2003 International Law Update, Volume 9, Number 9 (September)

2003 International Law Update, Volume 9, Number 9 (September)

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

ALIEN TORT CLAIMS ACT

In case involving allegations of severe environmental pollution brought by Peruvian plaintiffs against U.S. copper company operating in Peru, Second Circuit decides that abstract claims of “right to life” and “right to health” are not actionable under Alien Tort Claims Act as part of customary international law

The plaintiffs in the following case are residents of Ilo, Peru. They are representatives of deceased Ilo residents who allegedly suffered injuries because of pollution from the nearby copper mining, refining and smelting operations of Southern Peru Copper Corporation (SPCC), based in Arizona. Relying on the Alien Tort Claims Act (ATCA) [28 U.S.C. Section 1350], plaintiffs claimed that SPCC’s environmental pollution violated customary international law by infringing upon their “right to life,” and “right to health.”

The district court dismissed the case because plaintiffs had failed first to establish subject matter jurisdiction, and, second, to state a claim under the ATCA. ATCA Section 1350 provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”

The U.S. Court of Appeals for the Second Circuit affirms. “As an initial matter, we hold that the asserted ‘right to life’ and ‘right to health’ are insufficiently definite to constitute rules of customary international law. ... [I]n order to state a claim under ATCA, we have required that a plaintiff allege a violation of a ‘clear and unambiguous’ rule of customary international law.”

“Far from being ‘clear and unambiguous,’ the statements relied on by plaintiffs to define their rights to life and health are vague and amorphous. For example, these statements include the following. ‘Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family ...’ Universal Declaration of Human Rights, Art. 25, G.A. Res. 217(A)(III), U.N. GAOR, 3d Session, U.N. Doc. A/810 at 71 (1948).’ and ‘The States Parties to the present Covenant recognize the right of everyone to the enjoyment of the highest attainable standard of physical and mental health. International Covenant on Economic, Social and Cultural Rights, Art. 12, 993 U.N.T.S. 3, 6 I.L.M. 360.’”

“These principles are boundless and indeterminate. They express virtuous goals understandably expressed at a level of abstraction needed to secure the adherence of States that disagree on many of the particulars regarding how actually to achieve them.” [Slip Op. 54-57] Thus, the plaintiffs have failed to show the existence of a customary international law “right to life” and “right to health.”

Moreover, the Court notes, the Peruvian Government has been regulating SPCC’s activities based on its 1993 environmental laws. For instance, Government Commissions have regularly reviewed SPCC’s activities and have required the company to pay fines and make restitution.

The Court next considers whether plaintiffs allege a valid claim under the more defined customary international law rule against intra-national pollution. Plaintiffs had submitted a wide variety of supporting evidence, including treaties, conventions, and covenants, as well as U. N. General Assembly declarations.

“The only treaty relied on by plaintiffs that the United States has ratified is the non-self-executing International Covenant on Civil and Political Rights (ICCPR), [999 U.N.T.S. 171, 6 I.L.M. 368.] ... In addition to the United States, 148 nations [including Peru] have ratified the ICCPR. ... Plaintiffs rely on Article 6 (1) of the ICCPR, which states that ‘every human being has the inherent right to life’ that ‘shall be protected by law,’ and that ‘no one shall be arbitrarily deprived of his life.’”

“As noted above, the ‘right to life’ is insufficiently definite to give rise to a rule of customary international law. Because no other provision of the ICCPR so much as suggests an international law norm prohibiting intranational pollution, the ICCPR does not provide a basis for plaintiffs’ claim that a defendant has violated a rule of customary international law.” [Slip Op. 65-66]

The plaintiffs gain nothing by relying on three international instruments which the U.S. has not ratified. Neither the American Convention on Human Rights [Nov. 22, 1969, 1144 U.N.T.S. 123, 9 I.L.M. 673], nor the International Covenant on Economic, Social and Cultural Rights [993 U.N.T.S. 3, 6 I.L.M. 360] provide for definite rights to life and protection from pollution.

Finally, the United Nations Convention on the Rights of the Child [G.A. Res. 44/25, annex, U.N. GAOR, 44th Sess., Supp. No. 49, at 167, U.N. Doc. A/44/25 (1989), 1577 U.N.T.S. 3, 28 I.L.M. 1448] does not provide such rights either. Even though Article 24 recognizes a right to a certain standard of health, it is up to the States to determine that standard and to take appropriate measures to achieve it.

Citation: Flores v. Southern Peru Copper Corp., 2003 WL 22039598, No. 02-9008 (2d Cir. August 29, 2003).

COPYRIGHT

Ninth Circuit decides that U.S. plaintiff may not recover damages for copyright infringement outside U.S., and that exception to general rule against extraterritorial application of Copyright Act when completed domestic infringement enables infringements abroad is inapplicable

The copyrighted works at issue in the following case are the controversial video recordings of “The Beating of Reginald Denny” and “Beating of Man in White Panel Truck” that were recorded at Florence Avenue and Normandie Boulevard in Los Angeles during the 1992 riots.

Los Angeles News Service (LANS) had produced the recordings and sold a license to rebroadcast them to several other companies, including the National Broadcasting Company (NBC) which used the recordings for its Today Show. NBC, in turn, forwarded the Today Show broadcast to Visnews International (USA), Ltd., pursuant to a news supply agreement, resulting in further distribution.

LANS then sued several Reuters companies (jointly “Reuters”) and Visnews for copyright infringement and other claims. The U.S. district court found that no liability arose under the Copyright Act for infringements that allegedly took place outside the U.S. Accordingly, it granted Reuters and Visnews a partial summary judgment on the issue of extraterritorial infringement.

The act of copying the works within the U.S. for further distribution, however, was a domestic act of infringement that could not be excused as fair use. For this, the district court awarded LANS statutory damages of $60,000. LANS appealed, arguing that it should have been allowed to recover its actual damages. The U.S. Court of Appeals for the Ninth Circuit affirms.

“This Court had previously reviewed the district court’s

interpretation of the Copyright Act with regard to extraterritorial acts in L.A. News Serv. v. Reuters TV Int’l, Ltd. (Reuters III), 149 F.3d 987, 992 (9th Cir. 1998). The Court had held that, while the Copyright Act does not apply extraterritorially, an exception may apply where an infringer’s activity is completed entirely within the U.S. but where domestic infringement enabled further exploitation abroad. Here, LANS was allegedly entitled to damages resulting from the exploitation abroad of defendants’ local infringement.”

“On the whole, we conclude that Reuters III adhered very closely to our decision in Subafilms, Ltd. v. MGM-Pathe Communs. Co., 24 F.3d 1088 (9th Cir. 1994) (en banc). Subafilms reaffirmed that the copyright laws have no application beyond the U.S. border, id. at 1095-98, and expressly took no position on the merits of the Update Art [Update Art, Inc. v. Modiin Publ’g, Ltd., 843 F.2d 67 (2d Cir. 1988)] court’s apparent willingness to award damages ... LANS’s appeal thus presents the precise question that Subafilms reserved ... and as the prior panel recognized, such question should be resolved in light of the principles the en banc court laid down.”

“The import of such principles counsel a narrow application of the adoption in Reuters III of the exception to the general rule. In particular, the ... constructive trust rationale [of Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45 (2d Cir. 1939), aff’d, 309 U.S. 390 (1940)] includes a territorial connection ... that preserves consistency with Congress’s decision to keep the copyright laws – presumably including Section 504, which prescribes remedies – territorially confined.”

“Moreover, no rational deterrent function is served by making an infringer whose domestic act of infringement – from which he earns no profit – leads to widespread extraterritorial infringement, liable for the copyright owner’s entire loss of value or profit from that overseas infringement, particularly if the overseas infringement is legal where it takes place. ... Moreover, the resulting over-deterrence might chill the fair use of the copyrighted works in close cases.” [Slip Op. 15-16]

As a result, the Court reads Reuters III to allow only a narrow exception for the recovery of the infringer’s profits to Subafilms’ general rule against extraterritorial application. Under the circumstances of this case, the Copyright Act does not permit LANS to recover actual damages that resulted from Reuters’ and Visnews’ foreign infringements.

Citation: Los Angeles News Service v. Reuters Television Int’l Ltd., 340 F.3d 926 (9th Cir. 2003).

CRIMINAL LAW

As matter of first impression, Second Circuit rules that federal statute prohibiting possession of firearms by convicted felon does not include foreign convictions

In 2001, authorities arrested defendant Ingram in a Plattsburgh, New York, hotel, suspecting that he had entered the U.S. illegally from Canada. The officers later found a large number of firearms in Ingram’s hotel room. The government charged him with several offenses, including the export of defense articles designated on the U.S. Munitions List, and being a felon in possession of a firearm in violation of 18 U.S.C. Section 922(g)(1).

As for the felony, Canadian authorities had convicted Ingram in 1996 for violating Section 85(1)(a) of the Canadian Criminal Code for using a firearm in the commission of an indictable offense. The statute provides for a maximum imprisonment of 14 years.

The district court denied Ingram’s motion to dismiss the felon-in-possession count even though the predicate conviction had occurred in Canada. Ingram appealed. The U.S. Court of Appeals for the Second Circuit finds that the statute does not encompass convictions by foreign courts. It reverses the present conviction and remands for re-sentencing on the remaining counts.

First, the Court acknowledges the circuit split on this issue. The Third, Fourth and Sixth Circuits, along with two district courts, have opined that “in any court” includes foreign courts. The Tenth Circuit, however, invoking the rule of lenity, has concluded that the “in any court” language is ambiguous as to whether foreign offenses may serve as predicate convictions under this statute.

Second, to resolve the statutory ambiguity, the Court turns to the Senate Judiciary Committee Report on the Gun Control Act. It strongly suggests that the Congress did not intend foreign convictions to serve as predicate offenses under Section 922(g)(1).

“The Senate Report explained the meaning of the term ‘felony’ as follows: ‘The definition of the term ‘felony’, as added by the committee is a new provision. It means a Federal crime punishable by a term of imprisonment exceeding 1 year and in the case of State law, an offense determined by the laws of the State to be a felony.’ S. Rep. No. 90-1501, at 31 (1968). The Senate Report thus unmistakably contemplated felonies, for purposes of the Gun Control Act, to include only convictions in federal and state courts.” [Slip Op. 15]

Moreover, the Conference Report [H.R. Conf. Rep. 90-1956 (1968)] which adopted the House version of the bill, voiced no disagreement with the Senate Report’s explicit limitation of such convictions to domestic courts. Even though there may be good arguments for including foreign convictions under Section 922(g)(1), Congress would have to say so expressly.

Citation: United States v. Gayle, 342 F.3d 89 (2d Cir. 2003).

EVIDENCE

In breach of implied contract and trademark infringement litigation, English Court of Appeal rejects defendant’s claim that trial court erred in refusing to bar admission of twenty years of interparty correspondence in courts of Taiwan and New Zealand under “without prejudice” rule

In March 1974, senior executives from Prudential Assurance Co, Ltd. (Prudential UK) and Prudential Insurance Co. of America (Prudential USA) met in London and agreed on the use of the name “Prudential” in relation to the business of insurance in various territories. For example, Prudential UK would not use the “Prudential” name or mark in the United States and Prudential USA would not use that name or mark in Europe or in certain countries of the Commonwealth. By pursuing a policy of discussing and resolving problems as they turned up, the two companies coexisted without undue conflict until the mid-1990s.

Prudential UK filed an action in England against Prudential USA for acting in breach of the legally binding agreement, and for infringing trademarks to which Prudential UK was allegedly entitled in the UK and Europe. Plaintiff also filed similar proceedings in Taiwan and New Zealand.

In response, defendant applied for orders that, in the Taiwan and New Zealand proceedings, plaintiff withdraw from evidence all the relevant inter-party correspondence between 1974 and 1995. It sought a declaration that the “without prejudice” rule protected all or similar evidence from use in any contentious proceedings, domestic or foreign.

The trial judge, however, found that the evidence to which defendant objected was not subject to the privilege rule. Defendant appealed that decision, claiming that the application of the “without prejudice” doctrine in this case rested on an implied contract. The English Court of Appeal (Civil Division), however, dismisses the appeal.

Before resolving the applicability of the “without prejudice” rule, the Court points to the difficulties involved in enforcing a rule of this type in foreign proceedings. “In my view the position is different in those cases in which the only justification for restraining the use of ‘without prejudice' material is public policy. ....”

“In those cases there is no contractual basis upon which to order an extra-territorial restraint. The question in those cases is whether the English court, by ordering a person not to make use of ‘without prejudice’ material in foreign proceedings, should seek to impose on the conduct of the foreign proceedings a restraint which is justified only by its own perception of what public policy requires. In my view, it is plain that that question must receive the answer ‘No’.”

“In that context it is important to keep in mind that the rule in England -- in so far as it is based on public policy -- has evolved in response to the need to balance two different public interests, ‘namely the public interest in promoting settlements and the public interest in full discovery between parties to litigation’ [Cite]. The latter interest is a reflection of the principle that trials should be conducted on the basis of a full understanding, by both parties and the court, of the facts relevant to the issues in dispute.”

“The ‘without prejudice’ rule has to be seen as encroaching upon that principle. The justification for such encroachment, in the eyes of the English courts, has been the greater public interest in promoting settlements. But it would be insular not to recognise that courts in other jurisdictions might think -- or might be required by legislation to accept -- that a different balance should be struck; and arrogant to seek to impose on the conduct of litigation in other jurisdictions a rule which is based on our own perception of where the greater public interest lies.” [¶ 23]

In rejecting defendant’s privilege claim, the Court agrees with the trial judge’s placing of decisive importance on the failure of the documents to bear the customary “without prejudice” notation.

“I find it impossible to say that, when the chairman and chief executive officer of Prudential USA and the chief general manager of Prudential UK met in early March 1974 to exchange views ‘on a wide range of subjects’ and ‘with a view to removing the prospect of any future disputation between us’ as to ‘the areas in which each of our companies would be free to use the name Prudential’, they must be taken to have done so on the basis that neither company would be entitled to refer to those discussions in any litigation anywhere in the world at any time in the future.”

“Had that been their intention I would have expected them to say so -- at the meeting and in the careful and detailed letters which they wrote immediately following that meeting and in the subsequent months. Further, I would have expected the in-house lawyers to say so, at the earliest opportunity. And, if that was not the basis upon which discussions took place in early March 1974, I find it impossible to identify some subsequent point at which the position changed.” [¶ 26]

Citation: Prudential Assurance Co. Ltd. v. Prudential Insurance Co. of America, Court Of Appeal (Civil Division),[2003] E.W.C.A. Civ. 1154, [2003] All E.R. (D) 546 (July 31), (Approved Judgment).

FOREIGN SOVEREIGN IMMUNITY

U.S. District Court for District of Columbia enters judgment against Iran for compensatory damages in favor of victims or their families arising from 1983 bombing of U.S. Embassy in Beirut

More than 80 victims and/or their families and estates filed a suit in the District of Columbia district court against the Islamic Republic of Iran (hereinafter Iran) for its alleged responsibility for the 1983 bombing of the U.S. Embassy in Beirut, Lebanon. After a six-day evidentiary hearing, the district court established the following facts.

After the Ayatollah Khomeini had overthrown the Shah of Iran in 1979, Iran began supporting Lebanese Shi’ites, as well as the radical Shi’ite group known as Hizbollah (aka Islamic Jihad). Hizbollah enjoyed the support of Iran in general, and the support of the Iranian Ministry of Intelligence and Security (MOIS) in particular.

On April 18, 1983, a large car bomb exploded at the U.S. Embassy in Beirut, killing 63 people and seriously injuring more than 100. A lead plaintiff named Anne Dammarell was a General Development Officer with the AID mission at the Embassy. She recounted in detail how the bombing had injured her, the horrors she had witnessed, and how she ultimately had to take early retirement at age 50. The U.S. Department of State later concluded that Hizbollah had carried out the attack with Iran’s support and encouragement.

The district court holds Iran liable for its involvement in the bombing. Section 1605(a)(7) of the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Section 1602], eliminates sovereign immunity for personal injury resulting from a foreign state’s “torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act ...” This Section only applies where the foreign state (1) has been designated a state sponsor of terrorism at the time of the act or as a result of the act, (2) has been given a reasonable opportunity to arbitrate the claim if the act at issue occurred with the foreign state’s territory, and (3) the claimant or victim was a U.S. national. Although Congress had enacted the amendment in 1996, the courts have applied it retroactively.

This case meets the requirements of the amendment. The Executive Branch designated Iran as a state sponsor of terrorism after this bombing. Moreover, there is no need for arbitration since the bombing did not take place within Iranian territory. All plaintiffs are U.S. nationals.

The acts alleged here qualify as “extrajudicial killings” within the meaning of the FSIA. It, in turn, derives from the Torture Victim Protection Act of 1991 (TVPA) [Pub.L. No. 102-256, Section 3a, 106 Stat. 73 (1992), 28 U.S.C. Section 1350, note].

The TVPA defines an “extrajudicial killing” as “a deliberate killing not authorized by a previous judgment pronounced by a regularly constituted court affording all judicial guarantees which are recognized as indispensable by civilized peoples.” Furthermore, based on the evidence adduced at trial, there is no doubt that Iran and MOIS are responsible for the bombing.

Another important issue in this case is whether the plaintiffs may obtain punitive damages. FSIA Section 1606 provides that “as to any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607 ..., the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances, but a foreign state except for an agency or instrumentality thereof shall not be liable for punitive damages.” Thus, the issue is whether MOIS is an “agency or instrumentality” of Iran.

“In several cases, courts have found MOIS liable for punitive damages as an ‘agency or instrumentality’ of Iran in light of its role in funding, training, and directing Hizbollah in its terrorist activities in Lebanon. ... Consistent with this line of authority, plaintiffs here seek punitive damages not against Iran, but against MOIS. This issue is obviously an important one.”

“Since the evidentiary hearing in this matter, the D.C. Circuit has ruled that Iran’s Ministry of Foreign Affairs ‘must be treated as the state of Iran itself rather than as its agent.’ ... In Roeder [Roeder v. Islamic Republic of Iran, 333 F.3d 228, 234 (D.C. Cir. 2003)], the court was not considering the punitive damages provision in 28 U.S.C. Section 1606, but rather was analyzing whether Iran’s Ministry of Foreign Affairs was an ‘agent’ of Iran for purposes of the Flatow Amendment. ... The court held that ‘if the core functions of the entity are governmental, it is considered the foreign state itself; if commercial, the entity is an agency or instrumentality of the foreign state.’ Roeder, above at 234-35 ...”

“In light of the decision in Roeder, plaintiffs are hard-pressed to argue that MOIS is an ‘agent or instrumentality of Iran, rather than Iran itself. Although the Roeder court was not directly considering the question of punitive damages under Section 1606, its ruling indicates that the categorical approach to analyzing the Section 1603 distinction between the foreign state and an ‘agency or instrumentality’ of the foreign state applies to [other] FSIA contexts ... Applying the categorical approach here leads inexorably to the conclusion that MOIS should be treated as the foreign state itself.”

“The undisputed evidence is that MOIS, named as an official Iranian ministry in 1983 or 1984, is the ‘intelligence service of Iran,’ and was, in fact, merely a continuation of the well respected intelligence agency that had existed under the pre-revolutionary Iranian regime. ...”

“Plaintiffs have presented no evidence to suggest that the intelligence activities conducted by MOIS in the early 1980s or, for that matter, the activities conducted by MOIS today, had or have any commercial effect or purpose. Indeed, it is difficult to conceive how intelligence and security activities – in this case, providing training and support for terrorism abroad in order to advance Iran’s political agenda – could be considered predominantly ‘commercial’ rather than ‘governmental.’” [Slip Op. 276-280]

Citation: Dammarell v. Islamic Republic of Iran, Civ. Action No. 01-2224 (JDB) (D.C. D. C. September 8, 2003).

JUDICIAL ASSISTANCE

Seventh Circuit upholds ruling that criminal defendant in Ireland was entitled to production of U.S. journalists’ tape recordings of their interviews with key government witness pursuant to 28 U.S.C. Section 1782 since material sought was not privileged

Authorities are prosecuting Michael McKevitt in Ireland for belonging to a banned organization and for leading terrorism. Invoking 28 U.S.C. Section 1782, he petitioned a federal court in Chicago for an order against a group of journalists who are under contract to write a biography of a David Rupert, alleging that Rupert is the main prosecution witness. The order would require them to produce the tape recordings of their interviews with Rupert. The district court granted the petition and the defendants took an appeal.

On July 3, 2003, the U.S. Court of Appeals for the Seventh Circuit denied the journalists’ motion to stay the order to produce. Defendants then turned the tapes over to McKevitt. Dismissing the appeal as moot, the Court files an explanatory opinion on August 8.

The Court first notes that Section 1782 (a) grants discretion to federal district courts to compel the production of evidence for use in foreign or international tribunals unless the materials are privileged. “The defendants claim that the tapes in question are protected from compelled disclosure by a federal common law reporter’s privilege rooted in the First Amendment. See Fed. R. 501.”

“Although the Supreme Court in Branzburg v. Hayes, 408 U.S. 665 (1972) declined to recognize such a privilege, Justice Powell, whose vote was essential to the 5‑4 decision rejecting the claim of privilege, stated in a concurring opinion that such a claim should be decided on a case‑by‑case basis by balancing the freedom of the press against the obligation to assist in criminal proceedings. Id. at 709‑10.”

“Since the dissenting Justices would have gone further than Justice Powell in recognition of the reporter’s privilege, and preferred his position to that of the majority opinion (for they said that his ‘enigmatic concurring opinion gives some hope of a more flexible view in the future,’ id. at 725), maybe his opinion should be taken to state the view of the majority of the Justices ‑‑ though this is uncertain, because Justice Powell purported to join Justice White’s ‘majority’ opinion.” [531-32]

The Circuit Court then points to the important function of international judicial assistance. “The federal interest in cooperating in the criminal proceedings of friendly foreign nations is obvious; and it is likewise obvious that the newsgathering and reporting activities of the press are inhibited when a reporter cannot assure a confidential source of confidentiality. Yet that was Branzburg and it is evident from the result in that case that the interest of the press in maintaining the confidentiality of sources is not absolute.”

“There is no conceivable interest in confidentiality in the present case. Not only is the source (Rupert) known, but he has indicated that he does not object to the disclosure of the tapes of his interviews to McKevitt.” [532]

Since Section 1782 does not specify whether the federal or the state law of privilege controls, the Court also speaks to the choice-of-law issue. “Illinois has enacted a statutory version of the reporter’s privilege. 735 I.L.C.S. 5/8‑901 [Cite]. But it has no application to this case.”

“Section 1782(a) of the Judicial Code provides that ‘a person may not be compelled to give his testimony or statement or to produce a document or other thing in violation of any legally applicable privilege’ (emphasis added). State‑law privileges are not ‘legally applicable’ in federal‑question cases like this one. Fed.R.Evid. 501; [Cite]”

“In any event, while the reporters’ motion included a citation to the Illinois statute as part of a string cite, it failed to discuss, even minimally, why the statute should apply here. As a result, even if the statute were applicable, the reporters waived reliance on it.”

“It seems to us that rather than speaking of privilege, courts should simply make sure that a subpoena duces tecum directed to the media, like any other subpoena duces tecum, is reasonable in the circumstances, which is the general criterion for judicial review of subpoenas. Fed.R.Crim.P. 17( c). [Cites] We do not see why there need to be special criteria merely because the possessor of the documents or other evidence sought is a journalist.” [533]

In the Court’s view, the First Amendment is not germane to this case. “When the information in the reporter’s possession does not come from a confidential source, it is difficult to see what possible bearing the First Amendment could have on the question of compelled disclosure. If anything, the parties to this case are reversed from the perspective of freedom of the press, which seeks to encourage publication rather than secrecy. [Cite]”

“Rupert wants the information disclosed; it is the reporters, paradoxically, who want it secreted. The reason they want it secreted is that the biography of him that they are planning to write will be less marketable the more information in it that has already been made public.” [533]

But reliance on a theory of common law misappropriation does not help this plaintiff. “The present case is sharply different, since McKevitt has no commercial motive in ‘stealing’ the defendant reporters’ work product. And yet to the extent that such ‘thefts’ can be anticipated, the incentive to gather information, in this case for the projected biography, will be diminished...” [534]

The Court points out that the state cases typically place tight limitations on misappropriation claims. It concludes that legal protection for the gathering of facts is available only when unauthorized copying of the facts gathered is likely to deter the plaintiff, or others similarly situated, from gathering and disseminating those facts.

“We are far from that in the present case. No showing has been made, or would be plausible, that the reporters will have to abandon the Rupert biography if the information contained in the recordings of their interviews with him is made public. It is a consideration that a district court might properly consider in deciding on a challenge to a subpoena, but it would add nothing to the court’s consideration to analyze it in legal categories drawn from the First Amendment. And in this case it provides no support for the reporters’ claim.” [535]

Citation: McKevitt v. Pallasch, 339 F.3d 530 (7th Cir. 2003).

SECURITIES FRAUD

In international securities fraud suit, Ontario Court of Appeal holds that U.S. Securities Regulation S did not apply to shares traded on NASDAQ and pledged in loan transaction, that plaintiff Swiss Bank was good faith purchaser of shares and also had gotten beneficial title to shares by common law estoppel based on defendant’s misconduct

In October 1994, Gaming Lottery Corporation (GLC), a company with shares publicly traded on both the Toronto Stock Exchange and the U.S.’s NASDAQ, became interested in a “stock roll program.”(SRP) for foreign banks. It hoped to enhance its balance by earning interest on a debenture used to pay for blocks of shares at a discount. GLC was told that, if it took part in the SRP program, it would not have to issue any shares until they were fully paid for.

Moreover, GLC could refuse to issue the shares and could also reject payment for the shares. Jack Banks, the President, Chief Executive Officer and Chairman of the Board of Directors of GLC, gave Larry Weltman, a chartered accountant who was also Executive Vice President and a Director of the company, authority to go ahead with the deal.

GLC then entered into an SRP with Helix Capital Corporation (Helix), a Canadian company. Each share certificate stated very clearly on its face that it represented “Fully Paid And Non-Assessable Common Shares Without Par Value In The Capital Of Laser Friendly Inc. [the former name of GLC].” The share certificates, including the share certificate at issue (#12093) also showed Helix as the registered owner. Each certificate also had a “Regulation S” legend printed on its back. Helix used these share certificates in connection with a “securities lease” arrangement with Red Oak Ltd. (Red Oak). At this point, Guido Franz-Josef Bensberg, the principal of Red Oak, gained control over the share certificates.

Bensberg then sought a line of credit with Bank Leu (plaintiff), a Swiss private bank based in Zurich and a member of the Credit Suisse group. He promised to put up stock certificates as collateral. On November 15, 1994, Bensberg agreed with plaintiff to pledge all Red Oak assets deposited with plaintiff to secure any indebtedness between Red Oak and the Bank at any time.

Seven days later, the Bank of Montreal (BMO), plaintiff’s Canadian depository, received, inter alia, Share Certificate #12093. The plaintiff first made sure that the shares were all genuine and not on any list of stolen or lost securities. It then approved Bensberg’s loan application for $5 million USD.

In a report to plaintiff on December 7, 1994, BMO alluded to the Regulation S declaration on the collateral shares. Mr. Keller, one of plaintiff’s senior credit officers, found out about it in mid-December, after the Bank had already loaned substantial funds to Bensberg.

Though somewhat wary of Bensberg, plaintiff nevertheless advanced him an additional $495,000 USD after December 15, 1994. Between November 1994 and January 1995, the Bank had loaned Bensberg a total of $4.3 million USD.

As concern over the collateral mounted and concrete positive information about Bensberg had failed to turn up, plaintiff sent Bensberg a letter calling the loan and requiring repayment by February 6, 1995. After Bensberg failed to satisfactorily arrange for repayment, plaintiff got in touch with GLC about Share Certificate 12093. GLC told plaintiff for the first time that the shares had not been funded. On January 31, 1996, plaintiff obtained a default judgment against Bensberg in Switzerland for the full loan amount. It is still outstanding.

The Securities and Exchange Commission also became involved, instituting an enforcement inquiry in December 1994. In this connection, GLC retained the Washington law firm of Jones, Day. The firm resigned two weeks later because GLC was ignoring its advice to withdraw from the SRPs and to regain its certificates.

GLC then hired the White & Case law firm. This firm repeated the advice given by Jones, Day, warning GLC that it was aiding and abetting a fraud. GLC also scorned the guidance given by White & Case and went about expanding its SRP programs.

The trial court ruled for plaintiff. It found that GLC’s conduct estopped it from asserting a defense against plaintiff as a good faith purchaser. Moreover, it held that GLC should bear the entire risk that someone (other than their good faith holder) could misuse the share certificates.

GLC appealed the January 31, 1996 judgment, questioning several of the trial judge’s findings. First, GLC claimed that the trial judge erred in finding that plaintiff was a good faith buyer of the shares represented by Share Certificate #12093 and in misinterpreting the U.S. legal restriction on their transferability. Second, GLC attacked the notion that plaintiff had acquired beneficial title to the shares by common law estoppel.

Finally, GLC argued that Share Certificate #12093 was not a negotiable instrument. The Ontario Court of Appeal, however, dismisses GLC’s appeal.

GLC’s argument that plaintiff was not a good faith buyer of Share Certificate #12093 had two prongs. The first was that plaintiff had been willfully blind to the fact that Bensberg was not the authorized owner of the stocks. Second, plaintiff knew that the shares could not serve as security for the loan because the Regulation S restriction prevented any transfer to, or from, Bensberg until November 15, 1995. The Court rejects both of these claims.

In response to the first prong, the Court quotes from the opinion of the trial judge with approval. “[T]here is no evidence that there was any obvious indication or suspicion that the shares were invalid or that Bensberg was a dishonest man. The evidence demonstrates that Fischer [Keller’s subordinate] was concerned, but his concerns did not relate to the validity of the shares. Even Fischer’s comment about Bensberg’s motives being unclear is more consistent with his concern that Bensberg was a credit risk rather than any concern about possible fraud ...”

“It makes no sense whatsoever that Keller ... deliberately shut his eyes to a fact that was obvious to him but he was afraid to inquire into, namely, that Bensberg was perpetrating fraud on [plaintiff] by using share certificates of no value that he had obtained in various stock programs.”

“The fact that Keller or others in the bank may have had a broad suspicion that Bensberg was a credit risk, cannot be interpreted so widely as to constitute suspicion about the validity of the share certificates. In these circumstances, [plaintiff] was a good faith purchaser in taking the pledge of certificate 12093.” [¶ 40]

The Court next addresses whether plaintiff knew the effect of Regulation S. “In order for this submission to succeed GLC must establish: 1) [that] BMO’s knowledge of the restriction on the share certificate as of November 23rd should be imputed to Bank Leu; and 2) [that] the effect of the restriction is that the shares are incapable of being transferred at all until November 15, 1995 and are worthless as collateral.” [¶ 45]

The Court concedes that BMO had passed on its knowledge of the Regulation S restriction to plaintiff in its December 7, 1994 report. “The legend [on the back of the share certificate] begins by stating that the shares represented by the certificate have not been registered under the United States Securities Act. The legend then goes on to say that they are being transferred pursuant to an exemption to the Act, Regulation S.”

“The next sentence states that, ‘Until November 15, 1995, no shares of the stock may be offered sold or transferred.’... The sentence that follows makes it clear that Regulation S only applies to offers, sales or transfers in the United States or to a ‘United States person’. Transfers to such persons or within the United States are only permitted pursuant to a regulation S exemption or with the prior consent of Laser Friendly Inc.”

“Imputing BMO’s knowledge of the Regulation S restriction to [plaintiff] is of no import since, as I read the restriction, it did not affect the right to transfer the shares outside the United States to persons who were not ‘United States persons’. None of the transactions involving Share Certificate 12093 took place in the United States or involved ‘United States persons’”.

“Helix, a Canadian company, was identified as the registered owner of the shares on the face of the share certificate. Helix transferred the shares to Bensberg and there was no evidence that he was a ‘United States person’. He in turn transferred them to plaintiff, a Swiss bank. The Regulation S restriction did not govern the transfer of GLC’s shares in this situation.” [¶¶ 51-52]

The next issue is whether the plaintiff had gotten beneficial title to the shares by common law estoppel. The Court dismisses GLC’s argument that it had made no misrepresentation or that any misrepresentation would have been immaterial because the Regulation S restriction clearly prevented any transfer of the shares.

GLC also submitted that plaintiff did not rely on Share Certificate #12093 in advancing funds to Bensberg. The Court rejects this argument.

“In considering whether estoppel should apply, the trial judge was entitled to go beyond the share certificate and to consider that, but for GLC’s conduct, Bensberg could not have made the representation he did: [Cites]. This applies to the first advance of $860,000 USD as well as the other advances. As I have held, the evidence indicates that the zero valuation ascribed to the certificate by BMO has nothing to do with its value as a security.”

“Although [plaintiff] had advanced $3.3 million USD by the time it had certificate 12093 in its physical custody, BMO’s possession of the certificate and knowledge of its contents as agent can be imputed to [plaintiff]. Thus, [plaintiff] relied on the certificate from and after November 23, 1994.”

“GLC created and delivered the share certificates and deliberately placed them in the international stream of commerce knowing, or not caring, that they were likely to be used in a fraud. The Regulation S restriction does not assist GLC in this regard. The trial judge did not err in holding that [plaintiff] acquired beneficial title to the shares by common law estoppel.” [¶¶ 62-63]

Next, in resolving the question of whether Share Certificate #12093 was a negotiable instrument, the Court refers to subsection 53(3) of the OBCA, which states “Except where its transfer is restricted and noted on a security in accordance with subsection 56(3), a security is a negotiable instrument.” [¶ 68]

“In its discussion of the effect of Regulation S on plaintiff, the Court established that Regulation S was not an applicable restriction. ... because “the restrictions referred to in s. 56(3) are the restrictions referred to in s. 56(1) and (2), namely restrictions arising because a corporation is authorized to issue shares of more than one class or series, not a restriction arising by operation of U.S. law.” [¶ 54]

Citation: Bank Leu Ag. v. Gaming Lottery Corp., Docket No. C37623, [2003] O.J. No. 3213 (Ont. Ct. App. Aug. 14).

Chinese court rules against Dow Jones & Co. in logo litigation. On September 22, 2003, the Beijing No. 1 Intermediate People’s Court decreed that the publisher of The Wall Street Journal has to pay Guan Dongsheng, a Chinese calligrapher, $50,000 in damages. Dow Jones & Co. has been using Guan’s Chinese character “Dao” (which sounds like Dow) as a logo on its Web site, as well as on its advertising and business cards in China. Dow Jones, on the other hand, claimed that Guan had orally authorized the company to use it. The People’s Court, however, found that there was not enough evidence of a valid oral contract. Dow Jones employees had asked Guan to draw the character as a present to the company chairman on the occasion of his visit to Beijing in 1994. The Chinese look upon calligraphy as an art, and collectors will pay large sums to acquire the most beautiful specimens. Dow Jones has not determined whether it would appeal. Citation: The Associated Press, Beijing, Monday, September 23, 2003, 16:41:55 GMT (byline of Joe McDonald, AP writer).

Sweden votes to decline Euro. Swedish voters have decided not to adopt the Euro to replace its own krona. The anti‑euro forces won with 56.1 % of the “no” votes to 41.8 % for the euro. According to some political experts, the vote seemingly works against efforts to bolster the 15‑nation European Union before its planned expansion to 25 members in 2004. The opposition urged that euro membership would not benefit Sweden because it would have to adopt the current eurozone interest rate. At present it is 0.75 percentage points lower than the present Swedish rates. The Swedish authorities announced that the country would not schedule another euro vote for 10 years. Citation: The New York Times (online), Stockholm, September 15, 2003 (byline of Alan Cowell).

Monetary Fund approves economic plan for Argentina. By a vote of 20 to 4, the board of the International Monetary Fund adopted an economic program for Argentina on September 20, 2003. A bungled devaluation of the peso in January 2002 and a record default in sovereign debt has put Argentina’s economy in ruins. According to Francisco Baker, IMF spokesman for Latin America, the medium‑term plan sets a route for economic progress in Argentina and defers payment of $12.5 billion owed to the fund. It is believed that the plan will include a main budget surplus target of 3% for the first year ‑‑ not as high as some economists thought necessary. The European board members and others expressed their concern that the present deal may pave the way for negotiating deep reductions in the future face value of the $90 billion in Argentine bonds which thousands of European investors hold. Citation: The New York Times (online), Saturday, September 20, 2003, filed at 8:36 a.m. ET (by Reuters).

Importation of some Costa Rican shrimp barred by U.S. As of August 14, 2003, the U.S. Department of State declared that it can no longer certify that Costa Rica is complying with Section 609 of Pub.L. 101‑162. The U.S. will therefore bar the importation of shrimp harvested in Costa Rica with commercial fishing technology that may adversely affect sea turtles. This will not, however, ban imports of Costa Rican shrimp taken by other means, e.g., aquiculture and artisanal methods. The key feature of the U.S. sea turtle conservation program is a requirement that commercial shrimp boats use sea turtle excluder devices (TEDs) to prevent the accidental drowning of sea turtles caught in shrimp trawls. TEDs can be 97% effective in keeping sea turtles out of the giant nets. In the Gulf of Mexico, for example, their use has brought about an estimated 11% increase per year in some endangered nesting populations. Citation: Press Statement by Philip T. Reeker, Deputy Spokesman for U.S. Department of State, Washington, D. C. August 25, 2003.

EU publishes accession documents for new EU Member States. The European Union (EU) has published the accession documents for the ten prospective EU Member States. These are the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, and the Slovak Republic. The documents include the Commission’s opinion of 19 February 2003, the legislative resolutions of the European Parliament, the Decision of the Council of the European Union of 14 April 2003 on the admissions, and the Treaty between the old and new EU Member States. The Treaty of Accession will enter into force on May 1, 2004. Citation: 2003 O.J. of European Union (L 236), 23 September 2003.

U.S. signs ICC Article 98 “non-surrender” agreement with Kazakhstan. After recently entering into Article 98 agreements with Colombia and the Solomon Islands, the U.S. signed an Article 98 agreement with Kazakhstan on September 22, 2003. Article 98(2) of the Rome Statute that created the International Criminal Court (ICC) allows for these agreements. Each member of the ICC can agree not to surrender U.S. citizens to ICC jurisdiction. The U.S. has now concluded a total of 63 such agreements. Citation: U.S. Department of State Press Statement, September 23, 2003; (see also 2003 International Law Update 92.)

EU imposes provisional anti-dumping duties on U.S. steel products. After an investigation, the EU Commission has imposed provisional anti-dumping duties on imports of certain stainless steel cold-rolled flat products from the U.S. The provisional anti-dumping duty is 20.6% for the company AK Steel Corporation of Ohio, and 25% for all other American companies, and will apply for a period of six months. Citation: 2003 O.J. of European Union (L 230) 9, 16 September 2003.

U.S. postpones Visa Waiver Program date for 21 nations. At their request, the U.S. Secretary of State has postponed until October 26, 2004, the date by which Visa Waiver Program travelers from 21 countries have to present a machine‑readable passport at a U.S. port of entry to enter the country without a visa. The normal effective date for most other countries remains October 1, 2003. See 2003 International Law Update 95. The Department of State consulted with the Department of Homeland Security before making this decision. The countries for which the Department has granted a postponement are: Australia, Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Japan, Monaco, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. U.S. law allows Citizens of Visa Waiver Program countries to enter the United States for general business or tourist purposes for a maximum of 90 days without the need of a visa. Citation: Press Statement #2003/963 by Richard Boucher, Spokesman for U.S. Department of State, Wednesday, September 24, 2003, 20:44:05 (EDT).

Cuba said to be violating migration agreements with U.S. Since 1984, the U.S. and Cuba have entered into several agreements on the migration of Cubans. See Joint Communiques on Immigration Matters, December 14, 1984, T.I.A.S. 11057; 2034 U.N.T.S. 193, as modified on September 9, 1994 and May 2, 1995; collectively Migration Accords. Under the Accords, the U.S. Department of State (DOS) must see to it that it documents at least 20,000 Cubans per year to migrate to the U.S. for permanent residence. During Fiscal Year 2003 (October 2002 through September 2003), the DOS issued more than 20,000 immigrant visas to Cuban nationals. According to the DOS, the burden clearly rests on the Cuban government to grant exit permits to all those Cubans who have received U.S. travel documents and to remove the roadblocks it has put up against fully carrying out the Accords. In particular, the DOS calls on the Cuban Government to halt its discriminatory practices of denying such permits to doctors, information technology professionals, and family members of Cubans who have sought freedom in the United States. At the last round of Migration Talks in June 2003, the DOS declared that it had identified over 600 individual cases of Cubans unfairly denied exit permits. Citation: Press Statement by Adam Ereli, Deputy Spokesman, U.S. Dept. of State, Washington, D. C.; released on Monday, September 22, 2003; 19:05:31 ‑0400 (EDT).

SEC penalizes Deutsche Bank over conflict of interest. On August 19, 2003, the U.S. government fined Deutsche Bank AG’s investment management division $750,000 for failing to reveal its conflict of interest during the hard‑fought and close 2002 vote over Hewlett‑Packard Co.’s $19 billion acquisition of Compaq Computer Corporation. Without admitting or denying the SEC’s findings, Deutsche Bank consented to pay the fine. According to the Securities and Exchange Commission, Deutsche Asset Management (DAM) failed to notify its clients that the company’s investment banking division was working for HP during its proxy fight against objecting director, Walter Hewlett. At first, DAM voted 17 million HP shares held by its clients against the Compaq acquisition. After HP’s last‑minute appeal, however, DAM switched the votes to support the purchase. The SEC did not conclude that the investment bank’s relationship with HP affected the result of DAM’s vote. On the other hand, it declared that DAM should have notified its shareholding clients of the connection so they could have made up their own minds how to act. Since the victorious margin was 45 million votes, Deutsche’s switch did not affect the outcome. The Delaware Chancery Court, however, said that the evidence raised disquieting problems “about the integrity of the internal ethical wall that purportedly separates Deutsche Bank’s asset management division from its commercial division.” Citation: The Associated Press, Tuesday, Aug. 19, 2003; 19:04:20 GMT (byline of Brian Bergstein).

NAFTA Panel issues decision in Canadian Softwood Lumber Products case reviewing threat of injury to U.S. industry. A binational Panel of the North American Free Trade Agreement (NAFTA) has issued a decision in the Canadian Softwood Lumber case. On May 22, 2002, the U.S. International Trade Commission had made a final determination in Certain Softwood Lumber Products from Canada (USITC Pub. 3509, May 2002, 67 Federal Register 36022), and issued antidumping and countervailing duty orders on imports of such products from Canada. Eventually, the countervailing duty rate was 18.79 percent. The NAFTA Panel finds that the Commission’s “threat of material injury to the U.S. domestic softwood lumber industry” determination must be reconsidered in light of, for example, efforts to develop a derivative or more advanced version of the domestic like product, the effect of third-country imports that may contribute to the alleged harm, and the question of whether the U.S. has a sufficient timber supply. The NAFTA Panel, however, affirms several findings of the Commission, including the Commission’s broad discretion in determining the “domestic like product.” Citation: Article 1904 Binational Panel, In the Matter of Certain Softwood Lumber Products from Canada: Final Affirmative Threat of Injury Determination (USA-CDA-2002-1904-07) (September 5, 2003).