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WELTOVER, INC. v. REP. OF ARGENTINA

January 3, 1991

WELTOVER, INC., SPRINGDALE ENTERPRISES, INC. AND BANK CANTRADE, A.G., PLAINTIFFS,
v.
REPUBLIC OF ARGENTINA AND BANCO CENTRAL DE LA REPUBLICAARGENTINA, DEFENDANTS.



The opinion of the court was delivered by: Sprizzo, District Judge:

  OPINION AND ORDER

Plaintiffs Weltover, Inc. ("Weltover"), Springdale Enterprises, Inc. ("Springdale"), and Bank Cantrade, A.G. ("Bank Cantrade"), bring this action against the Republic of Argentina ("Argentina") and Banco Central De La Republica Argentina ("Banco Central") alleging that the defendants have breached obligations arising out of the issuance of certain bonds. The defendants move to dismiss the action for lack of subject matter jurisdiction and lack of personal jurisdiction or, in the alternative, pursuant to the doctrine of forum non conveniens. For the reasons that follow, the motions are denied.

BACKGROUND

Plaintiffs Weltover, Springdale and Bank Cantrade are all holders in due course of various indentures denoted as "Registered Bonds Denominated in United States Dollars," which are referred to in the parties' papers as "Bonods". See Complaint ¶¶ 10-15, 22-23, 29-30.*fn1 These indentures were issued by Banco Central, which is the financial agent for the Republic of Argentina, pursuant to Argentina's Foreign Exchange Insurance Contract ("FEIC") program. See Complaint at ¶¶ 5, 11; Affidavit of Daniel Marx at ¶¶ 3, 9 (sworn to April 11, 1990) ("Marx Aff.").*fn2

That program, instituted in 1982, sought to deal with the devaluation of Argentinian currency on the world market by allowing an Argentinian borrower required to pay a debt in dollars to pay a specified amount of the local currency to Banco Central and receive in exchange the amount of U.S. dollars necessary to repay the loan. See Marx Aff. at ¶¶ 7-8. However, when the exchange insurance contracts matured in late 1982, Banco Central was unable to deliver the dollars necessary to retire the Argentine debtors' original loans. See Marx Aff. at ¶ 9. Accordingly, Banco Central issued two new types of instruments to refinance those debts: Bonods and promissory notes. See id.

The Bonods provided in relevant part that payment would be made in United States dollars on scheduled dates in 1986 and 1987 and would bear interest at the annual prevailing London Interbank market rate for 180-day Eurodollar deposits. Furthermore, they would be paid into a holder's account at either New York, London, Frankfurt or Zurich. See Complaint ¶ 16; Marx Aff. ¶¶ 10-11 & Exs. B-C.

Significantly, foreign creditors were given the option of maintaining their relationship with the original Argentine debtors, with the Bonods given in guarantee, or to accept the Bonods or promissory notes as payment of the original debt.*fn3 See Marx Aff. at ¶ 10. However, under Argentina's foreign exchange laws only Banco Central could have paid the creditors in American dollars. Moreover, Banco Central collected a commission of one-tenth percent (0.1%) in connection with the aforesaid transactions. See Marx Aff., Ex. B, Decree No. 1334, at Art. 6; see also Affidavit of Richard W. Cutler, Esq. ¶ 3 (sworn to May 29, 1990) ("Cutler Aff.").

However, financial difficulties in Argentina continued, with the consequence that on or about May 23, 1986 defendants, acting pursuant to a governmental decree and an order from the Ministry of the Economy, notified plaintiffs that payment would not be made on the Bonods when due and requested that they participate in a "rollover" of those obligations. See Complaint at ¶¶ 17, 24, 31; Marx Aff. at ¶¶ 12-14. Plaintiffs refused to participate in that rollover and now assert that Banco Central is in default on its obligations under the Bonods. See Complaint at ¶¶ 18-20, 25-27, 32-34.

DISCUSSION

Defendants urge three grounds for dismissal of the complaint: (1) that the Court lacks jurisdiction over the defendants under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602-1611 (1988) ("FSIA"); (2) that the exercise of personal jurisdiction over the defendants violates due process; and (3) that the Court should dismiss the complaint under the doctrine of forum non conveniens.

The Foreign Sovereign Immunities Act

The FSIA provides that foreign sovereigns and their instrumentalities are immune from suit in United States courts unless the conduct complained of fits within various specified exceptions. See Letelier v. Republic of Chile, 748 F.2d 790, 793 (2d Cir. 1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985); see also Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989) (holding that the FSIA provides the sole basis for obtaining jurisdiction over a foreign state in federal court). Plaintiffs argue that Argentina and Banco Central are subject to jurisdiction under the FSIA because the complaint is based upon their commercial activities, see 28 U.S.C. § 1605(a)(2), and because they have waived sovereign immunity.*fn4 See 28 U.S.C. § 1605(a)(1).

The commercial activity exception to sovereign immunity provides that a foreign state does not enjoy immunity in a case where

  the action is based upon a commercial activity
  carried on in the United States by a 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 of the ...

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