
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                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                                         -2-            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                                         -3-            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                         __________________     __________                                         -4-            (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).                                         -5-            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                                         -6-            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                                         -7-            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.                                         -8-
