the District Court from asserting personal or subject matter jurisdiction over the action. Second, Bancam argued that the "act of state doctrine" and the Articles of Agreement of the International Monetary Fund ("Fund Agreement") required dismissal for failure to state a claim upon which the District Court could grant relief because Riedel based the action solely on the Government of Mexico's actions in issuing and enforcing currency exchange rules which required banks to repay dollar-denominated certificates of deposit in pesos. Third, Bancam contended that the complaint failed to state a cause of action because the certificates of deposit were not "securities." Fourth, Bancam argued that the statute of limitations had expired on the federal securities claims. Finally, Bancam argued that it did not receive proper service of process under 28 U.S.C. Sec. 1608(b).

Riedel did not respond to the motion to dismiss. On September 28, 1984, the District Court held that Riedel could not sustain an action under the Securities Act of 1933 because the certificates of deposits were not "securities." In addition, the District Court, apparently referring to the "act of state doctrine," stated that it "must respect the absolute right of the Mexican government to regulate the banks within its borders." On October 9, 1984, Riedel filed a motion for a new trial arguing that the District Court had misapplied the law to the facts alleged in the complaint and had failed to address the breach of contract and the Ohio securities law claims. On June 10, 1985, the District Court denied the motion for a new trial. The District Court concluded that it lacked jurisdiction over the Ohio securities law and breach of contract claims. The District Court stated that 28 U.S.C. Sec. 1332 "does not permit a citizen of this state to sue a foreign government or agency thereof, in a federal district court."

This appeal raises three questions: (1) Whether the FSIA gives the District Court subject matter jurisdiction over Riedel's claims for breach of contract and violations of Ohio Revised Code ("ORC") Chapter 1707 ("Ohio securities law"); (2) Whether the "act of state doctrine" bars Riedel's claims against a Mexican bank that the Government of Mexico has nationalized; and (3) Whether a certificate of deposit issued by a Mexican bank qualifies as a "security" under ORC Sec. 1707.01(B). For the reasons stated below, we hold that the District Court may have had subject matter jurisdiction over Riedel's claims. We also hold that although the "act of state doctrine" bars Riedel's breach of contract claim, it does not bar his Ohio securities law claim. Finally, we hold that a certificate of deposit issued by a Mexican bank falls within the definition of "security" in ORC Sec. 1707.01(B). Accordingly, we affirm the portion of the District Court's order denying Riedel's motion for a new trial on the breach of contract claim, reverse the portion of the District Court's order denying Riedel's motion for a new trial on the Ohio securities law claim, and remand the Ohio securities law claim to the District Court for further proceedings.

I.

In this appeal, Riedel does not challenge the District Court's conclusion that the certificates of deposit that Bancam issued are not "securities" under federal securities law. Instead, Riedel argues that the "act of state doctrine" does not bar his breach of contract and Ohio securities law claims. The District Court, however, did not refer to the "act of state doctrine" in denying Riedel's motion for a new trial. In addition to holding, as a matter of law, that the certificate of deposit involved in this case was not a "security" under federal securities law, the District Court ruled that it did not have jurisdiction over Riedel's breach of contract and Ohio securities law claims. The District Court concluded that: "Diversity jurisdiction pursuant to 28 U.S.C. Section 1332, does not permit a citizen of this state to sue a foreign government or agency thereof, in a federal district court."

We agree that the District Court did not have jurisdiction under 28 U.S.C. Sec. 1332 over the breach of contract and Ohio securities law claims. Title 28 U.S.C. Sec. 1332(a)(4) ¹ confers original jurisdiction on the district courts over civil actions between a foreign state, as plaintiff, and a citizen of a State. Title 28 U.S.C. Sec. 1332(a)(4), however, does not apply to suits between a citizen of a State and a foreign state, as defendant. A "foreign state," under 28 U.S.C. Sec. 1603(a), "includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state...." Since the Government of Mexico nationalized Bancam on September 1, 1982, Bancam qualifies as an "agency or instrumentality of a foreign state" under 28 U.S.C. Sec. 1603(b)(2). Therefore, this action involves an Ohio citizen and a "foreign state," as a defendant. Consequently, 28 U.S.C. Sec. 1332(a)(4) does not apply. Accordingly, we hold that the District Court properly concluded that it did not have jurisdiction under 28 U.S.C. Sec. 1332 over the breach of contract and Ohio securities law claims.

We conclude, however, that the District Court may have had jurisdiction over the breach of contract and Ohio securities law claims under 28 U.S.C. Sec. 1330(a). ² Although 28 U.S.C. Sec. 1604 ³ ordinarily entitles foreign states to immunity from federal jurisdiction, 28 U.S.C. Sec. 1605(a)(2) creates a "commercial activity" exception to this...