Wolf v. Banco Nacional De Mexico, S.A.

Citation739 F.2d 1458
Decision Date10 August 1984
Docket NumberNo. 84-1693,84-1693
PartiesFed. Sec. L. Rep. P 91,612 R.J. WOLF, Plaintiff-Appellee, v. BANCO NACIONAL de MEXICO, S.A., a/k/a Banamex, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

R.J. Wolf, San Rafael, Cal., for plaintiff-appellee.

David W. Steuber, Philip Heller, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendant-appellant.

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

Before DUNIWAY, WALLACE, and PREGERSON, Circuit Judges.

DUNIWAY, Circuit Judge:

The main issue in this appeal is whether a certificate of deposit for pesos, issued through interstate commerce to a United States resident by a Mexican bank, is a "security" for purposes of the federal securities laws. The holder of the certificate sued the bank after a devaluation of the Mexican currency shrank the dollar value of his investment. The district court found that the certificate was a security within the Securities Act of 1933 and, because the certificate was not registered, granted summary judgment against the bank. We reverse.

I. Facts.

Plaintiff R.J. Wolf read advertisements in California newspapers for certificates of deposit, in pesos, offered by Banco Nacional de Mexico (Banamex), a publicly held Mexican bank. Wolf wrote for more information, and the bank sent him through United States mail a brochure, which discussed a "bright future ... forecast for Mexico and for investors in general." The brochure explained that "persons residing outside of Mexico," such as Wolf, could open a time deposit account by providing

Banamex in writing with the following:

1). Amount you wish to invest by type of investment.

2). Enclose bank draft, personal check or cashier's check covering amount of investment(s). Checks made out to the order of Banco Nacional de Mexico, S.A. (BANAMEX) preferably in U.S. dollars or Mexican pesos.

Checks sent in U.S. dollars or other currencies for investments in Mexican pesos will be converted into Mexican pesos at the rate of exchange prevailing in the Mexican money market on the day your check is received.

Under the heading "Exchange rates and controls," the brochure stated,

Mexico has no exchange controls which means your interest and principal can be remitted to you freely and without hindrance, in the currency of your choice. The Mexican peso, like the U.S. dollar, is a floating currency which means that the rate of exchange between the peso and the currency you request your interests [sic] and principal to be paid to you in could vary upwards or downwards between the time you purchase your Time Deposit and maturity. However, since 1977 the Banco de Mexico, Mexico's Central Bank, has maintained a stable peso-dollar parity by intervening in the money market.

In 1981, Wolf invested a total of $60,000 in one 6-month and two 3-month peso certificates of deposit of the bank, which he purchased with personal checks drawn on domestic banks in dollars, and mailed by him to the Banamex branch in Tijuana, Mexico. The certificates guaranteed him returns of 33.9 percent, 31.4 percent, and 32.75 percent interest, respectively. The accounts were uninsured, non-negotiable, and not withdrawable. As part of the deposit agreement, Banamex paid Wolf monthly interest, in pesos, which it converted to dollars.

Before the accounts matured, Mexico's central bank, roughly equivalent to the United States Federal Reserve Bank, abruptly ceased intervening in the money market to support the value of the peso. The peso quickly lost value. As a result, at the end of the certificates' terms, Banamex paid Wolf the number of pesos to which the certificates entitled him, but they were converted into substantially fewer dollars. He received only $35,536 of his original $60,000 investment.

Wolf sued in federal court, alleging that Banamex sold him unregistered securities in violation of the Securities Act of 1933, 15 U.S.C. Sec. 77l (1), and misled him in violation of the Act, Sec. 77q(a)(2). He also alleged common law fraud and violation of California securities laws.

The district court granted summary judgment in favor of Wolf under the Securities Act, finding Banamex strictly liable for selling unregistered securities under 15 U.S.C. Sec. 77l (1). 549 F.Supp. 841. We dismissed Banamex's appeal from that order because the judgment entered was not final under 28 U.S.C. Sec. 1291. 721 F.2d 660. On remand, the district court granted Banamex's motion to certify the order for interlocutory appeal under 28 U.S.C. Sec. 1292(b), and entered appropriate findings. We now reach the merits.

II. Sovereign Immunity.

Banamex claims immunity from suit under the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1602 et seq. That statute would not have protected Banamex, as a publicly held bank, in the early stages of this suit, but on September 1, 1982, the government of Mexico nationalized the bank. The court could have declined to consider Banamex's claim of immunity on the ground that the bank waived the defense by not raising it promptly below, as required by 28 U.S.C. Sec. 1605(a)(1).

The trial court heard the motions for summary judgment on September 3, 1982, two days after the bank was nationalized. Although Banamex's counsel apparently referred in passing to the nationalization, he did not discuss sovereign immunity at that hearing. Neither did Banamex raise the issue in its supplemental memorandum in support of summary judgment, filed September 9, nor in its motion for reconsideration or new trial of November 5, 1982. It finally raised the issue for the first time in its motion to stay proceedings to enforce the judgment, filed January 14, 1983. The court could have held that by bypassing the issue in the summary judgment proceedings Banamex had forgone the opportunity to raise the issue. 28 U.S.C. Sec. 1605(a)(1); Rothman v. Hospital Service of Southern California, 9 Cir., 1975, 510 F.2d 956, 960.

On remand, the district court did consider the issue. It denied Banamex's motion to stay, on the ground that the commercial activity exception of the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1605(a)(2) applies. See Verlinden B.V. v. Central Bank of Nigeria, 1983, --- U.S. ----, 103 S.Ct. 1962, 76 L.Ed.2d 81; Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 1 Cir., 1981, 647 F.2d 300. Cf. MOL, Inc. v. Peoples Republic of Bangladesh, 9 Cir., 1984, 736 F.2d 1326, 1328. In our case, the sale of the certificate of deposit by Banamex to Wolf was clearly "a commercial activity carried on in the United States" by Banamex, within the meaning of Sec. 1605(a)(2). The district court was right.

III. Definition of "Security."
A. The Weaver case.

Section 77b of Title 15, as amended in 1982, defines "security" for the purposes of the Securities Act of 1933. It states:

When used in this subchapter, unless the context otherwise requires--

(1) The term "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

As the district court noted, no other court has resolved the question of whether a certificate of deposit issued by a foreign bank is a security within the federal securities acts. But the Supreme Court held in Marine Bank v. Weaver, 1982, 455 U.S. 551, 102 S.Ct. 1220, 71 L.Ed.2d 409, that a similar certificate of deposit issued by a domestic bank was not a security for purposes of the Securities Exchange Act of 1934. The parties cite to us numerous "tests" used by this Court and others to define a "security" in other cases, e.g., the "economic realities" test, Securities & Exchange Commission v. W.J. Howey Co., 1946, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244, and United Housing Foundation, Inc. v. Forman, 1975, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621, the "risk capital" test, Great Western Bank & Trust v. Kotz, 9 Cir., 1976, 532 F.2d 1252, see Landreth Timber Co. v. Landreth, 9 Cir., 1984, 731 F.2d 1348, 1352; and the "commercial/investment" test, Bellah v. First National Bank of Hereford, 5 Cir., 1974, 495 F.2d 1109.

However, when the Supreme Court, in Marine Bank v. Weaver, has so recently applied the definition to facts very similar to those in the case before us, we are bound by its reasoning there, to the exclusion of criteria articulated in other contexts. Cf. Meason v. Bank of Miami, 5 Cir., 1981, 652 F.2d 542 (pre-Weaver, reversing trial court's dismissal of securities claim in sale of a foreign bank's certificate of deposit and directing consideration of commercial/investment test on remand); Canadian Imperial Bank of Commerce Trust Co. v. Fingland, 7 Cir., 1980, 615 F.2d 465 (pre-Weaver, affirming dismissal of securities fraud charged in sale of foreign bank certificate of deposit).

Before proceeding, we note that the Weaver Court analyzed the status of a bank certificate of deposit as a security under the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78c(a)(10). That does not reduce Weaver 's applicability because "the definition of 'security' in the 1934 Act is...

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