The opinion of the court was delivered by: SOFAER
This action claiming breach of contract and charging violations of securities laws implicates the doctrines of foreign sovereign immunity and act of state. Defendant Bancomer, S.A. ("Bancomer") is a Mexican commercial bank nationalized by the Republic of Mexico in 1982. Plaintiffs are United States citizens who, beginning in 1981, purchased peso- and dollar-denominated certificates of deposit ("CDs") issued by Bancomer's Mexico City office. Plaintiffs bought the half-dozen dollar-denominated CDs that are the subject of this action during the Spring of 1982. The CDs were in amounts of $200,000, $300,000 and $400,000, with a total face value of $2,100,000. The CDs were entitled in Spanish, "Certificado de Deposito a Plazo Dolares U.S. Cy" (Certificate of Time Deposite in U.S. Currency), and fixed Mexico City as the place of deposit and of payment of principal and interest. One of the CDs was scheduled to mature on September 9, 1982, and the remainder bore maturity dates in February 1983. The annual interest rates were fixed at 14.3 percent for the six-month deposits and at 23.25 percent and 20.49 percent for the one-year deposits.
According to the sworn affidavits of Bancomer officers, Hugo Mancilla and Hugo Escutia Gonzalez, plaintiffs were referred to the Mexico City bank by one of its United States clients and initiated the series of CD purchases by contacting the bank's Mexico City office. Plaintiffs or their agents arranged the details of each transaction by telephone with Bancomer's Mexico City personnel. Bancomer's New York agency, which was prohibited by New York banking law from accepting deposits, sometimes handled the interbank transfer of checks used to purchase the CDs; at other times sufficient funds were already on deposit in plaintiffs' Mexico accounts. Interest and principal were paid in Mexico, either by deposits to plaintiffs' Mexican bank accounts or by issuance of checks which plaintiffs sometimes collected in person and sometimes instructed Bancomer to remit to them in New York via its correspondent banks. Interest and principal on the dollar-denominated CDs were both payable in United States dollars. Apparently, these transactions proceeded without incident until August 1982.
As summer approached, Mexico experienced a severe economic crunch. In the late 1970s Mexico had embarked on an ambitious domestic spending program financed by substantial overseas borrowing predicated on continuing high foreign currency revenues from the sale of its oil. By August 1982 the price of oil on the world market had fallen significantly, seriously eroding a primary source of the foreign exchange Mexico needed to repay its debts and placing the Mexican peso under severe pressure in foreign exchange markets.
On August 13, 1982, the Mexican Ministry of Treasury and Public Credit issued the first of a series of government decrees (Def. Ex. 1), designed to stabilize the nation's currency and stem the outflow of foreign exchange (see Def. Ex. 3 (translation) at 2).The August 13 decree mandated strict enforcement of a ban on the use of foreign currency as legal tender and required that all domestic obligations for payments in foreign currency, including dollar deposits to be paid within Mexico, be performed by delivering an equivalent amount in pesos at the prevailing exchange rate. The decree prohibited payment through transfers of dollar deposits to branches or correspondents abroad. On September 1, 1982, President Lopez Portillo signed two decrees, one nationalizing Mexico's private banks, including Bancomer, and the other establishing a general system of exchange controls. (Def. Ex. 2 & 3) On September 14 the Treasury Ministry promulgated "General Rules for Exchange Controls" setting official rates of exchange for repayment of dollar-denominated CDs and other outstanding "payment obligations that are to be performed CDs and other outstanding "payment obligations that are to be performed within the Mexican Republic," and prohibiting further issuance of dollar-denominated CDs. (Def Ex. 5 (translation) at 15-16) On December 12, 1982, the Treasury Ministry decreed that foreign currency obligations contracted prior to that date "shall be discharged by delivery of the equivalent amount of national currency at the special exchange rate determined by the Banco de Mexico . . .," Mexico's central bank. (Def. Ex. 7 (translation) at 14) Plaintiffs tendered their certificates of deposit at the maturity dates and received in exchange Mexican pesos at the official exchange rate pursuant to the Mexican decrees described above.
As a result of Bancomer's compliance with these decrees, plaintiffs claim to have suffered damages of $994,800, representing the difference between the sum they received and what they would have received had their CDs been redeemed in dollars or exchanged at a free market rate. Plaintiffs assert both breach-of-contract and securities-law claims, charging Bancomer and its representatives with failure to register a security under 15 U.S.C. § 77(e) and with misrepresentation in connection with the sale of a security under 15 U.S.C. § 77(q).
Bancomer has moved to dismiss these claims, advancing three primary defenses. First, it argues that this court lacks jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602-11, which authorizes jurisdiction of suits against foreign sovereigns, their agents or instrumentalities only if the matter falls within one of the enumerated exceptions to the doctrine of sovereign immunity. Second, Bancomer contends that, even assuming jurisdiction is proper, the act of state doctrine precludes adjudicating this challenge to the validity and effect of a foreign state's internal exchange controls imposed by governmental decree. Third, it contends that CDs are not "securities" within the meaning of the securities laws.
Ordinarily the burden of proving jurisdictional facts rests on the party invoking jurisdiction, and it must respond to challenges to its pleadings. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 80 L. Ed. 1135, 56 S. Ct. 780 (1936). The FSIA, however, places the burden on the defendant of establishing that it is entitled to sovereign immunity. See Report of House Judiciary Committee No 94-1487, reprinted in 1976 U.S. Code Cong. & Admin. News 6616; Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1378 (5th Cir. 1980); de Sanchez v. Banco Central de Nicaragua, 515 F. Supp. 900, 903 (E.D. La. 1981). Defendants have submitted affidavits and exhibits that in some respects contradict the factual allegations in plaintiffs' pleadings. A resolution of these factual disputes is essential to determining whether the court has subject matter jurisdiction under the FSIA.
A court considering a motion to dismiss is usually confined to the facts in the pleadings. But "[o]n a motion attacking the court's jurisdiction, the district judge may resolve disputed jurisdictional fact issues," 10 Wright, Miller & Kane, Federal Practice and Procedure § 2713 at 612, basing its conclusions on affidavits as well as the pleadings, see Williams v. Minnesota Mining and Manufacturing Co., 14 F.R.D. 1, 9 (S.D. Cal. 1953). Here defendant's motion raises not only jurisdictional issues of sovereign immunity but also issues of justiciability under the act of state doctrine. Presumably, the court's fact-finding powers as to the jurisdiction motion under 12(b)(1) extend also to the same facts in connection with the act of state determination. In any event, Rule 12(b) provides that, when matters outside the pleadings are presented on a 12(b)(6) motion to dismiss for failure to state a claim, the court may treat the motion as one for summary judgment under Rule 56. Plaintiffs have had ample opportunity to present any material pertinent to defendant's motions but have failed to offer anything beyond the conclusory statements in their pleadings and memorandum and the hearsay affidavit of an attorney. (Affid. of Lewis Novod) To the extent plaintiffs' unsupported allegations conflict with the sworn affidavits offered by the Bancomer officers who had direct responsibility for the transaction, they may be disregarded as they fail to raise material issues of fact. See Fed. R. Civ. P. 56(e) (motion for summary judgment may not be defeated by mere allegations); Schwimmer v. Sony Corp. of America, 637 F.2d 41, 44-45 & n. 9 (2d Cir. 1980) (unsupported attorney's hearsay affidavit is a nullity); de Sanchez, 515 F. Supp. at 907 (E.D. La. 1981) (court considering FSIA § 1605(a)(2) claim may ignore conclusory allegations of fact). The record is therefore sufficient to permit conclusions of law on the sovereign immunity and act of state issues, whether the motion is decided under Rule 12(b) or Rule 56. See de Sanchez, 515 F. Supp. at 907. Given the facts outlined above, as gleaned from plaintiffs' pleadings and memorandum and Bancomer's detailed affidavits, Bancomer is not immune from suit, but the act of state doctrine precludes adjudicating plaintiffs' claims.
The doctrine of sovereign immunity recognizes the mutual respect and independence that exists between coequal sovereigns. See The Schooner Exchange v. M'Faddon, 11 U.S. (7 Cranch) 116, 3 L. Ed. 287 (1812). See also First National City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 765, 32 L. Ed. 2d 466, 92 S. Ct. 1808 (1972) (sovereign immunity stems from comity among nations). The United States follows the "restrictive" theory of sovereign immunity and waives jurisdiction only over a foreign sovereign's governmental as opposed to its commercial acts. See Verlinden B. V. v. Central Bank of Nigeria, 461 U.S. 480, 103 S. Ct. 1962, 76 L. Ed. 2d 81 (1983). The Foreign Sovereign Immunities Act determines under what circumstances an agency or instrumentality of a foreign sovereign is subject to suit in United States courts. The primary purpose of the FSIA, enacted in 1976, "is to "restrict" the immunity of a foreign state to suits involving a foreign state's public acts." Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308 (2d Cir. 1981) (Kaufman, J.), cert. denied, 454 U.S. 1148, 71 L. Ed. 2d 301, 102 S. Ct. 1012 (1982). Bancomer was a state instrumentality as defined by the FSIA at the time of this lawsuit as well as at the time the act on which this suit is based took place. See 28 U.S.C. § 1603(b); Frankel v. Banco Nacional de Mexico, S.A., 82-6457, slip op. at 7, n.3 (S.D.N.Y. May 31, 1983); Callejo v. Boncomer, S.A., 3-82-1604-05-D, slip op. at 3 (N.D. Tex. February 27, 1984).
Only one of the FSIA's exceptions to immunity appears relevant to plaintiffs' claims: section 1605(a)(2), the provision authorizing jurisdiction
in any case . . . in which the action is based upon a commercial activity carried on in the United States by the 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 ...