Republic of Argentina v. Weltover, Inc
Procedural History:
Review of denial of dismissal of action for breach of contract.
Overview:
Argentina (D) contended that it could not be sued in a U.S. court for defaulting on bonds it had issued. Due to currency instability, Argentina businesses often had trouble participating in foreign transactions.
-The Argentine government (D), to ameliorate this problem, instituted a program wherein it agreed to sell to domestic borrowers U.S. dollars in exchange for Argentine currency.
-The dollars could be used to pay foreign creditors of Argentine businesses. Argentina (D) issued bonds, called “Bonods,” to reflect its obligations.
-In 1986, Argentina (D), facing a shortage of reserves of U.S. dollars, defaulted on bond payments. Several bond holders (P), who collectively owned $1.3 million worth of bonds payable in New York, sued for breach of contract in federal court in New York.
-Argentina (D) moved to dismiss, asserting sovereign immunity. The district court denied the motion, and the Second Circuit affirmed. The U.S. Supreme Court granted review.
Issue:
-May a foreign government be amenable to suit in a U.S. court for defaulting on its bonds?
Rule:
-A foreign government may be amenable to suit in US court for defaulting on its bonds
Analysis:
-The key to determining if the commercial activity exception applies in any given case is whether the government has entered the marketplace. If it has, it is to be treated, under the FSIA, as a private player. If it undertakes an activity peculiar to a sovereign, the exception does not apply.
Outcome:
-A foreign government may be amenable to suit in a U.S. court for defaulting on its bonds. The Foreign Sovereign Immunities Act of 1976 creates an exception to foreign sovereign immunity “commercial” activities. For purposes of the FSIA, an activity falls within the exception if:
(1) it occurs outside the United States,
(2) is in connection with commerce, and
(3) causes a direct effect in the United States.
-Here, the first element without question has been satisfied. Whether a government’s activity is “commercial” must be determined with reference to the nature of the act. The issuing of a bond is a commercial rather than a sovereign act-private concerns can and often do issue bonds; it is not an activity given only to sovereigns.
-Finally, an effect is “direct” if an effect is the natural and immediate consequence of the activity in question. Here, the effect in the United States was direct because the bonds were payable in New York, so the breach occurred there.
-In sum, the activities of Argentina (D) with respect to the bonds were commercial in nature, so the commercial activity exception to the FSIA applies. Affirmed.
Procedural History:
Review of denial of dismissal of action for breach of contract.
Overview:
Argentina (D) contended that it could not be sued in a U.S. court for defaulting on bonds it had issued. Due to currency instability, Argentina businesses often had trouble participating in foreign transactions.
-The Argentine government (D), to ameliorate this problem, instituted a program wherein it agreed to sell to domestic borrowers U.S. dollars in exchange for Argentine currency.
-The dollars could be used to pay foreign creditors of Argentine businesses. Argentina (D) issued bonds, called “Bonods,” to reflect its obligations.
-In 1986, Argentina (D), facing a shortage of reserves of U.S. dollars, defaulted on bond payments. Several bond holders (P), who collectively owned $1.3 million worth of bonds payable in New York, sued for breach of contract in federal court in New York.
-Argentina (D) moved to dismiss, asserting sovereign immunity. The district court denied the motion, and the Second Circuit affirmed. The U.S. Supreme Court granted review.
Issue:
-May a foreign government be amenable to suit in a U.S. court for defaulting on its bonds?
Rule:
-A foreign government may be amenable to suit in US court for defaulting on its bonds
Analysis:
-The key to determining if the commercial activity exception applies in any given case is whether the government has entered the marketplace. If it has, it is to be treated, under the FSIA, as a private player. If it undertakes an activity peculiar to a sovereign, the exception does not apply.
Outcome:
-A foreign government may be amenable to suit in a U.S. court for defaulting on its bonds. The Foreign Sovereign Immunities Act of 1976 creates an exception to foreign sovereign immunity “commercial” activities. For purposes of the FSIA, an activity falls within the exception if:
(1) it occurs outside the United States,
(2) is in connection with commerce, and
(3) causes a direct effect in the United States.
-Here, the first element without question has been satisfied. Whether a government’s activity is “commercial” must be determined with reference to the nature of the act. The issuing of a bond is a commercial rather than a sovereign act-private concerns can and often do issue bonds; it is not an activity given only to sovereigns.
-Finally, an effect is “direct” if an effect is the natural and immediate consequence of the activity in question. Here, the effect in the United States was direct because the bonds were payable in New York, so the breach occurred there.
-In sum, the activities of Argentina (D) with respect to the bonds were commercial in nature, so the commercial activity exception to the FSIA applies. Affirmed.
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