9 Case Law: United States

Joseph Gold
Published Date:
December 1989
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Riedel v. Bancam, S.A.

Mexico’s exchange control regulations of August 13, 1982 and the nationalization of Mexico’s privately owned banks on September 1, 1982 have led to numerous cases in which plaintiffs have sued in courts in the United States to obtain a remedy on certificates of U.S. dollar deposits issued by the banks before they were nationalized. The regulations prohibited payment of the certificates in dollars and instead prescribed payment in Mexican pesos at the rate of exchange fixed by the regulations, which was highly unfavorable to the plaintiffs in comparison with the exchange rate in the financial market. In this litigation, Article VIII, Section 2(b) has been cited sometimes by the defendants, but the provision has had no substantive effect on the dècisions. Most of the actions have failed because defenses invoking the Foreign Sovereign Immunities Act (FSIA) or the act of state doctrine have been successful. The courts have probably been more comfortable with these defenses than with the Articles.

Riedel v. Bancam, S.A.1 is typical of the suits, but it is of particular interest not only because in this case a detailed argument was based on Article VIII, Section 2(b), but also because a breach was made in the effectiveness of the banks’ defenses. The plaintiff, a resident of the State of Ohio, held a certificate of deposit in the amount of US$100,000 as the result of various renewals, the last of which was effected on July 5, 1982. The obligor was a nationalized bank and the successor of the privately owned bank that had issued the certificate of deposit in Mexico. The certificate stated that the place of payment of principal and interest was at the domicile of the bank in Mexico City. At no time had the obligor registered such certificates with either the Securities and Exchange Commission of the United States or the Ohio Division of Securities.

At maturity of the certificate, the defendant sent the plaintiff a check in an amount of pesos calculated at the rate of exchange prescribed by the regulations. The plaintiff would have been able to realize only US$53,276.63 at the rate in the financial market.

The plaintiff cashed the check and brought this action in the District Court alleging violations of federal and Ohio securities laws, breach of contract, and other grounds of liability. The claim based on the securities laws was that as the defendant had not sought to comply with the laws when the certificates were issued, the defendant was liable for the subsequent losses suffered by the plaintiff. The defendant filed a motion to dismiss the complaint on five grounds, of which three were that: (i) the FSIA precluded the court from exercising jurisdiction; (ii) the act of state doctrine and the Articles required dismissal of the motion; and (iii) the certificates were not “securities.”2

The District Court held that the certificates were not securities under federal law, but that the act of state doctrine applied. The plaintiff filed a motion for a new trial, arguing that the court had misapplied the law and had failed to consider claims based on Ohio’s securities law and on breach of contract. The District Court denied the motion for a new trial on the ground that it lacked jurisdiction in respect of these two claims. The plaintiff appealed.

The defendant, in its brief arguing that the District Court’s dismissal of the action should be affirmed, contended that the act of state doctrine applied. The action constituted a direct challenge to the validity of Mexico’s exchange control laws whatever was the basis on which judgment might be given for the plaintiff. To compel the defendant to pay dollars or to provide more pesos would require it to violate the exchange control regulations to which it was subject or, alternatively, to be in contempt of a judgment of the court requiring either form of payment.

Such a judgment, the defendant argued, would be contrary to the act of state doctrine. The measures taken by the Government of Mexico on exchange control and nationalization of the Mexican banking system were intended to deal with a national economic crisis. A decision sustaining the plaintiff’s claims would be seen as an intrusion into the internal affairs of Mexico and an attempt to deny its Government the sovereign right to deal with that crisis through laws regulating legal relations within its own territory. The situation was exacerbated by the many similar suits that had been instituted in the United States.

In dealing with Mexico’s exchange control regulations, the defendant’s brief relied on Article VIII, Section 2(b) and the act of state doctrine as independent grounds for dismissing the complaint. The defendant argued that two issues had to be addressed in determining whether Article VIII, Section 2(b) barred the plaintiff’s claim: whether the certificate of deposit constituted an “exchange contract” 3 and whether Mexico’s exchange control regulations were consistent with the Articles.

The brief cited a few American decisions or judicial dicta for the proposition that exchange contracts need not involve an exchange of currencies, and the brief referred to the fact that a similar view had been accepted by courts of other members, including France, Germany, the Netherlands, Austria, Luxembourg, and Hong Kong (as a dependency of a member and not the member itself). The views of some scholars were quoted in support of the proposition. There was little doubt, the brief argued, that the dollar-denominated certificate of deposit in this case was an exchange contract.

The answer on the second issue, according to the brief, was simple and straightforward. The Director of the Fund’s Legal Department had stated in a letter dated May 3, 1983 that Mexico’s exchange control regulations did not violate and were not inconsistent with the Articles. This statement had been accepted by the Circuit Court of Appeals for the Fifth Circuit in Callejo v. Bancomer, S.A.4

The plaintiff, in his reply brief, pointed out that the defendant had not raised the issue of Article VIII, Section 2(b) before the District Court. Furthermore, the defendant had given inadequate weight to the fact that there were two views of the meaning of “exchange contracts” and a similar division of opinion on the question whether certificates of deposits or loans were within the concept. The brief drew the court’s attention to Libra Bank Ltd. et al. v. Banco Nacional de Costa Rica S.A.5 on these issues and to Section 822 of Tentative Draft No. 6 of the American Law Institute’s Restatement of the Foreign Relations Law of the United States.6 No court in the United States had concluded that certificates of deposit were exchange contracts.7

The court declared that the appeal raised three questions: (1) Did the FSIA give the District Court jurisdiction over the plaintiff’s claims for breach of contract and violations of Ohio law? (2) Did the act of state doctrine bar the plaintiff’s claims? (3) Did the certificate of deposit qualify as a “security” under Ohio securities law? The court held that the District Court lacked jurisdiction over the claims for breach of contract and violations of Ohio law under one statute but would have jurisdiction under another statute if it were found that the defendant was engaged in “commercial activity,” which is treated as an exception to a claim of immunity; the act of state doctrine barred the claim for breach of contract but not the claim for violation of Ohio’s securities law; and the certificate of deposit qualified as a “security” under Ohio’s law. The court remanded the claim for violation of Ohio’s securities law to the District Court for further proceedings.

On the question of the act of state doctrine, the court cited with approval a footnote in the opinion in Callejo v. Bancomer, S.A. in which the Fifth Circuit Court of Appeals said that the claims of the plaintiffs in that case based on the securities law of Texas were not barred by the act of state doctrine, because the claims related to the defendant bank’s initial failure to register the certificates of deposit. These claims had to be distinguished from the defendant’s subsequent failure to perform its obligations on the certificates because of the defendant’s compliance with Mexico’s exchange control regulations. In the Callejo case, the court decided, however, that the certificates were not “securities” within the meaning of federal and Texas securities law. In the Riedel case, the plaintiff did not challenge the District Court’s conclusion that certificates of deposit were not securities under federal law, but the court accepted the plaintiff’s argument that the certificate in issue was within the definition of “security” in Ohio law.

The court did not mention Article VIII, Section 2(b), but it would seem that the District Court might have to deal with the provision. If the court were to find that all elements of the provision were satisfied, the law of Ohio could not prevail against the provision. The decision of the Supreme Court of the United States in Kolovrat v. Oregon would be authority for that proposition.8

Although the court in the Riedel case did not deal with Article VIII, Section 2(b), the Articles did influence the decision insofar as the court rejected the plaintiff’s claim based on breach of contract:

We adopt the reasoning of the Fifth Circuit in Callejo v. Bancomer, S.A., supra, regarding the “act of state doctrine.” Consequently, we hold that the “act of state doctrine” precludes the District Court from addressing Riedel’s breach of contract claim. Accordingly, we affirm the position of the District Court’s order denying Riedel’s motion for a new trial on the breach of contract claim.9

The Callejo case decided that the Articles and the advice by the official of the Fund that Mexico’s exchange control regulations did not violate and were not inconsistent with the Articles were within the “treaty exception” to the act of state doctrine as formulated in Banco Nacional de Cuba v. Sabbatino10:

[T]he Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the taking violates customary international law.11

West et al. v. Multibanco Comermex, S.A. et al.

In West et al. v. Multibanco Comermex, S.A., Bancomer, S.N.C., and Banco Nacional de Mexico, S.A.,12 the Articles once again were cited by the court in connection with the act of state doctrine, on this occasion by the United States Court of Appeals for the Ninth Circuit. The basic facts were similar to those in the Riedel case. The plaintiffs contended that the defendant banks were engaged in commercial activities and not entitled to immunity under the FSIA, and that the prohibition of payments in dollars was a taking of property in violation of international law. The plaintiffs argued that the court had jurisdiction over the claims based on both the certificates as securities and on the taking of property.

As noted earlier, commercial activities of foreign states or their instrumentalities are subject to the commercial exception to immunity under the FSIA. The defendants argued, however, that as the Mexican banks performed a critical role in carrying out the currency control program in Mexico, these actions could not be said to be based on commercial activity. The court did not accept this argument, because a finding of sovereign immunity is warranted only when the activity in question is not one that private parties ordinarily perform but is peculiarly within the governmental sphere. The Mexican banks were engaged in commercial activities, and their compliance with the exchange control regulations of Mexico did not mean that they were agents of Mexico acting in a sovereign capacity. The banks were in the same position as all other parties that complied with Mexican law. The issue was whether the defendants’ breaches of contract were excused because the defendants were implementing the exchange controls and not whether the defendants were entitled to immunity from suit on the claims based on the certificates as securities. The court had jurisdiction over these claims.

The court decided that it had jurisdiction over the claims based on expropriation also. Under the “takings exception” in the FSIA, a foreign state is not immune from the jurisdiction of the court in a case “in which rights in property taken in violation of international law are in issue.”13 The theory behind this exception, the court explained, is that states abide by international law, so that violations of international law are not “sovereign” acts.

Having satisfied itself that it had jurisdiction, the court turned to the merits of the claims and the defenses. It has been held that certificates of deposit issued by U.S. banks are not “securities” under federal securities law, because the holders are virtually guaranteed payment in full under the scheme of federal banking statutes outside the securities laws. It has been held in addition that, under Mexican banking law and regulation, depositors in Mexican banks have been virtually guaranteed payment to the same degree as under U.S. federal law. The plaintiffs contended that while Mexican law was adequate on paper to give the necessary degree of protection, Mexican officials were not complying with or enforcing their own laws. The plaintiffs argued, therefore, that the certificates were securities within the meaning of the United States federal law.

The court held that the question whether certificates were securities under federal law had to be decided according to U.S. law, and this principle meant that the court had to examine the facts on the basis of which legal conclusions would be drawn. In this case, the facts included the manner in which the Mexican authorities were administering or enforcing Mexico’s banking system. This inquiry, however, was prevented by the act of state doctrine. The classic statement of the doctrine was expressed in Underhill v. Hernandez:

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory.14

The court in the West case held that:

The evaluation by one sovereign of foreign officers’ compliance with their own laws would, at least in the absence of the foreign sovereign’s consent, intrude upon that state’s coequal status…

…As a matter of comity, we presume that Mexican officials are acting in a manner consistent with the requirements of Mexican law.15

As a consequence, the finding applied that certificates of deposit are not “securities” and are not subject to the securities law of the United States.

The court, having disposed of the claims based on securities law, turned to the claims founded on a taking of property in violation of international law. Once again, the question of jurisdiction had to be decided. Ordinarily, the act of state doctrine would prevent inquiry into these claims for the same reasons that applied to the securities claims. Congress had adopted the Second Hickenlooper Amendment to override the judicial act of state doctrine established by Banco National de Cuba v. Sabbatino16 when the circumstances of a case were covered by the Amendment. In the Sabbatino case, the Supreme Court barred adjudication of the claim based on expropriation. However, according to the Hickenlooper Amendment:

[N]o court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other rights to property is asserted by any party…based upon (or traced through) a confiscation or other taking…by an act of that state in violation of the principles of international law, including the principles of compensation…17

The defendants argued that the Hickenlooper Amendment did not apply because rights arising out of the ownership of certificates of deposit are contractual, and therefore are not tangible property that could be taken by expropriation within the meaning of the Amendment. The court rejected the argument that the Amendment did not apply to contractual rights.

This conclusion enabled the court to consider the merits of the claims and defenses related to expropriation. Public purpose can validate expropriations. A state has a strong interest in its monetary policy, and under international law a state “generally is free to impose exchange controls.”18 Although the court referred to “valid expropriations,”19 it stated later in its opinion that the measures taken by the Mexican Government to which the plaintiffs objected “generally do not constitute takings under international law.”20 In citing support for this proposition, the court made the following comment:

We also note that the Director of the Legal Department of the International Monetary Fund (IMF) has concluded that these exchange controls “do not violate and are not inconsistent with the Articles of Agreement of the International Monetary Fund.” See Callejo, 764 F.2d 1101 at 1119–21 (5th Cir. 1985) (discussing IMF’s letter and the extent of deference appropriate to IMF determinations). Mexico’s institution of exchange controls was an exercise of its basic authority to regulate its economic affairs.21

The passing reference to the Articles does not explain the relevance of the Articles to the issues as seen by the court. Furthermore, the court made no reference to the Articles in discussing the freedom of members to take measures of the character that were in issue in the case.

The court endorsed22 a comment to Section 198 of the 1965 Restatement (Second) of the American Law Institute’s Foreign Relations Law of the United States:

[A] requirement that foreign funds held within the territory of the state be surrendered against payment in local currency at the official rate of exchange is not wrongful under international law, even though the local currency is less valuable on the free market than the foreign funds surrendered.

Once again, the court said nothing about the relevance of the Articles to this proposition. This silence is all the more surprising because the court did mention that there are some limits to the costs that a state may impose upon foreign investors when it institutes exchange controls. International law, said the court, requires that there be no discrimination against aliens by singling them out for regulation by the state.23 The court found no abuse by Mexico of its discretion.

The plaintiffs argued also that they had suffered confiscation in violation of international law, because they had not received compensation equivalent to the full market value of their property. The court argued that compensation is ordinarily linked to the legality of a taking. An otherwise valid taking is illegal without the payment of just compensation. The court held, however, that it had concluded earlier that there was no taking, and therefore the question of the adequacy of compensation did not arise. The reasoning is that although an otherwise valid taking can be rendered illegal by the absence of just compensation, a measure classified as not a taking is not converted into a taking by the absence of just compensation. On this reasoning, the question arises whether any compensation at all need be given for a measure classified as not a “taking.” If the total absence of compensation is deemed not to be exchange control—and certainly such a measure would not be considered exchange control by the Fund—the question is at what point, if any, a measure short of no compensation at all becomes a “taking.”

The statement by the Director of the Legal Department that Mexico’s exchange controls did not violate and were not inconsistent with the Articles meant only that there was no breach of Mexico’s obligations under the Articles. The measures, it must be assumed from this statement, were consistent with Article VI, Section 3, Article VIII, Section 2(a), and Article VIII, Section 3 insofar as the measures were subject to these provisions. Therefore, the measures could be regarded as having been imposed consistently with the Articles for the purpose of Article VIII, Section 2(b) if all the other conditions of that provision were deemed to be satisfied. Another consequence, but determined by U.S. law and not by the Articles, is that measures consistent with the Articles fall into the treaty exception to the act of state doctrine as formulated in Banco Nacional de Cuba v. Sabbatino.24 The Callejo case is authority for this proposition.

The court in the West case discussed here cited the statement by the official of the Fund as support for the view that there was no taking. The statement, however, did not declare that the measures did or did not constitute a taking. The argument might be made that if there was a taking and that just compensation was necessary as a consequence, the object of consistency with the Articles would be frustrated. Just compensation would negate the measures, either because Mexico would have to permit payments in dollars or payments in pesos at an exchange rate that was not unfavorable to the plaintiffs. If this reasoning were accepted, the Articles and the official’s statement would have provided an independent basis for decision. As noted already, the court did not explain its reference to the Articles. The court’s citation of the Callejo case in connection with the statement suggests only that the statement was regarded as relevant to the treaty exception to the act of statement doctrine.

A final comment by the court does imply that the court was unwilling to frustrate Mexico’s purpose in adopting its measures, although the main emphasis was on the court’s unwillingness to protect depositors who were taking risks in the hope of high returns:

Even if there had been a taking of plaintiffs’ property, we would be reluctant to adopt the effective result of their position here: a judicially established guarantee of the full repayment of investments abroad in certificates of deposits notwithstanding the actions of foreign governments attempting to control their own economies. The courts of this country should not operate as an international deposit insurance company, hauling foreign sovereigns before us whenever disgruntled investors so desire. West and his fellow plaintiffs chose to purchase both dollar and peso certificates of deposit because of the extraordinary rates of return. The actions of the government of Mexico and the losses they occasioned were within the purview of the risks associated with those potentially extraordinary returns.25

The claimants petitioned the Supreme Court of the United States for a writ of certiorari to review the judgment, setting forth a number of questions of law that arose for decision. One argument attacked the conclusion that depositors in a foreign bank were as protected as they would be under domestic banking law, because foreign banking regulations never deal with the risks of devaluation or exchange control. Application of the securities law would require foreign banks to give depositors notice of these risks. The claimants argued also that the judgment was inconsistent with the decision in Allied Bank International et al. v. Banco Credito Agricola de Cartago et al.26 that Costa Rica’s exchange control regulations did not justify the failure by Costa Rican banks to repay their indebtedness to U.S. banks in accordance with the terms of the loan contracts without the consent of the creditors.

The claimants argued that Mexico’s exchange control regulations violated Article VIII, Section 2(a) of the Fund’s Articles, because the certificates were “normal short-term banking…facilities,”27 and also violated Article VIII, Section 3, because Mexico’s measures were both multiple currency practices and discriminatory currency arrangements. This argument was advanced in order to support the applicability of the traditional rule that courts do not enforce the revenue laws or exchange control regulations of another country.

In a later brief, the claimants cited the fact that the highest Mexican court had recently decided that the exchange control regulations affecting deposits were unconstitutional. The claimants argued, therefore, that the act of state doctrine did not prevent challenge to the international validity of a taking by a foreign state that was in violation of the state’s own constitution or laws and that was determined to be a violation by that state’s courts.28 Certiorari was denied.29

The Mexican case referred to by the claimants is an “amparo” (“protection”) proceeding in the case of Oscar Roberto Enríquez y otra.30 The purpose of such a proceeding is to protect personal rights under Mexico’s Constitution. The federal courts are requested to rule against acts of the authorities that are challenged as unconstitutional infringements of personal rights. An improper application of a statute issued by Congress or local legislatures is considered an infringement of this character. The complaint challenged various legal provisions, principally certain provisions of the Organic Law of the Bank of Mexico (the central bank) and the exchange control regulations of 1982. A decree of the Executive, such as the President’s order imposing the exchange control regulations, is invalid and unconstitutional if it contravenes a statute.31 The complainants, residents of Mexico, had deposited U.S. dollars and obtained certificates of deposit that gave them the same rights as the U.S. holders of certificates. The Mexican holders were affected by the same exchange control regulations that have led to legal proceedings in the United States.

The judge of first instance in the amparo proceeding held that the complainants succeeded because the retroactivity of the exchange control regulations produced an invalid infringement of the complainants’ rights under constitutional provisions. The issuance of the exchange control regulations was a legislative action not within the competence of the Executive, and the regulations were inconsistent with Article 267 of the General Law on Credit Instruments and Operations. This decision was affirmed by the Supreme Court of Justice in Plenary Session, because the grievances advanced by the President of the Republic and the nationalized bank as grounds for reversal were held to be legally ineffective for a variety of reasons. The decision will probably not be a precedent in other proceedings because of changes made in the relevant laws since the Enríquez case.32

Grass et al. v. Credito Mexicano, S.A.

In the Riedel case, the court found that notwithstanding Mexico’s exchange control regulations a remedy existed under a State’s securities law, although not under federal securities law, for the holders of certificates of deposit affected by the regulations. In Grass et al. v. Credito Mexicano, S.A., the United States Court of Appeals for the Fifth Circuit found another remedy.33 The plaintiff appealed from an order of the District Court dismissing his claim on the ground of the act of state doctrine. The plaintiff, a resident of the United States, had invested in certificates of deposit issued in Mexico by a Mexican bank. The plaintiff alleged that the bank’s compliance with Mexico’s exchange control regulations entitled him to relief on the basis of seven causes of action, one of which was that the regulations infringed Mexican law. The Circuit Court confirmed that the act of state doctrine prevented an inquiry into the validity of an act of a foreign state, including the imposition of exchange control regulations, performed on its own territory. However, as was noted in the Callejo case, claims based on the bank’s failure to comply with applicable law at the time the certificates of deposit were issued, rather than on the subsequent nonobservance of the terms of the certificates in compliance with Mexico’s regulations, are not barred by the act of state doctrine.

This distinction left the way open to the plaintiff to establish a claim. The court disposed of six of the plaintiff’s causes of action for a variety of reasons, including the act of state doctrine. There remained the claim for negligent misrepresentation. Some at least of the plaintiff’s investments had been made in response to visits of the bank’s representatives to Texas, in the course of which they had advised him to make the investments and had represented them to be sound. The plaintiff contended that these representations were misleading and were made negligently.

The court stated that to substantiate the claim for negligent misrepresentation, the plaintiff would have to show in further proceedings that: (1) the defendant, in the course of its profession, supplied false information for the plaintiff’s guidance in a business transaction; (2) the defendant failed to exercise reasonable care in gathering the information; (3) the plaintiff relied on the information in a transaction the defendant intended to induce by means of the information; and (4) the plaintiff suffered pecuniary loss as a result. The court remarked that even if the representations were false and recklessly made, the plaintiff might have difficulty in proving that they were the cause of his loss. The court remarked also that it was not apparent, at the stage reached in the proceedings, that the claim for negligent misrepresentation would involve a review of the validity of the regulations, but if it did appear in the further proceedings before the District Court that the question of validity was directly implicated, the District Court might wish to re-examine the applicability of the act of state doctrine.

It would seem from the attitude of courts and counsel in the United States that Article VIII, Section 2(b) has little, and perhaps no, effect on the outcome of litigation involving the exchange control regulations of other countries. These regulations may have a decisive effect in favor of defendants if, in the circumstances of a case, adoption of the regulations is deemed to be an act of state. The court then decides that it cannot question the validity of the regulations or the effect they have on the contract on which suit is brought, but decisions of this kind make no reference to the Articles. It is possible, however, that the court may decide that the Articles come within the treaty exception to the act of state doctrine as formulated in the Sabbatino case. In that event, the Callejo case shows that the court will take account of the consistency of the regulations with the Articles. The Fund’s determination of consistency on the basis of Article VI, Section 3, Article VIII, Section 2(a), or Article XIV, Section 2 will then influence the court.

Courts have made a distinction between entry into a contract and the performance of it for the purposes of the act of state doctrine. The implementation of exchange control regulations after a contract has been entered into may be deemed to be an act of state and prevent a remedy for nonperformance of the contract. If, however, the courts decide that the plaintiff’s cause of action relates not to nonperformance of the contract but to entry into it, a remedy may be forthcoming if it exists under the law of the forum. Courts have recognized that remedies may be available for failure to comply with a State’s securities law or for negligent misrepresentation that induced the plaintiff to enter into the contract.

The distinction between entry into a contract and performance of it can certainly be made without offending logic, but the effect of granting the plaintiff a remedy suggests that the appropriateness of the distinction deserves closer scrutiny in the context of Article VIII, Section 2(b). First, if the claim to a remedy for misrepresentation or under securities legislation is based on the defendant’s failure to alert the plaintiff to the possibility of exchange control, is it not reasonable to hold that the plaintiff should have been as aware of this possibility as the defendant?

Second, if the measure of damages or the penalty under the remedy is framed as the amount the plaintiff would have received by enforcement of the contract, should not the remedy be treated as equivalent to enforcement and an imposition of the harm on the promulgator of the exchange control regulations that Article VIII, Section 2(b) is designed to prevent? This consideration would be less forceful if the remedy was drafted as one of restitution of the amount paid by the plaintiff under the contract. Even under this form of remedy, the question arises whether the effect is so similar to enforcement of the contract that the provision should be deemed to exclude the remedy. The problem is delicate because Article VIII, Section 2(b) can be read to preclude contractual remedies without any hint that some forms of noncontractual liability can be treated as equivalent to contractual liability.

If it can be imagined that a court in the United States was disposed to apply Article VIII, Section 2(b), the act of state doctrine might create a complication. Assume that the Fund has approved a restriction imposed by a member. The plaintiff might argue, however, that the member no longer enforces the regulation that imposed the restriction. The Fund looks at practice rather than texts in deciding whether a restriction exists. The plaintiff might contend that the restriction has disappeared and that Article VIII, Section 2(b) did not apply. If the court decides that it is prevented by the act of state doctrine from examining a member’s administration or enforcement of its law, as was said in the West case, the plaintiff’s argument will fail. The court would then be recognizing a regulation to protect a member that was no longer protecting itself by applying the regulation.

The plaintiff might object, however, that the West case was authority only for a member’s noncompliance with its law in the sense that the member was acting in breach of its law. The case did not deal with a discretion granted by the member’s law. If the member’s monetary authorities decided to exercise their discretion not to enforce a regulation, they should not be able to rely on the regulation in order to have the benefit of Article VIII, Section 2(b).

The most defensible solution would be to hold that if Article VIII, Section 2(b) is an issue, it should take precedence over the act of state doctrine, because Article VIII, Section 2(b) is a treaty provision and the act of state doctrine is a judicial creation in the United States. In applying the provision, the court should ignore the act of state doctrine. Only if the court decides that, for some reason related to Article VIII, Section 2(b) itself, the provision is inapplicable, should the court concern itself with the act of state doctrine.34

In approving a member’s exchange restrictions, the Fund does not consider whether the member has jurisdiction under international law to prescribe the restrictions. The issue is not raised and is left, although not consciously, to the courts if jurisdiction is challenged there. Similarly, the Fund does not inquire whether a member’s exchange control regulations are in accordance with the member’s law. The Fund assumes that a member is more expert on its own law than the Fund is likely to be. It would be difficult, for this and practical reasons, to challenge the assumption that a member is acting legally under its law at the time that restrictions are adopted, although the Fund is not bound by any act of state doctrine that precludes inquiry. But the situation is not the same if a member’s own courts decide that its exchange control regulations are inconsistent with its law. Should the Fund then decide to withdraw its approval of restrictions or should the Fund again leave it to the courts to decide whether the exchange control regulations under which the restrictions are applied are maintained or imposed consistently with the Articles? If the question were put to the Fund by a litigant, the Fund would have to decide whether it could sensibly certify that regulations are consistent with the Articles though inconsistent with the promulgator’s law.35

792 F.2d 587 (6th Cir. 1986).

The other two alleged grounds for dismissal were: (iv) the statute of limitations; and (v) the absence of proper service of process.

For a discussion of certificates of deposit in relation to provisions of the Articles, including Article VIII, Section 2(b), see Gold, Volume III, pp. 157, 159, 164–66, 171–76, 200–203, 553.

764 F.2d 1101, at pp. 1119–21 (5th Cir. 1985). For a discussion of the letter from the official of the Fund and for the court’s reaction to it, see Gold, Volume III, pp. 172–75, 552–53, 643–44, 656–58, 710–12.

570 F. Supp. 870 (S.D.N.Y. 1983); Gold, Volume III, pp. 68–69.

See Gold, Volume III, pp. 707–13, 737–38.

The brief argued also that to be successful the defendant would have to persuade the court “that the actions of Mexico were within the guidelines of the Monetary Fund and that the action involved a capital transaction and not a current transaction. Again the finding of which is not supported by case law.” These arguments are unclear.

81 S.Ct. 922, 366 U.S. 187 (1961); Gold, Volume I, pp. 128–35.

792 F.2d 592 (6th Cir. 1986).

376 U.S. 398 (1964).

Ibid., 428; Gold, Volume III, pp. 171–76.

807 F.2d 820 (9th Cir. 1987). Two other cases (Thompson et al. v. Bancomer, S.N.C. and Davies et al. v. Banco Nacional de Mexico, S.A.) were consolidated with the West case.

28 U.S.C. §1605(a)(3).

168 U.S. 252; 18 S.Ct. 84 (1897).

807 F.2d 828 (9th Cir. 1987) (footnote omitted).

376 U.S. 398; 84 S.Ct. 923; 11 L Ed 2d 804 (1964).

22 U.S.C. §2370(e)(2).

807 F.2d 831 (9th Cir. 1987). Note the following footnote 10 on this page of the report:

“Throughout the proceeding the parties have treated international law as applicable. We believe their choice of law is correct. It is appropriate to look to international law when determining whether the institution of exchange control regulations constitutes a ‘taking’ for purposes of FSIA. We note, however, that in ascertaining the content of international law, we may look to various sources of law, including United States law.”

807 F.2d 831 (9th Cir. 1987).


807 F.2d 832 (9th Cir. 1987).


This proposition is subject to provisions of the Articles; in particular, to Article VIII, Section 3.

See the text to which footnote 11 of this chapter is attached.

807 F.2d 833 (9th Cir. 1987). On the influence of moral considerations on courts when dealing with exchange control, see Gold, Volume III, pp. 237–41.

757 F.2d 516 (2d Cir. 1985). See Gold, Volume III, pp. 417–35, 605–16.

See Gold, Volume III, pp. 200–203, at p. 200. The claimants were mistaken in basing their argument on the Articles as they stood before the Second Amendment, even though the present Articles contain no substantive change in the relevant provisions.

Gold, Volume III, pp. 177–87.

107 S.Ct. 2483; 96 L Ed 2d 375; 55 U.S.L.W. 3807 (1987).

Amparo en Revisión 676/84, Judgment of Supreme Court in Plenary Session (April 7, 1987). For discussion of human rights in relation to the treatment of nationals, see De Sánchez v. Banco Central de Nicaragua, 770 F.2d 1385 (5th Cir. 1985).

There is also an implied doctrine that an act of the Executive that purports to establish general rules violates the Constitution, because the Executive has no authority to legislate. Such an act violates the constitutional right pursuant to which authorities must act only within their respective competence.

See Fernando A. Vázquez Pando, “The Mexican Debt Crisis in Perspective: Faulty Legal Structures and Aftershocks,” Texas International Law Journal (Austin), Vol. 23, No. 2 (1988), pp. 171–231, at pp. 188–89.

In Mexico, judgments are not published in full. Excerpts from amparo cases are published if there are five decisions in the same sense by the highest courts. In that event, the decisions become obligatory precedents for other courts (“jurisprudencia obligatoria”). The highest amparo courts may also consider that a decision is sufficiently important to warrant publication. The decision in the Enríquez case has not been published so far, which suggests that it is not jurisprudencia obligatoria, but publication of another decision establishes the importance of the conclusion that the general exchange control regulations when adopted in 1982 violated the General Law on Negotiable Instruments and Credit Operations. I am indebted to Dr. Fernando A. Vázquez Pando for this explanation.

797 F. 2d 220 (5th Cir. 1986).

Gold, Volume III, p. 441.

Ibid., pp. 177.–87.

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