UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-1407
REDONDO CONSTRUCTION CORPORATION,
Plaintiff, Appellee,
v.
BANCO EXTERIOR DE ESPANA, S.A.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Hector M. Laffitte, U.S. District Judge]
Before
Breyer, Chief Judge,
Aldrich, Senior Circuit Judge,
and McAuliffe,* District Judge.
Jose A. Axtmayer, Francisco A. Besosa, Danilo M. Eboli and
Goldman Antonetti Cordova & Axtmayer on brief for appellant.
Antonio Moreda-Toledo, Pedro J. Diaz-Garcia and Moreda & Moreda
on brief for appellee.
November 24, 1993
*Of the District of New Hampshire, sitting by designation.
ALDRICH, Senior Circuit Judge. This is the
epilogue to a charade designed by a foreign lender to avoid
payment of Puerto Rico income taxes on Puerto Rico income.
The script was a farce; the players did not even follow it.
Its reviewers give it a bad notice.
I. Background
Plaintiff, Redondo Construction Corp., is a Puerto
Rico corporation engaged in the construction business.
Defendant, Banco Exterior de Espa a, is a Spanish bank with
an office in Miami, Florida. In 1985 defendant sent one of
its vice presidents to Puerto Rico, where he solicited the
opportunity to finance a part of plaintiff's construction
work. Negotiations ensued; plaintiff disclosed its financial
statements, and those of its two stockholders, as proof that
it was economically sound. At some point defendant
conditioned its performance on plaintiff's acceptance of a
structure it concocted to prevent its incurring tax liability
under 13 L.P.R.A. 3231 that imposes on foreign corporations
a 29% tax on income earned in Puerto Rico, including interest
on loans to a Puerto Rico corporation. 13 P.R.L.A.
3119(a)(1). Plaintiff agreed.
The parties accordingly created a third entity,
"Redondo-USA," a Delaware corporation that would appear as
nominal borrower on defendant's credit line. Counsel for
defendant drew up the incorporation papers and mailed them to
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plaintiff in Puerto Rico. Plaintiff's president was made
president of Redondo-USA. The agreement provided that a
credit line would be extended to Redondo-USA; Redondo-USA
would then forward the funds to plaintiff for its
construction projects; plaintiff would assign the proceeds
from its construction contracts to Redondo-USA, which would
then use these funds to repay defendant. Plaintiff and its
two stockholders appeared as guarantors and "principal
obligors" on the credit line agreement.
After the execution of the agreement, the parties
largely disregarded the separate existence of Redondo-USA.
Although the agreement provided that loan payments to
defendant were to be made by Redondo-USA, in fact plaintiff
made those payments throughout, by its own checks, naming
defendant as the payee. There was no mention of Redondo-USA.
Plaintiff and defendant both certified annually to
defendant's auditors defendant's running account with
plaintiff. Again, no mention of Redondo-USA. The tri-party
agreement, made much of in defendant's brief, was a joke,
even to the participants.
In 1990 the Puerto Rico Department of Treasury
determined that plaintiff had made interest payments to
defendant of $591,332. Because 13 P.R.L.A. 3144 requires
withholding of the 29% tax from interest payments, the
Treasury assessed back taxes of $171,486, and penalty and
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interest charges of $40,277, on plaintiff. Plaintiff then
brought this action seeking compensation from defendant for
these payments. The district court found defendant liable to
plaintiff for the back taxes, but not for the penalty or
interest. Defendant appeals. We affirm.
II. Discussion
A. Jurisdiction
The district court determined that it had specific
jurisdiction over defendant on the grounds that plaintiff's
claim arose directly out of defendant's acts in the forum,
regardless of whether defendant's contacts with the forum
were sufficient to establish jurisdiction for all purposes.
We agree that there is ample basis for specific
jurisdiction. Defendant's vice president traveled to Puerto
Rico to solicit plaintiff's business. As a result of that
solicitation, plaintiff and defendant negotiated the credit
agreement. Plaintiff signed the credit agreement and was a
party to it, although it was not the nominal borrower. Under
the agreement, plaintiff incurred ongoing obligations to
defendant, not only to guarantee the loan but also to assign
its construction proceeds to Redondo-USA. Thus even under
its own characterization of the agreement, defendant had
sufficient involvement in Puerto Rico to have foreseen that
it might be sued there on disputes arising from the
agreement. International Shoe v. Washington, 326 U.S. 310
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(1945); United Elec. Workers v. 163 Pleasant St. Corp., 960
F.2d 1080 (1st Cir. 1992).
Defendant has not asserted any particular burden in
appearing in Puerto Rico rather than Florida, and Puerto Rico
has a distinct interest in having disputes under its tax code
adjudicated in Puerto Rico courts. Even if the agreement had
been strictly performed, it would not be unreasonable or
unfair, in these circumstances, to subject defendant to the
authority of a Puerto Rico tribunal. Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 476-77 (1985).
Moreover, we need not blind ourselves to the
reality behind the agreement's transparent fictions. The
agreement is no different in substance from one in which
plaintiff is the borrower. "If International Shoe stands for
anything, . . . it is that a truly interstate business may
not shield itself from suit by a careful but formalistic
structuring of its business dealings." Vencedor Mfg. Co. v.
Gougler Indus., 557 F.2d 886, 891 (1st Cir. 1977).1
B. Forum clause
In this situation defendant points to a provision
in the agreement as an escape hatch. The agreement provided
that the "Borrower and the Guarantors each hereby expressly
1. For the same reasons, we find that defendant's actions
come within the language of Puerto Rico's Long-arm statute,
32 P.R.L.A. App. III Rule 4.7(a). See Industrial
Siderurgica, Inc. v. Thyssen Steel Caribbean, Inc., 114
D.P.R. 548, 14 Official Translation 708, 721-22 n.5 (1983).
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submits to the jurisdiction of all Federal and State courts
located in the State of Florida." (Emphasis ours).
Defendant argues that this clause prohibits plaintiff from
suing in the District of Puerto Rico. This is a confusion.
Affirmatively conferring Florida jurisdiction by consent does
not negatively exclude any other proper jurisdiction. See
Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 77
(9th Cir. 1987). There is a total difference between
"expressly" and "exclusively." Even if there could be
thought to be ambiguity, its resolution must be in
plaintiff's favor. Under Florida law (by which the agreement
provides it is to be construed), as elsewhere, ambiguities
are construed against the drafter. Capital City Bank v.
Hilson, 59 Fla. 215, 219, 51 So. 853, 855 (1910). Thus even
if the agreement could have some effect upon this collateral
action, that effect, jurisdictionally, would be nil.
C. Liability
The court held that defendant was liable to
plaintiff on either of two theories: (1) because plaintiff is
entitled to repayment for having paid the debt of another, 31
P.R.L.A. 3162; or (2) because defendant was unjustly
enriched at plaintiff's expense. Each theory depends on the
assumption that defendant was the party ultimately
responsible for payment of the tax, which defendant disputes.
We note first that nothing before us indicates that
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the assessment of taxes on plaintiff by the Puerto Rico
Treasury was erroneous. Defendant makes much of the
contractual language stating that only Redondo-USA, a
Delaware corporation, shall make payments, but that language
is irrelevant on this point; the agreement does not bind the
Treasury. Defendant does not dispute that payments on the
loan were in fact made by plaintiff by check drawn on its
Puerto Rico account and that defendant accepted those
payments. This is sufficient to bring the payments squarely
within 3231 as income derived "from sources within Puerto
Rico." 13 P.R.L.A. 3231(a)(1)(A). Cf. Caribe Crown Cap
Corp. v. Secretary of the Treasury, 108 D.P.R. 857, 863-64
(1979) (translation) (source of income derived from
intangible property is place where intangible property "is
actually and effectively used"); Inter-American Orange Crush
Co. v. Secretary of the Treasury, 81 P.R.R. 286, 297-298
(1959) (source of royalty income "depends on the situs where
the personal property from which the income is derived is
really and actually used"). Moreover, the Treasury could
properly disregard the corporate status of the nominal
borrower, Redondo-USA, as merely an instrument "to evade a
clear legislative purpose." South P.R. Sugar Corp. v. Sugar
Board, 88 P.R.R. 42, 56 (1963).
Just as the transactional structure is insufficient
to shift the tax burden away from defendant by operation of
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law, it is also insufficient to show an intention to shift
that burden by agreement. Had the parties explicitly agreed
that plaintiff would be responsible for the taxes that would
otherwise fall on defendant, no further analysis would be
necessary. The parties expressed no such intention, as they
could easily have done; in fact, the agreement contains
sections entitled "Payment of Taxes" and "Payment of
Indebtedness, Taxes" in which no such terms appear. Rather,
the parties set up a two-step transaction that appears geared
more to evade the imposition of the tax altogether than to
reallocate that burden between the parties. While obviously
defendant hoped to avoid the tax, there is nothing in the
language of the agreement evidencing a mutual intent that
plaintiff take on the tax burden itself. We find no
contractual defense to the action.2
Affirmed.
2. Defendant briefly argues that once plaintiff had paid,
defendant should not have to make compensation, even if it
would initially have been responsible. The cases cited by
defendant, however, are all from jurisdictions outside Puerto
Rico and are unpersuasive in light of Puerto Rico's statutory
provision allowing recovery by one who pays the debt of
another. 31 P.R.L.A. 3162.
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