OCTOBER TERM, 1991
Syllabus
REPUBLIC OF ARGENTINA ET AL.
v. WELTOVER, INC., ET
AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND
CIRCUIT
No. 91-763. Argued April 1, 1992-Decided June 12, 1992
As part of a plan to stabilize petitioner Argentina's currency,
that country and petitioner bank (collectively Argentina) issued
bonds, called "Bonods," which provided for repayment in United
States dollars through transfer on the market in one of several
locations, including New York City. Concluding that it lacked
sufficient foreign exchange to retire the Bonods when they began to
mature, Argentina unilaterally extended the time for payment and
offered bondholders substitute instruments as a means of
rescheduling the debts. Respondent bondholders, two Panamanian
corporations and a Swiss bank, declined to accept the rescheduling
and insisted on 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. The Court of
Appeals affirmed, ruling that the District Court had jurisdiction
under the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U. S.
C. § 1602
et seq., which subjects foreign states to suit in
American courts for,
inter alia, acts taken "in connection
with a commercial activity" that have "a direct effect in the
United States," § 1605(a)(2).
Held: The District Court properly asserted jurisdiction
under the FSIA.
Pp. 610-620.
(a) The issuance of the Bonods was a "commercial activity" under
the FSIA, and the rescheduling of the maturity dates on those
instruments was taken "in connection with" that activity within the
meaning of § 1605(a)(2). When a foreign government acts, not as a
regulator of a market, but in the manner of a private player within
that market, its actions are "commercial" within the meaning of the
FSIA. Cf.
Alfred Dunhill of London, Inc. v.
Republic of
Cuba, 425 U. S.
682, 695-706 (plurality opinion). Moreover, because § 1603(d)
provides that the commercial character of an act is to be
determined by reference to its "nature" rather than its "purpose,"
the question is not whether the foreign government is acting with a
profit motive or instead with the aim of fulfilling uniquely
sovereign objectives. Rather, the issue is whether the government's
particular actions (whatever the motive behind them) are the
type of actions by which a private party engages in
commerce. The Bonods are in almost all respects garden-variety debt
instruments,
608
and, even when they are considered in full context, there is
nothing about their issuance that is not analogous to a private
commercial transaction. The fact that they were created to help
stabilize Argentina's currency is not a valid basis for
distinguishing them from ordinary debt instruments, since, under §
1603(d), it is irrelevant
why Argentina participated in the
bond market in the manner of a private actor. It matters only that
it did so. Pp. 612-617.
(b) The unilateral rescheduling of the Bonods had a "direct
effect in the United States" within the meaning of § 1605(a)(2).
Respondents had designated their accounts in New York as the place
of payment, and Argentina made some interest payments into those
accounts before announcing that it was rescheduling the payments.
Because New York was thus the place of performance for Argentina's
ultimate 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 forthcoming. Argentina's suggestion that the "direct
effect" requirement cannot be satisfied where the plaintiffs are
all foreign corporations with no other connections to this country
is untenable under
Verlinden B. V. v.
Central Bank of
Nigeria, 461 U.
S. 480, 489. Moreover, assuming that a foreign state may be a
"person" for purposes of the Due Process Clause of the Fifth
Amendment, Argentina satisfied the "minimum contacts" test of
International Shoe Co. v.
Washington, 326 U. S. 310, 316, by
issuing negotiable debt instruments denominated in United States
dollars and payable in New York and by appointing a financial agent
in that city. Pp. 617-620.
941 F.2d
145, affirmed.
SCALIA, J., delivered the opinion for a unanimous Court.
Richard
J. Davis argued the cause for petitioners. With
him on the briefs were Steven Alan Reiss, Bonnie Garone, and
Andreas F. Lowenfeld.
Richard W Cutler argued the cause for respondents.
With him on the brief was
Joel 1.
Klein.
Jeffrey P. Minear argued the cause for the United States as
amicus curiae urging affirmance. With him on the brief were
Solicitor General Starr, Assistant Attorney General Gerson, Deputy
Solicitor General Roberts, Douglas Letter, and Edwin D.
Williamson.
609
JUSTICE SCALIA delivered the opinion of the Court.
This case requires us to decide whether the Republic of
Argentina's default on certain bonds issued as part of a plan to
stabilize its currency was 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, 28 U. S. C. §
1602
et seq.
I
Since Argentina's currency is not one of the mediums of exchange
accepted on the international market, Argentine businesses engaging
in foreign transactions must pay in United States dollars or some
other internationally accepted currency. In the recent past, it was
difficult for Argentine borrowers to obtain such funds, principally
because of the instability of the Argentine currency. To address
these problems, petitioners, the Republic of Argentina and its
central bank, Banco Central (collectively Argentina), in 1981
instituted a foreign exchange insurance contract program (FEIC),
under which Argentina effectively agreed to assume the risk of
currency depreciation in cross-border transactions involving
Argentine borrowers. This was accomplished by Argentina's agreeing
to sell to domestic borrowers, in exchange for a contractually
predetermined amount of local currency, the necessary United States
dollars to repay their foreign debts when they matured,
irrespective of intervening devaluations.
Unfortunately, Argentina did not possess sufficient reserves of
United States dollars to cover the FEIC contracts as they became
due in 1982. The Argentine Government thereupon adopted certain
emergency measures, including refinancing of the FEIC-backed debts
by issuing to the creditors government bonds. These bonds, called
"Bonods," provide for payment of interest and principal in United
States dollars; payment may be made through transfer on the London,
Frankfurt, Zurich, or New York market, at the election
610
of the creditor. Under this refinancing program, the foreign
creditor had the option of either accepting the Bonods in
satisfaction of the initial debt, thereby substituting the
Argentine Government for the private debtor, or maintaining the
debtor/creditor relationship with the private borrower and
accepting the Argentine Government as guarantor.
When the Bonods began to mature in May 1986, Argentina concluded
that it lacked sufficient foreign exchange to retire them. Pursuant
to a Presidential Decree, Argentina unilaterally extended the time
for payment and offered bondholders substitute instruments as a
means of rescheduling the debts. Respondents, two Panamanian
corporations and a Swiss bank who hold, collectively, $1.3 million
of Bonods, refused to accept the rescheduling and insisted on full
payment, specifying New York as the place where payment should be
made. Argentina did not pay, and respondents then brought this
breach-of-contract action in the United States District Court for
the Southern District of New York, relying on the Foreign Sovereign
Immunities Act of 1976 as the basis for jurisdiction. Petitioners
moved to dismiss for lack of subject-matter jurisdiction, lack of
personal jurisdiction, and
forum non conveniens. The
District Court denied these motions, 753 F. Supp. 1201 (1991), and
the Court of Appeals affirmed,
941 F.2d
145 (CA2 1991). We granted Argentina's petition for certiorari,
which challenged the Court of Appeals' determination that, under
the Act, Argentina was not immune from the jurisdiction of the
federal courts in this case. 502 U. S. 1024 (1992).
II
The Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U. S. C.
§ 1602
et seq., establishes a comprehensive framework for
determining whether a court in this country, state or federal, may
exercise jurisdiction over a foreign state. Under the Act, a
"foreign state
shall be immune from the jurisdiction of the
courts of the United States and of the
611
States" unless one of several statutorily defined exceptions
applies. § 1604 (emphasis added). The FSIA thus provides the "sole
basis" for obtaining jurisdiction over a foreign sovereign in the
United States. See
Argentine Republic v.
Amerada Hess
Shipping Corp., 488 U. S. 428, 434-439
(1989). The most significant of the FSIA's exceptions-and the one
at issue in this case-is the "commercial" exception of §
1605(a)(2), which provides that a foreign state is not immune from
suit 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 of the foreign state elsewhere and that act causes a
direct effect in the United States." § 1605(a)(2).
In the proceedings below, respondents relied only on the third
clause of § 1605(a)(2) to establish jurisdiction, 941 F. 2d, at
149, and our analysis is therefore limited to considering whether
this lawsuit is (1) "based ... upon an act outside the territory of
the United States"; (2) that was taken "in connection with a
commercial activity" of Argentina outside this country; and (3)
that "cause[d] a direct effect in the United States."l The
complaint in this case alleges only one cause of action on behalf
of each of the respondents, viz., a breach-of-contract claim based
on Argentina's attempt to refinance the Bonods rather than to pay
them according to their terms. The fact that the cause of action is
in compliance with the first of the three requirements-that it is
"based upon an act outside the territory of the United
1 It is undisputed that both the Republic of Argentina and Banco
Central are "foreign states" within the meaning of the FSIA. See 28
U. S. C. §§ 1603(a), (b) ("[F]oreign state" includes certain
"agenc[ies] or instrumentalit[ies] of a foreign state").
612
States" (presumably Argentina's unilateral extension)-is
uncontested. The dispute pertains to whether the unilateral
refinancing of the Bonods was taken "in connection with a
commercial activity" of Argentina, and whether it had a "direct
effect in the United States." We address these issues in turn.
A
Respondents and their
amicus, the United States, contend
that Argentina's issuance of, and continued liability under, the
Bonods constitute a "commercial activity" and that the extension of
the payment schedules was taken "in connection with" that activity.
The latter point is obvious enough, and Argentina does not contest
it; the key question is whether the activity is "commercial" under
the FSIA.
The FSIA defines "commercial activity" to mean:
"[E]ither a regular course of commercial conduct or a particular
commercial transaction or act. The commercial character of an
activity shall be determined by reference to the nature of the
course of conduct or particular transaction or act, rather than by
reference to its purpose." 28 U. S. C. § 1603(d).
This definition, however, leaves the critical term "commercial"
largely undefined: The first sentence simply establishes that the
commercial nature of an activity does
not depend upon
whether it is a single act or a regular course of conduct; and the
second sentence merely specifies what element of the conduct
determines commerciality (i.
e., nature rather than
purpose), but still without saying what "commercial" means.
Fortunately, however, the FSIA was not written on a clean slate. As
we have noted, see
Verlinden B. v: v.
Central Bank of
Nigeria, 461 U.
S. 480, 486-489 (1983), the Act (and the commercial exception
in particular) largely codifies the so-called "restrictive" theory
of foreign sovereign immunity first endorsed by the State
Department in 1952. The meaning of "commercial" is the meaning
generally attached to that
613
term under the restrictive theory at the time the statute was
enacted. See
McDermott Int'l, Inc. v.
Wi lander,
498 U. S. 337,
342 (1991) ("[WJe assume that when a statute uses [a term of art],
Congress intended it to have its established meaning");
NLRB
v.
Amax Coal Co., 453 U. S. 322, 329
(1981); Morissette v.
United States, 342 U. S. 246, 263
(1952).
This Court did not have occasion to discuss the scope or
validity of the restrictive theory of sovereign immunity until our
1976 decision in
Alfred Dunhill of London, Inc. v.
Republic of Cuba, 425 U. S. 682. Although
the Court there was evenly divided on the question whether the
"commercial" exception that applied in the
foreign-sovereignimmunity context also limited the availability of
an act-ofstate defense, compare
id., at 695-706 (plurality
opinion), with
id., at 725-730 (Marshall, J., dissenting),
there was little disagreement over the general scope of the
exception. The plurality noted that, after the State Department
endorsed the restrictive theory of foreign sovereign immunity in
1952, the lower courts consistently held that foreign sovereigns
were not immune from the jurisdiction of American courts in cases
"arising out of purely commercial transactions,"
id., at
703, citing,
inter alia, Victory Transport, Inc. v.
Comisaria General, 336 F.2d
354 (CA2 1964), cert. denied, 381 U. S. 934 (1965), and
Petrol Shipping Corp. v.
Kingdom of Greece, 360 F.2d
103 (CA2), cert. denied, 385 U. S. 931 (1966). The plurality
further recognized that the distinction between state sovereign
acts, on the one hand, and state commercial and private acts, on
the other, was not entirely novel to American law. See 425 U. S.,
at 695-696, citing,
inter alia, Parden v.
Terminal
Railway of Alabama Docks Dept., 377 U. S. 184, 189-190 (1964)
(Eleventh Amendment immunity);
Bank of United States v.
Planters' Bank of Georgia, 9 Wheat. 904, 907-908 (1824)
(same);
New York v.
United States, 326 U. S. 572, 579 (1946)
(opinion of Frankfurter, J.) (tax immunity of States); and
South
Carolina v.
United States, 199 U. S. 437, 461-463
(1905) (same). The plurality
614
stated that the restrictive theory of foreign sovereign immunity
would not bar a suit based upon a foreign state's participation in
the marketplace in the manner of a private citizen or corporation.
425 U. S., at 698-705. A foreign state engaging in "commercial"
activities "do[es] not exercise powers peculiar to sovereigns";
rather, it "exercise[s] only those powers that can also be
exercised by private citizens."
Id., at 704. The dissenters
did not disagree with this general description. See
id., at
725. Given that the FSIA was enacted less than six months after our
decision in
Alfred Dunhill was announced, we think the
plurality's contemporaneous description of the then-prevailing
restrictive theory of sovereign immunity is of significant
assistance in construing the scope of the Act.
In accord with that description, we conclude that when a foreign
government acts, not as regulator of a market, but in the manner of
a private player within it, the foreign sovereign's actions are
"commercial" within the meaning of the FSIA. Moreover, because the
Act provides that the commercial character of an act is to be
determined by reference to its "nature" rather than its "purpose,"
28 U. S. C. § 1603(d), the question is not whether the foreign
government is acting with a profit motive or instead with the aim
of fulfilling uniquely sovereign objectives. Rather, the issue is
whether the particular actions that the foreign state performs
(whatever the motive behind them) are the
type of actions by
which a private party engages in "trade and traffic or commerce,"
Black's Law Dictionary 270 (6th ed. 1990). See,
e. g.,
Rush-Presbyterian-St. Luke's Medical Center v.
Hellenic
Republic, 877 F.2d
574, 578 (CA7), cert. denied, 493 U. S. 937 (1989). Thus, a
foreign government's issuance of regulations limiting foreign
currency exchange is a sovereign activity, because such
authoritative control of commerce cannot be exercised by a private
party; whereas a contract to buy army boots or even bullets is a
"commercial" activity, because private companies can similarly use
sales contracts
615
to acquire goods, see,
e. g., Stato di Rumania v.
Trutta, [1926] Foro It. I 584, 585-586, 589 (Corte di Casso
del Regno, Italy), translated and reprinted in part in 26 Am. J.
Int'l L. 626-629 (Supp. 1932).
The commercial character of the Bonods is confirmed by the fact
that they are in almost all respects garden-variety debt
instruments: They may be held by private parties; they are
negotiable and may be traded on the international market (except in
Argentina); and they promise a future stream of cash income. We
recognize that, prior to the enactment of the FSIA, there was
authority suggesting that the issuance of public debt instruments
did not constitute a commercial activity.
Victory Transport,
336 F. 2d, at 360 (dicta). There is, however, nothing distinctive
about the state's assumption of debt (other than perhaps its
purpose) that would cause it always to be classified as
jure
imperii, and in this regard it is significant that
Victory
Transport expressed confusion as to whether the "nature" or the
"purpose" of a transaction was controlling in determining
commerciality,
id., at 359-360. Because the FSIA has now
clearly established that the "nature" governs, we perceive no basis
for concluding that the issuance of debt should be treated as
categorically different from other activities of foreign
states.
Argentina contends that, although the FSIA bars consideration of
"purpose," a court must nonetheless fully consider the
context of a transaction in order to determine whether it is
"commercial." Accordingly, Argentina claims that the Court of
Appeals erred by defining the relevant conduct in what Argentina
considers an overly generalized, acontextual manner and by
essentially adopting a
per se rule that all "issuance of
debt instruments" is "commercial." See 941 F. 2d, at 151 (" '[I]t
is self-evident that issuing public debt is a commercial activity
within the meaning of [the FSIA]' "), quoting
Shapiro v.
Republic of Bolivia, 930 F.2d
1013, 1018 (CA2 1991). We have no occasion to consider such a
per se rule, because it seems to us that even in full
context, there
616
is nothing about the issuance of these Bonods (except perhaps
its purpose) that is not analogous to a private commercial
transaction.
Argentina points to the fact that the transactions in which the
Bonods were issued did not have the ordinary commercial consequence
of raising capital or financing acquisitions. Assuming for the sake
of argument that this is not an example of judging the
commerciality of a transaction by its purpose, the ready answer is
that private parties regularly issue bonds, not just to raise
capital or to finance purchases, but also to refinance debt. That
is what Argentina did here: By virtue of the earlier FEIC
contracts, Argentina was
already obligated to supply the
United States dollars needed to retire the FEIC-insured debts; the
Bonods simply allowed Argentina to restructure its existing
obligations. Argentina further asserts (without proof or even
elaboration) that it "received consideration [for the Bonods] in no
way commensurate with [their] value," Brief for Petitioners 22.
Assuming that to be true, it makes no difference. Engaging in a
commercial act does not require the receipt of fair value, or even
compliance with the common-law requirements of consideration.
Argentina argues that the Bonods differ from ordinary debt
instruments in that they "were created by the Argentine Government
to fulfill its obligations under a foreign exchange program
designed to address a domestic credit crisis, and as a component of
a program designed to control that nation's critical shortage of
foreign exchange."
Id., at 2324. In this regard, Argentina
relies heavily on
De Sanchez v.
Banco Central de
Nicaragua, 770 F.2d
1385 (1985), in which the Fifth Circuit took the view that
"[o]ften, the essence of an act is defined by its purpose"; that
unless "we can inquire into the purposes of such acts, we cannot
determine their nature"; and that, in light of its purpose to
control its reserves of foreign currency, Nicaragua's refusal to
honor a check it had issued to cover a private bank debt was a
617
sovereign act entitled to immunity.
Id., at 1393. Indeed,
Argentina asserts that the line between "nature" and "purpose"
rests upon a "formalistic distinction [that] simply is neither
useful nor warranted." Reply Brief for Petitioners 8. We think this
line of argument is squarely foreclosed by the language of the
FSIA. However difficult it may be in some cases to separate
"purpose" (i.
e., the
reason why the foreign state
engages in the activity) from "nature" (i.
e., the outward
form of the conduct that the foreign state performs or agrees to
perform), see
De Sanchez, supra, at 1393, the statute
unmistakably commands that to be done, 28 U. S. C. § 1603(d). We
agree with the Court of Appeals, see 941 F. 2d, at 151, that it is
irrelevant
why Argentina participated in the bond market in
the manner of a private actor; it matters only that it did so. We
conclude that Argentina's issuance of the Bonods was a "commercial
activity" under the FSIA.
B
The remaining question is whether Argentina's unilateral
rescheduling of the Bonods had a "direct effect" in the United
States, 28 U. S. C. § 1605(a)(2). In addressing this issue, the
Court of Appeals rejected the suggestion in the legislative history
of the FSIA that an effect is not "direct" unless it is both
"substantial" and "foreseeable." 941 F. 2d, at 152; contra,
America West Airlines, Inc. v.
GPA Group, Ltd.,
877 F.2d
793, 798-800 (CA9 1989);
Zernicek v.
Brown
& Root, Inc., 826 F.2d
415, 417-419 (CA5 1987), cert. denied, 484 U. S. 1043 (1988);
Maritime Int'l Nominees Establishment v.
Republic of
Guinea, 224 U. S. App. D. C. 119, 135136,
693
F.2d 1094, 1110-1111 (1982), cert. denied, 464 U. S. 815
(1983);
Ohntrup v.
Firearms Center Inc., 516 F. Supp.
1281, 1286 (ED Pa. 1981), aff'd,
760 F.2d
259 (CA3 1985). That suggestion is found in the House Report,
which states that conduct covered by the third clause of §
1605(a)(2) would be subject to the jurisdiction of American courts
"consistent with principles set forth in section 18, Restatement of
the
618
Law, Second, Foreign Relations Law of the United States (1965)."
H. R. Rep. No. 94-1487, p. 19 (1976). Section 18 states that
American laws are not given extraterritorial application except
with respect to conduct that has, as a "direct and foreseeable
result," a "substantial" effect within the United States. Since
this obviously deals with jurisdiction to
legislate rather
than jurisdiction to
adjudicate, this passage of the House
Report has been charitably described as "a bit of a
non
sequitur," Texas Trading &
Milling Corp. v.
Federal Republic of Nigeria, 647 F.2d
300, 311 (CA2 1981), cert. denied, 454 U. S. 1148 (1982). Of
course the generally applicable principle
de minimis non curat
lex ensures that jurisdiction may not be predicated on purely
trivial effects in the United States. But we reject the suggestion
that § 1605(a)(2) contains any unexpressed requirement of
"substantiality" or "foreseeability." As the Court of Appeals
recognized, an effect is "direct" if it follows "as an immediate
consequence of the defendant's ... activity." 941 F. 2d, at
152.
The Court of Appeals concluded that the rescheduling of the
maturity dates obviously had a "direct effect" on respondents. It
further concluded that that effect was sufficiently "in the United
States" for purposes of the FSIA, in part because "Congress would
have wanted an American court to entertain this action" in order to
preserve New York City's status as "a preeminent commercial
center."
Id., at 153. The question, however, is not what
Congress "would have wanted" but what Congress enacted in the FSIA.
Although we are happy to endorse the Second Circuit's recognition
of "New York's status as a world tinancialleader," the effect of
Argentina's rescheduling in diminishing that status (assuming it is
not too speculative to be considered an effect at all) is too
remote and attenuated to satisfy the "direct effect" requirement of
the FSIA.
Ibid.
We nonetheless have little difficulty concluding that
Argentina's unilateral rescheduling of the maturity dates on
the
619
Bonods had a "direct effect" in the United States. Respondents
had designated their accounts in New York as the place of payment,
and Argentina made some interest payments into those accounts
before announcing that it was rescheduling the payments. Because
New York was thus the place of performance for Argentina's ultimate
contractual obligations, the rescheduling of those obligations
necessarily had a "direct effect" in the United States: Money that
was supposed to have been delivered to a New York bank for deposit
was not forthcoming. We reject Argentina's suggestion that the
"direct effect" requirement cannot be satisfied where the
plaintiffs are all foreign corporations with no other connections
to the United States. We expressly stated in
Verlinden that
the FSIA permits "a foreign plaintiff to sue a foreign sovereign in
the courts of the United States, provided the substantive
requirements of the Act are satisfied," 461 U. S., at 489.
Finally, Argentina argues that a finding of jurisdiction in this
case would violate the Due Process Clause of the Fifth Amendment,
and that, in order to avoid this difficulty, we must construe the
"direct effect" requirement as embodying the "minimum contacts"
test of
International Shoe Co. v.
Washington,
326 U. S. 310,
316 (1945).2 Assuming, without deciding, that a foreign state is a
"person" for purposes of the Due Process Clause, cf.
South
Carolina v.
Katzenbach, 383 U. S. 301, 323-324
(1966) (States of the Union are not "persons" for purposes of the
Due Process Clause), we find that Argentina possessed "minimum
contacts" that would satisfy the constitutional test. By issuing
negotiable debt instruments denominated in United States dollars
and payable in New York and by appointing a financial agent in
that
2 Argentina concedes that this issue "is before the Court only
as an aid in interpreting the direct effect requirement of the Act"
and that "[w]hether there is a constitutional basis for personal
jurisdiction over [Argentina] is not before the Court as an
independent question." Brief for Petitioners 36, n. 33.
620
city, Argentina "'purposefully avail[ed] itself of the privilege
of conducting activities within the [United States].'"
Burger
King Corp. v.
Rudzewicz, 471 U. S. 462, 475
(1985), quoting
Hanson v.
Denckla, 357 U. S. 235, 253
(1958).
***
We conclude that Argentina's issuance of the Bonods was a
"commercial activity" under the FSIA; that its rescheduling of the
maturity dates on those instruments was taken in connection with
that commercial activity and had a "direct effect" in the United
States; and that the District Court therefore properly asserted
jurisdiction, under the FSIA, over the breach-of-contract claim
based on that rescheduling. Accordingly, the judgment of the Court
of Appeals is
Affirmed.
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