2003 International Law Update, Volume 9, Number 5 (May)

2003 International Law Update, Volume 9, Number 5 (May)

Legal Analyses published by Mike Meier, Attorney at Law. Copyright 2017 Mike Meier. www.internationallawinfo.com. 

EVIDENCE

Highest court of Australia, agreeing with privilege law of United Kingdom, Canada, United States and European Union, holds, as matter of first impression, that its Trade Practices Act does not authorize competition agency to compel production of documents covered by solicitor-client privilege

The Australian Competition and Consumer Commission (the ACCC) served notices on solicitors, Meerkin & Apel (the Firm), pursuant to Section 155 of the Trade Practices Act 1974 (Cth) (the Act). It demanded that the Firm turn over certain documents obtained by them in the course of acting as solicitors for the Daniels Corporation International Pty. Ltd. (Daniels). The Firm and Daniels objected, claiming that legal professional privilege protected certain documents and that Section 155 of the Act did not empower the ACCC to compel the production of documents sheltered by that privilege. As a result, the Firm handed over the unprivileged documents but declined to deliver the rest.

Section 155(1) of the Act provides in part that, if the ACCC has reason to believe that a person in possession of documents pertaining to a matter that amounts to, or may constitute, a violation of the Act, “a member of the Commission may, by notice in writing served on that person, require that person: . . . (b) to produce to the Commission, or to a person specified in the notice acting on its behalf, in accordance with the notice, any such documents”. In addition, Section 155(5) of the Act declares that “a person shall not: (a) refuse or fail to comply with a notice under this section to the extent that the person is capable of complying with it”.

The ACCC then took the matter to the Federal Court of Australia, which ruled for the agency. Defendants then obtained preliminary review in the Full Court limited to the privilege question. The Full Court also decided in favor of the ACCC. It ruled that Section 155 did entitle the ACCC to get a court order that defendants turn over relevant documents otherwise within the solicitor-client privilege. The Firm and Daniels sought appellate review.

In a per curiam ruling, the Australian High Court allows the appeal, overturning the order of the Full Court. In a case of first impression, the Court declares that Section 155 of the Trade Practices Act of 1974 (Cth) does not require the production of documents to which legal professional privilege has attached. The High Court remands the matter to the Federal Court to determine which, if any, of the documents specified in the notices are covered by legal professional privilege.

The Court first summarizes the characteristics of the privilege. “It is now settled that legal professional privilege is a rule of substantive law which may be availed of by a person to resist the giving of information or the production of documents which would reveal communications between a client and his or her lawyer made for the dominant purpose of giving or obtaining legal advice or the provision of legal services, including representation in legal proceedings. It may here be noted that the ‘dominant purpose’ test for legal professional privilege was recently adopted by this court [Cite] in place of the ‘sole purpose’ test which had been applied [Cite].” [N/A]

“Being a rule of substantive law and not merely a rule of evidence, legal professional privilege is not confined to the processes of discovery and inspection and the giving of evidence in judicial proceedings. Rather, and in the absence of provision to the contrary, legal professional privilege may be availed of to resist the giving of information or the production of documents in accordance with investigatory procedures of the kind for which Section 155 of the Act provides.” [N/A]

“Legal professional privilege is [also] ... an important common law right or, perhaps, more accurately, an important common law immunity. It is now well settled that statutory provisions are not to be construed as abrogating important common law rights, privileges and immunities in the absence of clear words or a necessary implication to that effect. That rule ...is a rule which ... has been strictly applied by this court since [1990].” [N/A]

On the practical level, the Court stresses the relative rarity of invocations of privilege in the course of the ACCC’s administration of the Act. Moreover, it suggests that what is generally called in the U.S. the “crime or fraud” exception tends to lessen any obstructive impact the privilege might be thought to have on law enforcement.

“A communication the purpose of which is to ‘seek help to evade the law by illegal conduct’ is not privileged. That being so, it is difficult to see that the availability of legal professional privilege to resist compliance with a notice under Section 155(1) of the Act would result in any significant impairment of the investigation of contraventions of the Act, much less in the frustration of such investigations. ... So to say, however, does not obviate the need to construe Section 155 of the Act.” [N/A]

The Court cannot read the general language of Section 155(1) as authorizing the production of documents protected by legal professional privilege. “It is an elementary rule of statutory construction that courts do not read general words in a statute as taking away rights, privileges and immunities that the common law or the general law classifies as fundamental unless the context or subject matter of the statute points irresistibly to that conclusion.”

“Nothing in the context or subject matter of Section 155 points to the parliament intending the commission to have power to require the production of documents that are the subject of legal professional privilege. In that respect, the right of legal professional privilege is in a different category from the [statutory] immunity against self‑incrimination, an immunity which Section 155 expressly abolishes...” [N/A]

“Courts do not construe legislation as abolishing, suspending or adversely affecting rights, freedoms and immunities that the courts have recognised as fundamental unless the legislation does so in unambiguous terms. In construing legislation, the courts begin with the presumption that the legislature does not interfere with these fundamental rights, freedoms and immunities unless it makes its intention to do so unmistakably clear.”

“The courts will hold that the presumption has not been overcome unless the relevant legislation expressly abolishes, suspends or adversely affects the right, freedom or immunity or does so by necessary implication. They will hold that the legislature has done so by necessary implication whenever the legislative provision would be rendered inoperative or its object largely frustrated in its practical application, if the right, freedom or immunity were to prevail over the legislation.” [N/A]

“In the United Kingdom, Canada, the United States of America and the European Union, documents to which legal professional privilege attaches are exempted from production in like circumstances. It is therefore difficult to accept that a different regime is now essential in Australia. If it is, it is not unreasonable that the [ACCC], which has access to government, should be obliged to seek an amendment of its Act to secure from the parliament the addition of such a power, either expressly or by unmistakable implication. [N/A]

Citation: Daniels Corp. International Pty. Ltd. v. Australian Competition and Consumer Commission, 192 A.L.R. 561 (Aust. High Ct., November 7, 2002).

FOREIGN CORRUPT PRACTICES ACT

In lawsuit alleging that lawyer had erred in advising U.S. company that it could lawfully send bribe to Panamanian official through its European affiliate, Second Circuit reverses and remands holding that the U.S. company’s prior plea of guilty to Foreign Corrupt Practices Act violations does not collaterally estop company from litigating its claim that it did not know that any degree of involvement in bribe might entail liability

In the Fall of 1994, Saybolt de Panama, S.A., a subsidiary of Saybolt International B.V. (a Dutch company), was looking to buy or lease property in Panama on which to build a laboratory and office complex. Saybolt is a world-wide company which specializes in testing bulk commodities such as oil and gasoline.

Saybolt International owned a U.S. subsidiary, Saybolt North America, Inc. (SNA), a Delaware corporation with its principal place of business in New Jersey. David Mead, the CEO of SNA and manager of its Panamanian operations, eventually found a suitable property in the Panama Canal Zone. To lease the property, however, would supposedly require a $50,000 bribe to a Panamanian government official.

Mead raised the bribe issue at an SNA board meeting in New Jersey in November 1995. Board member and Attorney, Philippe Schreiber of the firm of Walter, Conston, Alexander & Green, P.C., advised the board that SNA could not itself pay the bribe without incurring legal liability.

A few weeks later, Schreiber allegedly led Mead and others to believe that SNA could legally make the payoff by routing it through its Dutch affiliate. On this assumption, an SNA employee traveled to Panama in December 1995 and delivered the $50,000 to a go-between of the Panamanian official.

While U.S. officials were looking into possible environmental crimes by SNA in 1996, it searched SNA’s New Jersey offices. The search turned up evidence of the Panama bribe.

The Foundation of the Shareholders’ Committee Representing the Former Shareholders of Saybolt International, B.V., sued Philippe Schreiber, Esq. over the allegedly bad legal advice she had given about the legality of a bribe under the Foreign Corrupt Practices Act (FCPA) [15 U.S.C. Section 78dd-1].

The FCPA provides, in relevant part, that “[i]t shall be unlawful for any domestic concern ... to make use of the mails or any instrumentality of interstate commerce corruptly in furtherance of an offer, payment, [or] promise to pay ... to – (3) any person, while knowing that all or a portion of such money ... will be offered, given or promised, ... to any foreign official ... for purposes of (A)(I) influencing any act or decision of such foreign official ...”

SNA eventually pled guilty in Massachusetts federal court to FCPA violations. Later on, a New Jersey district court convicted its CEO after a trial.

In 1997, Core Laboratories, N.V. bought Saybolt International and its controlling interest in SNA. Under the agreement, Saybolt’s former shareholders placed $6 million in escrow to cover any criminal liability that might come out of the Panama bribe. In exchange, Core assigned to the former shareholders all potential legal malpractice claims linked to the Panama bribe. The shareholders, in turn, assigned them to the Foundation, the plaintiff here.

In the present civil action, the district court granted the defendants’ motion for summary judgment on the plaintiff’s legal malpractice action. The court found that SNA’s previous guilty plea to FCPA charges, and the former CEO’s conviction of similar offenses had collaterally estopped plaintiffs from relitigating whether the attorney had misled the U.S. corporation into believing that its acts would not violate the FCPA. Thus, the court ruled, SNA had acted with knowledge that its conduct was “unlawful or corrupt.”

The plaintiffs appealed. The U.S. Court of Appeals for the Second Circuit vacates and remands. The Court agrees with the district court’s premise that SNA’s guilty plea was properly entered and constituted an admission of each element of the FCPA charge. Thus, the pleas did collaterally estop SNA but only from proceeding with a malpractice claim requiring it to prove any fact that would be inconsistent with any element of the crime to which it had pled guilty. The Court points out, however, that the guilty plea did not speak to the question of whether SNA had acted with actual knowledge that its conduct specifically violated the FCPA.

In analyzing the FCPA, the Court concludes that the word “corruptly” means, in addition to the element of “general intent” present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position. There is, however, nothing in that term or in the FCPA that requires the government to establish guilt by showing that the defendant in fact knew that the conduct breached the FCPA.

Had SNA gone to trial instead of pleading guilty, it could have put on evidence that it had relied on Schreiber’s advice that the benefit sought from the Panamanian official would not require official misuse of his position or breach of his duties. In that case, SNA would not have been acting “corruptly.”

“By pleading guilty, [SNA] admitted the six elements of the FCPA crime ... But ... [it] did not [thereby] admit that, at the time of the criminal act, it knew that the act of arranging, rather than paying, such a bribe was criminal. Knowledge by a defendants [sic] that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime. ... [SNA] did not, therefore, by pleading guilty, preclude an assertion in a subsequent civil action – the case at bar – that it did not know it was violating the FCPA at the time of the violation.”

“The plaintiff is thus not collaterally estopped by [SNA’s] criminal plea from arguing in this civil suit that, even though [SNA] admittedly did commit a violation of the FCPA, it did not know that it was committing a violation of the FCPA at the time; that it did not know it was committing such a violation because Schreiber negligently told it that it was not committing a violation by causing a foreign entity to pay the bribe; and that it suffered damages as a result of the negligent act.” [Slip op. 17-19] Accordingly, the Court remands to give the plaintiff a chance to show that Schreiber had advised SNA that a bribe payment by a foreign affiliate might be legal.

As for CEO Mead’s criminal conviction, the Court notes that collateral estoppel applies only against a party to a previous adjudication or against those in privity with that party. As the record in this case shows, neither the plaintiff nor SNA was party to Mead’s trial. On the contrary, SNA had already released Mead from his duties by the time authorities had arrested him. In addition, Mead had no authority to represent SNA’s interests during his own trial, nor did SNA exercise actual control over the presentation of Mead’s case.

Citation: Stichting ter behartiging van de belangen van oudaandeelhouders in het kapitaal van Saybolt International B.V. (Foundation of the Shareholders’ Committee Representing the Former Shareholders of Saybolt International B.V.) v. Schreiber, 327 F.3d 173 (2d Cir. 2003).

JURISDICTION (CRIMINAL)

Alaska Court of Appeals upholds dismissal for lack of State’s jurisdiction over prosecution for unlawful sexual conduct allegedly committed on state-owned ferry operating in Canadian territorial waters

While on board the Matanuska, an Alaska state ferry navigating from Bellingham, Washington to southeast Alaska through the Inside Passage, Vernon G. Jack V, engaged in sexual contact with, and sexual penetration of, S.N.F. and physically assaulted her. After investigating S.N.F.’s complaints, an Alaska State Trooper (who happened to be on board) arrested Jack. A Ketchikan grand jury later indicted Jack on six counts of various degrees of sexual assault.

Jack moved to dismiss the indictment based on the State’s lack of jurisdiction to prosecute him because his alleged conduct had taken place in Canadian territorial waters. The Superior Court granted Jack’s motion to dismiss, and the Alaska Court of Appeals granted the State’s petition for review. The Court affirms, concluding that AS Section 44.03.010 (the Statute) does not extend Alaska’s criminal jurisdiction to Canadian territorial waters.

The Statute provides that: “[t]he jurisdiction of the state extends to water offshore from the coast of the state as follows: (1) the marginal sea to its outermost limits as those limits are from time to time defined or recognized by the United States of America by international treaty or otherwise; (2) the high seas to the extent that jurisdiction is claimed by the United States of America, or to the extent recognized by the usages and customs of international law or by agreement to which the United States of America or the state is a party; (3) submerged land including the subsurface of submerged land, lying under the water mentioned in this section.” [Slip op. 1-2] [emphasis supplied]

Although Alaska contended that it had jurisdiction under clause (2), the Court rejects this reading. It “is far too broad, and ignores the statute’s initial limitation to ‘waters offshore the coast.’ The State provides no authority that would support a conclusion that the United States is empowered to regulate foreign territorial waters under either its power to regulate ‘Piracies and Felonies committed on the high seas,’ or under the federal government’s special admiralty and maritime jurisdiction.” [Slip op. 3]

Nor does the State have jurisdiction under the Statute to prosecute Jack’s crimes based on the admiralty and maritime jurisdiction. That source allows the United States to define and punish crimes committed by its citizens on U.S.-flagged vessels (such as the Matanuska) operating in foreign territorial waters. “[T]he United States’ authority over its flagged vessels while they are in foreign territorial waters is not exclusive -- the coastal state has a concurrent interest in regulating the conduct aboard vessels within its territorial waters.”

“In other words, the fact that the United States has criminal jurisdiction over its flagged vessels does not preclude Canada from exercising its own jurisdiction when conduct aboard the vessel affects Canada’s ‘peace, dignity or tranquility.’ And even if the United States had jurisdiction over the vessel while it was in Canada’s territorial waters, it does not follow that Alaska has the same jurisdiction, because nothing in AS Section 44.03.010 indicates that the legislature intended to assert jurisdiction over an Alaskan vessel operating outside the territorial waters specifically described in the statute.” [Slip op. 3]

Editors’ Note. “Apparently in response to this and similar cases, the legislature recently passed AS Section 12.05.020, making it clear that Alaska’s jurisdiction does extend to the Alaska Ferry System. Alaska Statute Section 12.05.020 states: ‘A person may be prosecuted under the laws of this state for an offense committed on or against ... a ferry or other water craft owned or operated by the state, even if the ... ferry ... is in ... water outside the state when the offense is alleged to have occurred.’” [Slip op. 6, note 12]

Citation: State v. Jack, 67 P.3d 673 (Alaska App. 2003).

SOVEREIGN IMMUNITY

U.S. Supreme Court rules that Foreign Sovereign Immunities Act does not regard subsidiaries of state-owned corporations as “instrumentalities of foreign state” and that instrumentality status need only exist at time of filing suit

In 1997, a group of farm workers from Costa Rica, Ecuador, Guatemala, and Panama (plaintiffs) brought a class action against the Dole Food Company and other companies (defendants) in the courts of Hawaii. The suit alleged that exposure in their home countries to dibromochloropropane, a chemical used as an agricultural pesticide, caused them serious injuries. The defendants impleaded Dead Sea Bromine Co., Ltd., and Bromine Compounds, Ltd. ( the Dead Sea Companies or DSCs) and later removed the action to federal court.

As a basis for removing the action, the defendants argued that 28 U.S.C. Section 1331 provided general federal-question jurisdiction since plaintiffs’ claim arose under the federal common law of foreign relations. Although the District Court agreed that it did have jurisdiction, it dismissed the case on grounds of forum non conveniens.

The DSCs also removed, but they claimed to be entitled to removal under 28 U.S.C. Section 1441(d) as “instrumentalities of a foreign state” as defined by the Foreign Sovereign Immunities Act of 1976 (the Act). The District Court disagreed and held that the DSCs did not qualify as foreign state instrumentalities.

The U.S. Court of Appeals for the Ninth Circuit reversed. Addressing the ground relied on by the defendants, it held that removal could not rest on the federal common law of foreign relations. In the Supreme Court, however, defendants did not seek review of that portion of the Court of Appeals’ ruling.

The Court of Appeals also reversed the order allowing removal at the instance of the DSCs who claimed that they were instrumentalities of the State of Israel. The Court of Appeals mentioned, but declined to decide, the question of whether courts should assess status as an instrumentality of a foreign state as of the time of the alleged prior wrongdoing or as of the time suit is filed. It did hold that the DSCs, even at the earlier date, were not instrumentalities of Israel as the Act defined it.

The Supreme Court granted certiorari and affirms 7 to 2. (Two Justices filed an opinion concurring in part and dissenting in part.)

The Court first quotes part of 28 U.S.C. Section 1603(a), the FSIA’s definition section. An agency or instrumentality of a foreign state is defined, in turn, as: “[A]ny entity -- (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof ... Section 1603(b).”

The Court’s analysis centers on the DSCs’ instrumentality status on clause (2), searching mainly for the underlying intent of Congress. “Section 1603(b)(2) speaks of ownership. The [DSCs] urge us to ignore corporate formalities and use the colloquial sense of that term. They ask whether, in common parlance, Israel would be said to own the [DSCs]. We reject this analysis.”

“In issues of corporate law, structure often matters. It is evident from the Act’s text that Congress was aware of settled principles of corporate law and legislated within that context. The language of Section 1603(b)(2) refers to ownership of ‘shares,’ showing that Congress intended statutory coverage to turn on formal corporate ownership.”

“Likewise, Section 1603(b)(1), another component of the definition of instrumentality, refers to a ‘separate legal person, corporate or otherwise.’ In light of these indicia that Congress had corporate formalities in mind, we assess whether Israel owned shares in the [DSCs] as a matter of corporate law, irrespective of whether Israel could be said to have owned the [DSCs] in everyday parlance.”

“A basic tenet of American corporate law is that the corporation and its shareholders are distinct entities. [Cites] An individual shareholder, by virtue of his ownership of shares, does not own the corporation’s assets and, as a result, does not own subsidiary corporations in which the corporation holds an interest. [Cite]”

“A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary. [Cite] The fact that the shareholder is a foreign state does not change the analysis.” [1660]

To further strengthen its conclusion that Congress intended the term “instrumentality” to be based on formal corporate ownership, the Court looks at how Congress has expressed a variety of intentions in other federal statutes. “Where Congress intends to refer to ownership in other than the formal sense, it knows how to do so. Various federal statutes refer to ‘direct and indirect ownership.’ [Cites] See, e.g., 5 U.S.C. Section 8477(a)(4)(G)(iii) (referring to an interest ‘owned directly or indirectly’); 12 U.S.C. Section 84(c)(5) (referring to ‘any corporation wholly owned directly or indirectly by the United States’); 15 U.S.C. Section 79b(a)(8)(A) (referring to securities ‘which are directly or indirectly owned, controlled, or held with power to vote’); Section 1802(3) (‘The term 'newspaper owner' means any person who owns or controls directly, or indirectly through separate or subsidiary corporations, one or more newspaper publications’). The absence of this language in 28 U.S.C. Section 1603(b) instructs us that Congress did not intend to disregard structural ownership rules.” [1661]

The Court rejects the DSCs’ reading of “other ownership interest” as including a state’s “interest” in an instrumentality’s subsidiary. “The better reading of the text, in our view, does not support this argument. The words ‘other ownership interest,’ when following the word ‘shares,’ should be interpreted to refer to a type of interest other than ownership of stock. The statute had to be written for the contingency of ownership forms in other countries, or even in this country, that depart from conventional corporate structures.”

“The statutory phrase ‘other ownership interest’ is best understood to accomplish this objective. Reading the term to refer to a state’s interest in entities lower on the corporate ladder would make the specific reference to ‘shares’ redundant. Absent a statutory text or structure that requires us to depart from normal rules of construction, we should not construe the statute in a manner that is strained and, at the same time, would render a statutory term superfluous.” [Cites] [Id.]

The DSCs urged the Court to take into account the degree of control, if any, that the State of Israel exercised over their operations. The Court, however, disagrees. “Control and ownership ... are distinct concepts. [Cite] The terms of Section 1603(b)(2) are explicit and straightforward. Majority ownership by a foreign state, not control, is the benchmark of instrumentality status. We need not delve into Israeli law or examine the extent of Israel’s involvement in the [DSCs’] operations.”

“Even if Israel exerted the control the [DSCs] describe, that would not give Israel a ‘majority of [the companies’] shares or other ownership interest.’ The statutory language will not support a control test that mandates inquiry in every case into the past details of a foreign nation’s relation to a corporate entity in which it does not own a majority of the shares.” [Id.]

Next, the Court addresses the issue of whether the courts should determine instrumentality status as of the time suit is filed or whether, as the [DSCs] urge, it is based upon the status of the entity at the time of the previous conduct that gave rise to the action. “We think the plain text of this provision, because it is expressed in the present tense, requires that instrumentality status be determined at the time suit is filed. Construing Section 1603(b) so that the present tense has real significance is consistent with the ‘longstanding principle that ‘the jurisdiction of the Court depends upon the state of things at the time of the action brought.’ [Cites]” [1662]

The DSCs also asked the Court to administer the FSIA by analogy to other status-based immunities. The Court, however, finds the analogies inapt. “The immunities for government officers prevent the threat of suit from ‘crippl[ing] the proper and effective administration of public affairs.’ [Cites]”

“Foreign sovereign immunity, by contrast, is not meant to avoid chilling foreign states or their instrumentalities in the conduct of their business but to give foreign states and their instrumentalities some protection from the inconvenience of suit as a gesture of comity between the United States and other sovereigns. [Cite]” [1662-63]

In conclusion, the Court holds that third-party defendants, Dead Sea Bromine Co., Ltd., and Bromine Compounds, Ltd., are not entitled to instrumentality status both because the Act does not confer it upon subsidiaries of state-owned corporations and because it turns upon the corporation’s status [only] at the time plaintiff filed the complaint.

Citation: Dole Food Company v. Patrickson, 123 S. Ct. 1655 (U.S. Sup. Ct., 2003).

SOVEREIGN IMMUNITY

In advance-fee scam allegedly involving Nigerian government, Tenth Circuit dismisses on sovereign immunity grounds despite plaintiff’s reliance on FSIA’s “commercial activity” exception because Nigeria proved that none of its government representatives were involved

Claiming to be an agent for a construction business, a self-styled Nigerian got in touch with Kirk Brown, a lawyer in Pueblo, Colorado. The Nigerian Government allegedly owed the agent’s firm $21 million for setting up a major oil pipeline, and was looking for an escrow agent to hold all claims by subcontractors and suppliers. If Brown would agree to act as escrow, he would supposedly get a sizable share of the $21 million.

After they began to receive correspondence from Nigeria bearing an official-looking letterhead of Nigerian government organizations, Brown and his wife fell for the scheme. Before receiving the $21 million, however, the Browns had to fork over money for expenses such as “stamp duties,” “bond fees” and “exchange rate levies” totaling more than $700,000.

During a face-to-face meeting in Austria, the Browns paid three men $10,000 each in cash. To raise money to cover the so-called “fees,” the Browns recruited investors and transferred their contributions to their Nigerian contacts. Needless to say, the $21 million never arrived. The investors sued the Browns, their business, and various Nigerian Government organizations (collectively “Nigeria”).

Nigeria asserted immunity under the Foreign Sovereign Immunities Act of 1976 (FSIA). In particular, Nigeria stated that all the official-looking documents were forgeries and that the Browns had bought into a so-called “Section 419" scam, named after a provision of Nigeria’s criminal code that bans such advance-fee frauds.

As a jurisdictional basis, plaintiffs relied on the “commercial activity” exception of the FSIA [28 U.S.C. Section 1605(a)(3)]. It provides in part that: “(a) A foreign state shall not be immune from jurisdiction ... in any case - ... (2) in which the action is based [a] upon a commercial activity carried on in the United States by the foreign state; or [b] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [c] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States ...”

In an interlocutory appeal, the Tenth Circuit ruled that Nigeria might be subject to suit. On remand, the district court allowed more discovery and eventually gave the defendants summary judgment on sovereign immunity grounds. This appeal followed. The U.S. Court of Appeals for the Tenth Circuit agrees with Nigeria that the “commercial activity” exception of the FSIA does not apply and affirms the summary judgment.

The FSIA is the exclusive source of jurisdiction for claims against foreign states or their instrumentalities. Once a foreign state makes a prima facie showing of immunity, the burden is on the plaintiff to show that one of the statutory exceptions to immunity applies.

Here, Nigeria presented three government officials to testify that Nigeria does not authorize such scams or benefit from them. The Nigerian government officials testified that the documents and signatures were forgeries. In particular, M.R. Rashid, who purportedly signed some of the documents the Browns received, testified that anybody familiar with Nigeria’s administrative system would have realized that this was a scam. For example, several of the alleged government agencies that the Browns communicated with do not exist. The district court also found that Mr. Rashid’s purported signature on the documents that the Browns received was not his.

“The district court here concluded that the plaintiffs had come forward with some facts showing that an exception to immunity applies, and the Nigerian defendants had to satisfy their ultimate burden of proof by a preponderance of the evidence that the exception to the FSIA does not apply. [Cite.] We are persuaded by the district judge’s conclusion that, on this summary judgment record, the commercial activity exception to the FSIA did not apply.”

“The Nigerian defendants, as the judge found, provided proof that the plaintiffs had fallen prey to an advanced fee scam in which private individuals in Nigeria impersonated employees of the Nigerian government and its agency. We conclude that the Nigerian defendants have established that the perpetrators of the fraud were neither agents nor employees of the Nigerian government and for this reason the commercial activity exception to the FSIA does not apply.” [Slip op. 15-16]

Citation: Southway v. Central Bank of Nigeria, 2003 WL 21061354 (10th Cir. May 13, 2003).

SOVEREIGN IMMUNITY

In pro se action against Libya by alleged victim of hostage-taking and torture, D.C. Circuit holds that harshness of confinement did not amount to torture, and that plaintiff’s offer to arbitrate was timely under FSIA but remands to give plaintiff chance to amend complaint to state valid hostage-taking claim

In February 1987, Sandra Jean Simpson (a U.S. citizen) and her husband (a permanent U.S. resident) were passengers on the cruise ship Carin II in the Mediterranean. A storm damaged the ship and it limped into the Port of Benghazi, Libya. A few days later, Libyan officials boarded the cruise ship and “forcibly removed” the passengers and crew. Libya confined the Simpsons separately from the others for several months. Libya kept Sandra for three months and her husband for seven.

In 2000, Simpson sued Libya pro se seeking damages for alleged hostage-taking and torture. In 2001, after obtaining a default judgment, Simpson mailed Libya an offer to arbitrate. The district court re-opened the case and let Libya file motions to dismiss for lack of subject matter and personal jurisdiction, and for failure to state a viable claim for relief. The district court denied the motions. Libya brought the present interlocutory appeal under the collateral-order doctrine to challenge the adverse rulings below.

The U.S. Court of Appeals for the D.C. Circuit affirms in part and vacates in part. In particular, the Court reverses the torture claim and remands for dismissal. As to the hostage-taking claim, the Court remands to allow Simpson to cure the deficiencies in her complaint.

Under Section 1605(a)(7) of the Foreign Sovereign Immunities Act (FSIA), foreign states which the U.S. has designated as state sponsors of terrorism (as in the case of Libya) are not immune from damage actions for personal injury or death resulting from activities such as torture and hostage-taking. The Act also requires that the claimant afford the foreign state a reasonable chance to arbitrate the claim under accepted international rules of arbitration.

Libya first contended that the lower court lacked subject matter jurisdiction. “With regard to the timeliness of the offer to arbitrate, Libya argues that because this is a jurisdictional matter, we should require that the offer to arbitrate be made prior to (or at least concurrent with) the filing of the complaint.”

“Section 1607(a)(7), however, sets no rule requiring that the offer to arbitrate be made before the filing of a complaint. It merely requires that the offer be made by such time as to allow Libya a ‘reasonable opportunity’ to arbitrate. ... In this instance, Simpson transmitted her offer to arbitrate to Libya in April of 2001. Libya received the offer almost two months before responding to Simpson’s complaint with the motions to dismiss presently under review. ...”

“We cannot say that the timing of the offer is such that Simpson has not afforded Libya a ‘reasonable opportunity’ to arbitrate. This is especially true given that a plaintiff may amend a complaint to remedy a jurisdictional defect even as late as the appellate stage of proceedings. 28 U.S.C. Section 1653 ...” [Slip op. 5-6] In sum, there is no jurisdictional bar to Simpson’s claim.

The Court, however, does hold that Simpson failed to state valid claims of torture and hostage-taking. The interrogations and death threats that she allegedly suffered are certainly cruel but are not so outrageous so as to constitute “torture” within the meaning of the law. See Torture Victim Protection Act of 1991 (TVPA), 28 U.S.C. Section 1350, Article 3.

In addition, Simpson failed to allege Libya’s underlying purpose for detaining her in terms that satisfy the FSIA. The Court remands the case, however, to give Simpson a chance to amend her complaint to allege that Libya intended to compel action or inaction by a third party as a condition of her release.

Citation: Simpson v. Socialist People’s Libyan Arab Jamahiriya, 326 F.3d 230 (D.C. Cir. 2003).

TERRORISM

After entering default judgments against Afghanistan, the Taliban, Osama bin Laden, Iraq and Saddam Hussein” U.S. District Court for the Southern District of New York awards damages to victims of September 11, 2001, terrorist attacks based on “evidence satisfactory to the court”

The following district court case brought by the estate of victims of the terrorist attacks of September 11, 2001, raises several issues of first impression.

On November 14, 2001, Raymond Smith, as administrator of the estate of his brother George Eric Smith, sued the Islamic Emirate of Afghanistan, the Taliban, al Qaeda and Osama bin Laden in New York federal court. It sought damages for George’s death on September 11, 2001. The Court later consolidated the case with the action brought by the estate of Timothy Soulas.

The plaintiffs served the Taliban and Afghanistan through personal service on Ambassador Abdul Salaam Zaeef. It notified the other defendants through publication in Afghani and Pakistani newspapers and several television stations, including Al Jazeera television network, BBC World, and Turkish CNN.

The Court allowed plaintiffs to amend the complaint on June 10, 2002, to add Saddam Hussein and the Republic of Iraq as defendants because of their alleged support of terrorist operations. Plaintiffs served the new defendants through the U.S. State Department’s Director of Special Consular Services, who forwarded the summons to the Ministry of Foreign Affairs of the Republic of Iraq. Not surprisingly, none of the defendants appeared so the court entered default judgments against all defendants.

The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1608(e), provides that “[n]o judgment by default shall be entered by a court of the United States or of a State against a foreign state, a political subdivision thereof, or an agency or instrumentality of a foreign state, unless the claimant establishes his claim or right to relief by evidence satisfactory to the court.”

This standard is identical to the standard for defaults against the U.S. See Fed. R. Civ.P. 55(e). The district court, however, struggled to satisfy itself what “evidence satisfactory to the court” means.

“Although Congress intended a heavier burden than the generally accepted burden where the defendant has defaulted, it is not clear how much higher a burden it intended. ... On balance, the more appropriate burden to be met by the plaintiff is that stated in [Ungar v. Islamic Republic of Iran, 211 F.Supp 2d 91 (D.D.C. 2002)], namely ‘a legally sufficient evidentiary basis for a reasonable jury to find for plaintiff.’” [Slip op. 13]

The district court then analyzes the liability of the Iraqi defendants. The plaintiffs based their claims against Iraq and Saddam Hussein on two statutes, the Antiterrorism Act of 1991 (ATA) (18 U.S.C. Section 2333), and on Section 1605(a)(7) of the Foreign Sovereign Immunities Act (FSIA).

Section 2333 of the ATA creates a cause of action for the ‘estate, survivors, or heirs” of any U.S. national killed by an act of international terrorism. Section 2337, however, appears to foreclose an action against the Iraqi defendants because it provides that “[n]o action shall be maintained under section 2333 of this title against a ... foreign state, an agency of a foreign state or an agency thereof acting within his or her official capacity or under color of legal authority.” Plaintiffs argued that this provision does not apply because 28 U.S.C. Section 1605(a)(7) has stripped Iraq and Saddam Hussein of the protection of Section 2337. The district court disagrees.

“Plaintiffs misses [sic] the point. The issue is not whether 2337 bars suit against Iraq and Saddam Hussein under FSIA Section 1605(a)(7) -- it certainly does not -- but whether plaintiffs have a cause of action under Section 2333, which permits treble damages for civil violations of the ATA. Section 2337 could not be clearer -- it prevents suits under Section 2333 against foreign states and officers wherein a plaintiff who prevails would be entitled to treble damages. See Cronin, 238 F.Supp. 2d at 231 n.2 (‘The Problem with invoking [18 U.S.C. Section 2333(a) against a foreign state] is [that] 18 U.S.C. Section 2337 explicitly provides that ‘no action shall be maintained under section 2333 of this title against ... a foreign state, an agency of a foreign state, or an officer or employee of a foreign state or an agency thereof acting within his or her official capacity or under color of legal authority.’‘). Thus, plaintiffs cannot rely on Section 2333 against Iraq or Saddam Hussein.” [Slip op. 18]

As for the FSIA, “Congress passed an amendment to section 1605(a)(7), entitled ‘Civil Liability for Acts of State Sponsored Terrorism.’ Pub.L. No. 104-208, Section 589, 110 Stat. 3009 (1996) (codified at 28 U.S.C. Section 1605(a)(7) note). This provision, commonly referred to as the ‘Flatow Amendment,’ ... provides that ‘an official, employee, or agent of a foreign state designated as a state sponsor of terrorism ... while acting within the scope of his or her office, employment, or agency shall be liable to a United States national ... for personal injury or death caused by acts of that official, employee or agent for which the court [sic] of the United States may maintain jurisdiction under section 1605(a)(7) ...’” [Slip op. 19-20]

There is, however, an important limitation for such a cause of action if no liability would result if the acts were carried out within the United States. See 28 U.S.C. Section 1605 note. Also, the district court points out that the Flatow Amendment provides for a cause of action against a foreign state’s officials, employees and agents, but not expressly against the foreign state itself.

“Several of these elements of a cause of action under the Flatow Amendment require little discussion. There can be no doubt that [the victims’] deaths resulted from aircraft sabotage, and, seemingly, hostage taking and extrajudicial killing as well ... The U.S. Supreme Court has held that a claim against a U.S. president for the conduct identical to that alleged against Saddam Hussein would be barred because of the president’s absolute immunity from damages for conduct associated with the exercise of his official duties. ...”

“Thus, because the Flatow Amendment expressly bars an action ‘if an official, employee, or agent of the United States, while acting within the scope of his or her office, employment, or agency would not be liable for such acts if carried out within the United States,’ the plaintiffs cannot satisfy this element as against Saddam Hussein and so the claim against him must be dismissed.” [Slip op. 25-27]

The district court therefore determines damages only against Al Qaeda and Iraq. The awards total almost $100 million.

Citation: Smith v. Islamic Emirate of Afghanistan, 2003 WL 21027170 (S.D.N.Y. May 7, 2003).

WORLD TRADE ORGANIZATION

In U.S.-EU dispute over whether U.S. Foreign Sales Corporations (FSCs) and similar arrangements constitute improper subsidies, World Trade Organization permits EU to suspend tariff concessions and to impose additional duties on U.S. products adding up to $4 billions as sanctions against U.S. unless it repeals FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI Act)

On May 7, 2003, the Dispute Settlement Body of the World Trade Organization (WTO) granted the European Union authorization to increase its import tariffs on U.S. goods by $4 billion, based on the arbitration report WT/DS108/ARB of August 2002.

This dispute goes back to 1971 when the U.S. established the Domestic International Sales Corporation (DISC) scheme which granted U.S. exports indirect tax benefits. In 1976, a GATT Panel declared that the DISC scheme constituted an illegal export subsidy. The U.S. then replaced the DISC arrangement with “Foreign Sales Corporations” (FSCs) in 1984.

In October 1999, a WTO dispute settlement panel declared “Foreign Sales Corporations” an illegal export subsidy that breached Article 3.1(a) of the Agreement on Subsidies and Countervailing Measures (SCM) and Article 3.3 of the Agreement on Agriculture. After the WTO Appellate Body confirmed the panel opinion in February 2000, the U.S. had until November 1, 2000, to end the FSC program.

On November 15, 2000, President Clinton signed into law the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI Act) [Pub.L. No. 106-519]. The EU then complained that the ETI Act did not substantially change the nature of these export subsidies. On November 17, 2000, it asked for permission to impose $4.043 billion in countermeasures through additional duties on specified U.S. goods (see WT/DS108/26). After another WTO review of the dispute and findings that the ETI Act did contravene the SCM Agreement and other trading rules, the arbitrator’s report issued on August 30, 2002.

In its submission WT/DS108/26 of April 25, 2003, the EU listed the goods and their product codes for which the EU is planning to suspend tariff concessions and related obligations under GATT 1994 and to impose up to 100% custom duties.

An EU press release reports that the EU is waiting for the U.S. to repeal the ETI Act and that the EU Commission will review the matter in the Fall of 2003. Thus, any countermeasures would apply from January 1, 2004, on.

Citation: United States - Tax Treatment of “Foreign Sales Corporations” - Recourse by European Communities to Article 4.10 of SCM Agreement and Article 22.7 of DSU (WT/DS108/26); WTO News of 7 May 2003; European Union in US, News Release No. 34/03 (May 7, 2003).

Security Council pledges aid from U.N., Coalition and world community in rebuilding infrastructure and government of Iraq. In general, UNSCR 1483 sets forth seven broad mandates. First, it lifts the burden of 13 years of UN sanctions from the backs of the Iraqi people, leaving in place only the ban on weapons of mass destruction. Second, it encourages the international community to work together to help the Iraqi people build a free, secure and prosperous society in their country. For instance, the resolution makes it possible for states and organizations to respond generously to UN humanitarian appeals, to furnish the resources for rebuilding, and to reinforce stability and security in Iraq. Third, the Resolution creates the office of U.N. Special Representative of the Secretary General who will play a vital role in all aspects of Iraq’s reconstruction. For example, he or she will coordinate humanitarian and reconstruction aid, assist in the formation of representative government institutions; help in the rebuilding of key infrastructure; and promote economic, legal and judicial reform, especially the protection of human rights. Fourth, over a six-month period, UNSCR 1483 will wind down the existing oil-for-food (OFF) program subject to the short-term needs of the Iraqi people. On the longer term, oil revenues from export sales will be deposited in a Development Fund housed in the Central Bank of Iraq. An international board will monitor this Fund. Members will consist of representatives of the UN Secretary General, the International Monetary Fund, the Arab Fund for Social and Economic Development, and the World Bank. Independent public accountants reporting to the board will audit the fund at regular intervals to ensure the full transparency of the Funds’ transactions. Fifth, the Security Council pledges to advance the political and economic future of the Iraqi citizenry. Specifically, UNSCR 1483 commits the international community to support the efforts of the Iraqi people to set up a new government based on the rule of law that affords equal rights without regard to ethnicity, religion or gender. Sixth, the Security Council reaffirms the Coalition’s commitment to work with the UN and an Iraqi Interim Administration to transfer authority to an internationally recognized, representative Iraqi government as quickly and cost-effectively as possible. Finally, UNSCR 1483 calls upon international financial institutions to assist the people of Iraq in the reconstruction and development of their economy and to facilitate assistance by the broader donor community, while calling on creditors to seek multilateral and bilateral solutions to Iraq’s sovereign debt. Citation: Fact Sheet, Office of the Spokesman, U.S. Department of State, Washington, D. C., May 22, 2003.

U.S. and EU agree on labeling of energy-efficient office equipment. With Council Decision 2003/269/EC, the European Union approved The Agreement between the Government of the United States of America and the European Community on the coordination of energy-efficient labeling programmes for office equipment. The parties had signed the Agreement in Washington on December 19, 2000. The text of the Agreement is attached to the Decision. Citation: 2003 O.J. of European Union (L 99) 47, 17 April 2003.

Jordan and United States ratify mutual investment treaty. On May 13, 2003, the U.S. Secretary of State and the Jordanian Foreign Minister exchanged instruments of ratification for a Bilateral Investment Treaty (BIT) which will enter into force in thirty days. The BIT entitles Jordanians who invested in the U.S. and Americans who invest in Jordan the highest standard of international protection for the safety of their investments. For example, the investors in the respective nations will be entitled to “national treatment.” The Treaty also sets limits to acts of expropriation and caps the compensation due for expropriation. Moreover, the Treaty guarantees the free transfer of earnings from investments, and gives investors access to internationally accepted dispute settlement mechanisms. The BIT is the latest in a series of groundbreaking economic agreements between the U.S. and Jordan. These include a bilateral Free Trade Agreement and a state-of-the-art “Open Skies” civil aviation agreement. As of 2000, the U.S. and Jordan had also ratified a Treaty Concerning the Encouragement and Reciprocal Protection of Investment. Citation: Fact Sheet: U.S. Department of State, Office of Spokesman, Washington, D. C., May 13, 2003.

Pakistan court convicts four in U.S. Consulate bombing. On April 14, 2003, a Pakistani court convicted four men in a June 14, 2002 car bombing outside of the high-walled U.S. Consulate in Karachi. The attack killed 12 Pakistanis and wounded 50 other bystanders. Charged with murder, conspiracy and terrorism, the four men were alleged members of the Harkat‑ul Mujahedeen al‑Almi Islamic extremist group. The special anti-terrorism court condemned Mohammed Imran and Mohammed Hanif to death by hanging. The court also sentenced Mohammed Sharib and Mufti Zubair to life in prison, while it acquitted a fifth defendant, Mohammed Ashraf. Citation: Associated Press Report, Karachi, Monday, April 14, 2003; 11:33:12 GMT (byline of Zarar Khan) (from New York Times - online).

Federal court invalidates U.S. patent on award-winning Australian cinema lens. In October 1999, Panavision, Inc. and Australian nature photographer, James Frazier, sued German lens maker P-S Technik GmbH Feinmechanik and two New York companies that leased “P-S” lenses in a California federal court. Plaintiffs alleged patent infringement because the P-S too closely resembled the lens on which Frazier held the U.S. patent. Frazier’s lens system had won a technical achievement award at the 1997 “Oscar” ceremonies held by the Academy of Motion Picture Arts & Sciences. Nevertheless, on April 15, 2003, a federal district court invalidated Frazier’s U. S. patent. It found that the inventor had conveyed “materially false and misleading” information to U.S. patent examiners during the application process. According to the judge, Frazier had given a video to patent officials to show how his lens system performed but which had been taken with an entirely different set of camera lenses. Citation: Associated Press report, Los Angeles, Tuesday, April 15, 2003, 16:33:28 GMT (byline of Paul Chavez) (from New York Times - online).