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Cruz v. United States

June 16, 2005

SENORINO R. CRUZ, ET AL., PLAINTIFFS,
v.
UNITED STATES OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Charles R. Breyer United States District Judge

AMENDED MEMORANDUM AND ORDER RE: MEXICAN DEFENDANTS' MOTION TO DISMISS

The Court, in order to correct the legal error contained therein, hereby amends its March 30, 2005 Memorandum and Order Granting Mexican Defendants' Motion to Dismiss to read as follows:

Now before the Court is the Mexican Defendants' motion to dismiss the Second Amended Complaint (SAC) on several bases, including: (1) sovereign immunity; (2) personal jurisdiction; (3) lack of a private right of action; (4) the act of state doctrine; (5) international comity; and (6) statute of limitations. After carefully considering the papers submitted by the parties and having had the benefit of oral argument and several post-hearing briefs, the Court hereby DENIES the motion to dismiss.

BACKGROUND

The facts underlying plaintiffs claims in this action have been described in great detail by earlier orders of this Court and will not be repeated here. However, some explanation regarding the procedural history that brought the case to its present posture is necessary to frame the issues now before the Court.

On August 23, 2002, the Court issued an order dismissing all claims in both the Cruz and De la Torre actions. Cruz v. United States, 219 F. Supp.2d 1027 (N.D. Cal. 2002). Inter alia, the Court ruled that the Mexican Defendants were entitled to absolute immunity because the Foreign Sovereign Immunity Act ("FSIA") did not apply retroactively. Plaintiffs in the Cruz matter later requested that the Court reconsider that ruling in light of the Ninth Circuit's holding in Altmann v. Republic of Austria, 317 F.3d 954 (9th Cir. 2002) ("Altmann I"). By way of a June 24, 2003 order, the motion for reconsideration was denied on the grounds that the holding regarding retroactivity in Altmann I was limited to the facts presented there. Cruz v. United States, No. 01-0892, 2003 WL 21518119 (N.D. Cal. Jun. 24, 2003).

The Supreme Court then affirmed the Altmann decision, though on the grounds that the FSIA is retroactive generally. Republic of Austria v. Altmann, 541 U.S. 677, 124 S.Ct. 2240, 2253-54 (2004) ("Altmann II"). Accordingly, this Court's basis for dismissing the claims against the Mexican Defendants is no longer valid, and it now may review defendants' motion to dismiss on sovereign immunity grounds pursuant to the understanding that the statute applies retroactively.

DISCUSSION

I. Plaintiffs' Remaining Claims

The question of what viable claims remain in the complaint following the Court's prior orders has been the subject of some dispute between the parties and therefore merits some clarification. The Court previously ruled in the De la Torre action that the international agreements creating the bracero program did not create a private right of action.*fn1 See De la Torre v. United States, No. C 02-1942 CRB, ¶. 12-15 (N.D. Cal. April 14, 2004). That ruling applies with equal force here, and therefore plaintiffs may not assert causes of action based exclusively on the international agreements. This finding also precludes plaintiffs from making claims in contract law asserting third-party beneficiary rights under the international agreements. See Kwan v. United States, 272 F.3d 1360, 1363 (Fed. Cir. 2001) (stating that "the appellants cite no authority, and we know of none, whereby an individual has been found entitled to judicial enforcement of a government-to-government agreement on the legal theory that they are third party beneficiaries of the agreement."). Similarly, plaintiffs' claims for breach of fiduciary duty, which are premised only upon duties found within the international agreements, see, e.g., SAC at ¶¶ 93-94, must also be dismissed.

However, plaintiffs have also made claims against the Mexican Defendants based on theories of resulting trust, accounting, unjust enrichment, conversion and California's Unfair Competition Law. Unlike plaintiffs' contract claims, these claims which are inherently equitable in nature do not require the existence of a contract for relief to be granted. See, e.g., In re Markair Inc., 172 B.R. 638, 641-42 (B.A.P. 9th Cir. 1994) (stating that a resulting trust is established by intentions of the parties); Lectrodryer v. SeoulBank, 77 Cal.App.4th 723, 726 (Cal. Ct. App. 2000) (stating that elements of unjust enrichment are "receipt of a benefit and unjust retention"); In re Emery, 317 F.3d 1064, 1069 (9th Cir. 2003) (per curiam) (conversion claim established by showing plaintiff's ownership or property).*fn2 Therefore, because it is possible for plaintiffs to establish an ownership interest in the savings funds based upon causes of action that are independent of the international agreements, these claims survive the Court's earlier ruling.

II. FSIA

The Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 et seq., "establishes a comprehensive framework for determining whether a court in this country . . . may exercise jurisdiction over a foreign state." Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610 (1992). The act provides that foreign states shall be immune from suit unless one of its exceptions applies. 28 U.S.C. §§ 1604, 1605. Plaintiffs contend that this Court has jurisdiction and that Mexico lacks sovereign immunity from this case pursuant to the FSIA's commercial activity exception, which provides for no immunity in any case: in which the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] 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; 28 U.S.C. § 1605(a)(2) (numeration added). The section requires not only that the suit be related to some commercial activity of the foreign state, but also that one of the three forms of nexus with the United States are present.

The parties respective burdens with respect to the application of the FSIA are allocated according to a complex procedure:

Where . . . the plaintiff alleges in his complaint that his claim is based on a foreign state's strictly commercial acts, the defendant must establish a prima facie case that it is a sovereign state*fn3 . . . . This proof establishes a presumption that the foreign state is protected by immunity. The plaintiff then has the burden of going forward with the evidence by offering proof that one of the FSIA exemptions applies. Once the plaintiff has presented this evidence, the defendant must prove its entitlement to immunity by a preponderance of the evidence.

Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 708 n.9 (9th Cir. 1992) (citation omitted). Here, it is undisputed that the Mexican Defendants all fall within the FSIA's definition of a sovereign state.

Plaintiffs have relied on the undisputed structure of the bracero program to establish that their claims are directed against commercial conduct. Defendants reply that the commercial activity exception does not apply for two reasons: (1) plaintiffs' claims are not "commercial activity;" and (2) there is not a sufficient nexus between plaintiffs' claims and the United States for the exception to apply.

A. Commercial Activity

The FSIA defines "commercial activity" as:

Either 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). The Supreme Court has clarified 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.'

Weltover, 504 U.S. at 614 (citation omitted, emphasis in original).

Clearly an important stage in making this determination is classifying the relevant conduct. At the outset it should be noted that the heart of plaintiffs' remaining claims against the Mexican Defendants is that they failed to properly safeguard the savings funds after they were received, and then failed to disgorge the funds to the braceros. Viewed in this light, the alleged activities of the Mexican Defendants are indistinguishable from the actions of a private bank or trustee. Indeed, the agreements could have specified that a private bank play the role of the ultimate holder of the savings funds, just as they specified that Wells Fargo would play the role of intermediary. Had the agreements done so, there can be no doubt that such banks would have been amenable to suit. Whether the savings funds are deemed to be bank accounts or trusts, they do not possess any qualities which make them uniquely sovereign. In this regard, the present case is similar to Weltover. There, although the case arose out of the Argentine government's issuance of bonds for uniquely sovereign objectives, and its subsequent unilateral extension of their due date by presidential decree, 504 U.S. at 610, the Court still found the commercial activity exception applicable by focusing on the fact that the bonds were "in almost all respects garden-variety debt instruments." Id. at 615.

Defendants argue, however, that plaintiffs' claims must be viewed in light of the overall context of the bracero program--including the state-to-state negotiations that brought it about. Although the Court declined in Weltover to decide whether it is proper to consider such contextual details, it later made clear in Saudi Arabia v. Nelson, 507 U.S. 349 (1993), that the proper analysis is focused on "those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case." Id. at 357; see also Siderman de Blake, 965 F.2d at 709 n.10 ("[T]he commercial activity exception does not require that every act alleged be commercial in nature." (emphasis in original)); Globe Nuclear Services and Supply (GNSS), Ltd. v. AO Techsnabexport, 376 F.3d 282, 287 (4th Cir. 2004) (reversing district court finding of noncommercial activity based on overall context of disputed contracts as too broad; district court should have looked only to the particular claims at issue). Therefore, looking only to the conduct that forms the basis of the suit--the refusal of the Mexican Defendants to disgorge funds kept either as a trust or as an ordinary bank deposit--the suit is properly characterized as commercial.

Even assuming, though, that the suit should be viewed as defendants would like, to include the executive agreements that made the bracero program possible, the conduct would still bear a greater resemblance to the actions of "a private player" within the market than to a sovereign's activities as "regulator of a market." Weltover, 504 U.S. at 614. The Mexican Defendants mischaracterize their role under the U.S.-Mexico agreements as regulation. Mexico did not exercise the type of control over the treatment of Mexican laborers by employers in the United States that would ordinarily be understood as regulation. Mexico could not, for example, impose fines or other sanctions against employers that violated their obligations to the laborers. Indeed, according to plaintiffs, it was the very absence of such authority in past labor programs that led to the poor treatment of Mexican laborers and gave rise to the necessity of formalizing particular standards in the agreements at issue. Mexico, instead, was put in the position equivalent to a labor union that negotiates labor terms on behalf of its members.*fn4 Had the employers failed to abide by the conditions of the agreements, Mexico could only resort to negotiations with the United States government in order to seek redress on behalf of the braceros. Mexico could not have, by the force of its own sovereign authority, forced employers in the United States to abide by the agreements' terms. Accordingly, the conduct at issue was equivalent to that of a private player and not to a sovereign regulator. See Weltover, 504 U.S. at 614 ("a foreign government's issuance of regulations limiting currency exchange is a sovereign activity because such authoritative control of commerce cannot be exercised by a private party . . . ." (emphasis added)).

Therefore, the Court concludes that the complained of conduct constitutes "commercial activity."

B. Nexus

Each of the three clauses of section 1605(a)(2) corresponds with a different theory of nexus. Plaintiffs argue all three apply. The Court finds that the relevant conduct satisfies the nexus test under the first clause, and therefore only that issue is addressed below.

The first clause of section 1605(a)(2) provides that sovereign immunity does not apply in cases where "the action is based upon commercial activity carried on in the United States by the foreign state." FSIA further defines the "carried on" standard as "carried on by such state and having substantial contact with the United States." 28 U.S.C. § 1603(e). The Ninth Circuit has further elaborated that "the foreign state need not engage in commercial activity in the United States on a regular basis . . . [i]nstead, the critical inquiry is whether there is a nexus between the defendant's commercial activity in the United States and the plaintiff's grievance." Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 709 (9th Cir. 1992) (citation and internal quotations omitted). Although, "[t]he focus must be solely upon those specific acts that form the basis of the suit" Sun v. Taiwan, 210 F.3d 1105, 1109 (9th Cir. 2000) (citation and internal quotations omitted), plaintiffs need only demonstrate that "an element of [their] claim consists in conduct that occurred in commercial activity carried on the United States." Sugimoto v. Exportadora de Sal, S.A. de C.V., 19 F.3d 1309, 1311 (9th Cir. 1994).*fn5

Resort to the legislative history sheds further light on the somewhat opaque standard laid out by clause one and section 1603(e). The House report states that a "substantial contact" with the United States includes: cases based on commercial transactions performed in whole or in part in the United States, import-export transactions involving sales to, or purchases from, concerns in the United States, business torts occurring in the United States (cf. Sec. 1605(a)(5)), and an indebtedness incurred by a foreign state which negotiates or executes a loan agreement in the United States, or which receives financing from a private or public lending institution located in the United States--for example, loans, guarantees or insurance provided by the Export-Import Bank of the United States. It will be for the courts to determine whether a particular commercial activity has been performed in whole or in part in the United States. This definition, however, is intended to reflect a degree of contact beyond that occasioned simply by U.S. citizenship or U.S. residence of the plaintiff.

H.R. Rep. No. 94-1487 (1976), reprinted in 1994 U.S.C.C.A.N. 6604, 6615-16, 1976 WL 14078.

Defendant argues that because payment of the braceros' savings funds was to have occurred in Mexico there is not a sufficient nexus under section 1605(a)(2). However, in Siderman de Blake the Ninth Circuit found that Argentina's expropriation of the plaintiffs' assets, all of which were located in Argentina, fell within the first clause of section 1605(a)(2). 965 F.2d at 709. The court there found sufficient nexus based on Argentina's alleged advertisement of the expropriated hotel in the United States, and also because Americans had stayed in the hotel and the hotel accepted American credit cards. Id. The court further found "a nexus between the commercial activity and the plaintiff's grievance" based on the fact that Argentina was continuing to receive profits and benefits from U.S. sources that rightfully belonged to the plaintiffs. Id.

Here, the Court finds that the braceros have alleged more ties between defendants' commercial activity and plaintiffs' claims than was presented in Siderman de Blake. In order to create the bracero program and the savings fund, Mexico conducted cross-border negotiations with the United States which included communications regarding the program directed from Mexico to the United States. See e.g. 56 Stat. 1759 (reproducing notes exchanged in finalizing U.S.-Mexico agreement). The individual contracts signed pursuant to the agreements provided for the withdrawal of savings funds from the braceros' pay, and specified that the money would be deposited in the defendant Mexican banks or their predecessors in interest. See e.g., Plaintiffs' Memo. Opp. Exh. C to Exh. 1 § 5 ("Individual Work Agreement"). During the program, Mexican government officials in the United States were to have informed the braceros of how to retrieve their savings funds. Banco de Mexico also maintained a Wells Fargo account which held the savings funds prior to their transfer to the Mexican banks. Finally the monies were transferred to the defendant Mexican banks from the United States, in concert with the United States government and Wells Fargo.

Given all of these alleged contacts, the Court concludes that the plaintiffs' claims are based on commercial activity "carried on" by defendants which had "substantial contacts with the United States." See 28 U.S.C. § 1603(e). These contacts are similar to those cited in the legislative history, such as "commercial transactions performed in whole or in part in the United States," "import-export transactions involving . . . purchases from[]concerns in the United States," and "indebtedness incurred by a foreign state which negotiates or executes a loan agreement in the United States." U.S.C.C.A.N. at 6615-16. Moreover, these contacts are closely tied to plaintiffs' claims. Plaintiffs' claims for resulting trust, conversion and unjust enrichment require them to establish ownership of the savings funds. Such a showing would involve tracing the path that the savings funds followed from the time they were initially earned pursuant to the labor agreements that Mexico negotiated, through the cross-border banking transactions that resulted in their ultimate arrival in accounts at the defendant banks.

At oral argument, counsel for defendants argued that Security Pacific v. Derderian, 872 F.2d 281 (9th Cir. 1989) compels the opposite result.*fn6 There, defendant Derderian had forged a check and given it to co-defendant, Jocovic, who deposited it in an account at plaintiff Security Pacific in the United States. Id. at 282. Jocovic then withdrew the funds, purchased gold coins with the proceeds, crossed the border into Tijuana, Mexico and deposited some of them into an account and safety deposit box at co-defendant Banco BCH, an instrumentality of the Mexican government. Id. There was no dispute that the banking activities involved constituted commercial activity. See id. at 285. With respect to nexus, though, the Ninth Circuit--applying only clause three--found there to be no "direct effects" in the United States. Id.

Even if the Court were to import the clause three analysis there to the clause one analysis here, defendants' attempt to analogize Derderian would still fail. There, the Mexican bank had no connection with the United States, save for the fact that Jocovic had unilaterally chosen to cross the border from the United States prior to depositing the disputed assets. Recognizing that this contact was too attenuated to provide nexus, the court explicitly distinguished it from a case like the one now before this Court in stating that "[Banco BCH] had no direct or indirect transactions with Security Pacific." Id. at 286. See also id. (pointing out that Banco BCH did nothing more than "accept[] a deposit in Tijuana into an account held by a Mexican national" (emphasis added)). Here, by contrast, the Mexican Defendants engaged in a series of direct, cross-border transactions with Wells Fargo in the United States. This direct contact, together with the several other alleged contacts, is sufficient to provide nexus.

As plaintiffs have alleged a commercial activity by defendants with sufficient nexus to the United States, jurisdiction exists and sovereign immunity does not apply.

III. Personal Jurisdiction

Defendants Banco Nacional de Credito Rural, S.A. and Patronato del Ahorro Nacional move for dismissal arguing that exercise of personal jurisdiction over them would be unconstitutional. Plaintiffs reply that, as instrumentalities of Mexico, the defendant banks are not "persons" within the meaning of the Due Process Clause.

The D.C. Circuit held in Price v. Socialist People's Libyan Arab Jamahiriya, 294 F.3d 82 (D.C. Cir. 2002) that foreign states are not "persons" under the due process clause. See id. at 96-100.*fn7 The court reasoned first that "in common usage, the term 'person' does not include the sovereign, and the statutes employing the word are ordinarily construed to exclude it." Id. at 96. Based on this understanding the Supreme Court has interpreted the word "person" as used in the Due Process Clause not to encompass the fifty States of the Union. Id. (citing South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966)). However, rather than simply directly importing this reasoning to foreign states, Price instead analyzed the position of foreign states within the constitutional framework. The court found that this nation's federal system provides for a mechanism for resolving disputes with foreign sovereigns that is separate and distinct from the system of individual rights created by the Constitution. Id. The rights of foreign states are instead secured by principles derived from international law such as comity and sovereign immunity. See id.

The question before this Court--a question not reached in Price, id. at 99-100--is whether that reasoning applies equally to a corporate instrumentality of a foreign state. Of course, corporations--including state-owned corporations--have traditionally been afforded separate juridical status. See First Nat'l City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 626-27 (1983). It is also settled that privately-owned foreign corporations are protected by the due process clause. See Helicopteros Nacionaled de Colombia, S.A. v. Hall, 466 U.S. 408 (1984). Nonetheless, the reasoning of Price, which this Court finds sound, counsels against affording the Mexican banks in this case the status of "persons" within the scope of that term as used in the Due Process Clause. First, focusing on the reasoning that foreign sovereigns are the analogues of state sovereigns, the Court notes that state agencies and instrumentalities are not treated as distinct entities under the Constitution. See Penhurst State School & Hosp. v. Halderman, 465 U.S. 89, 100 (1984) (holding that state agencies are treated as states under the Eleventh Amendment.); State Highway Com. v. Utah Constr. Co., 278 U.S. 194, 199 (1928) (ruling that a state commission is in fact the state under the judiciary act); Marion County Bd. of Review v. State Bd. of Tax Comm'rs, 516 N.E.2d 1129, 1131 (Ind. Tax 1987) (stating that state instrumentalities are not protected by Fifth Amendment due process clause); see also Will v. Mich. Dep't of State Police, 491 U.S. 58, 71 (1989) (suit against a state official in her official capacity is in fact a suit against the state). Second, focusing on the status of foreign sovereigns within the constitutional framework, the Court notes that foreign state-owned corporations are shielded from suit by the same sovereign immunity and comity protections as their sovereign parents. See 28 U.S.C. § 1603(a). Third, the separate juridical status of a foreign corporation is ignored in cases in which a foreign government so extensively controls the corporation that a principal-agent relationship is created. See First Nat'l City Bank, 462 U.S. at 629; see also Flatow v. Islamic Republic of Iran, 999 F. Supp. 1, 21 n.9 (D.D.C. 1998) (finding that agents of foreign states acting in their official capacity are not "persons" under the Due Process clause because agents of states sued in their official capacity lack Fifth Amendment protection). Here, the Mexican bank defendants acted at all relevant times as agencies and instrumentalities of the Mexican government. Therefore, the motion to dismiss them on due process grounds is denied.

IV. Act of State Doctrine

The act of state doctrine is a non-jurisdictional, prudential limitation on a court's power to examine the official actions of a foreign state in order to avoid conflicts with the foreign policy of the political branches. Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 707 (9th Cir. 1992); United States v. Merit, 962 F.2d 917, 921 (9th Cir. 1992). The doctrine applies where "(1) there is an official act of a foreign sovereign performed within its own territory; and (2) the relief sought or the defense interposed [in the action would require] a court in the United States to declare invalid the [foreign sovereign's] official act." Credit Suisse v. United States Dist. Ct., 130 F.3d 1342, 1346 (9th Cir. 1997) (citation and internal quotations omitted). Courts also consider other factors, such as "whether the foreign state was acting in the public interest;" "the degree of international consensus regarding the activity;" whether adjudication would "hinder the Executive Branch in its formulation of foreign policy;" and whether the case could "result in differing pronouncements on the same subject." Liu v. Republic of China, 892 F.2d 1419, 1433-34 (9th Cir. 1989) (citations omitted). Only those judgments that involve making a legal determination regarding the legitimateness of an official action, rather than making a factual determination that such an action occurred, are prohibited from review. W.S. Kirkpatrick & Co., Inc. v. Environmental Tectonics Corp. Int'l, 493 U.S. 400, 405-06 (1990) (listing cases). It is defendant's burden to prove that the act in question was an act of state. Republic of Phillippines v. Marcos, 862 F.2d 1355, 1369-70 (9th Cir. 1988).

Plaintiffs argue that the act of state doctrine does not apply because Mexico's retention of the savings funds is not a "statute, decree, order or resolution," i.e. it is not an act of state. Plaintiffs are correct. In Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682 (1976), several U.S. cigar importers sued the Cuban government to recover monies they had mistakenly paid the government after the "intervention" (nationalization) of the companies' Cuban assets. The mistaken payments were for pre-nationalization shipments. A majority*fn8 of the Court held:

We . . . disagree with the Court of Appeals that the mere refusal of the interventors to repay funds followed by a failure to prove that interventors "were not acting within the scope of their authority as agents of the Cuban government" satisfied respondents' burden of establishing their act of state defense . . . . [T]he only evidence of an act of state other than the act of nonpayment by interventors was 'a statement by counsel for interventors, during trial, that the Cuban Government and the interventors denied liability and had refused to make repayment' . . . . No statute, decree, order, or resolution of the Cuban Government itself was offered in evidence indicating that Cuba had repudiated its obligations in general or any class thereof or that it had as a sovereign matter determined to confiscate the amounts due three foreign importers.

Id. at 694-95. Alfred Dunhill did not create a formalistic distinction between acts and omissions, but rather held that Cuba's mere failure to pay, without having admitted an obligation and then formally repudiated it, was insufficient to support a finding that the nonpayment was invested with the sovereign authority of the state. See id. at 693 n.8; see also id. at 718-19 (Marshall, J., dissenting) (arguing that the focus of the majority's holding was not on the distinction between action and inaction, but rather whether Cuba had exercised its "sovereign power" in not returning the funds.); Callejo v. Bancomer, S.A., 764 F.2d ...


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