Source: https://law.justia.com/cases/federal/appellate-courts/F2/739/1458/454046/
Timestamp: 2020-07-10 15:59:00
Document Index: 373402588

Matched Legal Cases: ['§ 77', '§ 77', '§ 1291', '§ 1292', '§ 1602', '§ 1605', '§ 1605', '§ 1605', '§ 78', '§ 77', '§ 78', '§ 77', '§ 77', '§ 80', '§ 1821']

Fed. Sec. L. Rep. P 91,612r.j. Wolf, Plaintiff-appellee, v. Banco Nacional De Mexico, S.a., A/k/a Banamex, Defendant-appellant, 739 F.2d 1458 (9th Cir. 1984) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1984 › Fed. Sec. L. Rep. P 91,612r.j. Wolf, Plaintiff-appellee, v. Banco Nacional De Mexico, S.a., A/k/a Ba...
Fed. Sec. L. Rep. P 91,612r.j. Wolf, Plaintiff-appellee, v. Banco Nacional De Mexico, S.a., A/k/a Banamex, Defendant-appellant, 739 F.2d 1458 (9th Cir. 1984)
U.S. Court of Appeals for the Ninth Circuit - 739 F.2d 1458 (9th Cir. 1984) Submitted March 23, 1984. Decided Aug. 10, 1984
Wolf sued in federal court, alleging that Banamex sold him unregistered securities in violation of the Securities Act of 1933, 15 U.S.C. § 77l (1), and misled him in violation of the Act, Sec. 77q(a) (2). He also alleged common law fraud and violation of California securities laws.
The district court granted summary judgment in favor of Wolf under the Securities Act, finding Banamex strictly liable for selling unregistered securities under 15 U.S.C. § 77l (1). 549 F. Supp. 841. We dismissed Banamex's appeal from that order because the judgment entered was not final under 28 U.S.C. § 1291. 721 F.2d 660. On remand, the district court granted Banamex's motion to certify the order for interlocutory appeal under 28 U.S.C. § 1292(b), and entered appropriate findings. We now reach the merits.
Banamex claims immunity from suit under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. That statute would not have protected Banamex, as a publicly held bank, in the early stages of this suit, but on September 1, 1982, the government of Mexico nationalized the bank. The court could have declined to consider Banamex's claim of immunity on the ground that the bank waived the defense by not raising it promptly below, as required by 28 U.S.C. § 1605(a) (1).
The trial court heard the motions for summary judgment on September 3, 1982, two days after the bank was nationalized. Although Banamex's counsel apparently referred in passing to the nationalization, he did not discuss sovereign immunity at that hearing. Neither did Banamex raise the issue in its supplemental memorandum in support of summary judgment, filed September 9, nor in its motion for reconsideration or new trial of November 5, 1982. It finally raised the issue for the first time in its motion to stay proceedings to enforce the judgment, filed January 14, 1983. The court could have held that by bypassing the issue in the summary judgment proceedings Banamex had forgone the opportunity to raise the issue. 28 U.S.C. § 1605(a) (1); Rothman v. Hospital Service of Southern California, 9 Cir., 1975, 510 F.2d 956, 960.
On remand, the district court did consider the issue. It denied Banamex's motion to stay, on the ground that the commercial activity exception of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a) (2) applies. See Verlinden B.V. v. Central Bank of Nigeria, 1983, --- U.S. ----, 103 S. Ct. 1962, 76 L. Ed. 2d 81; Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 1 Cir., 1981, 647 F.2d 300. Cf. MOL, Inc. v. Peoples Republic of Bangladesh, 9 Cir., 1984, 736 F.2d 1326, 1328. In our case, the sale of the certificate of deposit by Banamex to Wolf was clearly "a commercial activity carried on in the United States" by Banamex, within the meaning of Sec. 1605(a) (2). The district court was right.
As the district court noted, no other court has resolved the question of whether a certificate of deposit issued by a foreign bank is a security within the federal securities acts. But the Supreme Court held in Marine Bank v. Weaver, 1982, 455 U.S. 551, 102 S. Ct. 1220, 71 L. Ed. 2d 409, that a similar certificate of deposit issued by a domestic bank was not a security for purposes of the Securities Exchange Act of 1934. The parties cite to us numerous "tests" used by this Court and others to define a "security" in other cases, e.g., the "economic realities" test, Securities & Exchange Commission v. W.J. Howey Co., 1946, 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244, and United Housing Foundation, Inc. v. Forman, 1975, 421 U.S. 837, 95 S. Ct. 2051, 44 L. Ed. 2d 621, the "risk capital" test, Great Western Bank & Trust v. Kotz, 9 Cir., 1976, 532 F.2d 1252, see Landreth Timber Co. v. Landreth, 9 Cir., 1984, 731 F.2d 1348, 1352; and the "commercial/investment" test, Bellah v. First National Bank of Hereford, 5 Cir., 1974, 495 F.2d 1109.
Before proceeding, we note that the Weaver Court analyzed the status of a bank certificate of deposit as a security under the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a) (10). That does not reduce Weaver 's applicability because "the definition of 'security' in the 1934 Act is essentially the same as the definition of 'security' in Sec. 2(1) of the Securities Act of 1933. 15 U.S.C. § 77(b) (1)." Weaver, 455 U.S. at 555, n. 3.
Plaintiffs in Weaver held a $50,000, six-year certificate of deposit issued by a federally regulated Pennsylvania bank. The certificate paid 7 1/2% interest, although the bank could charge an interest penalty upon early withdrawal of the principal. The holders had pledged the certificate as security for a bank loan to a packing company. After the packing company failed and the bank prepared to claim the certificate of deposit, the holders sued, alleging, inter alia, that the bank had violated the anti-fraud provisions of the 1934 Act, 15 U.S.C. § 78j(b).
455 U.S. at 558, 102 S. Ct. at 1224, footnotes and citation omitted.
Id. at 558-559, 102 S. Ct. at 1225. The Court added, however, "It does not follow that a certificate of deposit ... invariably falls outside the definition of a 'security' as defined by the federal statutes. Each transaction must be analyzed and evaluated on the basis of the content of the instruments in question, the purposes intended to be served, and the factual setting as a whole." Id. at 560, n. 11, 102 S. Ct. at 1225 n. 11.
It was conceded below that "Mexico thoroughly regulates its banks and that no Mexican bank has become insolvent in fifty years." 549 F. Supp. at 853. The district judge thought that irrelevant, however, because "plaintiff assumed ... the much more substantial risk of a currency devaluation." Id. at 845. Because a currency devaluation might prevent repayment of Wolf's principal from being "virtually guaranteed," the district court held the reasoning of Weaver inapplicable. We disagree. As the district court recognized, id. at 853, even the federal banking regulations present in Weaver would not have protected a depositor there against devaluation risk. If Wolf had purchased $60,000 worth of Mexican pesos from a United States bank and used them to buy a peso certificate of deposit from that bank, he would have suffered precisely the same loss that he is complaining about in this case. A resident of Germany who, in 1970, used deutsche marks to purchase through the mail a certificate of deposit of dollars from Marine Bank would have suffered the same type of loss, when the bank repaid him after the devaluations of the dollar in 1971 and 1973, as Wolf alleges here. The federal regulations and deposit insurance that were so important to the Court in Weaver would not in any way have protected this hypothetical depositor from losses caused by the devaluation. Whether a bank's certificate of deposit is a security surely cannot turn on the currency with which it is purchased or in which it is payable. The devaluation risk present whenever a certificate of deposit is purchased with or payable in a foreign currency therefore does not distinguish the certificates that Wolf bought from that which the Weavers bought.
15 U.S.C. §§ 77b(1), 78c(a) (10), Pub. L. 97-303, Secs. 1, 2, 96 Stat. 1409. The purpose of the amendments was to expressly include various types of options within the definition of "security" and to make clear the exclusive jurisdiction of the Securities and Exchange Commission over them. H.Rep. No. 97-626 at 2, 9, 97th Cong., 2d Sess., reprinted in (1982) U.S.Code Cong. & Ad.News 2780, 2780, 2788.
The House Report described Weaver as "holding that, under the circumstances of the case, a certificate of deposit issued by a bank subject to regulation by a domestic bank regulatory agency is not a security" under the 1934 Act. Id. at 10, (1982) U.S.Code Cong. & Ad.News at 2788. Wolf argues that the House Report, which acknowledges that Weaver left "open the question of whether a certificate of deposit could be a security in another context," id., indicates that Congress meant by the amendments to permit security treatment of other certificates in other contexts, specifically those not regulated by a "domestic bank regulatory agency." He contends that Congress has always distinguished between instruments issued by foreign banks and those issued by domestic banks. See 15 U.S.C. § 77c(a) (2) (exempting "any security issued or guaranteed by any [domestic] bank" from registration requirements).
Banamex, on the other hand, argues that Congress "codified" the holding of Weaver that a certificate of deposit was not a security. It contends that if Congress had meant to "overrule" the holding of Weaver, it would have simply amended the acts to read "or privilege on any security, including a certificate of deposit, or group or index of securities." See 1982 Amendment to the Investment Company Act of 1940, 15 U.S.C. § 80a-2(a) (36), Pub. L. 97-303, Sec. 5, 96 Stat. 1409; H.Rep. at 10, (1982) U.S.Code Cong. & Ad.News at 2788. Instead, the bank argues, Congress juxtaposed the terms "security" and "certificate of deposit" in such a way as to distinguish them.
In the case before us, it was conceded that the Mexican government's regulation of Banamex provides its certificate holders the same degree of protection against insolvency as does the federal system in this country. The record shows that Banamex, like all Mexican banks, is supervised by the Banco de Mexico, the National Banking Commission, and the Ministry of Finance and Public Credit. Banamex must adhere to paid-in capital and reserve requirements, and its advertising is subject to the prior approval of the National Banking Commission. It is required to publish monthly financial statements, which must be submitted for approval by the National Banking Commission. That commission also audits the bank annually. Although there was at the relevant time no deposit insurance program, no Mexican bank has failed in the past 50 years. In the event of such a failure, moreover, deposits, including certificates of deposit, by law would constitute preferential claims against all other obligations. See 549 F. Supp. at 853. The depositors in a Mexican bank, therefore, have been "virtually guaranteed" of repayment in full to the same degree as those in United States banks, who are guaranteed of repayment by the Federal Deposit Insurance Corporation, with certain restrictions, see 12 U.S.C. § 1821(a) (1).