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

__________________
_____________________
________________
Goldman Antonetti Cordova & Axtmayer on brief for appellant.
____________________________________
Antonio Moreda-Toledo, Pedro J. Diaz-Garcia and Moreda & Mor
_____________________
____________________
_____________
on brief for appellee.
____________________
November 24, 1993
____________________

____________________
*Of the District of New Hampshire, sitting by designation.

ALDRICH,
epilogue to a

Senior Circuit Judge.

______________________

This

charade designed by a foreign

payment of Puerto
The script was a

Rico income taxes

the

lender to avoid

on Puerto Rico

farce; the players did not

is

income.

even follow it.

Its reviewers give it a bad notice.

I.

Background
__________
Plaintiff, Redondo Construction

Rico

corporation

engaged

in

the

Corp., is a Puerto

construction

business.

Defendant, Banco Exterior de

Espa a, is a Spanish

an office in Miami, Florida.

its vice

work.

In 1985 defendant sent one

presidents to Puerto

opportunity to

finance a

part

Rico, where he

of

solicited the

of plaintiff's

construction

Negotiations ensued; plaintiff disclosed its financial

statements, and those of its two stockholders, as

it

bank with

was

economically

sound.

conditioned its performance

At

some

proof that

point

on plaintiff's

defendant

acceptance of

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

3119(a)(1).
The

Puerto

Rico

corporation.

13

P.R.L.A.

Plaintiff agreed.
parties accordingly

"Redondo-USA," a Delaware
nominal borrower

created

corporation that

on defendant's

a third

entity,

would appear

credit line.

Counsel

as
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.

credit line
would

would

then

The

agreement

be extended

forward

the

construction projects;

to Redondo-USA;

funds

two

to

stockholders

appeared

for

assign the

its

proceeds

to Redondo-USA, which

funds to repay defendant.

as

Redondo-USA

plaintiff

plaintiff would

from its construction contracts

then use these

provided that

would

Plaintiff and its

guarantors

and

"principal

obligors" on the credit line agreement.

After

the execution of

largely disregarded
Although

the

made those

the separate

agreement

defendant were to

defendant's
plaintiff.

loan

by its

Redondo-USA.
payments

to

in fact plaintiff
own checks,

naming

There was no mention of Redondo-USA.

defendant

auditors

both

certified

defendant's

Again, no mention of

agreement, made

that

be made by Redondo-USA,

defendant as the payee.

and

existence of

provided

payments throughout,

Plaintiff

the agreement, the parties

much of

annually

running

to

account

Redondo-USA.

in defendant's brief,

with

The tri-party
was a

joke,

even to the participants.

In
determined

1990 the
that

plaintiff

defendant of $591,332.
withholding

of the

Treasury assessed

Puerto

29%

Rico

had made

Department of
interest

Because 13 P.R.L.A.
tax

back taxes

from

interest

of $171,486,

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Treasury

payments

to

3144 requires
payments,

the

and penalty

and

interest

charges of $40,277,

brought this action

these payments.

Plaintiff then

seeking compensation from defendant

for

The district court found defendant liable to

plaintiff

for the

interest.

Defendant appeals.

II.

on plaintiff.

back taxes,

but not

for the

penalty or

We affirm.

Discussion
__________
A.

Jurisdiction
____________

The district court determined

jurisdiction over defendant
claim

arose directly out

regardless

of whether

that it had specific

on the grounds that

of defendant's acts

defendant's

plaintiff's
in the forum,

contacts with

the forum

were sufficient to establish jurisdiction for all purposes.

We agree
jurisdiction.
Rico to

that there

is ample

Defendant's vice

agreement.

As a result

and defendant negotiated

Plaintiff signed

specific

president traveled to Puerto

solicit plaintiff's business.

solicitation, plaintiff

basis for

the credit

the credit agreement and was

party to it, although it was not the nominal borrower.

the

agreement,

plaintiff

of that

incurred ongoing

defendant, not only to guarantee

Under

obligations

to

the loan but also to assign

its

construction proceeds to

Redondo-USA.

its

own characterization

the

of

sufficient involvement in
it

might

be

agreement.

sued

Thus

agreement, defendant

Puerto Rico to have

there

on

disputes

International Shoe
__________________

even under
had

foreseen that

arising

from

v. Washington, 326
__________

the

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.
been

strictly performed,

unfair, in these
authority of

it would

Even if the agreement had

not

be unreasonable

circumstances, to subject defendant

a Puerto Rico

tribunal.

or

to the

Burger King Corp. v.

__________________

Rudzewicz, 471 U.S. 462, 476-77 (1985).

_________
Moreover,

we

need

not

blind

ourselves

to

the

reality behind
agreement

the agreement's

transparent

fictions.

different in

substance from

one in

is no

plaintiff is the borrower.

anything,

. . . it

not shield

itself

structuring of

The
which

"If International Shoe stands for

__________________

is that a
from suit

truly interstate business may

by a

careful but

its business dealings."

formalistic

Vencedor Mfg. Co. v.

_________________

Gougler Indus., 557 F.2d 886, 891 (1st Cir. 1977).1

______________
B.

Forum clause
____________

In this situation defendant

in the agreement as an
that the "Borrower

escape hatch.

points to a

provision

The agreement provided

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
located

in

Defendant

jurisdiction of all Federal and

the

State

of

argues that this

suing in the District

Florida."

State courts

(Emphasis

clause prohibits

of Puerto Rico.

ours).

plaintiff from

This

is a confusion.

Affirmatively conferring Florida jurisdiction by consent does

not

negatively exclude any

other proper jurisdiction.

Hunt Wesson Foods, Inc. v.

_______________________

Supreme Oil Co., 817 F.2d

_______________

(9th

is

Cir. 1987).

"expressly"
thought

There

total

and "exclusively."

to

be

ambiguity,

Even
its

difference
if

there

resolution

must

See
___
75, 77

between
could

be

be

in

plaintiff's favor.

Under Florida law (by which the agreement

provides

be construed), as

are

it is to

construed against

Hilson, 59 Fla.
______

the drafter.

elsewhere, ambiguities
Capital City Bank
__________________

215, 219, 51 So. 853, 855 (1910).

if the agreement

v.

Thus even

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

enriched at plaintiff's expense.

assumption

that

defendant

was

defendant

was

unjustly

Each theory depends on the

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

Treasury

erroneous.

was

contractual

taxes on

language

plaintiff

by the

Defendant

makes

stating

that

only

Puerto
much

Treasury.
loan
Puerto

Defendant

were in
Rico

payments.

account

and

3231 as

Rico."

13

that

defendant

P.R.L.A. 3231(a)(1)(A).

intangible property

(source

is place

Co. v.
___

Cf.
___

those

within Puerto

Caribe Crown Cap

_________________

108 D.P.R. 857,

of

income

where intangible

actually and effectively used");

drawn on its

accepted

income derived "from sources

(translation)

the

bring the payments squarely

Corp. v. Secretary of the Treasury,

_____
__________________________
(1979)

language

that payments on

plaintiff by check

This is sufficient to

within

the

the agreement does not bind the

does not dispute

fact made by

of

Redondo-USA,

Delaware corporation, shall make payments, but that

is irrelevant on this point;

Rico

derived

863-64
from

property "is

Inter-American Orange Crush

___________________________

Secretary of the Treasury, 81

___________________________

P.R.R. 286,

297-298

(1959) (source

of royalty income "depends on the situs where

the personal property

really and
properly

actually used").
disregard

borrower,

from which

the

the income

Moreover,

corporate

Redondo-USA, as merely

clear legislative purpose."

is derived

the Treasury

status

of

is

could

the

nominal

an instrument "to

evade a

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

that burden by agreement.

to show an intention

to shift

Had the parties explicitly agreed

that plaintiff would be responsible for the taxes that

otherwise fall
necessary.
could

no further

analysis would

The parties expressed no such intention,

easily

sections

on defendant,

have

entitled

Indebtedness, Taxes"

done; in

fact,

"Payment

of

the

Taxes"

would
be

as they

agreement contains
and

"Payment

in which no such terms appear.

of

Rather,

the parties set up a two-step transaction that appears geared

more to

evade the imposition

reallocate

that burden between the parties.

defendant hoped
language of
plaintiff

of the tax altogether

to avoid

the agreement
take

on

the

than to

While obviously

the tax, there

is nothing

evidencing a

mutual intent

tax

burden itself.

We

in the

find

that
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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