Pesos to Dollars: Exchange Rates Can Kill Investments

Pesos to Dollars: Exchange Rates Can Kill Investments
CITATION:
Riedel v Bancam
792 F.2d 587 (6th Cir. 1986) STATEMENT OF FACTS: Ohio resident W. Christian Riedel had an account with Unibanco, S.A., and requested a transfer of $100,000 to the banking institution Banca Metropolitan, S.A. for investment in a certificate of deposit (CD); Banca merged with another bank, and Bancam was created (Jennings, 2012). At a time after the merger, Mr. Riedel’s CD was renewed, and after a short duration the government of Mexico changed its rules regarding accounts from foreigners conducting business in the Mexican banking system (Jennings, 2012). The change in the rule required the Mexican bank to pay the CDs in pesos; pesos are paid at a rate considerably less than the exchange rates (Jennings, 2012). Additionally, one month after the rule was put in place, Bancam became nationalized. The value of Mr. Riedel’s CD on its maturity date was $53,276.23, an amount significantly less than is $100,000 investment (Jennings, 2012).
COURT HISTORY: * Mr. Riedel filed suit in a U.S. federal court, claiming that Bancam violated both federal and Ohio securities laws in selling the CDs in the U.S. without registration.

* Bancam countered a motion to dismiss the suit on the ground that the Sovereign Immunities Act of 1976

* Bancam also claimed protection under the act of state doctrine * Bancam claimed that the CD was not a security protected under the U.S. securities laws. * The case was dismissed on the following grounds:
1. No jurisdiction
2. Sovereign immunity
3. State doctrine
4. Act of state doctrine

* Mr. Riedel appealed this ruling (Jennings, 2012).

THE ISSUE(S): * Jurisdiction over Breach of Contract * Act of state doctrine
THE HOLDING(S):
Does Ohio District Court carry the jurisdiction over Breach of Contract? No
Does Ohio District Court carry the jurisdiction under the act of state doctrine? Yes
THE REASONING(S):

Jurisdiction over Breach of Contract
The Ohio District Court does not carry jurisdiction under 28 U.S.C. § 1332
Title 28 U.S.C. § 1332(a)4 proposes that original jurisdiction can be addressed at the district court level when addressing a civil action between a foreign state, as a plaintiff, and a citizen of a State.
Title 28 U.S.C. § 1332(a)4 does not apply when the suit is between a citizen of a State, and the defendant is a foreign state.
Bancam became nationalized and therefore is considered a foreign state defendant (Jennings, 2012).

Jurisdiction under the act of state doctrine
Under 28 U.S.C § 1605(a)(2) the state has jurisdiction under the state of doctrine. Ohio may have jurisdiction under the Foreign Sovereign Immunities Act (FSIA) 28 U.S.C. § 1605(a), which essentially states that a foreign state shall not receive immunity from the court of the U.S. involving commercial activity (Jennings, 2012).
FINAL ACTION: The Appeal was partially reversed; the court affirmed the portion of the court’s order to deny the motion on the grounds of breach of contract. However, the court does agree this transaction is reflective of commercial activity and agrees to proceed in reviewing this case in relation to Ohio securities law (Jennings, 2012).
OTHER JUDGE DISSENT/CONCURRENCE:
N/A
COMMENTS This author has the opinion that existing CD’s should have continued under the contract terms that existed prior to the merger.

References

Jennings, M. (2012). Business: It's legal, ethical, and global environment. (9th ed.). Mason OH:
South-Western Cengage Learning.