2004 International Law Update, Volume 10, Number 10 (October)

2004 International Law Update, Volume 10, Number 10 (October)

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

ANTI-SUIT INJUNCTIONS

English Court of Appeal (Civil Division) sees no abuse of discretion in lower court’s refusal to stay or dismiss English proceedings over parties’ rights to make particular antibiotic in deference to previously filed United States lawsuit against same defendants which plaintiff contended would more appropriately decide same issues

The original plaintiffs here are DSM Anti‑Infectives BV, a Dutch company which sells ingredients for pharmaceutical products, and DSM Anti‑Infectives Sweden AB, which makes similar products for the Swedish market (collectively DSM). The first defendant is an English company which produces ingredients for pharmaceutical products. The second defendant is a Pennsylvania company that makes and sells pharmaceutical products using constituents including those supplied by the first defendant. Both defendants are subsidiaries of GlaxoSmithKline plc, an English company (collectively GSK).

In the early 1990s, GSK had come up with strains of a certain bacterium (streptomyces clavuligerus or S.Clav. or SC7). They have used the bacterium to produce clavulanic acid which in turn is used to produce the potassium salt, potassium clavulanate. They combine that salt with a penicillin, amoxicillin, to produce an antibiotic, co‑amoxiclav (CA), which is more effective than amoxicillin in dealing with certain infections. GSK sells CA under the mark “Augmentin.” DSM sells potassium clavulanate as a bulk product to generic pharmaceutical manufacturers. The defendants later charged DSM with patent infringement and misuse of confidential information, complaining that DSM had allowed other companies to exploit samples of the SC7 purloined from GSK.

After some negotiations, the two sides agreed in 1997 to settle their differences. The Settlement Agreement provided, inter alia, that GSK would not try to sue the claimants for having used the SC7 strain prior to the Agreement. Moreover, GSK reserved its rights to defend against any claims of patent infringement with respect to its use of the strain in the United States.

Finally, Clause 15 provided: “This Agreement shall be governed in all respects by the laws of England and exclusive jurisdiction with respect to all disputes in connection with this Agreement shall be given to the English Courts.”

Later on, GSK found out that two generic drug makers incorporated in Delaware -- Teva Pharmaceuticals Inc. (Teva) and Ranbaxy Pharmaceuticals Inc. (Ranbaxy) -- were getting ready to sell CA in the U.S. GSK sued these two companies in a Pennsylvania state court. Their complaint charged that the two U.S. companies were planning to vend CA derived from the pilfered SC7.

By leave of the Pennsylvania court, GSK also served process on DSM as additional defendants in September 2003. The complaint generally seeks against DSM (1) an injunction and damages for the misappropriation of a trade secret, (2) an injunction and damages for knowingly obtaining an unfair competitive advantage over GSK, (3) an injunction and damages for conversion of SC7, (4) restitution for unjust enrichment, and (5) the imposition of a constructive trust.

Three months later, DSM sued GSK in the English courts. It sought, inter alia, to have the court enjoin GSK from taking further steps in the U.S. proceedings against it because the suit breached the 1997 Agreement. GSK applied for a permanent stay of those English proceedings under C.P.R. 11 on forum non conveniens grounds, the disputed factual issues being already the subject of the ostensibly more appropriate Pennsylvania proceedings. Alternatively, GSK asked for a stay that would last at least until the Pennsylvania court finally rules on its own jurisdiction.

The English trial judge held that Clause 15 of the 1997 Agreement applied to the subject matter of the dispute in the U.S. proceedings to the degree that it affected DSM. He also decided that he had no jurisdiction to stay his own proceedings pursuant to Article 2 of Council Regulation (EC) 44/2001 on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters.

It declares that: “Subject to the Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.” The judge therefore dismissed GSK’s application and it appealed.

Pursuant to EC Treaty Article 234 (formerly Article 177), the English Court of Appeal (Civil Division) referred to the European Court of Justice (ECJ) the legal question whether it was inconsistent with the Brussels Convention on Jurisdiction and the Enforcement of Judgments for a court of a Member State to exercise a discretionary power to decline to hear proceedings brought against a person domiciled in that state in favor of the courts of a non‑contracting state. The ECJ’s decision, however, has not yet come down. The Court then dismisses GSK’s appeal.

The appellate court first decides whether the Agreement covered this dispute “Whilst the primary focus in the Agreement is on settling the disputes relating to the patent infringement alleged by GSK, it is plain from para. 5 (I) that the Agreement went further.”

“The correspondence leading up to the Agreement, ... shows that GSK were concerned about the possibility of a misuse of confidential information to produce the strain DSM were using, having regard to GSK’s belief that Dr. Callewaert had stolen a sample of SC7, that DSM had been in contact with him and that DSM had been using Panlabs which employed Dr. Rowlands.”

“In response to GSK’s request for information, DSM had made disclosure to GSK of the genealogy and development details of the Annex VII strain. The bargain struck between GSK and DSM involved each side accepting obligations and amongst those accepted by GSK was an obligation not to take action against the use by DSM of the Annex VII strain. In the Pennsylvania proceedings, GSK themselves so plead. ....” [¶ 34]

The Court of Appeal then turns to the question of whether or not the Agreement has a binding effect as to the proper forum in which to resolve whether DSM has been using the Annex VII strain rather than the stolen SC7 specimens.

“... [S]ubject to the effect of cl. 14 ..., the obvious answer is that [the forum] was not left at large but that such dispute is connected with the Agreement and so cl. 15 applies. It is connected with the Agreement because cl. 5 (I) bars GSK from objecting to the use of the Annex VII strain. True it is that that is a factual dispute, but [there is] nothing to prevent such a dispute from being one ‘in connection with’ the Agreement. The possibility of such a dispute arising was plain from the parties’ exchanges prior to the Agreement.” [¶ 35]

“Further, if it were necessary, ... for the purposes of this appeal to decide the difficult question whether cl. 14 does permit GSK to bring the Pennsylvania proceedings to determine the issue between the parties as to the strain used to produce clavulanic acid in Sweden and hence potassium clavulanate, [the Court] would hold that it does not. The wording of cl. 14 is significant.”

“It reserves GSK’s rights ‘with respect to Potassium Clavulanate in the [U.S.A.] and in particular its rights to defend and enforce such rights in the [U.S.A.] against any infringement’. Those rights with respect to potassium clavulanate, as defined, are localised to being in the U.S.A. and are rights which might be infringed. That language suggests that the parties were contemplating patent rights, which are territorial, rather than the ownership by GSK of a strain of S. Clav. allegedly used in Sweden.”

“... [T]he foundation of any claim which GSK may have must be DSM’s production in Sweden, and any consequences in the U.S.A. are only secondary to DSM’s activities in Europe and in particular Sweden. If GSK were to obtain against DSM the relief which they seek from the Philadelphia court, in reality they would obtain worldwide relief against DSM as DSM would be estopped from raising against GSK an inconsistent argument elsewhere. ... [T]herefore cl. 14 does not entitle GSK to have the issue of whether DSM have been using the SC7 strain rather than the Annex VII strain ... determined in the U.S.A. in derogation of cl. 15.” [¶ 38]

In the light of conclusions reached thus far, the Court of Appeal will not hinder the exercise of the trial judge’s discretion to refuse to grant a stay unless GSK can show that the judge erred in law or principle in granting “paramountcy” to the exclusive jurisdiction clause.

The Court rejects DSM’s first claim that GSK’s delay in bringing it into the Pennsylvania proceeding was damaging to it. “The judge has not, in my judgment, been shown to have erred in law or principle in rejecting the alleged prejudice to GSK from the delay as a weighty factor in the exercise of his discretion.” [¶ 42]

Secondly, the trial judge’s concerns about the danger of inconsistent findings did not detract from his exercise of discretion in refusing to stay. “It is plain from the judge’s assessment of this as GSK’s best point that he did recognise that it was an important point. However, matters of weight are for the judgment of the judge exercising his discretion and this court will rarely interfere with that judgment. He was entitled to take note of GSK’s claim of the certainty which their testing would produce even though DSM challenged that claim. The reality is that the possibility of both the Pennsylvania and the English proceedings going ahead and producing inconsistent results is remote. Whichever of GSK and DSM lose in the first case to be tried on the issue of the strain DSM has been using would be estopped from arguing the contrary in the other proceedings.” [¶ 44]

Citation: DSM Anti‑Infectives BV v. Smithkline Beecham plc, [2004] E.W.C.A. CIV. 1199, [2004] All E.R. (D) 66 (Ct. App. Civ. Div. September 10).

CHOICE OF LAW

In deciding whether to enforce $4.2 billion judgment against various Turkish parties, Second Circuit concludes that Swiss law applies and that it does not allow defendants who had not signed loan contracts to invoke their arbitration clauses

The Uzan family controls several Turkish telecommunications companies, including Telsim and Rumeli Telefon (TRT). In 1998, Motorola lent TRT $360 million to buy cellular infrastructure and equipment from Motorola, and $200 million for TRT to acquire a 25-year nationwide cellular license in Turkey. The collateral was 51 percent of TRT’s outstanding shares.

Motorola eventually raised the loans to about $2 billion, and the collateral to 66 percent of TRT’s shares. The Motorola loan documents specified that Swiss law applied and that parties would arbitrate any disputes before a three-person panel in Switzerland according to the International Arbitration Rules of the Zurich Chamber of Commerce.

In addition, Nokia lent TRT about $800 million secured with 7.5 percent of TRT’s outstanding shares. The choice-of-law and arbitration clauses of the Nokia loan documents closely tracked the Motorola clauses.

TRT, however, repaid a total of only about $205 million of the total loans of $2.8 billion. Motorola and Nokia (plaintiffs) filed suit in a New York district court against several Uzan family members and associates, as well as against several of their companies (defendants). The complaint charged violations of RICO, Illinois state law, the U.S. Computer Fraud and Abuse Act, and the Electronic Communications Privacy Act. It did not, however, include as defendants the signatories of the loan agreements.

The district court found that the defendants had defrauded Motorola and Nokia by making false statements and by diluting the value of the collateral. The total award was about $4 billion in compensatory and punitive damages. The defendants duly noted an appeal. The U.S. Court of Appeals for the Second Circuit affirms in part, vacates in part, and remands in part.

One of defendants’ arguments concerns the choice of law. Below, they had unsuccessfully moved the district court to compel arbitration under 9 U.S.C. Section 206, part 2 of the Federal Arbitration Act (FAA), which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3] (New York Convention). Section 206 provides that a court “may direct [that] arbitration be held in accordance with the agreement at any place provided for ...”

The Second Circuit then explains its analysis. “We have applied a choice-of-law clause to determine which laws govern the validity of an agreement to arbitrate. ... More generally, a choice-of-law clause in a contract will apply to disputes about the existence or validity of that contract. ...”

“Defendants claim that a choice-of-law clause does not govern questions of contract validity where the ultimate issue is one of arbitrability. They rely principally on decisions that apply federal law to the question of arbitrability despite the presence of a choice-of-law clause designating another forum’s laws. ... However, these authorities do not hold that a court must set aside a choice-of-law clause in determining arbitrability; instead, they appear to be cases where neither party raised the choice-of-law issue. ...”

“Defendants also argue that applying federal law to the interpretation of arbitration agreements is required to further the purposes of the FAA and to create a uniform body of federal law on arbitrability. Their uniformity argument has some force where the parties have not selected the governing law. But where the parties have chosen the governing body of law, honoring their choice is necessary to ensure uniform interpretation and enforcement of that agreement and to avoid forum shopping.”

“This is especially true of contracts between transnational parties, where applying the parties’ choice of law is the only way to ensure uniform application of arbitration clauses within the numerous countries that have signed the New York Convention.”

“Furthermore, respecting the parties’ choice of law is fully consistent with the purposes of the FAA. In short, if defendants wish to invoke the arbitration clauses in the agreements at issue, they must also accept the Swiss choice-of-law clauses that govern those agreements.” [Slip op. 29-32]

The Court then turns to the issue of whether, under Swiss law, the defendants (as non-signatories to the loan agreements) may invoke their arbitration clauses. (The parties briefed these issues for the Second Circuit and provided affidavits from preeminent scholars of Swiss law.)

Plaintiffs’ “Karrer Declaration” concludes that, under Swiss law, a director, shareholder or employee of [TRT] could not invoke the arbitration clauses unless such third party was a successor. Swiss jurisprudence apparently has not dealt with a situation where a non-signatory tried to compel arbitration against a signatory to an agreement.

Defendant’s affidavit from Dr. Phillipe Schweizer does not materially advance their case. Dr. Schweizer explains that a non-signatory may be required to arbitrate under certain circumstances where it acts in bad faith. He does not, however, support the theory that, under Swiss law, a non-signatory can invoke an arbitration clause.

The Court concludes that Swiss law would not allow the non-signatory defendants to invoke the loan agreements. Thus, the lower court had correctly denied defendants’ motion to compel arbitration.

Citation: Motorola Credit Corp. v. Uzan, 2004 WL 2367827; Nos. 03-7792(L), 03-7794(CON), 03-7878(XAP) (2d Cir. October 22).

FORUM NON CONVENIENS

In case brought in New York federal court by documentary film maker resident therein against BBC of London, Second Circuit concludes that factors suggesting application of forum non conveniens doctrine failed to outweigh deference owed to plaintiff’s choice of her home forum

Pat Gross (plaintiff), a U.S. citizen living in New York, sued the British Broadcasting Corporation (BBC), a company based in London (defendant), in New York federal court. Her complaint charged that defendant had exploited her idea for a documentary report about militant animal rights activists without her permission. BBC aired that documentary only in the United Kingdom, but it does have an office in New York.

According to plaintiff, she had conceived the idea of such a documentary, and had traveled to London to present it to defendant and an independent production company called Twenty Twenty Television, Ltd. She later withdrew from the project when she became dissatisfied. Defendant nevertheless went ahead with the three-part production which it broadcast in late 2000/early 2001, and allegedly used plaintiff’s research and ideas.

The district court granted defendant’s motion to dismiss for forum non conveniens and plaintiff appealed. The U.S. Court of Appeals for the Second Circuit vacates and remands.

“In a recent en banc decision, we set out the multi-state analysis a district court must perform to evaluate a forum non conveniens. Iragorri v. United Techs. Corp., 274 F.3d 65 (2d Cir. 2001) (en banc). The initial inquiry is to determine the degree of deference to which the plaintiff’s choice of forum is entitled. ... Once that determination is made, the court must conduct the analysis set out in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507-09 ... (1947).

“Under Gilbert, step two is to determine whether an adequate alternative forum exists. If the answer is ‘yes,’ then the final, or third step, is to balance the private and public interests to decide whether the case should be adjudicated in the plaintiff’s choice of forum or in the alternative forum proposed by defendant.” [Slip op. 12-13]

The Court then proceeds to apply this test. First, the degree of deference depends on several considerations, including the plaintiff’s own connection to that forum. The plaintiff’s choice of her home forum is ordinarily entitled to substantial deference because it is presumed to be convenient for her.

If, however, a foreign plaintiff selects a U.S. forum, it is entitled to less deference because it may be the result of international forum shopping. Here, plaintiff sued in her home district and defendant is amenable to suit in that forum.

Second, as to the alternative forum, defendant is certainly amenable to process in London and has in fact consented to be sued there. Plaintiff claims to be unable to afford litigation in London, but that is only one of the factors a court has to take account of.

Third, the Court weighs the private and public interests at stake. Gilbert’s private interest factors include the relative ease of access to sources of proof, the availability of compulsory process for attendance of unwilling witnesses, the possibility of viewing premises, and all other practical problems that make trial of a case easy, expeditious and inexpensive.

Applying these Gilbert factors, the Court finds that there is no significant difference between the U.S. and the U.K. as fora, except that it may be somewhat easier to obtain unwilling witnesses in the U.K.

The public interest factors include the courts’ possible administrative difficulties, the local interest in having localized controversies decided at home, the interest of having the trial of a diversity case in a forum that is at home with the law that has to govern the action, and the avoidance of conflict-of-law problems. Also here, the scale is almost evenly balanced.

The Court notes that a plaintiff’s choice of forum typically receives substantial deference. Here, the Court finds that the district court’s dismissal was unreasonable, and it remands to the district court for further proceedings consistent with this ruling.

Citation: Gross v. British Broadcasting Corp., 2004 WL 2255349, No. 03-7306 (2d Cir. October 8).

FORUM NON CONVENIENS

British Columbia Court of Appeal reverses trial court’s ruling that, in light of dispute’s many links to United States, it lacked jurisdiction over civil fraud action but does not disturb its discretionary balancing of factors that pointed to New York as most convenient forum

David Roth (plaintiff) resides in British Columbia (BC). In 1996, he incorporated Internet International Communications Ltd. (IIC), a Nevada corporation. IIC then got itself registered extra‑provincially in BC. It then set up an office in Vancouver with up to ten employees, doing business under the name “2DOBIZ.COM”. Through this website, IIC provided an “online trading platform” to help small and medium‑sized domestic enterprises to find opportunities to export goods and services to Asian markets.

During 2000, the IIC shareholders agreed to merge with defendant Interlock Services, Inc. (ISI), a Nevada shell company, making IIC into ISI’s wholly‑owned subsidiary. Plaintiff received about 4.5 million shares in ISI; he also ended up as ISI’s President, Chief Executive Officer, and Chairman of the Board. ISI then moved its main office to Vancouver and began to trade its shares publicly in the United States.

On August 10, 2001, however, the plaintiff and defendants Martin Weisberg, Phillip Pearce, and Michael Wong had a fateful meeting in Nevada. The parties give conflicting versions about what had gone on there. According to the defendants, the plaintiff had resigned as CEO and President of 2DOBIZ.COM, and defendant Joseph McDonnell had taken over these offices. The conferees also had agreed to cancel plaintiff’s shares and to move the offices of 2DOBIZ.COM to New York.

The plaintiff denied these accounts. First, he alleged that the meeting had not been a formal Board meeting. Nevertheless, defendants had later created fake minutes and a phony resolution purporting to record the above fictional events.

In November 2001, the defendant law firm, Jenkens & Gilchrist of New York, had issued a press release announcing that the company had invalidated plaintiff’s shares in 2DOBIZ.COM and removed him as a director “as a result of an on‑going internal investigation into the propriety of various prior stock issuances.” Not long after this, IIC’s Vancouver landlord had levied upon IIC’s business assets for failure to pay rent and the office had shut down.

In June 2002, the plaintiff filed this action for damages in the BC Supreme Court. The seven defendants were: (1) InterlockServices, Inc., a.k.a. 2DOBIZ.Com, Inc., a.k.a. New York International Commerce Group, Inc., (2) Martin Eric Weisberg, (3) Phillip E. Pearce, (4) Hugh W. Austin, (5) Michael Wong, (6) Jenkens & Gilchrist Parker Chapin LLP, a.k.a. Jenkens & Gilchrist, and (7) Joseph W. McDonnell.

Plaintiff’s complaint charged that IIC had wrongfully fired him; that the cancellation of his shares had breached the merger agreement; that the defendants had crookedly connived to bring about his wrongful dismissal and the invalidation of his shares; that the press stories had damaged his reputation and that the defendant law firm had violated fiduciary duties owed to him.

Moreover, plaintiff sought an injunction forcing the defendants to issue a news release to correct their defamatory statements. The heart of his claim, however, is that the individual defendants had fraudulently stripped him of the chance to sell his IIC shares on the open market.

The applicable procedural Rules provide that a plaintiff may serve an originating process on a person outside B.C. if the case meets one or more of the listed conditions. The endorsement on the instant writ of summons declares that: “The plaintiff claims the right to serve this Writ on the defendants outside of British Columbia on the grounds that two of the [seven] defendants reside in British Columbia, that some or all of the alleged breaches occurred in British Columbia and that an injunction is sought in British Columbia.”

The chambers judge thought that the plaintiff’s two main claims were for damages resulting (1) from the invalidation of his shares in breach of the merger agreement and (2) from his wrongful discharge. The defendants admitted that the alleged breaches, if that is what they were, had taken place in B.C.

The chambers judge determined that plaintiff had failed to show a “real and substantial connection” with B.C. in respect to the first claim. He noted that the merger agreement involved two Nevada corporations, ISI being the only one registered in B.C. Moreover, it noted that the defendants had decided to cancel the plaintiff’s shares during a Nevada meeting and the offending press release emanated from the New York offices of Jenkens & Gilchrist. Further, the judge pointed out that the merger agreement featured a clause that chose to make Nevada law applicable.

Finally, the trial judge concluded that the fact that the damage caused by the alleged breach of the employment contract took place in B.C. was not enough under the circumstances to prove a real and substantial connection between that claim and this Province. His bottom line was that his court lacked jurisdiction and so he overturned the service of summons.

On review sought by plaintiff , the B.C. Court of Appeal reverses in part on the grounds that the court below did have jurisdiction simpliciter. It does not interfere, however, with the lower court’s alternative holding that, even there was jurisdiction, he would exercise his discretion to decline to exercise it under the forum non conveniens doctrine.

The appellate court first disagrees with the lower court that it had lacked jurisdiction simpliciter. “Here, the [plaintiff] has pleaded that he is a resident of British Columbia; that he was an officer and principal shareholder of IIC, a company registered extra‑provincially in British Columbia; that the merger agreement between IIC and Interlock was entered into in Vancouver, British Columbia in December 1999; that Interlock’s principal asset was IIC; that IIC’s principal place of business from approximately January 2000 forward was Vancouver; that, pursuant to an oral agreement between him and Interlock in January 2000, he was president of Interlock and a director of Interlock and IIC, he managed Interlock’s business through IIC in Vancouver, and he received a monthly salary for doing so; that Interlock also agreed to pay the expenses of the business in Vancouver and to reimburse him for any expenses that he should pay.”

[He also alleged] “that Interlock breached these agreements; that he was wrongfully dismissed by Interlock in August 2001; that in furtherance of a fraudulent conspiracy to gain control of Interlock, the [defendants] wrongfully dismissed him, wrongfully advised IIC’s landlord that he no longer had authority to deal on behalf of IIC and Interlock, wrongfully and fraudulently removed him as director of Interlock, and wrongfully brought about the cancellation of his shares in Interlock; and that the second press release implied that he was guilty of criminal or quasi‑criminal wrongdoing in respect of the issue of shares in Interlock, that it was published in British Columbia, and that it defamed him ‘in the way of his occupation, business, profession and office’.” [¶ 16]

“The pleaded ‘jurisdictional’ facts ... set out above establish ... a real and substantial connection that meets the concerns of comity, order, and fairness. Although residency of the plaintiff in the jurisdiction is not alone sufficient to ground jurisdiction simpliciter [cites], in this case there are additional connecting factors pleaded: IIC was not only registered extra‑provincially but did business in British Columbia; the relevant agreements were negotiated and executed in this province; and the damages that flowed from the alleged breaches occurred here. ... Clear examples of connecting factors include the residency of the defendant in the jurisdiction or the fact that the tortious act was committed or damages suffered here.” [¶ 20]

Finally, the plaintiff has proffered evidence on the disputed facts which, if accepted, would make out an arguable case. The result is that the trial judge was mistaken in finding a lack of jurisdiction simpliciter.

On the lower court’s alternative ruling that B.C. was not a convenient forum in which to litigate this case, the appellate court does not disagree. The Court then outlines many of the discretionary factors applicable under this doctrine. These are: “(1) Where each party resides; (2) Where each party carries on business; (3) Where the cause of action arose; (4) Where the loss or damage occurred; (5) Any juridical advantage to the plaintiff in this jurisdiction; (6) Any juridical disadvantage to the defendant(s) in this jurisdiction; (7) Convenience or inconvenience to potential witnesses; (8) Cost of conducting the litigation in this jurisdiction; (9) Applicable substantive law; (10) Difficulty... in proving foreign law, if necessary; (11) Whether there are parallel proceedings in any other jurisdiction.” [¶ 24]

The Court of Appeal then quotes paragraph 32 of the lower court’s line up of the convenience factors in this case. “The defendants are residents of the United States. Interlock is a Nevada Corporation, while the defendants Weisberg, McDonnell, Wong and Austin are all residents of the State of New York. The defendant Pierce is a resident of North Carolina. As well, the defendant law firm Jenkens & Gilchrist is also resident in New York. The plaintiff incorporated his first company, IIC in Nevada. He took part in the merger of that company with Interlock, another Nevada company.”

“Moreover, he must have considered the juridical advantages in agreeing to adopt Nevada law as the applicable law for the merger agreement. It was obviously the intent of all the parties that any dispute arising from out of the agreement be governed by Nevada law. Finally, the meeting that gives rise to the action took place in Nevada. In the circumstances, the appropriate jurisdiction based on all the factors is either Nevada or New York.” [¶ 25]

In concluding, the appellate court declares that it is “not persuaded that the chambers judge erred in declining jurisdiction for those reasons. It should be emphasized that the essence of this action is the claim that the [plaintiff] was fraudulently deprived of the opportunity to trade his shares at a profit. The other claims are collateral to that primary objective. Since the alleged fraudulent steps emanated from the State of New York, I agree with him that the preponderance of connecting factors is with that jurisdiction.” [¶ 26]

Citation: Roth v. Interlock Services, Inc., 2004 A.C.W.S.J. 9327; 132 A.C.W.S. (3d) 886 (B.C.C.A. 2004).

IMMUNITY FROM SUIT (HEADS OF STATE AND DIPLOMATS)

Where plaintiffs had served process upon Zimbabwe’s President and Foreign Minister during their visit to United Nations headquarters, Second Circuit upholds their immunity from suit and rules that government representatives cannot be served as agents for defendant political party under U.N. and Vienna Conventions

The Zimbabwe African National Union-Patriotic Front (ZANU-PF) is a private political party which has ruled Zimbabwe since 1980. During the relevant time period here, Robert Mugabe was the President of Zimbabwe and Stan Mudenge was the Foreign Minister and a ZANU-PF official.

Several Zimbabwe persons filed a law suit in a New York federal court against Mugabe, Mudenge, ZANU-PF and others, alleging violations of the Alien Tort Claims Act (ATCA) [28 U.S.C. Section 1350], the Torture Victim Protection Act of 1991 (TVPA) [Pub.L. No. 102-256, 106 Stat. 72, 28 U.S.C. Section 1350 note], and international human rights norms. ZANU-PF affiliates have allegedly tortured, assaulted, and executed plaintiffs and/or their family members. Plaintiffs served defendants during Mugabe’s and Mudenge’s visit to New York as delegates to the United Nations.

The U.S. government filed a “suggestion of immunity” under 28 U.S.C. Section 517 as to Mugabe and Mudenge based on diplomatic and head-of-state immunity. The district court found Mugabe and Mudenge immune, but considered the service of process valid as to ZANU-PF. It, however, did not respond to the suit and the district court entered a $71 million default judgment against it. The U.S. then appealed this judgment. The U.S. Court of Appeals for the Second Circuit affirms in part and reverses in part.

The Court substantially agrees with the district court which dismissed the claims against Mugabe and Mudenge because of diplomatic immunity under the U.N. Convention on Privileges and Immunities [21 U.S.T. 1418] and the Vienna Convention on Diplomatic Relations [April 18, 1961, 23 U.S.T. 3227, T.I.A.S. No. 7502, entered into force for U.S. December 13, 1972].

Under Article IV, section 11, of the U.N. Convention, “Representatives of Members to the ... United Nations ... shall, while exercising their functions and during their journey to and from the place of meeting, enjoy the following privileges and immunities: (a). ... in respect of words spoken or written and all acts done by them in their capacity as representatives, immunity from legal process of every kind; ... (g). such other privileges, immunities and facilities not inconsistent with the foregoing as diplomatic envoys enjoy ...”

Article 31 of the Vienna Convention provides that “(1) A diplomatic agent shall enjoy immunity from the criminal jurisdiction of the receiving State. He shall also enjoy immunity from its civil and administrative jurisdiction [subject to certain exceptions] ...” In the Court’s view, none of the specific exceptions of Article 31 applies. Thus Mugabe and Mudenge enjoy immunity under both Conventions.

The Court then turns to the service of process on Mugabe and Mudenge as agents for ZANU-PF. Under Article 29 of the Vienna Convention, “[t]he person of the diplomatic agent shall be inviolable. He shall not be liable to any form of arrest or detention. The receiving State shall treat him with due respect ...”

The Court then applies the Conventions to the facts here. “We ... disagree with the district court’s interpretation of the interplay between Articles 29 and 31 of the Vienna Convention. The district court reasoned that because Article 31 permits suit against – and, therefore, service of process upon – diplomats in certain limited circumstances, service of process does not violate the inviolability principle. ...”

“But this reasoning turns controlling precedent on its head. ... [W]e explained that the inviolability principle ‘makes no provision for exceptions other than those set forth in Article 31.’ ... Accordingly, the fact that service of process is allowed in order to initiate the actions permitted by the express exceptions to inviolability does not mean that service of process on a diplomat is otherwise permissible under Article 29. If anything, that fact indicates that service of process on a diplomat in any action not specified in Article 31 would be improper ... “ [Slip op. 46-47]

“Like the court in [Hellenic Lines, Ltd. v. Moore, 120 U.S. App. D.C. 288, 345 F.2d 978 (1965)], we have no reason to doubt the Government’s assertion that, as a practical matter, service of process on a person entitled to diplomatic immunity both interferes with that person’s representative functions and constitutes an affront to his or her dignity. ...”

“In light of the court’s own admonition that the inviolability principle be construed broadly, we hold that Article 29 of the Vienna Convention, as applied to Mugabe and Mudenge through Article IV, section 11(g) of the U.N. Convention ..., protected Mugabe and Mudenge from service of process as agents for ZANU-PF. Therefore, ZANU-PF was not properly served, and the claims against it should have been dismissed.” [Slip op. 50-51]

Citation: Tachiona v. United States, 2004 WL 2240401; Nos. 03-6033(L), 03-6043(XAP) (2d Cir. October 6 ).

TERRORIST VICTIMS PROTECTION ACT

In case involving attempts to collect two distinct default judgments against Iran, Ninth Circuit rules that one plaintiff had waived right to punitive damages under Terrorist Victims Protection Act but that arbitration awards of International Chamber of Commerce obtained by second plaintiff against one of Iran’s military suppliers should be upheld

In 1995, a suicide bomber murdered Stephen Flatow’s daughter in the Gaza Strip. Later, the District of Columbia federal court granted Mr. Flatow a default judgment against Iran for $20 million in compensatory, and $250 million in punitive damages. In 1990, Iranian terrorists assassinated Dariush Elahi’s brother, a member of an Iranian opposition group, and the same District Court awarded Mr. Elahi almost $12 million in compensatory, and $300 million in punitive damages.

More recently, arbitrators from the International Chamber of Commerce (ICC) awarded Iran’s Ministry of Defense (IMOD) $2.8 million against Cubic Defense Systems, Inc. (Cubic), one of its military suppliers. After a California district court had confirmed the arbitration award, Messrs. Flatow and Elahi first moved to intervene, and later to attach IMOD’s judgment against Cubic. IMOD argued that it was immune from attachment.

The district court granted IMOD’s motion to dismiss as to Mr. Flatow, but denied it as to Mr. Elahi. Both parties duly noticed their appeals. The U.S. Court of Appeals for the Ninth Circuit affirms.

With respect to Mr. Flatow, IMOD argued that he had waived any claim that he may have had because he accepted payments under Section 2002 of the Victims of Trafficking and Violence Protection Act of 2000 (VPA) [Pub.L. No. 106-386, 114 Stat. 1464]. With the VPA, Congress provided compensation to persons holding judgments against Iran and Cuba based on those nations’ sponsorship of terrorist activities. Here, Mr. Flatow had accepted payments equivalent to 100 percent of the compensatory damages and had given up certain rights to punitive damages.

The Court then focuses on the precise scope of Mr. Flatow’s relinquishment of his rights to punitive damages. Section 2002(a)(2)(D) of the VPA provides that a claimant, by accepting compensation under the Act, surrenders “all rights to execute against or attach property that is at issue in claims against the United States before an international tribunal, that is the subject of awards rendered by such tribunal, or that is subject to section 1610(f)(1)(A) of title 28, United States Code.” The latter provision forms part of the Foreign Sovereign Immunities Act of 1976 (FSIA) [28 U.S.C. Section 1602ff]

Section 1610(f)(1)(A) provides that “... any property with respect to which financial transactions are prohibited or regulated pursuant to ... the Trading with the Enemy Act ..., the Foreign Assistance Act of 1961 ..., [and] sections 202 and 203 of the International Emergency Economic Powers Act (IEEPA)..., shall be subject to execution or attachment in aid of execution of any judgment related to a claim for which a foreign state ... claiming such property is not immune ...”

IMOD specifically argued that the Cubic judgment is subject to the IEEPA [50 U.S.C. Section 1701]. It generally grants the President the authority to regulate financial and property transactions with certain foreign countries.

The Court, however, sees no merit in Mr. Flatow’s point. “Flatow first claims that reading the relevant statutes and regulations to preclude attachment of the Cubic judgment would create a conflict between the Victims Protection Act and the duties embodied in the New York Convention to enforce foreign arbitral awards.”

“The New York Convention, however, has been fully enforced in this case; the district court has confirmed the ICC award obtained by [IMOD] against Cubic. ... The award has, in essence, been transformed into a judgment of a federal court, and the New York Convention is now irrelevant to whether that judgment can be attached by a third-party.”

“Flatow’s second argument is that the Cubic judgment is not currently ‘regulated’ by the IEEPA. Flatow points out that 31 C.F.R. Section 535.579(a)(2) provides that ‘transactions involving property in which Iran or an Iranian entity has an interest are authorized where ... the interest in the property of Iran or an Iranian entity ... arises after January 19, 1981.’ This provision is one of several general licenses which authorize particular categories of transactions involving Iranian property. ...”

“The fact that a range of conduct is authorized or permitted does not mean that it is not regulated; to the contrary, the fact that Section 535.579 purports to authorize transactions related to the Cubic judgment reinforces the notion that the judgment is property regulated by the Iranian regulations and the IEEPA. ... [W]e reject Flatow’s contention that Section 535.579 or any other general or specific licenses render the Cubic judgment not ‘regulated’ by IEEPA.” [Slip op. 19-22]

Moreover, Mr. Elahi did not receive any payments under the VPA. IMOD, however, unsuccessfully argued that it is immune under the FSIA. By litigating here, IMOD had waived its immunity from U.S. court jurisdiction. The issue is whether this also amounted to a waiver of its immunity from attachment of its property under 28 U.S.C. Sections 1610(a)(1) or (b)(1) setting forth exceptions to immunities from jurisdiction and from attachment.

“Prior to the passage of the FSIA, the courts ... had held that a foreign state’s waiver of jurisdictional immunity did not constitute a waiver of its immunity from attachment of its property. ... The FSIA narrowed the scope of immunity from attachment, but ... the structure of the Act makes clear that it preserved the traditional distinction between the two forms of immunity.”

“The scant post-FSIA authority that speaks on the subject suggests that the statute did not change the earlier rule that waiver of jurisdictional immunity does not constitute a waiver of immunity from attachment. See Restatement (Third) of Foreign Relations Law of the United States Section 456(1)(b) ...”

“For these reasons, and because we construe the waiver provisions in FSIA narrowly, ... we conclude that [IMOD]’s waiver of jurisdictional immunity did not also constitute a waiver of its immunity from having its property attached.” [Slip op. 29-31]

The Cubic judgment, nevertheless, is subject to attachment because it falls under the exception in FSIA Section 1610(b)(2). It provides that “[a]ny property in the United States of an agency or instrumentality of a foreign state engaged in commercial activity in the United States shall not be immune from attachment ...”

Here, IMOD was clearly engaged in commercial activity when it was buying U.S. military equipment. Furthermore, IMOD does not enjoy immunity from Mr. Elahi’s claim because, under FSIA Section 1607(a)(7), a foreign state is not immune in matters of state-sponsored terrorist activity.

Citation: The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 2004 WL 2249493; Nos. 99-56498, 02-57043, 03-55015 (9th Cir. October 7).

Coca-Cola agrees to desist from anti-competitive practices in European Union. Ending a five-year anti-trust investigation, the European Commission’s competition directorate on October 19 accepted the Coca-Cola company’s offer to desist from certain anti-competitive practices in the EU’s 17 billion EURO ($21 billion) carbonated soft-drink market. The company agreed to no longer force retailers to enter into exclusive dealing arrangements that have kept major rivals such as Pepsi out of many shops and bars. In addition, Coke agreed to discontinue its practice of limiting rebates to those retailers who stock a full range of Coke drinks. Outlets will also be free to use up to 20 percent of the space inside Coke-branded refrigerators to chill rival soft drinks. The Agreement will apply to those (unspecified) Member States where Coke’s market share is over 40 percent and where its sales are more than twice those of its nearest competitor. According to Beverage Digest, Coke has a 68 percent market share in Belgium to Pepsi’s 5 percent . In France, it is 60 percent to 6 percent and in Germany, 51 percent to 5 percent . The U.S. market, in contrast, breaks down into 44 percent for Coke and 38 percent for Pepsi. The Agreement is likely to become final early in 2005. Citation: European Commission Press Release IP/04/1247 (Brussels, 19 October 2004); related document “Undertaking CASE COMP/39.116/B-2 - Coca Cola” is available on website of the Directorate-General Competition at “europa.eu.int/comm/competition”; Coca Cola Enterprises, Inc. press release of October 19, 2004; New York Times (online); Brussels, Wednesday, October 20, 2004 (byline of Paul Meller); The International Herald Tribune, October 21, 2004, page 12.

European Union competition regulators approve American company’s acquisition of Volvo’s axle unit. Head-quartered in Gothenburg, Sweden, the Volvo corporation is one of the world’s major truck producers. ArvinMeritor (AM), a U.S. company based in Troy, Michigan, sells vehicle components to manufacturers of light vehicles, commercial trucks and trailers. On October 4, 2004, EU anti-trust regulators cleared AM’s plan to buy Volvo AB’s axle production division. In the regulators’ view, the acquisition would not adversely affect competition in the European axle market. The deal includes an agreement by AM to supply Volvo with at least 300,000 commercial-vehicle drive axles per year. In addition, Volvo will move some production of its non‑drive axles from its Koping, Sweden, plant to AM’s Lindesberg, Sweden, factory (which AM had acquired from Volvo in 1998) and to a jointly run plant in France. AM estimated that the French plant will annually turn out about 200,000 axles. Citation: Europe Information Service, European Report, No. 2901 (October 6, 2004); The Associated Press (online), Brussels, Belgium, Monday, October 4, 2004 at 11:56:06 G.M.T.

United States and European Union conclude agreement on customs cooperation and mutual assistance in customs matters. The Council of the European Union, through Decision 2004/634/EC, has officially approved the Agreement between the European Community and the United States of America which intensifies and broadens the 1997 Agreement on Customs Cooperation and Mutual Assistance in Customs Matters (CMAA). The text of the Agreement is attached to the Decision. It provides, inter alia, for increased cooperation for the Container Security Initiative (CSI) to elevate EU safety standards to U.S. standards (Articles 1-3), as well as for setting up a Working Group to focus on specified problem areas (Article 5). The Annex outlines the problem areas to be addressed by the Working Group, such as defining minimum standards, identifying and broadening the most effective security practices, and targeting high-risk shipments. Citation: Council Decision 2004/634/EC, 2004 Official Journal of European Union (L 304) 32, 30 September 2004.

European Commission approves Oracle’s takeover of Peoplesoft. On October 26, 2004, Mario Monti, the outgoing European Union Commissioner for Competition Policy, formally cleared Oracle Corporation’s $7.7 billion takeover bid for PeopleSoft, a rival U.S. software maker. Chief among the Commission’s original worries had been that a merger of Oracle and PeopleSoft would leave Germany’s SAP as the only serious rival. Further examination of the many facts which Oracle had supplied to the Commission plus data from a California court’s proceedings have mollified these concerns. After more than a year of investigation, Brussels decided that, despite the cutback in the number of market participants, “the markets would remain competitive.” Mr. Monti referred to companies such as Lawson, IFS, Intentia and QAD as further rivals, and also cited Microsoft as a “recent vendor of business application software”. In addition, there were indications that the Commission’s influential legal services department had warned that the European Court of Justice would have upheld a legal challenge by Oracle. The Commission’s decision will also banish fears that authorities in the EU and the U.S. would have dealt inconsistently with the merger, a result that Mr. Monti and his U.S. counterparts have been anxious to avoid. The U.S. Department of Justice had initially objected to the takeover, but a California court had overruled its ban in September. Earlier this month, U.S. officials made clear they would not appeal that decision. – See in this regard the speech by Mario Monti “A reformed competition policy: achievements and challenges for the future (28 October 2004), SPEECH/04/477, available on the European Union website “europa.eu.int.” Citation: European Commission Press Release IP/04/1312 (Brussels, 26 October 2004); European Information Service, European Report, No. 2907 (October 27, 2004); Financial Times of London, London Ed. 1, Wednesday, October 27, 2004; Companies International Section, page 29 (byline of Tobias Buck).

English Court rules that extradition of English bankers to U.S. would be lawful. On October 15, 2004, a first instance court in England held that David Bermingham, Giles Darby and Gary Mulgrew, three British bankers indicted in the United States on Enron‑linked wire fraud charges were extraditable for trial in a Texas federal court. Among the charges are that defendants cheated the Westminster Bank of U.K. of $7.3 million in a conspiracy allegedly masterminded by Andrew Fastow, former finance chief of the collapsed energy giant, the Enron Corp. Barring a contemplated appeal, the case will now go to Home Secretary David Blunkett to decide whether to physically surrender the three men to U.S. authorities. The Secretary can only block the handover (1) if the defendants might face the death penalty, (2) if they had already been extradited to Britain from another country or (3) if they were likely to face additional charges once in the U.S. Citation: Financial Times (London, England), October 16, 2004, page 3; The Associated Press (Online), London, Friday, October 15, 2004 at 13:28:04 G.M.T. (byline of Jill Lawless of AP).

People’s Republic of China recognizes legality of electronic signatures. On August 28, 2004, the Chinese parliament authorized the use of electronic signatures, according to the Xinhua News Agency. It makes these signatures equal in law to handwritten ones. Electronic signatures are valid for setting up companies, as well as to certify the identities of parties to online buying and selling transactions. (Electronic signatures became legally binding in the United States in 2000.) Although 87 million Chinese now use the Internet, the growth of e-commerce has been sluggish due to the minimal use of credit cards and the absence of other efficient ways to pay for products or services online. Foreign investors such as Amazon.com, Inc. and E-Bay have already made plans to take an active part in China’s e-commerce. In 2003, China’s 4,000 or so commercial web sites generated about $60 billion in revenue. Citation: Xinhua Economic News Service report of August 30, 2004; The Associated Press (Online) (via Findlaw), Beijing, Monday, August 30, 2004 at 16:09:38 G.M.T.

United States will expand investment and civil aviation relations with Uruguay. The U.S. is planning to enlarge its trade and investment relations with Uruguay. On September 7, 2004, after a year of negotiations, the United States Trade Representative and the Uruguayan Minister of Economy and Finance announced the successful conclusion of the negotiations for a Bilateral Investment Treaty (BIT). It was signed on October 25, 2004. This agreement will increase investment and trade between the two countries, and will better protect American investments. – In a related matter, the United States and Uruguay signed an Open Skies Aviation Agreement on October 20, 2004 in Montevideo, Uruguay. It permits, for example, open routes, private capacity decisions, as well as code sharing. Citation: United States Trade Representative press releases of 09/07/2004 & 10/25/04 (bilateral investment treaty); World Markets Research Centre, World Markets Analysis (October 26, 2004); United States Department of State Press Statement of October 21, 2004 (aviation).

U.S. Trade Representative and other government institutions announce major initiative to control global trade in counterfeit products. On October 4, 2004, the U.S. Trade Representative, the Department of Commerce, the Department of Justice, and the Department of Homeland Security announced a major initiative called “Strategy Targeting Organized Piracy” (STOP!) to help manufacturers enforce their rights, to prevent pirated products from entering the U.S., to fight criminal enterprises that operate in this area, and to develop an international coalition against piracy and counterfeiting. Streamlined manufacturing processes have made it easier to illegally copy products and sell them worldwide, including CDs, DVDs, clothing, and even automobile parts. The press release notes that an estimated seven percent of world trade involves counterfeit goods. It names China as the leading source of such goods. Among the specific measures are a telephone hotline 1-866-999-HALT to provide businesses with information on how to protect their products, improved procedures to identify phony products at the border, and the identification of foreign companies that produce fake products in the U.S. Trade Representative Special 301 Report. Citation: U.S. Trade Representative press release 10/04/2004; U.S. Immigration and Customs Enforcement Fact Sheet, October 4, 2004, available on website “www.ice.gov”; The Washington Post, October 5, 2004, page E5.