Wolf v. Banco Nacional de Mexico
Citation | 549 F. Supp. 841 |
Decision Date | 26 October 1982 |
Docket Number | No. C-82-1328-WWS.,C-82-1328-WWS. |
Parties | R.J. WOLF, Plaintiff, v. BANCO NACIONAL DE MEXICO, aka Banamex, Defendant. |
Court | United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California |
R.J. Wolf, San Rafael, Cal., in pro. per.
David W. Steuber, Pamela M. Woods, Paul, Hastings, Janofsky & Walker, Los Angeles, Cal., for defendant.
This case of first impression requires the Court to decide whether a time deposit in a foreign bank is a "security" within the meaning of the 1933 Securities Act and the 1934 Securities Exchange Act.
In 1981 plaintiff Wolf deposited $20,000 in each of two ninety-day accounts and in one six-month account with the defendant Banco Nacional de Mexico (Banamex). Plaintiff's dollars were converted at the time of deposit into pesos and could not be withdrawn before the accounts matured. The attraction of the accounts was the high interest they yielded: Banamex made monthly payments to Wolf at net annual interest rates of 31.4%, 32.75% and 33.9%. These impressive yields were more than offset, however, by sizeable losses of principal. Before any of Wolf's accounts had reached maturity, Mexico's central bank, Banco de Mexico (Banxico), abruptly ceased the practice it had followed since 1977 of intervening in the money market in order to maintain a stable rate of exchange between the peso and the dollar. As a result the exchange value of the peso fell immediately and sharply. When Banamex reconverted Wolf's pesos into dollars upon maturity, the $60,000 principal sum had dwindled to roughly $35,500.
Plaintiff contends that the brochure should have included the following material facts: that the parity of the peso with the dollar depended upon Banxico's continuing intervention; that Banxico would not necessarily continue to intervene; and that if Banxico ceased to intervene, the decline in the peso's value could not only eliminate net return on time deposits but could also cause the depositor to lose much of his principal.
The Court does not reach these fraud claims. Both parties have moved for summary judgment on the dispositive issue of whether plaintiff's time deposits were securities. If the deposits were securities, then Banamex is strictly liable under the 1933 Act for failing to register them. If the deposits were not securities, then this Court has no jurisdiction over any of plaintiff's claims.
The 1933 Act provides:
15 U.S.C. § 77b(1). Plaintiff asserts that because a certificate of deposit comes within the literal terms of the Act as an "evidence of indebtedness," it is a security. Defendant argues that because the term "evidence of indebtedness" was omitted from the 1934 Act,1 plaintiff's rule 10b-5 claim must be dismissed. The arid literalism in which both parties engage has been repudiated by the courts, and it is unnecessary to assign the peso accounts to a particular statutory pigeonhole.2 The Supreme Court has consistently admonished that in determining whether an instrument is a security, "the emphasis should be on economic reality" rather than on the form of the transaction and the letter of the statute. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848, 95 S.Ct. 2051, 2058, 44 L.Ed.2d 621 (1974) (quoting Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967)); see American Fletcher Mortgage Co. v. United States Steel Credit Corp., 635 F.2d 1247, 1253 (7th Cir.1980) (), cert. denied, 451 U.S. 911, 101 S.Ct. 1982, 68 L.Ed.2d 300 (1981). In SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 350-51, 64 S.Ct. 120, 123-24, 88 L.Ed. 88 (1943), the Court articulated the guiding principle that courts "will construe the details of an act in conformity with its dominating general purpose, will read text in light of context and will interpret the text so far as the meaning of the words fairly permits so as to carry out in particular cases the generally expressed legislative policy." The statutes expressly invite this inquiry into "context," and the inquiry has largely superseded the language of the Acts; indeed, in some cases it has yielded results that squarely conflict with that language.
An example is the exemption from the 1933 Act—paralleled by a definitional exclusion from the 1934 Act—of "any note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months ...." 15 U.S.C. § 77c(a)(3); see also id. § 78c(a)(10). This provision originated in a letter to Congress from the Secretary of the Federal Reserve Board. The Secretary described the proposed Securities Act as "intended to apply only to ... investment securities," and suggested an amendment to exclude "short-time paper issued for the purpose of obtaining funds for current transactions in commerce, industry, or agriculture and purchased by banks and corporations as a means of employing temporarily idle funds." Hearings on H.R. 4314, 73rd Cong., 2d Sess. 180 (1933).3 The amendment, in other words, was designed to exempt commercial paper as distinct from investment securities. Judicial interpretations of the exemption have focused on the "commercial" or "investment" nature of a purported security, ignoring altogether the instrument's period of maturity. Notes with a maturity of more than nine months have been excluded from the coverage of the Acts because of their "commercial" character, see McClure v. First National Bank, 497 F.2d 490 (5th Cir.1974), cert. denied, 420 U.S. 930, 95 S.Ct. 1132, 43 L.Ed.2d 402 (1975), and notes with a maturity of less than nine months have been included because they represented "investments." See Zabriskie v. Lewis, 507 F.2d 546 (10th Cir. 1974); Bellah v. First National Bank, 495 F.2d 1109 (7th Cir.1972). The nine-month exemption has thus in effect been deleted from the statute by judicial interpretation.
Similarly, although "stock" is of course included in the statutory list of securities, some "stock" purchases have been excluded from the coverage of the securities laws because they lacked customary attributes of a security. United Housing Foundation, Inc. v. Forman, supra. Loan commitments, on the other hand, may be securities although the Acts make no mention of them. See McGovern Plaza Joint Venture v. First of Denver Mortgage Investors, 562 F.2d 645, 646 (10th Cir.1977). In short, the language of the Acts is neither talismanic, as the plaintiff would have it, nor exhaustive, as the defendant urges. The Supreme Court's analysis in the recent decision of Marine Bank v. Weaver, ___ U.S. ___, 102 S.Ct. 1220, 71 L.Ed.2d 409 (1982), confirms that the determination whether an instrument is a security does not turn on whether it answers to the particular terms of the statute.
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