Opinion ID: 453521
Heading Depth: 2
Heading Rank: 3

Heading: The Situs of the Deposits

Text: 69 The final argument advanced by the Callejos for not applying the act of state doctrine is that the situs of their CDs was Texas rather than Mexico. The Callejos argue that under traditional choice-of-law rules pegging the choice of law to the situs of the property, Texas law should govern the certificates. Application of the act of state doctrine, they contend, would improperly give extraterritorial effect to the Mexican decrees. 70 In Sabbatino, the Court limited the act of state doctrine to takings of property within its own territory by a foreign sovereign government. 376 U.S. at 428, 84 S.Ct. at 940. Consistent with this limitation, we have refused to give effect to foreign acts of state that affected property whose situs was the United States. See Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021 (5th Cir.), cert. denied, 409 U.S. 1060, 93 S.Ct. 555, 34 L.Ed.2d 512 (1972); Tabacalera Severiano Jorge, S.A. v. Standard Cigar Co., 392 F.2d 706 (5th Cir.), cert. denied, 393 U.S. 924, 89 S.Ct. 255, 21 L.Ed.2d 260 (1968). 29 71 The theory underlying the territorial limitation to the act of state doctrine is that a foreign state is less concerned about the effects of its acts on property outside of its territory than within. As we explained in Maltina, 72 The obvious inability of a foreign state to complete an expropriation beyond its borders reduces the foreign state's expectations of dominion over that property.... Consequently, the potential for offense to the foreign state is reduced, there is less danger that judicial disposition of the property will 'vex the peace of nations,' and there is less need for judicial deference to the foreign affairs competence of the other branches of government. 73 462 F.2d at 1028-29. 74 In determining whether the situs of property is the United States or a foreign state, federal rather than state law governs. Tabacalera, 392 F.2d at 715; cf. Sabbatino, 376 U.S. at 425, 84 S.Ct. at 939 (issues regarding application of act of state doctrine must be treated as aspects of federal law). This is true even if the plaintiff's underlying claim is based on state law. As Judge Friendly noted in Republic of Iraq v. First National City Bank, 353 F.2d 47 (2d Cir.1965), cert. denied, 382 U.S. 1027, 86 S.Ct. 648, 15 L.Ed.2d 540 (1966): 75 It is fundamental to our constitutional scheme that in dealing with other nations the country must speak with a united voice.... It would be baffling if a foreign act of state intended to affect property in the United States were ignored on one side of the Hudson but respected on the other; any such diversity between states would needlessly complicate the handling of the foreign relations of the United States. The required uniformity can be secured only by recognizing the expansive reach of the principle, announced by Mr. Justice Harlan in Sabbatino, that all questions relating to an act of state are questions of federal law, to be determined ultimately, if need be, by the Supreme Court of the United States. 76 353 F.2d at 50-51 (citations omitted). 77 On a previous occasion, we noted that [t]he situs of intangible property is about as intangible a concept as is known to the law. Tabacalera, 392 F.2d at 714. The situs may be in one place for ad valorem tax purposes, ...; it may be in another place for venue purposes, i.e., garnishment ...; it may be in more than one place for tax purposes in certain circumstances ...; it may be in still a different place when the need for establishing its true situs is to determine whether an overriding national concern, like the application of the Act of State Doctrine is involved. Id. at 714-15 (citations omitted). In determining the situs of an obligation, we take as our guide the general policies of the act of state doctrine rather than narrow rules developed in other contexts. See Maltina, 462 F.2d at 1027 ([T]he federal courts are to take a pragmatic view of what constitutes an extraterritorial action by a foreign state.). 78 Over the years, several tests have been developed to determine the situs of intangible property. One was elaborated by this court in Tabacalera, where we stated, 79 [W]e think it clear that whatever efforts were made by the Cuban government dealing with Tabacalera, these acts are to be recognized under the Act of State Doctrine only insofar as they were able to come to complete fruition within the dominion of the Cuban government. As to other matters we conclude that they were not a 'taking of property within its own territory ' within the language used by the Supreme Court in Sabbatino. 80 392 F.2d at 715-16 (emphasis in original). Under this test, the situs of an obligation is determined not by the domicile of the creditor, as it is in other contexts, but by whether the foreign state is in a position to perform a fait accompli. Id. The policy considerations underlying this conclusion were elaborated by the court as follows: [W]hen a foreign government performs an act of state which is an accomplished fact, that is when it has the parties and the res before it and acts in such a manner as to change the relationship between the parties touching the res, it would be an affront to such foreign government for courts of the United States to hold that such act was a nullity. Id. at 715. Because the property in question in Tabacalera consisted of a credit that was owed by an American company in Florida and that Cuba therefore was not in a position to seize, the court held that the property was located in the United States and declined to apply the act of state doctrine. 30 81 Although the Tabacalera test has been applied in a number of cases, e.g., Allied Bank International v. Banco Credito Agricola, 757 F.2d 516, 521 (2d Cir.1985) (on rehearing) (holding that debt is not located in foreign state unless foreign state has power to enforce or collect it); United Bank Ltd. v. Cosmic International, Inc., 542 F.2d 868, 873-74 (2d Cir.1976) (same); Menendez v. Saks & Co., 485 F.2d 1355, 1364 (2d Cir.1973) (same), rev'd on other grounds sub nom., Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976), we do not find it helpful here. In Tabacalera, the foreign government was attempting to collect a debt rather than attempting to avoid paying it; the question was whether the foreign decrees applied to an obligation owed by an American debtor. Here, in contrast, the situation is reversed: the foreign national is the debtor and the American national the creditor. If we simply applied the Tabacalera test, the situs of the certificates would clearly be Mexico, since Mexico can enforce the collection of debts owed by Bancomer, a Mexican domiciliary. See Libra Bank Ltd. v. Banco Nacional de Costa Rica, 570 F.Supp. 870, 881 (S.D.N.Y.1983). In that event, the act of state doctrine would apply whenever a foreign state seized debts owed by its banks, no matter how many ties the debts had to this country. 82 We do not think that Tabacalera intended such results. The power to collect a debt is for the benefit of the creditor, not the debtor; the fact that a debt can be enforced by the creditor in one forum should not be the basis of depriving him of his ability to enforce the debt in a different forum. Otherwise, the sword of the creditor would become a shield for the debtor. Since we do not believe that debts owed by foreign banks to American nationals are always sitused in the foreign country--and consequently do not believe that the act of state doctrine always applies to such debts--we do not apply the Tabacalera test here. See Libra Bank, 570 F.Supp. at 881. But cf. Garcia v. Chase Manhattan Bank, 735 F.2d 645, 651-52 (2d Cir.1984) (Kearse, J., dissenting) (arguing that situs of certificate of deposit owed by Cuban branch bank was Cuba, since debt could be collected there); Vishipco Line v. Chase Manhattan Bank, 660 F.2d 854, 862 (2d Cir.1981) ( 'The situs of a bank's debt on a deposit is considered to be where the deposit is carried.' ), cert. denied, 459 U.S. 976, 103 S.Ct. 313, 74 L.Ed.2d 291 (1982). 83 Instead, for debts owed by foreign banks to American nationals, the proper test for determining situs is where the incidents of the debt, as a whole, place it. One relevant factor is the place where the deposit is carried, but this is not the only factor. In addition, we must examine the place of payment, the intent of the parties (if any) regarding the applicable law, and the involvement of the American banking system in the transaction. 31 Together, these factors help us to determine the extent of the foreign government's interest in the debt. They therefore help to answer the ultimate question in the act of state context: Are the ties of the debt to the foreign country sufficiently close that we will antagonize the foreign government by not recognizing its acts? Cf. Allied Bank, 757 F.2d at 521-22 (comparing American and Costa Rican interests in overseeing the debts in question). 84 Here, the incidents of the certificates of deposit clearly place them in Mexico. The certificates of deposit were issued by Bancomer's Nuevo Laredo branch, where the Callejos' deposits were carried, and called for payment in Mexico. This grouping of contacts, when viewed through the gloss of the policies underlying the act of state doctrine, places the debt in Mexico and calls for the application of Mexican law. 32 85 The Callejos contend, however, that although the specified place of payment was Mexico, the course of conduct of the parties altered this agreement since the Callejos regularly received their payments in Texas. The Callejos, however, mistake remittances for payments. Although Bancomer remitted its payments to the Callejos in Texas, this did not mean that the place of payment was Texas. Unlike in Garcia, where the certificates of deposit issued by the Cuban branch bank were guaranteed by Chase Manhattan's New York office and payable upon presentation at any Chase Manhattan branch worldwide, 735 F.2d at 646, here the Callejos could not receive payment simply by presenting the certificates at one of Bancomer's correspondent banks in Texas. They had no right to draw directly upon Bancomer's accounts with Texas banks. Although the money was transferred to them through the services of a Texas correspondent bank, and although they were in Texas when they actually received the payments, this does not alter the fact that the only place where they had a legal right to be paid was at Bancomer's office in Mexico. Accord Braka v. Bancomer, S.N.C., 762 F.2d 222, 224 (2d Cir.1985) ([T]he accomplishment of interbank transfers, which was the extent of the New York agency's participation, does not change the contractually mandated situs of plaintiffs' property.); cf. United States v. First National City Bank, 321 F.2d 14, 19-22 (2d Cir.1963) (no legal right against main office of bank to demand payment for deposit in branch bank abroad), aff'd on rehearing en banc, 325 F.2d 1020 (2d Cir.1964), rev'd on other grounds, 379 U.S. 378, 85 S.Ct. 528, 13 L.Ed.2d 365 (1965). 86 The Callejos make much of the fact that when they made deposits, the money was in the first instance transferred to Bancomer's account at Laredo National Bank in Laredo, Texas. They contend, on this basis, that the deposits were made in Texas, where Bancomer first received control over the money, not in Mexico. We take a less formalistic approach to the problem of determining where a deposit is made. Here, the evidence was undisputed that, after receiving the money in its account at Laredo National Bank, Bancomer promptly transferred the money to its Nuevo Laredo branch; at the end of each business day its balance with Laredo National remained unchanged. Under these circumstances, Laredo National acted merely as a conduit for the deposits, not as their repository. Cf. Braka v. Bancomer, 762 F.2d at 224-225 (holding that situs of deposits was Mexico, even though deposits initially received by Mexican bank's New York agency). To hold otherwise would throw a monkeywrench into the wheels of international finance, whose smooth operation depends in large part on the lubricating influence of correspondent banks. It would mean that the deposits held by a bank would have different situses depending on the locations of the correspondent banks that first received them. Potentially a bank would have to comply with different laws for different deposits at a single branch. Rather than open this Pandora's box, banks would almost certainly attempt to receive deposits directly, without the services of a correspondent bank. 87 For these reasons, therefore, we reject the view that the situs of these deposits was Texas rather than Mexico. Indeed, we note that under Texas law, Bancomer, as a foreign bank, did not even have the power to receive deposits in Texas. Texas Const. art. 16, Sec. 16; Tex.Rev.Civ.Stat.Ann. art. 342-902 to -903 (Vernon 1973 & Supp.1985). Moreover, holding that Mexico rather than Texas was the situs of the deposits furthers the general policies of the act of state doctrine. Given Mexico's interest in these certificates of deposit, which were issued by a Mexican bank and payable in Mexico, disregarding Mexico's exchange regulations would be a serious affront. We decline to take this course. Instead, we apply the act of state doctrine and affirm the dismissal of the suit. 33