Weltover, Inc. v. Republic of Argentina

• Decision Date: 03 January 1991
• Docket Number: No. 89 Civ. 6926 (JES).,89 Civ. 6926 (JES).
• Citation: 753 F. Supp. 1201
• Parties: WELTOVER, INC., Springdale Enterprises, Inc. and Bank Cantrade, A.G., Plaintiffs, v. REPUBLIC OF ARGENTINA and Banco Central De La Republica Argentina, Defendants.
• Court: U.S. District Court — Southern District of New York

753 F. Supp. 1201

WELTOVER, INC., Springdale Enterprises, Inc. and Bank Cantrade, A.G., Plaintiffs, v. REPUBLIC OF ARGENTINA and Banco Central De La Republica Argentina, Defendants.

No. 89 Civ. 6926 (JES).

United States District Court, S.D. New York.

January 3, 1991.

COPYRIGHT MATERIAL OMITTED

Richard W. Cutler, New York City (Richard W. Cutler, of counsel), for plaintiffs.

Weil, Gotshal & Manges, New York City (Richard J. Davis, Bonnie Garone, Allison Corey Miller, of counsel), for defendants.

OPINION AND ORDER

SPRIZZO, District Judge:

Plaintiffs Weltover, Inc. ("Weltover"), Springdale Enterprises, Inc. ("Springdale"), and Bank Cantrade, A.G. ("Bank Cantrade"), bring this action against the Republic of Argentina ("Argentina") and Banco Central De La Republica Argentina ("Banco Central") alleging that the defendants have breached obligations arising out of the issuance of certain bonds. The defendants move to dismiss the action for lack of subject matter jurisdiction and lack of personal jurisdiction or, in the alternative, pursuant to the doctrine of forum non conveniens. For the reasons that follow, the motions are denied.

BACKGROUND

Plaintiffs Weltover, Springdale and Bank Cantrade are all holders in due course of various indentures denoted as "Registered Bonds Denominated in United States Dollars," which are referred to in the parties' papers as "Bonods". See Complaint ¶¶ 10-15, 22-23, 29-30.¹ These indentures were issued by Banco Central, which is the financial agent for the Republic of Argentina, pursuant to Argentina's Foreign Exchange Insurance Contract ("FEIC") program. See Complaint at ¶¶ 5, 11; Affidavit of Daniel Marx at ¶¶ 3, 9 (sworn to April 11, 1990) ("Marx Aff.").²

That program, instituted in 1982, sought to deal with the devaluation of Argentinian currency on the world market by allowing an Argentinian borrower required to pay a debt in dollars to pay a specified amount of the local currency to Banco Central and receive in exchange the amount of U.S. dollars necessary to repay the loan. See Marx Aff. at ¶¶ 7-8. However, when the exchange insurance contracts matured in late 1982, Banco Central was unable to deliver the dollars necessary to retire the Argentine debtors' original loans. See Marx Aff. at ¶ 9. Accordingly, Banco Central issued two new types of instruments to refinance those debts: Bonods and promissory notes. See id.

The Bonods provided in relevant part that payment would be made in United States dollars on scheduled dates in 1986 and 1987 and would bear interest at the annual prevailing London Interbank market rate for 180-day Eurodollar deposits. Furthermore, they would be paid into a holder's account at either New York, London, Frankfurt or Zurich. See Complaint ¶ 16; Marx Aff. ¶¶ 10-11 & Exs. B-C.

Significantly, foreign creditors were given the option of maintaining their relationship with the original Argentine debtors, with the Bonods given in guarantee, or to accept the Bonods or promissory notes as payment of the original debt.³See Marx Aff. at ¶ 10. However, under Argentina's foreign exchange laws only Banco Central could have paid the creditors in American dollars. Moreover, Banco Central collected a commission of one-tenth percent (0.1%) in connection with the aforesaid transactions. See Marx Aff., Ex. B, Decree No. 1334, at Art. 6; see also Affidavit of Richard W. Cutler, Esq. ¶ 3 (sworn to May 29, 1990) ("Cutler Aff.").

However, financial difficulties in Argentina continued, with the consequence that on or about May 23, 1986 defendants, acting pursuant to a governmental decree and an order from the Ministry of the Economy, notified plaintiffs that payment would not be made on the Bonods when due and requested that they participate in a "rollover" of those obligations. See Complaint at ¶¶ 17, 24, 31; Marx Aff. at ¶¶ 12-14. Plaintiffs refused to participate in that rollover and now assert that Banco Central is in default on its obligations under the Bonods. See Complaint at ¶¶ 18-20, 25-27, 32-34.

DISCUSSION

Defendants urge three grounds for dismissal of the complaint: (1) that the Court lacks jurisdiction over the defendants under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602-1611 (1988) ("FSIA"); (2) that the exercise of personal jurisdiction over the defendants violates due process; and (3) that the Court should dismiss the complaint under the doctrine of forum non conveniens.

The Foreign Sovereign Immunities Act

The FSIA provides that foreign sovereigns and their instrumentalities are immune from suit in United States courts unless the conduct complained of fits within various specified exceptions. See Letelier v. Republic of Chile, 748 F.2d 790, 793 (2d Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985); see also Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989) (holding that the FSIA provides the sole basis for obtaining jurisdiction over a foreign state in federal court). Plaintiffs argue that Argentina and Banco Central are subject to jurisdiction under the FSIA because the complaint is based upon their commercial activities, see 28 U.S.C. § 1605(a)(2), and because they have waived sovereign immunity.⁴ See 28 U.S.C. § 1605(a)(1).

The commercial activity exception to sovereign immunity provides that a foreign state does not enjoy immunity in a case where

the action is based upon a commercial activity carried on in the United States by a 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.

28 U.S.C. § 1605(a)(2). In order to determine whether an action fits within this exception, the Court must consider (a) whether the action was "commercial" and (b) whether the action had a sufficient statutory nexus with the United States. See Callejo v. Bancomer, S.A., 764 F.2d 1101, 1107 (5th Cir.1985); Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982).

Commercial activity is defined in the FSIA as "either a regular course of commercial conduct or a particular commercial transaction or act." 28 U.S.C. § 1603(d); see Texas Trading, supra, 647 F.2d at 308-10. The FSIA further provides that "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); see also H.Rep. No. 1487, 94th Cong., 2d Sess. at 16, reprinted in 1976 U.S.Code Cong. & Admin.News 6604, 6615 ("House Report"). In applying this test, courts have focused upon whether the activity in question is one in which private parties could ordinarily engage or whether it is limited to sovereigns. See, e.g., Rush-Presbyterian-St. Luke's Medical Ctr. v. Hellenic Republic, 877 F.2d 574, 578 & n. 4 (7th Cir.) cert. denied, ___ U.S. ___, 110 S.Ct. 333, 107 L.Ed.2d 322 (1989); Letelier, supra, 748 F.2d at 797; Texas Trading, supra, 647 F.2d at 309-10; Braka v. Bancomer, S.A., 589 F.Supp. 1465, 1469 (S.D.N.Y.1984), aff'd on other grounds, 762 F.2d 222 (2d Cir.1985).

The transactions at issue here fall squarely within the parameters of what private commercial entities do and have the capacity to do. In permitting creditors to substitute Banco Central's obligation to pay them in dollars for that of the original debtors in exchange for a 0.1% commission, Banco Central was performing a quintessentially commercial act. This is especially true since the existence of a profit motive, although not dispositive, is a factor the Court may properly consider in deciding what is a commercial as opposed to a sovereign act.⁵ Furthermore, the creditors were not forced to accept Banco Central as a substitute obligor, but were free to maintain their prior relationship with the debtor.⁶

Indeed, the only serious argument that can be made in support of the claim that sovereign activity is at issue here is the assertion that the Bonods were issued as a consequence of Argentina's financial crisis and for the purpose of implementing Argentina's currency control regulations. However, that claim is refuted by the plain language of the FSIA itself, which as noted above, requires that the Court look to the nature of the act, and not its purpose.⁷

In sum, Banco Central's obligation to pay in dollars was in its nature a contractual understanding and did not become clothed with sovereign immunity merely because in assuming that contractual obligation the Bank was implementing a foreign currency control policy on behalf of the Ministry of the Economy, which was primarily responsible for fashioning and directing the monetary policies of the government of Argentina. See Organic Charter of the Central Bank of the Argentine Republic at Art. 3(b) (purpose of the Bank shall be "to execute the exchange policy outlined by the Ministry of Economy with counsel from the Central Bank") (annexed to Marx Aff. as Ex. F); id. at Art. 4 ("The Bank's activity shall conform to the general directives in matters of financial, currency-exchange, monetary and economic policy that the National Government may issue through the Ministry of Economy"); see also id. at Art. 35 (requiring the Bank to advise and report to Ministry of Economy about monetary exchange); id. at Art. 38 (same).⁸

This case is therefore very similar to Braka and Callejo, supra, where sovereign immunity was denied in situations where banks breached an obligation to pay on certificates of deposit because they were mandated to do so by currency control regulations which they did not promulgate. The same result should and must obtain here. Although the issuance of currency control...