LOCATION:Residence of Jacobson
DOCKET NO.: 91-763
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Second Circuit
CITATION: 504 US 607 (1992)
ARGUED: Apr 01, 1992
DECIDED: Jun 12, 1992
Jeffrey P. Minear – Department of Justice, argued the cause for the United States, as amicus curiae supporting respondents
Richard W. Cutler – Argued the cause for the respondents
Richard J. Davis – Argued the cause for the petitioners
Facts of the case
In 1981, Argentina instituted a foreign exchange insurance contract program (FEIC), under which it effectively assumed the risk of currency depreciation in cross-border transactions. When Argentina could not cover the FEIC contracts, it issued “Bonods,” which provided for repayment in U.S. dollars through transfer on the market in one of several locations. Subsequently, when Argentina concluded that it lacked sufficient foreign exchange to retire the Bonods, it unilaterally extended the time for payment and offered bondholders substitute instruments as a means of rescheduling the debts. Ultimately, two Panamanian corporations and a Swiss bank brought a breach-of-contract action in Federal District Court. The court denied Argentina’s motion to dismiss. In affirming, the Court of Appeals ruled that the District Court had jurisdiction under the Foreign Sovereign Immunities Act of 1976 (FSIA), which subjects foreign states to suit in American courts for acts taken “in connection with a commercial activity” that have “a direct effect in the United States.”
Was the Republic of Argentina’s default on certain bonds an act taken “in connection with a commercial activity” that had a “direct effect in the United States” so as to subject Argentina to suit in an American court under the Foreign Sovereign Immunities Act of 1976?
Media for Republic of Argentina v. Weltover, Inc.
Audio Transcription for Opinion Announcement – June 12, 1992 in Republic of Argentina v. Weltover, Inc.
The second case I have to announce is No. 91-763, Republic of Argentina versus Weltover.
That case is here on petitioner for writ of certiorari to the United States Court of Appeals for the Second Circuit.
As part of a plan to stabilize its currency the petitioner, Republic of Argentina, issued bonds called “Bonods” which provided for repayment in United States dollars through transfer on the market in several cities including New York.
At the time the Bonods began to mature, Argentina lack sufficient foreign exchange to retire them and it, therefore, unilaterally extended the time for repayment.
Respondent, bond holders, two Panamanian corporations, and a Swiss bank declined to accept the rescheduling of the debt and insisted on immediate repayment in New York.
When Argentina refused, respondents brought this breach of contract action in the District Court which denied Argentina’s motion to dismiss on grounds of sovereign immunity.
The Court of Appeals affirmed ruling that the District Court had jurisdiction under the commercial exception of the Foreign Sovereign Immunities Act of 1976 which subjects foreign states to suit in United States courts for actions taken “in connection with a commercial activity” if such acts “have a direct affect in the United States.”
In an opinion filed today, we affirm that judgment.
In light of the established meaning of the term, commercial, under the restrictive theory of foreign sovereign immunity which the statute codifies, we conclude that when a foreign government acts not as regulator of the market, but in the manner of a private player within the market, its actions are commercial within the meaning of the Act.
Moreover, because the statute provides that the commercial character of an Act is to be determined by reference to its nature rather than its purpose.
The precise question is whether the government’s particular actions, whatever the motive behind it might have been, are the type of actions by which a private party engages in commerce.
Here, the Bonods are, in almost all respects, garden-variety debt instruments and even when they are considered in full context, there is nothing about their issuance that is not analogous to a private commercial transaction.
Accordingly, we conclude that the issuance of the Bonods was a commercial activity within the meaning of the Act.
As to whether that commercial activity had a direct effect in the United States as the statute requires, since New York was the place of performance for Argentina?s contractual obligations, the rescheduling of those obligations necessarily had a direct effect in this country.
Money that was supposed to have been delivered to a New York bank was not.
We reject the argument that the direct effect requirement cannot be satisfied where the plaintiffs are all foreign corporations with no other connections to this country, and we also reject the argument that the direct effect must be substantial as opposed to merely more than de minimis.
These limitations simply do not appear in the text of the statute.
For these reasons, there was jurisdiction over respondent’s suit and we affirm the judgment of the Court of Appeals.
The decision is unanimous.