Opinion ID: 480622
Heading Depth: 2
Heading Rank: 2

Heading: The Merits of the Takings Claim

Text: 49 The plaintiffs claim that the institution of exchange controls by Mexico constituted a taking of property in violation of international law. Determining whether an action by a government is a legitimate exercise of the police power in the regulation of its internal affairs as opposed to a taking of property can pose particularly difficult problems. Valid expropriations must always serve a public purpose; that public purpose in some cases may be so strong as to render lawful what otherwise might constitute a taking. As one commentator notes: 50 The conclusion that a particular interference is an expropriation might also be avoided if the State whose actions are the subject of complaint had a purpose in mind which is recognized in international law as justifying even severe, although by no means complete, restrictions on the use of property.... [For example,] changes in the value of a State's currency ... will ... serve to justify actions which because of their severity would not otherwise be justifiable. 51 Christie, 38 Brit.Y.B.Int'l L. at 331-2 (footnote omitted). 52 A state has a strong interest in its monetary policy. Under international law, the legislature generally is free to impose exchange controls. Customary international law does not normally fetter the municipal legislator's discretion in these matters or characterize his measures as an international wrong. F.A. Mann, The Legal Aspect of Money 465 (4th ed. 1982). 10 53 According to the plaintiffs, the Mexican government eliminated their dollar accounts and this action combined with the conversion of those accounts at a specified rate of exchange, violated international law. Plaintiff challenges the following governmental edicts: 54 1. On August 12, 1982, the Mexican Ministry of Treasury and Public Credit issued a decree stating: 55 Bank deposits denominated in foreign currency, made within or outside the Republic to be returned in this [Republic], shall be paid by delivering an equivalent amount in national currency at the rate of exchange prevailing at the place and on the date in which such payment is made. 56 Reglas para el pago de depositos bancarios denominados en moneda extranjera, Diaro Official 2, 3 (Aug. 13, 1982) (record translation). 57 2. On September 1, 1982, Mexico nationalized its banks because of the economic crisis from which Mexico is presently suffering ... which in part has been aggravated by the lack of direct control of all of the credit system. Decreto que establece la nacionalizacion de la Banca Privada, D.O. 3 (Sept. 1, 1982) (record translation). 58 3. A separate decree issued that day stated that [u]pon maturity, all bank deposits in foreign currency will be eliminated, and will be repaid at the rate of exchange that on that date has been set by the Banco de Mexico. Decreto que establece el control generalizado de cambios, D.O. at 8 (record translation). 59 Plaintiffs claim that the institution of these measures effected a confiscation of their dollar accounts. 60 Actions such as those taken by the Mexican government generally do not constitute takings under international law. Professor Mann, a leading expert, has stated the basic rule that [e]xpectations relating to the continuing intrinsic value of a currency ... suffer from the 'congenital infirmity' that they may be changed by the competent legislator. F.A. Mann, supra, at 474 (quoting Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240, 308, 55 S.Ct. 407, 416, 79 L.Ed. 885 (1935)) (footnote omitted). Moreover, as the New York Court of Appeals noted in French, [a] currency regulation which alters either the value or character of the money to be paid in satisfaction of contracts is not a 'confiscation' or 'taking.'  23 N.Y.2d at 55, 295 N.Y.S.2d 433, 242 N.E.2d 704. 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. 61 We cannot conclude that the program of exchange controls instituted by Mexico was unlawful. Mexico's actions as they affected the dollar accounts fall within the rule enunciated by the Restatement (Second) of Foreign Relations Law of the United States Sec. 198 (1965). Comment b to this section states: 62 [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. 63 As the Foreign Claims Settlement Commission observed, [i]t is a recognized rule of international law that a state has the right to make every effort to stabilize its currency in time of financial stress. In the Matter of Karolin Furst, No. CZ-14, Fourteenth Semiannual Report 116, 117. Here, although the plaintiffs did indeed suffer losses as a result of the institution of exchange controls, these losses were not occasioned by a taking of their property as understood by international law. Cf. Panel Opinion No. 1, at 126 (Foreign Cl. Settlement Comm'n) (when [a contract right] is lost or injured as a consequence of lawful governmental action not a taking, the law affords no remedy.) (citation omitted). 64 There are, however, some limits to the costs that a state may impose on foreign investors when it institutes exchange controls. International law requires that aliens not be discriminated against or singled out for regulation by the state. See Christie, 38 Brit.Y.B.Int'l L. at 332. As Professor Mann summarizes, there comes a point when the exercise of [the state's] discretion so unreasonably or grossly offends against the alien's right to fair and equitable treatment, or so clearly deviates from customary standards of behavior, that international law will intervene. F.A. Mann, supra at 477. Mexico did not abuse its discretion here. 65 Finally, plaintiffs advance the claim that the alleged confiscation was violative of international law because they did not receive compensation equivalent to the full market value of their property. We agree with plaintiffs that compensation is ordinarily linked to the legality of a taking. An otherwise valid taking is illegal without the payment of just compensation. This position is articulated in a letter from Secretary of State Cordell Hull to the Mexican Ambassador in 1940: 66 [T]he right to expropriate property is coupled with and conditioned on the obligation to make adequate, effective, and prompt compensation. The legality of an expropriation is in fact dependent upon the observance of this requirement. 67 3 Hackworth, Digest of Int'l L. 662 (1942). While there may be exceptions to this principle, 11 generally states have the obligation to make appropriate compensation. Restatement, Sec. 712, comment c (Tent.Draft No. 7, 1986). See also Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 887-93 (2d Cir.1981) (discussing the multiple positions in international law on appropriate standards of compensation). Here, however, as we have concluded earlier, there was simply no taking. Thus, no question as to the adequacy of compensation arises. 68 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. The judgment of the District Court is 69 AFFIRMED.