West v. Multibanco Comermex, S.A., s. 85-2162

Decision Date06 January 1987
Docket NumberNos. 85-2162,s. 85-2162
Citation807 F.2d 820
Parties, Fed. Sec. L. Rep. P 93,054 Jack WEST, Leroy Swanson, and Margarety Swanson, for themselves and on behalf of all other similarly situated, Plaintiffs-Appellants, v. MULTIBANCO COMERMEX, S.A., a corp., Defendant-Appellee. Philip B. THOMPSON, Anrienne S. Thompson, Donald S. Logan, Etta A. Logan, for themselves and on behalf of all others similarly situated, Plaintiffs-Appellants, v. BANCOMER, S.N.C., a corp., Defendant-Appellee. George M. DAVIES, June H. Davies, Anthony J. Greco, Evelyn A. Greco, for themselves and on behalf of all others similarly situated, Plaintiffs-Appellants, v. BANCO NACIONAL DE MEXICO, S.A. aka Banamex, a corp., Defendant-Appellee. to 85-2164.
CourtU.S. Court of Appeals — Ninth Circuit

R.J. Wolf, San Rafael, Cal., for plaintiffs-appellants.

Robert Ehrenbard, Kelley, Drye & Warren, Manuel R. Angulo, Curtis, Mallet-Prevost, Colt & Mosle, New York City, David W. Steuber, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendant-appellee.

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

Before GOODWIN, HUG, and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

In these consolidated cases, plaintiffs, individual U.S. investors who purchased peso- and dollar-denominated certificates of deposit from defendant banks, appeal the district court's grant of a motion for summary judgment. We affirm.

Jack West and his fellow investors responded to solicitations inviting U.S. citizens and residents to purchase peso- and dollar-denominated certificates of deposit issued by the Mexican banks. Beginning in 1979, for example, defendant Banamex mailed a brochure entitled Mexico's Other Great Climate ... Investment to numerous persons in the United States, encouraging investment in these accounts. The Mexican banks offered high rates of return, especially in the peso accounts, for term certificates of deposit. At the time of the solicitations and initial investments, the banks were privately owned.

In the late 1970's, in order to support its domestic spending programs, Mexico began to borrow extensively from both public and private foreign organizations. This borrowing was predicated upon the assumption that Mexico's oil reserves would generate sufficient revenues to meet its debt service. These oil revenues were Mexico's primary source of foreign currency. In August 1982, as the price of world oil fell significantly, the Government of Mexico experienced a serious deficiency in the foreign currency reserves it needed to repay its debts. Accordingly, it instituted a program of exchange control regulations designed to provide it with greater ability to monitor and maintain the exchange value of the peso.

The Government of Mexico issued a number of decrees beginning in mid-August 1982 that affected certificates of deposit in Mexican banks, including those certificates held by the U.S. plaintiffs. On August 12, 1982, exchange control regulations were promulgated, preventing holders of certificates of deposit from receiving payment in currency other than the peso. These regulations provided that the conversion of foreign exchange accounts was to be at the rate of exchange prevailing at the time and place when payment of the certificates was due. Moreover, the decrees prohibited use of foreign currency as legal tender and banned the transfer of dollars abroad.

On September 1, 1982, President Lopez Portillo signed two additional decrees in an attempt to respond to the financial crisis facing his nation. First, the Government nationalized the entire private banking system. Second, the government issued more comprehensive exchange controls including a provision eliminating all bank deposits in foreign currency and specifying that repayment of those deposits were to be made in pesos at a rate of exchange to be determined by Banco de Mexico, Mexico's central bank.

When the dollar certificates of deposit matured following nationalization and the adoption of exchange controls, Multibanco Comermex converted those accounts at the specified rate of 70 pesos to the dollar. Other banks implemented the conversion policy in a similar manner. According to the plaintiffs, one account was converted into approximately 6 1/2 million pesos which, when reconverted back into dollars in the United States at the then prevailing rate of 112 to 1, resulted in a net loss of principal of approximately one-third or $32,800.

The peso accounts remained in domestic currency. However, because there was an abrupt and unanticipated decline in value on the world market, plaintiffs with peso accounts suffered substantial losses. Those losses were realized when the peso accounts were converted to dollars in the United States. Each of the plaintiffs in these consolidated cases suffered losses of one type or the other--or both.

Plaintiffs filed these actions in federal district court alleging (1) violations of the federal securities laws, 15 U.S.C. Sec. 77a et seq, for the sale and issuance of unregistered securities through interstate commerce and (2) a taking of property (the dollar-denominated certificates of deposit) by a foreign state in violation of international law. Defendants moved to dismiss the actions pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. Because the motion was accompanied by affidavits and other supporting documents, the district court properly considered the motion as one for summary judgment.

The district court held that plaintiffs' securities law claims were controlled by this court's decision in Wolf v. Banco Nacional de Mexico, S.A., (Banamex), 739 F.2d 1458 (9th Cir.1984), cert. denied, 469 U.S. 1108, 105 S.Ct. 784, 83 L.Ed.2d 778 (1985), which held that certificates of deposit issued by Mexican banks were not "securities." The district court also ruled that the takings claim was barred under the act of state doctrine. Accordingly, it granted defendant banks' motions. West and his fellow U.S. investors appeal. We affirm, although for somewhat different reasons.

I. Jurisdiction

All three defendants in these consolidated cases are currently instrumentalities of the government of Mexico and hence may be entitled to assert sovereign immunity. Multibanco Comermex S.A., Bancomer S.N.C., and Banco Nacional de Mexico S.A. (Banamex) were nationalized by the government of Mexico on September 1, 1982. The federal courts have original jurisdiction over foreign states under 28 U.S.C. Sec. 1330 (1982), unless the state is entitled to immunity under 28 U.S.C. Secs. 1602-1611 (1982), the Foreign Sovereign Immunities Act (FSIA).

FSIA governs the determination of sovereign immunity of foreign entities. Claims of sovereign immunity present the theoretical conflict between "the municipal rights of the citizens whose protection defines sovereign authority and the international rights of the foreign sovereign whose reciprocal respect defines [domestic] sovereignty as well." 1 The Supreme Court has recently said that "foreign sovereign immunity is a matter of grace and comity on the part of the United States." Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 1967, 76 L.Ed.2d 81 (1983).

There are two basic theories of sovereign immunity, absolute and restrictive. The latter approach has gained the favor of most nations internationally and has been the policy of the United States since 1952. "Absolute" immunity means that if there is formal involvement in the activity in question by a foreign sovereign, such involvement renders that activity immune from scrutiny by domestic courts. The original and most important formulation of the absolute theory was by Chief Justice John Marshall in The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116, 3 L.Ed. 287 (1812). Marshall's opinion emphasized sovereign equality, and ruled that foreign nations were in their essence immune from the exercise of jurisdiction by our courts.

This perfect equality and absolute independence of sovereigns, and this common interest impelling them to mutual intercourse, and an interchange of good offices with each other, have given rise to a class of cases in which every [domestic] sovereign is understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation.

Id. 11 U.S. at 136 (footnote omitted). Marshall's twin concepts of absolute territorial sovereignty and absolute immunity of foreign sovereigns based upon the implied consent of the United States prevailed for a century and a half.

In 1952, the Department of State changed its position on the granting of sovereign immunity to foreign governments. The new policy was announced in a letter from the Department's Acting Legal Advisor Jack B. Tate to the Acting Attorney General, Philip Perlman, dated May 19, 1952 (the "Tate letter"). This letter announced the adoption of the so-called "restrictive theory" of sovereign immunity. As opposed to the absolute theory in which tangential involvement of a foreign sovereign was sufficient to prevent U.S. courts from exercising jurisdiction, in "the newer or restrictive theory ... the immunity of the sovereign is recognized with regard to sovereign or public acts (jure imperii ) of a state, but not with respect to private acts (jure gestionis )." Tate, Changed Policy Concerning the Granting of Sovereign Immunity to Foreign Governments, 26 Dep't St.Bull. 984 (1952).

Until the enactment of FSIA in 1976, the Department of State made case-by-case decisions as to whether immunity was appropriate. Congress replaced this method of determining sovereign immunity by "codif[ying], as a matter of federal law, the restrictive theory." Verlinden, 461 U.S. at 488, 103 S.Ct. at 1968. FSIA empowers courts to determine the appropriateness of immunity as a legal question. See 28 U.S.C. Sec....

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