2004 International Law Update, Volume 10, Number 11 (November)

2004 International Law Update, Volume 10, Number 11 (November)

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

BANKRUPTCY

In transnational bankruptcy proceeding, Eighth Circuit upholds auxiliary jurisdiction of Nebraska bankruptcy court to issue injunctions in aid of liquidation proceeding at corporation’s domicile in Cayman Islands

Phyllis Hoffman (plaintiff) was one of about 950,000 buyers who are parties to a Vehicle Service Contract (VSC) guaranteed by National Warranty Insurance Group (NWIG). NWIG is a Cayman Islands corporation. It operated a risk retention group insuring group members who were obligated to contract holders who had bought VSCs from those group members. NWIG’s principal place of business was Lincoln, Nebraska and all of its business and assets lay within the United States.

After a number of incidents where group members declined to let NWIG use their reserve accounts to pay claims, plaintiff filed a lawsuit against NWIG which she hoped to convert into a class action. NWIG then transferred $24 million out of its U.S. bank accounts to banks in the Cayman Islands and filed for liquidation under Cayman law.

NWIG’s official liquidators were Theo Bullmore and Simon Whicker. They filed a petition in a Nebraska bankruptcy court under 11 U.S.C. Section 304 seeking to enjoin all proceedings against the assets linked to the Cayman Island liquidation. Plaintiff, on behalf of herself and others similarly situated, opposed the requested Section 304 relief. After conducting a trial on the merits of the injunction, the bankruptcy court granted it. The Bankruptcy Appellate Panel affirmed the decision of the bankruptcy court. On further appeal, the U.S. Court of Appeals for the Eighth Circuit also affirms. According to the Court of Appeals, the key issue is whether the Bankruptcy Appellate Panel had mistakenly upheld the bankruptcy court’s decision to exercise ancillary jurisdiction over the present matter.

“Congress expressly granted ancillary jurisdiction to bankruptcy courts to act as local auxiliaries to a foreign bankruptcy proceeding to honor requests from foreign representatives for the turnover of assets, injunctions and other such relief. See 11 U.S.C. Section 304 (2004). Ancillary jurisdiction is triggered by a foreign representative filing a petition showing the commencement of a foreign proceeding. Id. [Plaintiff] challenges the bankruptcy court’s finding [that] the Cayman Islands liquidation was a ‘foreign proceeding.’ As this challenge implicates the bankruptcy court’s jurisdiction, we review the matter de novo.”

The Bankruptcy Code defines the term ‘foreign proceeding’ as: ‘a proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor’s domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization, 11 U.S.C. Section 101(23). The bankruptcy court found [that] the Cayman Islands proceeding was a foreign proceeding in National Warranty’s domicile for the purpose of winding up and liquidating the corporation.”

On appeal, a major point of contention is the meaning of the term domicile. “The bankruptcy court found, and the bankruptcy appellate panel agreed, [that] the Cayman Islands is National Warranty’s domicile because it is its place of incorporation. Ms. Hoffman contends, as a matter of law, [that] the term ‘domicile’ as used in Section 304 applies only to natural‑person debtors because corporate debtors are not generally deemed to have a ‘domicile.’ We reject this argument.”

“The meaning of the term ‘domicile’ and the term’s application to corporate debtors is well‑settled. For years, federal courts interpreting jurisdictional and venue issues have considered a corporation’s domicile to be its place of incorporation. [Cite]. Ms. Hoffman argues that jurisdiction and venue cases are inapplicable to bankruptcy proceedings. However, even within the legal discipline of bankruptcy, a corporation’s domicile is the place of incorporation. See, e.g., Bank of Augusta v. Earle, 38 U.S. 519, 588 (1839) (a corporation ‘must dwell in the place of its creation’). Moreover, we can think of no reason to distinguish domicile in jurisdiction cases from domicile in bankruptcy cases involving Section 304. We thus conclude [that] the term ‘domicile’ as used in Section 304 refers to a corporation’s place of incorporation.” [962]

Citation: In re: National Warranty Insurance Risk Retention Group (Hoffman v. Bullmore), 384 F.3d 959 (8th Cir. 2004).

CONSUMER PROTECTION

German Federal High Court holds that, under German consumer protection laws and policies, buyers from online auctions such as “eBay” have qualified right to annul unsatisfactory online purchases from commercial vendors

On November 3, 2004, the Eighth Chamber of the German Federal High Court [Bundesgerichtshof] held that consumers who purchase items at Internet auctions from commercial vendors have, under certain circumstances, the right to annul the purchase.

The plaintiff is a commercial vendor of jewelry who offered though eBay a “15 carat diamond bracelet” at an auction for EURO 1. The defendant made the highest offer, but later refused to accept the item when he found out that the “diamonds” were artificial, and the “gold” was actually gold-plated. The Federal High Court found that German consumer protection laws apply to such transactions when the vendor is a merchant.

Section 312(d), paragraph 1, of the Federal Code (Bundesgesetzbuch, BGB) grants consumers who buy products or services “remotely” (i.e., not “face-to-face” so to speak, such as by telephone or mail) from a commercial provider a qualified right to cancel the transaction. That Section, however, specifically excludes application to “auctions.”

The Court then addresses the question whether an online auction, such as the type conducted by eBay, is an “auction” within the meaning of the Federal Code. Under BGB Section 156, sentence 1, in the case of an “auction,” a valid and binding agreement comes into being once the auctioneer accepts an offer. In online auctions such as eBay, however, an agreement results from the seller’s binding offer and the buyer’s acceptance of the offer by making the highest bid. Therefore, Section 156 does not restrict these online transactions.

As a matter of policy, the Court also notes that protecting consumer interests calls for the recognition of such a right to cancel to online transactions because consumers face the same risks as in other “remote” purchases. On the other hand, this decision does not affect direct dealings between private parties, where a right to cancel exists only for cause.

Citation: German High Court [Bundesgerichtshof, BGH] Decision of 3 November 2004 - VIII ZR 375/03; Press Release of Bundesgerichtshof Number 127/2004 (November 3, 2004); Reuters news report of November 3, 2004.

EVIDENCE (ATTORNEY-CLIENT PRIVILEGE)

In further segment of massive suit brought by United States against tobacco industry, English Court of Appeal (Civil Division) rules that English defendant did not voluntarily waive attorney-client privilege by agreeing to Minnesota Consent Judgment which provided that Minnesota court had discretion to order public disclosure of its documents from court’s depository since defendant had objected before Minnesota trial and appellate courts

The British American Tobacco Company (BATCo) was involved as a defendant in massive U.S. litigation brought by the U.S. government, inter alia, over whether the tobacco industry had taken part in an illegal conspiracy to deceive the public as to the extent of the health risks from smoking. The State of Minnesota also had sued to recover, inter alia, the costs of treating those citizens injured by smoking. After settlements of the Minnesota cases and some other similar U.S. proceedings, BATCo joined in the Minnesota Consent Judgment (MCJ).

The MCJ contained provisions authorizing the state court to allow the public release of millions of documents which the court had placed in a depository under the terms of a protective order. Paragraph VIII C [provides:]. “For documents upon which a privilege was claimed and found not to exist, including any briefs, memoranda and other pleadings filed by the parties which include reference to such documents, Plaintiffs may seek court approval to make such documents available to the public, provided that any such request be made to the Court within 45 days of the date of entry of this Consent Judgment.” [¶ 20]

Later, the court authorized the release of these documents. BATCo opposed the making of the order and unsuccessfully appealed against the grant of court approval to the Minnesota Court of Appeals and to the Supreme Court of Minnesota.

Pursuant to a Letter of Request sent by the U.S. District Court for the District of Columbia [Kessler, J.], the English Commercial Court had ordered the examination of Mr. Andrew Foyle. Mr. Foyle was a partner in the firm of solicitors who had acted for the BATCo group, representing them from about 1985 to May 1994. In an earlier appeal, the English Court of Appeal (Civil Division) had rejected a blanket claim of attorney-client privilege as to all relevant matters Mr. Foyle might have known about the client’s alleged concealment of a relatively small number of documents. Instead, it sent the case back for the lower court to rule on privilege claims on an item-by-item basis. See 2004 International Law Update 55.

At a directions hearing before Mr. Foyle’s deposition, the Commercial Court declared, inter alia, that BATCo had voluntarily waived privilege in documents which had come into the public domain pursuant to the MCJ to which BATCo had voluntarily consented. BATCo again sought appellate review. The issue presented was whether the attorney-client privilege, which might once have existed in the documents, had disappeared based on BATCo’s voluntary waiver, or, as BATCo urged, based on the coercion of a court order pursuant to the MCJ. The answer to that question turned on an interpretation of the MCJ and its effect in English law. The English Court of Appeal (Civil Division) allows the appeal.

As a threshold issue, the U.S. raised a new point, i.e. that the case was moot. It argued that: “Mr Foyle’s examination took place over three days from 26 to 28 April 2004; it is now over, his testimony is filed in the U.S. District Court; and there are no further issues in the U.S. proceedings to which the declaration might be relevant. It turned out to be unnecessary for the [lower] court to consider the extent of the waiver of privilege, as the U.S.A. had not taken advantage of it during the course of Mr Foyle’s examination and did not lead any evidence which required the court to consider the extent of the waiver.” [¶ 10]

In rejecting the claim, the Court declares: “The U.S.A.’s ... legal objection is unsustainable. There is a live practical issue between the parties, which took almost a day to argue in this court, as to whether the declaration is correct. Although the judgments of [Judge Kessler in] the U.S. District Court and of the [New South Wales] Court of Appeal [on the same issue] are no doubt persuasive, they do not purport to decide the position under English law and do not necessarily conclude the waiver point in the English courts or in the courts of other jurisdictions. This court can and should resolve the real issue.”[¶ 19]

“With great respect to the judge and to the courts in the U.S. and Australia, [this Court has] reached a different view on the effect of the MCJ in English Law in the context of waiver of privilege in communications. The crucial question is whether, in agreeing to run the risk that the court might grant approval, BATCo actually agreed to the public release of the documents and thereby waived privilege in them.” [¶ 29]

“On a fair and sensible reading of the relevant provisions of the MCJ, [the Court does] not think that they did, any more than a claimant, who issues proceedings in which he runs the risk that he will lose the case, consents to a judgment of a judge dismissing or upholding the claim. In fact BATCo took the necessary and appropriate steps to make it clear that it did not consent to the grant of approval necessary for public access to the documents.” [¶ 31]

“The provisions in the MCJ do not automatically make the document in question available to the public nor do they confer on the plaintiffs in the action any absolute right either to make them public or to have the approval of the court to release them to the public. Access to the documents is dependent on the grant of approval by the court, which had a discretion in the matter of whether or not to grant its approval. The final decision on disclosure rested with the court. The plaintiffs applied to the court for approval and obtained an order against BATCo’s wishes.” [¶ 32]

“Even if there was no [express] entitlement under the MCJ to object to the grant of approval, as the U.S.A. contended, it is a matter of record that BATCo did in fact object. In those circumstances, [the Court] conclude[s] that it is impossible to say that BATCo has voluntarily and of its own free will, expressly or impliedly waived privilege in the documents, which only became available to the public after the court gave its approval overriding the objections of BATCo.” [¶ 34]

“[We] do not infer from the absence of an express right to oppose the application to the court for approval that BATCo thereby impliedly consented to such release. An element of compulsion was present in the process by which the documents became available to the public under the MCJ. That element of compulsion deprived the disclosure of the voluntary element, which needed to be present for there to be a voluntary waiver of privilege. The procedure gave BATCo a degree of protection which they would otherwise have lost on the lifting of the previous protective orders governing the documents.” [¶ 35]

“In this case, so far as the deposited documents protected by the MCJ are concerned, no election to disclose was made by BATCo, either partial or comprehensive. The only election made by BATCo was to sign up to the MCJ, which provided the protection of the need for court approval for disclosure. That was not an express or implied election to disclose the documents to the public.” [¶ 37]

Citation: British American Tobacco (Investments) Ltd. v. United States of America, [2004] E.W.C.A. CIV. 1064, [2004] All E.R. (D) 605 (Jul.), (Approved judgment).

JUDICIAL ASSISTANCE (TRANSNATIONAL SERVICE OF PROCESS)

The Ninth Circuit rules that neither the Hague Service Convention nor U.S. Rules of Civil Procedure authorized service of process upon English resident by ordinary first class international mail

[Editors’ Note: The following case involves a controversial matter where the Ninth Circuit previously issued a different opinion and later withdrew it. Initially, noting a split in the Circuits, the Ninth Circuit held that service of process could be accomplished by mail to an English post office box. See Brockmeyer v. May, 361 F.3d 1222 (9th Cir. 2004), 2004 International Law Update 53. The Court subsequently issued the following substitute opinion.]

Ronald B. Brockmeyer (plaintiff) owns the trademark <<O>>, under which he publishes and distributes adult entertainment media and novelties through his company Eromedia. On August 3, 1998, plaintiff and his company sued Marquis Publications, Ltd. (Marquis or defendant) and several other defendants in a New York federal court, alleging trademark infringement and various state‑law breaches. Marquis is a company registered under British law.

Plaintiffs’ counsel tried twice to serve process on Marquis. On October 7, 1998, he sent the summons and complaint, together with a request for waiver of service, by regular first class mail to a post office box in England. On April 5, 1999, the New York court transferred the suit to the Central District of California. In October 1999, plaintiff again mailed suit papers (but without the waiver request) to the same P. O. Box. In neither case did Marquis respond.

On February 22, 2002, the district court entered a default judgment of $410,806.12 against Marquis and two German defendants. Marquis moved independently to set aside the default judgment against it. Citing the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents [20 U.S.T. 361; T.I.A.S. 6638; 658 U.N.T.S. 163] [HSC], it urged, inter alia, that plaintiffs should have served it by certified or registered mail.

On June 26, 2002, the district court denied Marquis’s motion, holding that plaintiffs’ second attempt at service had been successful. It ruled that service on an English defendant by ordinary international first class mail was valid under the HSC. Marquis appealed. The U.S. Court of Appeals for the Ninth Circuit reverses and remands with instructions to vacate the judgment.

Since plaintiffs had to serve Marquis abroad, the HSC controls the validity of that service to the extent that it applies. Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 705 (1988) (“[C]ompliance with the Convention is mandatory in all cases to which it applies.”). Ratified by the U.S. in 1965, the HSC has 49 parties as of January 1, 2003. The Convention innovatively regularized and liberalized service of process in international civil and commercial actions. It requires each member country to create a Central Authority (CA) to specialize in helping transnational plaintiffs to perfect service of process to other member countries. If the documents do comply with the HSC and local law, the HSC requires the CA to effect service within its country.

The HSC in Article 10(a) declares that: “Provided the State of destination does not object, the present Convention shall not interfere with ‑‑ (a) the freedom to send judicial documents, by postal channels, directly to persons abroad.”

American courts have disagreed about whether the phrase “the freedom to send judicial documents” in Article 10(a) includes within its meaning the freedom to serve judicial documents by mail. Whether service by mail is permitted under the Hague Convention is an open question in our circuit. ... District courts within our circuit are split. [Cites]. Today we join the Second Circuit [see Ackermann v. Levine, 788 F.2d 830, 838 (2d Cir.1986)] in holding that the meaning of ‘send’ in Article 10(a) includes ‘serve.’[Cite].”

“In so doing, we also join the essentially unanimous view of other member countries of the Hague Convention. See, e.g., Case C‑412/97, E.D. Srl. v. Italo Fenocchio, 1999 E.C.R. I‑3845, [2000] C.M.L.R. 855 (European Court of Justice) ... ; Integral Energy & Envtl. Eng’g Ltd. v. Schenker of Canada Ltd., (2001) 295 A.R. 233, 2001 WL 454163 (Alberta Queens Bench), rev'd on other grounds, (2001) 293 A.R. 327 ...; R. v. Re Recognition of an Italian Judgment, [2002] I. L. Pr. 15, 2000 WL 33541696 (Thessaloniki Court of Appeal, Greece). ...”

“According to the official Rapporteur’s report, ... Article 10 of the final Convention, was intended to permit service by mail. See 1 Bruno A. Ristau, International Judicial Assistance Section 4‑3‑5, at 204‑05 (2000) (quoting the Service Convention Negotiating Document) (translated from French by Ristau).” [802-03]

“A ‘Handbook’ published by the Permanent Bureau of the Hague Convention, which summarizes meetings of a ‘Special Commission of Experts,’ states that, to interpret Article 10(a) not to permit service by mail, would ‘contradict what seems to have been the implicit understanding of the delegates at the 1977 Special Commission meeting, and indeed of the legal literature on the Convention and its predecessor treaties.’ [Cite]. As further evidence of the understanding of the parties at the time the [HSC] was signed, the United States delegate to the Hague [Conference] reported to Congress that Article 10(a) permitted service by mail. See S. Exec. R. No. 6, at 13 (1967) (statement by Philip W. Amram).”

“State Department circulars also indicate that service by mail is permitted in international civil litigation. See, e.g., U.S. Dep’t of State, Circular: Service of Process Abroad, in Selected Materials in Int’l Litig. and Arbitration, 688 PLI/Lit. 777, 1021 (2003). The State Department circular tailored to the United Kingdom specifies that mail service by international registered mail is allowed.”

“The purpose and history of the Hague Convention, as well as the position of the U.S. State Department, convince us that ‘send’ in Article 10(a) includes ‘serve.’ We therefore hold that the Convention permits ‑‑ or, in the words of the Convention, does not ‘interfere with’ ‑‑ service of process by international mail, so long as the receiving country does not object.” [803]

The Court then points out that Article 10(a) does not itself affirmatively authorize international service by mail. “It merely provides that the Convention ‘shall not interfere with’ the ‘freedom’ to use postal channels if the ‘State of destination’ does not object to their use.”

“As the Rapporteur for the Convention wrote in explaining Article 10(a), ‘It should be stressed that in permitting the utilization of postal channels, ... the draft convention did not intend to pass on the validity of this mode of transmission under the law of the forum state: in order for the postal channel to be utilized, it is necessary that it be authorized by the law of the forum state.’ Ristau Section 4‑3‑5, at 205 (emphasis added) (quoting Service Convention Negotiating Document).” [803-04].

Federal Rule ... 4(h)(2) directs that service on a foreign corporation, if done outside of the United States, shall be effected ‘in any manner prescribed for individuals by subdivision [4](f) except personal delivery as provided in paragraph (2)(C)(I) thereof,’ unless a waiver of service has been obtained and filed. No waiver of service under Rule 4(d) was obtained in this case. To determine whether service of process was proper, we therefore look to Federal Rule of Civil Procedure 4(f). As will be seen, no part of Rule 4(f) authorizes service by ordinary international first class mail.”

Rule 4(f)(1) authorizes service by those methods authorized by international agreements, including the Hague Convention. It provides: ‘(f) ... Unless otherwise provided by federal law, service upon an individual from whom a waiver has not been obtained and filed ... may be effected in a place not within any judicial district of the United States: (1) by any internationally agreed means reasonably calculated to give notice, such as those means authorized by the [HSC][.]’”

“The [HSC] affirmatively authorizes service of process through the [CA] of a receiving state. Rule 4(f)(1), by incorporating the Convention, in turn affirmatively authorizes use of a [CA]. However, Rule 4(f)(1) does not go beyond means of service affirmatively authorized by international agreements. It is undisputed that [plaintiff] did not use either the [CA] under the Hague Convention or any other internationally agreed means for accomplishing service. Rule 4(f)(1), therefore, does not provide a basis for service in this case.”

“Explicit, affirmative authorization for service by international mail is found only in Rule 4(f)(2)(C)(ii) ... . This rule authorizes service abroad by mail for which a signed receipt is required, when such mail is addressed and mailed by the clerk of the federal district court in which the suit is filed. It is undisputed that ... notice was not sent by the clerk of the district court, nor by a form of mail requiring a signed receipt.”

Rule 4(f)(3) ... affirmatively grants the federal district court broad discretion to direct any form of service that is not prohibited by an international agreement. “The classic case is Levin v. Ruby Trading Co., 248 F.Supp. 537 (S.D.N.Y. 1965), in which the court authorized service abroad by ordinary mail under previous Rule 4(I)(1)(E), which was identical to current Rule 4(f)(3). In Levin, the court [observed] that Rule 4(I)(1)(D) ‘authorizes service by mail without court supervision, and it is for this reason that the double safeguard of mailing by the clerk of the court and a signed receipt was set up.’ Id. at 540.”

“ ... Other courts have widely accepted Levin’s reasoning. See, e.g., Int’l Controls Corp. v. Vesco, 593 F.2d 166, 175 n. 4 (2d Cir.1979).” [Ed. -- court approved judicial appointment of Georgetown Law alumna to toss process papers over gate of elusive defendant’s guarded Bahama compound.]. [Plaintiffs] must obtain prior court approval for the alternative method of serving process. Rule 4(f)(3) thus is of no use to plaintiffs in this case.” [805]

“The only remaining section on which plaintiffs can conceivably rely is Rule 4(f)(2)(A). Rule 4(f)(2)(A) affirmatively authorizes service by means used in the receiving country for service in an action in its courts of general jurisdiction. The district court held that service was proper because the United Kingdom allows service for domestic suits in that country by both ordinary and registered post. A number of factors counsel against reading Rule 4(f)(2)(A) to authorize service by international mail, however.”

“[One] reason to read Rule 4(f)(2)(A) not to authorize service on foreign defendants by international mail to England ‑‑ and, in particular, by ordinary international first class mail ‑‑ is found in an exchange between the British government and the United States Department of State in 1991, in which the British objected to a then‑proposed revision to Federal Rule of Civil Procedure 4(d). As originally proposed in 1989, Rule 4(d) would have assessed costs incurred in effecting service against all defendants who failed to waive service, including defendants outside the United States. [Cite].”

“The British Embassy transmitted to the State Department a diplomatic note expressing its objection ... . The diplomatic note stated, in relevant part: ‘Inasmuch as this procedure, which would coerce a waiver of service of the summons, would be equally applicable to United Kingdom citizens resident in the United Kingdom, the British Government would object to it. The waiver system would [also] conflict with the [HSC] ...’” [807]

“In response [to these objections], the Advisory Committee revised the proposed rule to eliminate the provision assessing costs of service against foreign defendants that decline to waive service. [Cites] The Committee specifically explained that its revision addressed concerns raised by the British government.”

“According to the 1963 Committee Notes accompanying Rule 4(I)(1)(A), the predecessor to Rule 4(f)(2)(A), the purpose of the Rule is to provide an alternative method of service ‘that is likely to create least objection in the place of service.’” This is not the effect here.

“Finally, we have found no cases upholding service of process by international mail under Rule 4(f)(2)(A). Rather, there are a number of cases rejecting service of process by international mail under that rule. [Cites] We therefore conclude, along with the other courts that have considered the question, that Rule 4(f)(2)(A) does not authorize service of process by ordinary first class international mail.”[807-08]

Citation: Brockmeyer v. May, 383 F.3d 798 (9th Cir. 2004).

SOVEREIGN IMMUNITY

After remand from U.S. Supreme Court, Second Circuit invokes FSIA and dismisses action against French state-owned railroad company for transporting French civilians to Nazi camps during World War II although, at time of wrongful acts, railway was privately owned

The Societe Nationale de Chemins de Fer Francais (SNCF) was set up in the late 1930s to consolidate the French regional rail networks. During the events at issue it was under civilian control. Today, however, it is wholly owned by the French Government. The present plaintiffs are Holocaust victims and their heirs. They sued the SNCF based on its 1942-1944 role in transporting an estimated 70,000 French Jews and other “undesirables” to Nazi slave labor and death camps.

The district court initially dismissed the complaint. It ruled that the SNCF was an “agency or instrumentality of a foreign state” as defined in the Foreign Sovereign Immunities Act of 1976 (FSIA) [28 U.S.C. Section 1603(b)] and that none of the FSIA’s exceptions applied. The plaintiffs appealed to the Second Circuit, challenging the retroactive application of the FSIA, and the Court remanded for further proceedings. See 2003 International Law Update 88.

The U.S. Supreme Court then granted defendants’ petition for certiorari, vacated the judgment, and remanded for further consideration in light of Republic of Austria v. Altmann, 124 S.Ct. 2240 (2004). See 2004 International Law Update 91.

In a dispute over Gustav Klimt paintings stolen during the World War II period, Altmann had held that the FSIA applies to conduct that took place before its enactment and even before the U.S. State Department’s 1952 adoption of the restrictive theory of sovereign immunity in the “Tate Letter.” The U.S. Court of Appeals for the Second Circuit now affirms the district court’s dismissal of plaintiffs’ complaint under the FSIA for lack of subject matter jurisdiction.

After Altmann, federal courts no longer have to rely upon the State Department’s opinion in determining whether sovereign immunity should apply to past events. Such opinions will be relevant only when a court has subject matter jurisdiction but there is (1) a strong executive interest in granting immunity, or (2) an ambiguity in the language of an FSIA exception.

“In determining immunity of a foreign sovereign, Altmann deems irrelevant the way an entity would have been treated at the time of the alleged wrongdoing. Thus, the distinction between a corporate entity and a government entity now only speaks to whether the tortfeasor is a sovereign, or alternatively an ‘agent’ or ‘instrumentality’ of the sovereign, and hence to whether FSIA is applicable at all.

“While SNCF was predominantly owned by civilians during World War II, it is now wholly-owned by the French government and, as we have previously ruled, is an ‘agent’ or ‘instrumentality’ of France under the FSIA. ... Once the railroad is encompassed by FSIA, its prior incarnation as a private entity does not bar the statute’s retroactive application. ... [...]”

“We are bound by the Supreme Court’s decision to defer to comity rather than to approach the situation from the perspective of the injured plaintiffs whose rights have now been altered. Accordingly, the evil actions of the French national railroad’s former private masters in knowingly transporting thousands to death camps during World War II are not susceptible to legal redress in federal court today, because defendant has since become a part of the French government and is therefore immunized from suit by the Foreign Sovereign Immunities Act. Nonetheless, the railroad’s conduct at the time lives on in infamy.” [Slip op 6-9]

Citation: Abrams v. Societe Nationale des Chemins de Fer Francais, No. 01-9442, 2004 WL 2526854 (2d Cir. November 9, 2004).

TRADEMARKS

In EC 234 referral from Finnish Supreme Court in trademark litigation between Anheuser-Busch and Czech brewers, European Court of Justice advises that TRIPS Agreement applies to case, that a trade name may constitute “sign” under EU Directive and amounts to intellectual property under TRIPS

This case is one of dozens between the Czech brewery, Budejovicky Budvar (hereinafter Budvar), and the U.S. brewery Anheuser-Busch Ltd. (ABL) over the use of the names “Budweiser,” “Bud” and “Budvar,” since Budvar’s first exports to the U.S. in 1906. On November 16, 2004, the European Court of Justice (ECJ) handed down its advisory opinion of EU law referred to it by the Finnish Supreme Court pursuant to EC 234.

The referral arose out of a 1996 Finnish action brought by ABL to prevent Budvar from marketing its beer in Finland under names such as “Budweiser.” In 1962 and 1972, Budvar had registered its trade marks Budvar and Budweiser Budvar in Finland. Budvar registered its trade name during 1967 in the Czechoslovakian commercial register. In 1984, however, a Finnish court had forfeited the marks for lack of use in that country.

Between 1985 and 1992, ABL registered several of its marks in Finland, such as “Budweiser,” “Bud,” and “Budweiser King of Beers.” In 1996, it filed a suit in the Helsinki District Court (Helsingin käräjäoikeus) to prevent Budvar from using names and signs similar to Budweiser because they could be confusing for consumers.

In 1998, the Finnish District Court decided that Budvar’s bottle labels differed so substantially from ABL’s labels that consumers were unlikely to confuse the two products. It also held that the inscription “Brewed and bottled by the Brewery Budweiser Budvar national enterprise” on the labels was not a mark but merely informed the public of the brewery’s business name. Two years later, the Helsinki Court of Appeals (Helsingin hovioikeus) decided that the evidence was not enough to prove that Finnish beer-drinkers were familiar with the English version of Budvar’s marks

before ABL’s registrations. Both parties appealed to the Supreme Court of Finland.

That Court in turn sought the ECJ’s interpretation (1) of the 1989 European Directive 89/104/EEC to harmonize the laws of the Member States relating to trademarks [1989 O.J. of the European Communities (L 40) 1], and (2) of Article 16 of the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) on the scope of the rights conferred by trade marks under EU law.

The questions posed by the Finnish Supreme Court included: (1) If the conflict between a trade mark and an allegedly infringing sign occurred before the entry into force of the TRIPs Agreement but continues thereafter, does the TRIPs Agreement apply to the question of which right has the earlier legal basis? (2) Can the trade name of a company also act as a sign for goods and services within the meaning of Article 16(1) of the TRIPs Agreement, and if yes, under what conditions? (3) How should the reference in Article 16(1) to “existing prior rights” that should not be prejudiced be interpreted, and how should that be done in the case of a trade name that is not registered in the state where the trade mark is registered? What factors are decisive?

The ECJ first observes that Budvar’s allegedly unlawful acts began before the TRIPS Agreement’s 1996 entry into force. Because the acts continued thereafter, however, the Agreement does apply to this case.

As for the second question, the ECJ holds that a trade name may constitute a “sign” within Article 16(1). It confers upon the trade mark owner the exclusive right to prevent another party from using the sign if it prejudices the trade mark. One example of prejudice would be impairing the essential goal of assuring consumers as to the products’ true origin.

It is generally up to the national courts to figure out how the targeted consumers interpret a sign such as “Budvar” and whether it does distinguish the products at issue. If the owner uses it to distinguish its beer “in the course of trade,” Article 5(1)(a) of the Directive provides absolute protection. On the other hand, if the national court decides that Budvar uses “Budvar” only as a trade or company name, then Directive Article 5(5) requires the court to apply its domestic law to ascertain the precise rights that ABL enjoys.

The ECJ further explains that Article 17 of the TRIPs Agreement allows third parties to use a sign in good faith to indicate their names and/or addresses. Article 6 of the Directive also allows such use if it accords with honest practices. The national court has to consider not only the extent to which the public uses the trade name to link the products to the mark, but also the extent to which the third party should have been aware of it. Here, the Finnish court should assess all the relevant circumstances (e.g., the labeling of the bottles) to determine whether Budvar is competing unfairly with ABL.

Where the owner of a trade name has a right that arose prior to the trade mark at issue, the Agreement does not allow a court to ban the use of that trade name. A trade name may constitute an existing right under the Agreement entitled to protection.

As to the third question, the ECJ declares: “... [A] trade name is a right falling within the scope of the term ‘intellectual property’ within the meaning of Article 1(2) of the TRIPs Agreement. Moreover, it follows from Article 2(1) of the TRIPs Agreement that the protection of trade names ... is expressly incorporated into that agreement. Therefore, ... the members of the WTO are under an obligation to protect trade names ...”

“It must, moreover, be an existing right. The term ‘existing’ means that the right concerned must fall within the temporal scope of the TRIPS Agreement and still be protected at the time when it is relied on by its proprietor in order to counter the claims of the proprietor of the trade mark with which it is alleged to conflict.”

“In the present case, it must therefore be ascertained whether the trade name in question, which the parties agree is neither registered nor established by use in the Member State in which the trade mark is registered and in which the protection afforded by that mark against the trade name in question is sought, satisfies the conditions set out in the preceding paragraph of this judgment.” [¶¶ 91-95] See also ECJ Case C-216/01, Budejovicky v. Rudolf Ammersin GmbH, 2004 International Law Update 26.

Citation: Case C-245/02, Anheuser-Busch, Inc. v. Budejovicky Budvar, narodni podnik (E.C.J. , Nov. 16, 2004); ECJ press release No 93/04 (16 Nov. 2004); report on morningstar.com (Dow Jones & Company, Inc.) dated Nov. 16, 2004 at 06:30 A.M., E.S.T.

TRANSPORTATION SECURITY

U.S. and EU agree to update efforts to cooperate in container security by arrangements to improve surveillance of containerized cargo such as by information exchange networks, by setting minimum security requirements for participating European seaports, and by identifying best ways to prevent terrorist attacks

On November 11, 2004, the U.S. and the European Union (EU) agreed on the first measures to improve the security of maritime container transport. They are based on the EU-U.S. Customs Agreement which the parties had signed on April 22, 2004, and broaden the 1997 Agreement on Customs Cooperation and Mutual Assistance in Customs Matters. See O.J. of European Union (L 304) 32, 30 Sept. 2004. See also 2004 International Law Update 158.

The Customs Agreement seeks to improve security for both parties by ensuring (1) that customs procedures and legitimate trade take security concerns into account, and (2) that equal standards apply to both U.S. and EU transport companies. A Working Group is detailing the necessary operational elements of expanded cooperation, such as the minimum standards for the Container Security Initiative (CSI) and common risk criteria.

The CSI is a program of the U.S. Customs and Border Protection division of the U.S. Department of Homeland Security. It aims to increase the security of containers that foreign entities are shipping to the U.S. by identifying high-risk shipments through information exchange and detection technology. See website of CSI at www.cbp.gov/xp/cgov/enforcement/international_activities/csi.

The EC-US Joint Customs Co-operation Committee has recently approved the Working Group’s proposals. These include, inter alia, the creation of an information exchange network, the setting of minimum requirements for all European ports willing to take part in the CSI, and the identification of the best ways to prevent terrorist threats. The Committee also set up a pilot project for shipments that pass over both the U.S. and the EU to test the feasibility of exchanging cargo information.

The relevant government organizations for both parties are, respectively, the U.S. Customs and Border Protection (CBP), and the EC Commission’s Directorate-General for Taxation and Customs Union.

Citation: European Union in U.S. [EU Representative Office] news release No. 161/04 (Nov. 15, 2004) various other documents relating to Agreement with United States of America on intensified customs cooperation regarding Container Security, including Agreement itself and Background Note, are available on website of European Commission at “http://europa.eu.int” in Section on “Customs Union.” Text of 1997 Agreement between European Community and United States of America on Customs Cooperation and Mutual Assistance in Customs Matters is reprinted in 2004 O.J. of European Communities (L 222) 16, 12 August 1997, and on website of European Union in U.S. at “www.eurunion.org.”

WORLD TRADE ORGANIZATION

In complaint brought by Antigua and Barbuda, World Trade Organization panel rules that effects of U. S.’s Wire Act, Travel Act and Illegal Gambling Business Act that ban certain kinds of gambling services over Internet and “remote access” gambling are inconsistent with General Agreement on Trade in Services (GATS) as applied to complainants

A Dispute Settlement Panel of the World Trade Organization (WTO) has largely sided with Antigua and Barbuda (hereinafter “Antigua”) in the dispute with the U.S. over cross-border gambling and betting. Antigua sought consultations with the U.S. before the WTO on March 13, 2003, claiming that certain federal and state laws render cross-border gambling and betting services, as well as related international money transfers and payments, illegal. These restrictions are allegedly inconsistent with U.S. obligations under The General Agreement on Trade in Services (GATS). On July 21, 2003, the WTO established a Panel to resolve the dispute.

Antigua claimed that the U.S. maintains a variety of commercial gambling and betting services, such as horse races, poker, black jack, lotto, bingo, and “scratch card games.” As part of its economic development strategy, Antigua began in the mid-1990s to build a largely Internet-based, “remote access” gaming industry. It provides for two kinds of gambling and betting licenses: (1) interactive gaming (casino type), and (2) interactive wagering (sports betting). The interactive gaming mimics regular casinos with detailed graphics, and offer card and dice games. The interactive wagering provides for bets on sports and other events, and also permits telephone betting. Usually the players have to set up and fund an account to participate.

In 1999, Antigua had 119 licensed operators with about 3,000 employees, accounting for about 10 percent of its Gross Domestic Product. By 2003, however, the number had fallen to 28 operators with less than 500 employees. Antigua attributes this to U.S. restrictions on credit card payments, wire transfers, and other financial transactions.

The Panel holds first that the U.S. Schedule under GATS includes specific commitments with respect to gambling and betting services (sub-sector 10.D). In the second place, certain federal laws, including the Wire Act (18 U.S.C. Section 1084), the Travel Act (18 U.S.C. Section 1952), and the Illegal Gambling Business Act (18 U.S.C. Section 1955), as well as certain state laws ban certain kinds of gambling services. These provisions deprive Antigua of treatment that is “no less favorable,” contrary to GATS Articles XVI:1 [market access for WTO Members must be no less favorable than provided for in schedules] and XVI:2 [limitations on services impermissible].

Thirdly, the U.S. has not shown that GATS Articles XIV(a) [exceptions to protect public morals and order] and XIV ( c) [exceptions to prevent fraud, ensure privacy and safety] provisionally justify its strictures on gambling. Thus, the Panel recommends that the U.S. make its federal and state laws conform to its GATS obligations. In its concluding remarks, it explains what it has not decided in this case:

“We have not decided that WTO Members do not have a right to regulate, including the right to prohibit, gambling and betting activities. In this case, we came to the conclusion that the U.S. measures at issue prohibit the cross-border supply of gambling and betting services in the United States in a manner inconsistent with the GATS. We so decided, not because the GATS denies Members such a right but, rather, because we found, inter alia, that, in the particular circumstances of this case, the measures at issue were inconsistent with the United States’ schedules commitments and the relevant provisions of the GATS.” (Report ¶ 7.4 ).

Citation: United States - Measures Affecting Cross-Border Supply of Gambling and Betting Services (WT/DS/285/R) (10 Nov. 2004). The Panel Report is available on WTO website “www.wto.org”; various additional documents of Antigua and Barbuda in this regard, including news reports and statements of its Chief Foreign Affairs Representative, can be found on website “www.antigua-barbuda.com.”

German company fined for price-fixing. On October 13 last, Bayer AG agreed to plead guilty in San Francisco federal court and to pay a $4.7 million fine for taking part in a price-fixing conspiracy during 2002. According to the U.S. Department of Justice, the case involved synthetic rubber additives used, inter alia, in automotive hoses, belts, seals, adhesives and sealants. Based in Leverkusen, Germany, Bayer had pled guilty to similar charges last July and had consented to pay a $66 million fine. Bayer’s U.S. subsidiary, headquartered in Pittsburgh, had also assented to a $33 million fine last September arising out of chemical price‑fixing charges. According to Bayer, it is assisting in what is an ongoing investigation. Citation: U.S. Department of Justice press release #762 (November 23, 2004); The Associated Press (online), Washington, D. C.; Wednesday, October 13, 2004, filed at 20:50:35 G.M.T.

EU and U.S. renew agreement on scientific and technological cooperation. The EU Council of Ministers has approved the 1997 Agreement Renewing the Agreement for Scientific and Technological Cooperation between the European Community and the Government of the United States of America for an additional period of five years. The original Agreement provided for an initial duration of five years, renewable by mutual written agreement. It provided for cooperation in areas such as the environment, agriculture, biotechnology, telematics and transportation. This could take the form of coordinated research projects, joint studies, as well as information and equipment exchange. It expired on October 13, 2003. As the result of ongoing cooperation efforts, the EU has agreed to renew the Agreement. For information on the joint project on E-Learning between the EU Commission and the U.S. National Science Foundation within the framework of this Agreement, see website “eu-us.proacte.com.” Citation: 2004 O.J. of European Union (L335) 5, 11 November 2004. See Original 1997 Agreement at 1998 O.J. of European Communities (L 284) 37, 22 October 1998.

Congress repeals Section 801 of 1916 Revenue Act because of adverse WTO ruling. On November 19, 2004, the U.S. Congress voted to repeal Section 801 of the Revenue Act of 1916. The repeal was part of the “Miscellaneous Trade and Technical Corrections Act of 2004" (H.R. 1047), which is awaiting the signature of President George W. Bush. Section 801 originally sought to discourage dumping through criminal and civil penalties. Nevertheless, the U.S. hardly ever used it and it never formed the legal basis for a final court ruling. It was at issue in the Dispute Settlement Report of the World Trade Organization (WTO) in the matter of “United States - Anti-Dumping Act of 1916" (WT/DS136). The European Union and Japan had filed this complaint, urging that the statute violated GATT trading rules. A WTO arbitrator had ruled in 2000 that the U.S. should repeal Section 801 by July 26, 2001. Citation: U.S. Trade Representative press release of 11/19/2004; European Union in the U.S. [EU Representative Office] news release No. 166/04 (November 22, 2004);108th Cong., 2d Sess., House of Representatives Report 108-415 “Repeal of Section 801 of Revenue Act of 1916" (Feb. 6, 2004); Bill Summary & Status for 108th Congress is available on website “www.congress.gov.”

U.N. Security Council transfers NATO Bosnian peacekeepers to EU. In the latter part of 1995, NATO stabilization forces (SFOR) of about 60,000 from over 40 nations had arrived in Bosnia to enforce the Dayton Peace Accords. The Accords brought to an end the 3.5 year war among Serbs, Muslims and Croats which caused 260,000 deaths. On November 22, 2004, a unanimous U.N. Security Council voted to transfer these peacekeeping duties in Bosnia from the NATO force to a European Union Force with the acronym EUFOR. This operation involves the removal of over 1,000 U.S. troops serving as part of the NATO forces. EUFOR will consist of about 7,000 troops from several EU Member States led by a British general who will take over on December 2 next. The Council resolution also stressed the Bosnians’ commitment to hand over all persons indicted for war crimes to the Hague War Crimes Tribunal especially the Serbian wartime leaders Radovan Karadzic and Ratko Mladic. Citation: UN News Centre release of November 22, 2004, available at www.un.org; The Associated Press (online), United Nations, filed Tuesday, November 22, 2004, at 3:27 p.m. E.T.

Many nations agree to ban Atlantic shark finning. Acting on a proposal from the United States, more than 60 countries agreed on November 20 to ban the killing of sharks just for their fins in the Atlantic Ocean. The International Commission for the Conservation of Atlantic Tunas (ICCAT) (see www.iccat.es) drafted the agreement at its yearly meeting in New Orleans. There are few international restrictions on shark fishing and trade. According to the United Nations, more than 100 million sharks are killed each year. Shark fins are an expensive delicacy in Asian countries. According to the environmental organization, WildAid, diners have to pay more than $100 for shark fin soup in Singapore. The United States banned shark finning in the Atlantic in 1993 and in the Pacific Ocean in 2002. A 2003 study by marine scientists at Dalhousie University estimated that 90 percent of the world’s large fish ‑‑ including sharks ‑‑ have vanished since 1950. Citation: The Associated Press (online), New Orleans, Sunday, filed November 21, 2004 at 10:37 p.m. E.T.; The Washington Post, November 23, 2004, page A21. Related documents are available on ICCAT’s website www.iccat.es.

Paris Club agrees on plan to forgive most Iraqi debts. On November 21, 2004, the world’s leading industrial nations -- meeting as the Paris Club -- agreed to cancel 80 percent of the almost $39 billion debt that Iraq owes them. The Club is a group of the 19 leading industrial powers that first got together in 1956 to help ease the financial burdens of heavily indebted countries. Although the U.S. had been pushing for a 95 percent cut, it is apparently pleased at this first important step to improve Iraq’s financial prospects before the scheduled elections on January 30, 2005. Moreover, this is the most generous break the Paris Club has ever given a developing country. Many observers believe that reducing the liabilities from Iraq’s books is almost as significant to its future as routing the insurgency; the country cannot expect to interest investors while it is crushed by its current mountain of debt. Under the plan, Paris Club members would immediately forgive 30 percent of their Iraqi debt. In 2005, they will write off an additional 30 percent once the International Monetary Fund has come up with an economic reform program for Iraq. Club members would cancel the last 20 percent in 2008 if the country has carried out the I.M.F. program. Iraq would repay the remaining debt owed to Paris Club members over a 23‑year period, no principal or interest being due for the next three years. Citation: Press release of the Paris Club of November 21, 2004, available on the Club’s website www.clubdeparis.org; The Economist (U.S. Edition), November 27, 2004; The New York Times (online), Paris, Monday, November 22, 2004 (byline of Craig S. Smith).

U.S. Court upholds jurisdiction over French firm. Vivendi Universal, S.A., a French corporation, is neither registered to do business in the United States nor does it make filings with the Securities and Exchange Commission. In a presumable class action alleging securities fraud against Vivendi and two former officers, the U.S. District Court for the Southern District of New York decided that it had subject matter jurisdiction over foreign plaintiffs’ claims in a suit brought under Section 10(b) of the Securities & Exchange Act of 1934. Applying the “conduct test,” the court ruled that the presence and conduct of Vivendi’s two former officers in the U.S. for 11 months during which time French investors claimed to have been misled was key. The officers lived in, and ran Vivendi’s business from, the U.S. In the court’s view, moreover, the officers’ allegedly fraudulent conduct in the U.S. had caused the foreign investors’ claimed losses. Citation: In re Vivendi Universal, S.A. Securities Litigation, 02 Civ. 5571 (RJH), 2004 U.S. Dist. LEXIS 21230 (S.D.N.Y. October 19, 2004); 231 New York Law Journal at page 17, column 2 (November 2, 2004).