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Republic of Arg. v. Weltover, Inc.

Supreme Court of the United States

April 1, 1992, Argued ; June 12, 1992, Decided

No. 91-763

Opinion

 [*609]  [***401]  [**2163]    JUSTICE SCALIA delivered the opinion of the Court.

 This case requires us to decide whether the Republic of Argentina's default on certain bonds issued as part of a plan to stabilize its currency was an act taken "in connection with a commercial activity" that had a "direct effect in the United States" so as to subject Argentina to suit in an American court under the Foreign Sovereign Immunities Act of 1976, 28 U. S. C. § 1602 et seq.

Since Argentina's currency is not one of the mediums of exchange accepted on the international market, Argentine businesses engaging [****6]  in foreign transactions must pay in United States dollars or some other internationally accepted currency. In the recent past, it was difficult for Argentine  [***402]  borrowers to obtain such funds, principally because of the instability of the Argentine currency. To address these problems, petitioners, the Republic of Argentina and its central bank, Banco Central (collectively Argentina), in 1981 instituted a foreign exchange insurance contract program (FEIC), under which Argentina effectively agreed to assume the risk of currency depreciation in cross-border transactions involving Argentine borrowers. This was accomplished by Argentina's agreeing to sell to domestic borrowers, in exchange for a contractually predetermined amount of local currency, the necessary United States dollars to repay their foreign debts when they matured, irrespective of intervening devaluations.

Unfortunately, Argentina did not possess sufficient reserves of United States dollars to cover the FEIC contracts as they became due in 1982. The Argentine Government  [**2164]  thereupon adopted certain emergency measures, including refinancing of the FEIC-backed debts by issuing to the creditors government [****7]  bonds. These bonds, called "Bonods," provide for payment of interest and principal in United States dollars; payment may be made through transfer on the London, Frankfurt, Zurich, or New York market, at the election  [*610]  of the creditor. Under this refinancing program, the foreign creditor had the option of either accepting the Bonods in satisfaction of the initial debt, thereby substituting the Argentine Government for the private debtor, or maintaining the debtor/creditor relationship with the private borrower and accepting the Argentine Government as guarantor.

When the Bonods began to mature in May 1986, Argentina concluded that it lacked sufficient foreign exchange to retire them. Pursuant to a Presidential Decree, Argentina unilaterally extended the time for payment and offered bondholders substitute instruments as a means of rescheduling the debts. Respondents, two Panamanian corporations and a Swiss bank who hold, collectively, $ 1.3 million of Bonods, refused to accept the rescheduling and insisted on full payment, specifying New York as the place where payment should be made. Argentina did not pay, and respondents then brought this breach-of-contract action in the [****8]  United States District Court for the Southern District of New York, relying on the Foreign Sovereign Immunities Act of 1976 as the basis for jurisdiction. Petitioners moved to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction, and forum non conveniens. The District Court denied these motions, 753 F. Supp. 1201 (1991), and the Court of Appeals affirmed, 941 F.2d 145 (CA2 1991). We granted Argentina's petition for certiorari, which challenged the Court of Appeals' determination that, under the Act, Argentina was not immune from the jurisdiction of the federal courts in this case. 502 U.S. 1024 (1992).

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504 U.S. 607 *; 112 S. Ct. 2160 **; 119 L. Ed. 2d 394 ***; 1992 U.S. LEXIS 3542 ****; 60 U.S.L.W. 4510; 92 Cal. Daily Op. Service 4999; 92 Daily Journal DAR 7872; 6 Fla. L. Weekly Fed. S 361

REPUBLIC OF ARGENTINA AND BANCO CENTRAL DE LA REPUBLICA ARGENTINA, PETITIONERS v. WELTOVER, INC., ET AL.

Prior History:  [****1]  On petition for writ of certiorari to the United States Court of Appeals for the Second Circuit.

Disposition: 941 F.2d 145, affirmed.

CORE TERMS

foreign state, commercial activity, direct effect, rescheduling, sovereign, currency, issuance, instruments, immune, foreign sovereign immunities, dollars, courts, obligations, unilateral, plurality, maturity, engages

International Law, Sovereign Immunity, Foreign Sovereign Immunities Act, Construction & Interpretation, Civil Procedure, Jurisdiction, Jurisdictional Sources, General Overview, Foreign & International Immunity, Exceptions, Commercial Activities, Direct Effects