2004 International Law Update, Volume 10, Number 6 (June)

2004 International Law Update, Volume 10, Number 6 (June)

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

ANTI-SUIT INJUNCTIONS

Second Circuit affirms anti-suit injunction against plaintiff in Brazilian litigation where its agreement with U.S. defendant provides for arbitration of dispute and U.S. court has already decided dispute’s arbitrability

Paramedics Electromedicina Comercial, Ltda. (known as “Tecnimed”) distributed the products of the medical equipment manufacturer GE Medical Systems Information Technologies, Inc. (a Wisconsin corporation, hereinafter referred to as “GEMS-IT”) in Brazil. Their two 1999 agreements, a Service Agreement and a Distribution Agreement, contained broad arbitration clauses.

In early 2001, Tecnimed allegedly owed GEMS-IT approximately $1.2 million. Tecnimed, in turn, accused GEMS-IT of bypassing them and selling directly in Brazil. In April 2002, GEMS-IT invoked the arbitration clauses and requested arbitration. In May 2002, Tecnimed filed suit in Brazil, against GEMS-IT and a related company, General Electric do Brasil (“GE Brasil”). Further, Tecnimed alleged that the Inter-American Commercial Arbitration Commission (IACAC) lacked jurisdiction for an arbitration and petitioned a New York State court to permanently stay the arbitration.

Next, GEMS-IT removed the petition to a New York federal court. It also counterclaimed for an order to compel arbitration and for an anti-suit injunction to stay the Brazilian action. In the meantime, in April 2003, the IACAC panel rejected Tecnimed’s challenges to arbitration.

In June 2003, the district court ruled in favor of GEMS-IT. The Court ordered the arbitration and directed Tecnimed to have the Brazilian action dismissed. Tecnimed instead asked the Brazilian court to put the action on a “suspense” calendar. The district court, however, held that this was not enough compliance and imposed sanctions on Tecnimed. Inter alia, it not only ordered Tecnimed to arbitrate the dispute and but also enjoined Tecnimed from continuing the Brazilian action.

Tecnimed appealed from the orders of the district court. The U.S. Court of Appeals for the Second Circuit affirms in part and dismisses in part. As for the anti-suit injunction and the order to arbitrate, the Court affirms.

The standard of review for an anti-suit injunction is abuse of discretion. The Court explains: “It is beyond question that a federal court may enjoin a party before it from pursuing litigation in a foreign forum. [Cite] ... But principles of comity counsel that injunctions restraining foreign litigation be ‘used sparingly’ and ‘granted only with care and great restraint.’ ...”

“An anti-suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. ... Once past this threshold, courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum. ...” [Slip op. 10-11]

Here, Tecnimed argued that GEMS-IT had satisfied neither of the requirements. The Court disagrees. First, although GE Brasil is not a party to the New York action, Tecnimed’s claims against GE Brasil do arise out of the same facts, circumstances, and relationships as alleged in the dispute between Tecnimed and GEMS-IT. Tecnimed’s own complaint in the Brazilian action alleges that GEMS-IT owns more than 70 percent of GE Brasil, and GE Brasil takes an active part in GEMS-IT’s business. Further, Tecnimed served process in the Brazilian action at GE Brasil’s address, claiming that defendant was an affiliate of GEMS-IT.

Secondly, the Court notes that the issue here is whether the ruling on arbitrability disposes of the Brazilian action, even though arbitral panel (not the court) is to resolve the merits of the underlying disputes. Here, the Court concludes that the district court’s ordering of arbitration disposes of the Brazilian action.

Federal policy favors the enforcement of arbitration agreements. “Therefore, ‘the existence of any broad agreement to arbitration creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.’ ... The arbitration agreement here, covering as it does ‘any controversy, claim or dispute’ arising out of the Agreements, is of the broad type. ‘If the allegations underlying the claims ‘touch matters’ covered by the parties’ ... agreements, then those claims must be arbitrated.’ ...”[Slip op. 16]

Finally, the Court rules that the foreign proceeding does not threaten a strong public policy or the jurisdiction of the domestic forum. Public policy favors the enforcement of arbitration clauses, particularly in international disputes. Through the Brazilian action, Tecnimed did try to sidestep arbitration, but that alone may not be enough to support an anti-suit injunction. In any case, the fact that one court has already reached a judgment in favor of arbitrability weakens any comity considerations to the contrary.

Citation: Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Information Technologies, Inc., 365 F.3d 645 (2d Cir. 2004).

COMPETITION

In class action suit by vitamin buyers against vitamin distributors, U.S. Supreme Court holds that Sherman Act does not reach foreign antitrust activity occurring within and outside United States that causes injury to foreign customer where that injury is independent of any injury to domestic customer

The Foreign Trade Antitrust Improvement Act of 1982 (FTAIA) [15 U.S.C. Section 6a, a 1982 amendment to the Sherman Act] excludes from the reach of the Sherman Act anticompetitive conduct that merely causes injury abroad. The statute initially creates a blanket provision stating that the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. It provides for exceptions, however, to the general rule where that conduct significantly harms imports, domestic commerce, or American exporters.

The foreign buyers of vitamins and related products brought this action against several U.S. and foreign companies which were distributing those vitamin products internationally and which were allegedly conspiring to control prices for these products. See 2003 International Law Update 20. The district court dismissed the foreign plaintiffs for lack of subject matter jurisdiction under FTAIA since their alleged injuries lacked a connection to U.S. commerce.

On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed. It held that where the anticompetitive conduct does the requisite harm to U. S. commerce, FTAIA does permit suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce.

Because of a split among the Circuits in this area, the Supreme Court granted certiorari on two questions. “First, does that conduct fall within the FTAIA’s general rule excluding the Sherman Act’s application? That is to say, does the price-fixing activity constitute ‘conduct involving trade or commerce ... with foreign nations’? We conclude it does.”

“Second, we ask whether the conduct nonetheless falls within a domestic-injury exception to the general rule, an exception that applies (and makes the Sherman Act nonetheless applicable) where the conduct (1) has a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce, and (2) ‘such effect gives rise to a [Sherman Act] claim.’ Sections 6a(1)(A). We conclude that the exception does not apply where a plaintiff’s claim rests solely on the independent foreign harm.” [Slip op. 6-7]

The Petitioners (the original defendants) argued that the FTAIA does not apply. The relevant language of the FTAIA reads, “Sections 1 to 7 of this title [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. According to the Petitioners, this language implies that the FTAIA only applies to conduct involving export trade or commerce because this is the only other type of commerce that can occur “with foreign nations” other than import trade or commerce, which the statute specifically exempts.

The Court rejects this argument based in part on the legislative history of the FTAIA. “... [T]he FTAIA originated in a bill that initially referred only to ‘export trade or export commerce.’ H. R. 5235, 97th Cong., 1st Sess., Section 1 (1981). But the House Judiciary Committee subsequently changed that language to ‘trade or commerce (other than import trade or import commerce).’ 15 U.S.C. Section 6a. And it did so deliberately to include commerce that did not involve American exports but which was wholly foreign.” [Slip op. 13].

After rejecting Petitioners’ threshold argument, the Court set out to resolve the issue based on the exception to the FTAIA on which it granted certiorari. It finds the Petitioners’ argument unpersuasive and that the FTAIA exception does not apply (and thus the Sherman Act does not apply) for two main reasons.

First, prescriptive comity dictates that courts construe unclear statutes to avoid unreasonable interference with the sovereign authority of other nations. This rule of construction reflects principles of customary international law, which Congress ordinarily seeks to follow.

In enacting the FTAIA, Congress intended to protect against domestic injury regardless of the situs of the anticompetitive activity. It is unreasonable, however, to validate a cause of action based on the current scenario; protecting foreign plaintiffs against an injury they do not share with domestic plaintiffs would interfere with the foreign state’s sovereignty where the U.S. has little or no legal interest. In the absence of clear Congressional intent to the contrary, the Court reasons that the FTAIA exception does not apply to the current case.

The Court then rejects Respondents’ two counter arguments to its comity analysis. First, the Respondents argued that applying the exception to this case would not unduly interfere with foreign sovereign power because foreign countries have similar antitrust laws. Citing amicus briefs from Germany and Japan to the contrary, however, the Court points to the many differing foreign laws. Second, the Respondents maintained that comity does not require an across-the- board rejection of this type of case, but rather it encourages a case-by-case analysis. On the contrary, the Court finds this approach too costly and time-consuming.

To reinforce its holding, the Court examines the legislative history of the FTAIA. “[T]he language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act's scope as applied to foreign commerce.” [Slip op. 24]. After distinguishing prior cases, the Court can find “no pre-1982 case [that] provides significant authority for application of the Sherman Act in the circumstances we here assume.” [Slip op. 30].

The Court leaves open the possibility that a valid cause of action under the Sherman Act might arise if the Respondents could show that a foreign injury depends on the domestic injury. The Court, however, leaves this determination to the lower court.

Citation: F. Hoffmann-La Roche Ltd. v. Empagran S.A., 124 S. Ct. 2350 (U.S. 2004).

JUDICIAL ASSISTANCE (EVIDENCE)

In competition complaint matter before EC Commission, U.S. Supreme Court holds that target of complaint is “interested person” under 28 U.S.C. Section 1782 on international judicial assistance and that Congress did not intend to impose foreign-discoverability limitation as bar to obtaining documents in records of federal court where target was litigant

As urged by the Commission on International Rules of Judicial Procedure (CIRJP), and part of an effort to improve judicial assistance between the United States and foreign countries, Congress in 1964 completely revised 28 U.S.C. Section 1782(a). This farseeing provision had long authorized federal courts to offer judicial assistance to other nations without any treaty or other guarantee of reciprocity.

The modern version of Section 1782(a) provides that a federal district court “may order” a person residing or found in the district to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal ... upon the application of any interested person.” [The 1964 overhaul of Section 1782(a) had taken out the prior law’s words, “in any judicial proceeding pending in any court in a foreign country.” (Emphasis added by Court.)]

In October 2000, Respondent, Advanced Micro Devices, Inc. (AMD), filed an antitrust complaint against petitioner here, Intel Corporation (Intel), with the Directorate‑General for Competition (DGC) of the EC Commission. The charge claimed that Intel had violated European competition laws, allegedly by abusing its dominant position in the European market such as through loyalty rebates, exclusive purchasing agreements with manufacturers and retailers, price discrimination, and standard‑setting cartels.

Upon receiving a complaint, or sua sponte, the DGC preliminarily looks into alleged violations of EU competition laws. The DGC may not only take into account the information provided by a complainant, but it may also look for information from a complainant’s target. Its investigation leads to a formal written decision on whether to pursue the complaint. If the DGC decides not to proceed, the complainant may appeal its decision to the Court of First Instance (CFI) and, ultimately, to the Court of Justice for the European Communities (ECJ).

When the DGC does pursue a complaint, it typically serves the investigation’s target with a formal “statement of objections”. The target has the right to a hearing before an independent officer, who files a report of it to the DGC. Once the DGC makes its recommendation, the whole Commission may either dismiss the complaint or decide to hold the target liable and impose sanctions. Upon an adverse ruling, the complainant may secure a review of the Commission’s final action in the CFI and the ECJ. Since a “complainant” does not have formal “litigant” status in Commission proceedings, the above procedural rights bear importantly on this case.

Here, the DGC turned aside AMD’s recommendation to seek the documents Intel had turned over in a private antitrust suit in an Alabama federal court. AMD next petitioned a California federal court under Section 1782(a) for an order directing Intel to produce those documents. The District Court concluded that Section 1782(a) did not authorize such discovery.

The Ninth Circuit reversed and remanded with instructions to rule on the application’s merits. On certiorari, the U. S. Supreme Court affirms. It holds inter alia, that Section 1782(a) empowers but does not mandate the district court to provide document discovery to AMD on these facts.

First of all, the Court declares that a complainant before the Commission, such as AMD, qualifies as an “interested person” within Section 1782(a)’s purview. The Court rejects Intel’s contention that this phrase applies only to litigants, to foreign sovereigns, or to a sovereign’s designated agents. To support its reading, Intel points to Section 1782's caption, which reads “[a]ssistance to foreign and international tribunals and to litigants before such tribunals” (emphasis added). A statute’s caption, however, cannot undo or limit the plain meaning of its text. Section 1782(a) plainly reaches beyond the universe of persons designated “litigant.”

Moreover, the assistance that AMD asked for meets Section 1782(a)’s limiting language: “for use in a foreign or international tribunal.” The Commission qualifies as a “tribunal” when it acts as a first‑instance decisionmaker. Both the CFI and the ECJ are tribunals, of course, but they are not fact finders; the law limits their review to the record made before the Commission. Hence, AMD could “use” evidence in those reviewing courts only by submitting it to the Commission in the current, investigative stage. In adopting the CIRJP recommendations noted above, Congress opened the way for judicial assistance in foreign administrative and quasi‑judicial proceedings. This Court would not be justified in excluding the EC Commission, to the extent that it acts as a trial-type decisionmaker, from Section 1782(a)’s ambit.

Under the statute, the “proceeding” for which discovery is sought under Section 1782(a) must be within reasonable contemplation, but need not be “pending” or “imminent.” The Court rejects Intel’s argument that the Commission investigation launched by AMD’s complaint does not qualify for Section 1782(a) assistance. The 1964 revision deleted the prior law’s reference to “pending”matters. The 1964 legislative history corroborates Congress’ recognition that judicial assistance would be available for both foreign proceedings and investigations.

To resolve the conflicts in the Circuits on this point, the Court holds that Section 1782(a) does not impose a “foreign‑discoverability” stricture. It is true that Section 1782(a) expressly shields from discovery matters protected by legally applicable privileges; but nothing in Section 1782(a)’s text confines a district court’s power to order production to materials discoverable in the foreign jurisdiction if located there. Nor does the legislative history suggest that Congress wanted to lay down such a blanket restriction.

Intel raised two policy arguments in support of a foreign‑discoverability limitation on Section 1782(a) aid: (1) refraining from giving offense to foreign governments, and (2) maintaining procedural equality between litigants. Noting that comity and equality factors may be proper criteria for a district court’s exercise of discretion in particular cases, the Court explains that they do not cabin the scope of the statute.

“We question whether foreign governments would in fact be offended by a domestic prescription permitting, but not requiring, judicial assistance. A foreign nation may limit discovery within its domain for reasons peculiar to its own legal practices, culture, or traditions ‑‑ reasons that do not necessarily signal objection to aid from United States federal courts. [Cites] A foreign tribunal's reluctance to order production of materials present in the United States similarly may signal no resistance to the receipt of evidence gathered pursuant to Section 1782(a). See South Carolina Ins. Co. v. Assurantie Maatschappij "De Zeven Provincien" N.V., [1987] 1 App. Cas. 24. (House of Lords ruled that nondiscoverability under English law did not bar litigant in English proceedings from seeking assistance in U. S. under Section 1782).”

“When the foreign tribunal would readily accept relevant information discovered in the United States, application of a foreign‑discoverability rule would be senseless. The rule in that situation would serve only to thwart Section 1782(a)’s objective to assist foreign tribunals in obtaining relevant information that the tribunals may find useful but, for reasons having no bearing on international comity, they cannot obtain under their own laws.” [Slip op. 12]

“Concerns about maintaining parity among adversaries in litigation likewise do not provide a sound basis for an across‑the‑board foreign‑discoverability rule. When information is sought by an ‘interested person,’ a district court could condition relief upon that person's reciprocal exchange of information. [Cites] Moreover, the foreign tribunal can place conditions on its acceptance of the information to maintain whatever measure of parity it concludes is appropriate.”

“We also reject Intel’s suggestion that a Section 1782(a) applicant must show that United States law would allow discovery in domestic litigation analogous to the foreign proceeding. Section 1782 is a provision for assistance to tribunals abroad. It does not direct United States courts to engage in comparative analysis to determine whether analogous proceedings exist here. Comparisons of that order can be fraught with danger. For example, we have in the United States no close analogue to the European Commission regime under which AMD is not free to mount its own case in the [CFI] or the [ECJ] but can participate only as complainant, an ‘interested person,’ in Commission‑steered proceedings. [Cite].” [Id.]

To this point, no court has ruled on the merits of whether Section 1782(a) assistance is proper in this case. To guide the lower court on remand, the Court mentions some factors bearing on that question.

“First, when the person from whom discovery is sought is a participant in the foreign proceeding (as Intel is here), the need for Section 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad. A foreign tribunal has jurisdiction over those appearing before it, and can itself order them to produce evidence. [Cites] In contrast, nonparticipants in the foreign proceeding may be outside the foreign tribunal’s jurisdictional reach; hence, their evidence, available in the United States, may be unobtainable absent Section 1782(a) aid.”

“Second, as the 1964 Senate Report suggests, a court presented with a Section 1782(a) request may take into account the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal‑court judicial assistance. [Cite]”

“Further, the grounds Intel urged for categorical limitations on Section 1782(a)’s scope may be relevant in determining whether a discovery order should be granted in a particular case. Specifically, a district court could consider whether the Section 1782(a) request conceals an attempt to circumvent foreign proof‑gathering restrictions or other policies of a foreign country or the United States. Also, unduly intrusive or burdensome requests may be rejected or trimmed. [Cites].” [Slip op. 13]

At this juncture, the Court declines Intel's suggestion that it exercise its supervisory authority to adopt rules barring Section 1782(a) discovery here. Any such effort should await further experience with Section 1782(a) applications in the lower courts. Several aspects of this case remain largely unexplored. While Intel and its amici are worried that granting AMD’s application in any part may end up disclosing confidential information, encourage “fishing expeditions,” and undermine the Commission’s program offering prosecutorial leniency for admissions of wrongdoing, no one has suggested that AMD’s complaint to the Commission is pretextual. Nor has Intel shown that Section 1782(a)’s preservation of legally applicable privileges and the controls on discovery available under Federal Rule of Civil Procedure 26(b)(2) and ( c) would be ineffective to prevent discovery of Intel’s confidential information. The Court leaves it to the courts below, applying closer scrutiny, to assure enough of a revelation to determine what, if any, assistance is appropriate.

Citation: Intel Corporation v. Advanced Micro Devices, Inc., No. 02-572, 2004 WL 1373133 (U.S. June 21, 2004).

JURISDICTION (DIVERSITY)

In suit by partnership with Mexican citizen members at time of filing against Mexican corporation, narrow majority of U.S. Supreme Court holds that postverdict discovery of missing diversity at filing was not cured by withdrawal of Mexicans from partnership before trial

Respondent, Atlas Global Group, L.P., is a limited partnership created under Texas law. It sued petitioner, Grupo Dataflex, a Mexican corporation, in a diversity action in federal court. After the jury returned a verdict for Atlas, but before entry of judgment, petitioner moved to dismiss for lack of subject‑matter jurisdiction because the parties had not been diverse at the time Atlas had filed its complaint. It invoked the accepted rule that, as a partnership, Atlas is a citizen of each state or foreign country of which any of its partners is a citizen. Granting the motion, the Magistrate Judge found that Atlas was a Mexican citizen because two of its partners, also respondents, were Mexican citizens at the time of filing.

On appeal, Atlas pressed the Fifth Circuit to overlook the diversity failure at the time of filing because the Mexican partners had left Atlas before the trial began and, thus, diversity existed after that point. Relying on Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), the Fifth Circuit held that the conclusiveness of citizenship at the time of filing is subject to an exception. That is where, as here, the parties did not identify the jurisdictional error until after the jury’s verdict and where the postfiling change in the partnership cured the jurisdictional defect before it was identified.

On certiorari, the U.S. Supreme Court, 5 to 4, reverses and remands. The majority holds that, in a diversity action, a party’s postfiling change in citizenship cannot cure a lack of subject‑matter jurisdiction that existed at the time of filing. This Court has long adhered to the rule that subject‑matter jurisdiction in diversity cases depends on the differing citizenship of the adverse parties at the time of filing. Unlike this case, a dismissal of the party that had ruined diversity cured the defect Caterpillar addressed, being a remedy that had long been an exception to the time‑of‑filing rule.

Dismissal for lack of subject‑ matter jurisdiction, in the Court’s view, is the only option available here. Allowing a citizenship change in the partnership to cure the jurisdictional defect existing at the time of filing would go against weighty precedent. The assumed advantages of another rule, e.g., that finality, efficiency, and judicial economy can justify a lifting of the time‑of‑filing rule, would create an exception of indeterminate scope that is certain to produce expensive collateral litigation.

“The Court of Appeals sought to cabin the exception with the statement that ‘[i]f at any point prior to the verdict or ruling, the [absence of diversity at the time of filing] is raised, the court must apply the general rule and dismiss regardless of subsequent changes in citizenship.’ This limitation is unsound in principle and certain to be ignored in practice.”

“It is unsound in principle because there is no basis in reason or logic to dismiss preverdict if in fact the change in citizenship has eliminated the jurisdictional defect. Either the court has jurisdiction at the time the defect is identified (because the parties are diverse at that time) or it does not (because the postfiling citizenship change is irrelevant). If the former, then dismissal is inappropriate; if the latter, then retention of jurisdiction postverdict is inappropriate.”

“Only two escapes from this dilemma come to mind, neither of which is satisfactory. First, one might say that it is not any change in party citizenship that cures the jurisdictional defect, but only a change that remains unnoticed until the end of trial. That is not so much a logical explanation as a restatement of the illogic that produces the dilemma. There is no conceivable reason why the jurisdictional deficiency which continues despite the citizenship change should suddenly disappear upon the rendering of a verdict.”

“Second, one might say that there never was a cure, but that the party who failed to object before the end of trial forfeited his objection. This is logical enough, but comes up against the established principle, reaffirmed earlier this Term, that ‘a court’s subject‑matter jurisdiction cannot be expanded to account for the parties’ litigation conduct.’ Kontrick v. Ryan, 124 S.Ct. 906, 916 (2004). ‘A litigant generally may raise a court’s lack of subject‑matter jurisdiction at any time in the same civil action, even initially at the highest appellate instance.’ Id., at 915. Because the Fifth Circuit’s attempted limitation upon its new exception makes a casualty either of logic or of this Court’s jurisprudence, there is no principled way to defend it.” [1927]

Citation: Grupo Dataflux v. Atlas Global Group, L. P., 124 S.Ct. 1920 (U.S. 2004).

REVENUE RULE

In suit against Vanuatu bank and others, Australian Court of Appeal rules that suit by U.S. court-appointed receiver of company which banked in Australia proceeds from defrauded American credit-card holders was not enforcing foreign penal statute in seeking such proceeds since Federal Trade Commission Act authorizes Commission to have receivers appointed to collect ill-gotten gains for return to victims

The plaintiff, Robb Evans of Robb Evans & Associates, is the receiver of Benford Ltd., and other companies controlled by the Taves family. Benford is a company incorporated in Vanuatu (formerly the New Hebrides), an eighty-island republic 1500 miles northeast of Australia. The defendant is the European Bank of Vanuatu (EBV).

Starting in 1997, one Kenneth Taves and others had bought almost a million credit card numbers from Charter Pacific Bank and used various schemes to extract fees from the card owners. During 1998, Mr. Taves and his companies debited around 912,125 credit card accounts totaling US$ 47,512,530, supposedly for access to web sites. According to the U. S. Federal Trade Commission (FTC), most of this activity was fraudulent.

Based on victim complaints, the FTC petitioned a California federal court in January 1999 to enjoin the Taves and their companies, to rescind contracts, to order disgorgement of ill-gotten gains and restitution. Its chief reliance was upon 15 U.S.C. Sections 45 of the Federal Trade Commission Act (FTCA) which forbids unfair and deceptive practices in commerce. This court appointed the plaintiff as the receiver of Benford.

Between February and April of 1999, the EBV had accepted sums totaling US$ 7,527,900 into a deposit account in the name of Benford Ltd. According to the FTC, those funds were the partial proceeds of the more than US $47 million fraud noted above. The defendant later deposited the funds under its own name in an interest-bearing account with Citibank Ltd. in Sydney.

Meanwhile, the plaintiff sued in a New South Wales (NSW) court, Equity Division, to get those funds back from the defendant. The defendant opposed the claim, contending that the Australian court lacked jurisdiction to entertain an action for the enforcement of a foreign penal or public law, namely the FTCA. The trial court ruled the plaintiff’s claim unenforceable, and dismissed it.

Plaintiff appealed further. He disputed the trial judge’s characterization of the proceedings as subject to the “exclusionary rule,” i.e., the doctrine that bars a party from enforcing a foreign penal or public law. The plaintiff also contested the trial judge’s conclusion that the defendant was not the constructive trustee of the deposit with Citibank for Benford Ltd. The Court of Appeal division of the NSW Supreme Court, however, dismisses the appeal in part and allows it in part. It first points out that the exclusionary rule prevents the enforcement in Australian courts of laws whose operation would secure a governmental interest of a foreign state, in the sense of the exercise of “powers peculiar to government.”

“The various formulations ‑‑ ‘governmental interests’ or ‘governmental claims’ or ‘the exercise of powers peculiar to government’ or ‘an assertion of sovereign authority’ or ‘an assertion of the authority of government’ ‑‑ each identifies a specific and limited range of statutory provision which falls within the exclusionary rule. The identification of a public interest protected by legislation does not constitute sufficient grounds for the application of the exclusionary rule. Any statute can be characterised as in some manner serving a public interest. A more limited range of public laws is involved in the exclusionary rule. Insofar as it remains appropriate to distinguish penal, revenue and ‘other public laws’, the latter must be read down in the manner suggested.” [¶ 42]

Whether a foreign statute meets this standard depends upon the nature of the provisions being enforced and the substance, rather than the form, of the proceedings. Not all statutes that advance the public interest fall within the exclusionary rule. In the sphere of consumer protection, for example, regulatory regimes may serve a public interest and be classified as public laws, without implicating a governmental interest of the relevant kind.

A famous opinion of then Judge Cardozo in Loucks v. Standard Oil Co of New York, 120 N.E. 198 (N.Y.C.A 1918), identified the importance of the litigations’s goal. That case involved a statute that provided for the payment of certain sums to the family of a deceased in a wrongful death matter. The payments would vary between a specified minimum and maximum, based on the degree of the tortfeasor’s culpability.

In Loucks, the court concluded that the statutes were not penal for the purposes of the exclusionary rule of private international law. Judge Cardozo said at 198‑199: “[T]he question is not whether the statute is penal in some sense. The question is whether it is penal within the rules of the private international law. A statute penal in that sense is one that awards a penalty to the state, or to a public officer in its behalf, or to a member of the public, suing in the interests of the whole community to redress a public wrong. ... The purpose must be, not reparation to one aggrieved, but vindication of the public justice.” [¶¶ 50-51]

The Court of Appeal agrees with the plaintiff that the exclusionary rule does not apply in this case. The possibility of returning any undistributed surplus to the U.S. Treasury, and the initial “pooling” of recouped funds (rather than directly refunding them to particular fraud victims), does not change the compensatory nature of the proceedings.

“The recoupment of funds with a view to their return to persons deprived of those funds is a normal consequence of the application of the civil law. In my opinion, as a matter of substance, that is what is occurring in the present proceedings. There is nothing in this case of the character of a governmental interest in the sense in which that concept is applied in the Australian authorities, i.e., as the exercise of a power peculiar to government. In my opinion the particular proceedings before the court should not be characterised in that manner. The exclusionary rule does not apply and this court should not decline jurisdiction.” [¶ 89]

On the other hand, the equitable remedies the plaintiff seeks here are not available against defendant Citibank. Benford Ltd. did hold the stolen funds on a presumed or resulting trust for the credit card holders. Courts should equate such a trust with an express trust for the purposes of the duty to get in the trust estate.

The duty to invade the trust estate, however, did not confer upon the plaintiff as receiver of Benford Ltd., an equitable right to trace into, and claim, the defendant’s deposit with Citibank Ltd. The plaintiff stands in the shoes of one who owns a debt enforceable at common law. The defendant’s deposit with Citibank was not a substitute for, or transformation of, Benford’s deposit with the defendant and did not amount to equitably traceable proceeds of the defrauded funds. When defendant put the money into Citibank, it created no separate equitable estate or interest in the plaintiff. Finally, the defendant did not deal with the Benford deposit so as to violate the trust of which it presumably had constructive knowledge; it acted as an ordinary depository.

Citation: Evans v. European Bank of Vanuatu Ltd., CA 40359/03, 2004 N.S.W.C.A. 82 (March 25, 2004).

SOVEREIGN IMMUNITY

In federal litigation with Austrian museum over rights to six Gustav Klimt paintings originally owned by Jewish family in Austria, U.S. Supreme Court rules that jurisdiction under Foreign Sovereign Immunities Act (FSIA) can extend to contemporary litigation over conduct that took place long before its enactment in 1976

The following case presents the continuation of the litigation over six Gustav Klimt paintings currently held by the Austrian Gallery and other parties. Maria Altmann, the original plaintiff in this case, filed suit in California district court under Austrian, international, and California law against the Austrian Government.

The Czech sugar magnate Ferdinand Bloch-Bauer, a Jew, originally owned the paintings in question. His wife Adele died in 1925 and requested in her will that the paintings be given to the state-owned Austrian Gallery. Ferdinand never did so. In 1938, he fled to Switzerland after Nazi Germany’s annexation of Austria. For many years the Gallery claimed that the owner had donated the paintings at Adele’s request. A recent investigation by a journalist into the records of the Gallery, however, revealed that individuals associated with the Nazi government had appropriated the art works.

The journalist then alerted Maria Altmann, a surviving heir of the Bloch-Bauer estate. Altmann initially filed suit in Austria against the Gallery. Unfortunately, under the Austrian legal system, court fees are based on a percentage of the relief requested. In this case, with the estimated value of the paintings at over $100 million dollars, court fees would have exceeded $1 million. This led Altmann to file her suit in California against the Austrian government and the Gallery. Altmann asserted jurisdiction over the Austrian government through the “expropriation exception” of the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Section 1602]. One problem with this was the fact that the conduct that gave rise to the dispute had occurred before the FSIA had gone into effect in 1976.

The district court agreed with Altmann and rejected Austria’s arguments. The district court based its analysis on the Supreme Court’s decision in Landgraf v. USI Film Prods, 511 U.S. 244 (1994) (“Landgraf”).

The U.S. Supreme Court granted certiorari on one issue: whether the FSIA applies to conduct that took place before its enactment in 1976. The Court affirms the judgment of the Ninth Circuit.

In its analysis, the Court finds that the application of the Landgraf rule does not provide a clear answer to the issue of whether the FSIA applies retroactively. The Landgraf rule establishes a presumption against retroactivity when Congress does not expressly intend it. It then establishes a mode of analysis for situations where Congressional intent is unclear and gives three examples of situations where the statute creates new substantive rights: the statute (a) impairs the rights a party possessed when it acted, (b) increases a party’s liability for past conduct, or ( c) imposes new duties with respect to transactions already completed. Under Landgraf, the courts should not apply the FSIA retroactively in these three situations. The concerns that apply when analyzing statutes that change substantive rights are not, however, relevant in cases where the statute merely confers or ousts jurisdiction.

The Landgraf rule does not resolve this issue for two reasons. First, the FSIA does not fit clearly in one of the sample situations in Landgraf because it is neither clearly substantive nor clearly procedural. Second, the Landgraf rule is geared towards private - not public - rights.

Next, the Court looks at the origin of foreign immunity and finds that it is not a right, but a policy decision of the political branches based on comity. In the context of foreign immunity, “it [is] more appropriate, absent contraindications, to defer to the most recent decision of the political branches – namely, the FSIA – than to presume that decision inapplicable because it postdates the conduct in question.” [Slip Op. 38]

The Court ascertains the Congressional intent in enacting the FSIA “... [A]pplying the FSIA to all pending cases regardless of when the underlying conduct occurred is most consistent with two of the Act’s principal purposes: clarifying the rules that judges should apply in resolving sovereign immunity claims and eliminating political participation in the resolution of such claims. We have recognized that, to accomplish these purposes, Congress established a comprehensive framework for resolving any claim of sovereign immunity:”

“‘We think that the text and structure of the FSIA demonstrate Congress’ intention that the FSIA be the sole basis for obtaining jurisdiction over a foreign state in our courts. Section 1604 and 1330(a) work in tandem: Section 1604 bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and Section 1330(a) confers jurisdiction on district courts to hear suits brought by United States citizens and by aliens when a foreign state is not entitled to immunity. ...”

“... Quite obviously, Congress’ purposes in enacting such a comprehensive jurisdictional scheme would be frustrated if, in postenactment cases concerning preenactment conduct, courts were to continue to follow the ambiguous and politically charged ‘standards’ that the FSIA replaced.”

“We do not endorse the reasoning of the Court of Appeals. Indeed, we think it engaged in precisely the kind of historical inquiry that the FSIA’s clear guidelines were intended to obviate. Nevertheless, we affirm the panel’s judgment because the Act, freed from Landgraf’s anti-retroactivity presumption, clearly applies to conduct, like petitioner’s alleged wrongdoing, that occurred prior to 1976 and, for that matter, prior to 1952 when the State Department adopted the restrictive theory of sovereign immunity.” [Slip op. 42-44]

The Court, however, notes the narrowness of its holding and declines to review whether the expropriation exception is appropriate in this case. The Court also rejects the recommendation of the U.S. to bar application of the FSIA to claims based on pre-FSIA conduct.

In his concurrence, Justice Scalia, who wrote the Landgraf opinion, finds that the majority miscategorizes the FSIA. The Justice believes that although the FSIA is a jurisdiction-creating statute, “the application of a new jurisdictional statute to cases filed after its enactment is not retroactive even if the conduct sued upon predates the statute.” [Slip op. 49]

Now that the Court has determined the FSIA provides for judicial jurisdiction, Mrs. Altmann’s next hurdle is to show that the expropriation exception is applicable. In addition, she must overcome the presumptive applicability of the Act of State doctrine in this case.

Citation: Republic of Austria v. Altmann, 124 S.Ct. 2240 (U.S. 2004).

SOVEREIGN IMMUNITY

In breach of oil-drilling contract case, D.C. Circuit rules that Republic of Congo had waived its FSIA immunity by signing contract with private company that contained waiver clause

The plaintiffs, Gulf Resources Corp., a Panamanian corporation, and their U.S. subsidiary, Gulf Resources America, Inc. (collectively “Gulf”), filed suit alleging causes of action in contract and tort against the Republic of the Congo (“Congo”) arising out of an alleged breach of contract.

The Agreement that gave rise to the claim consists of several separate but interdependent agreements, including a Purchase Agreement. Essentially, Congo was to receive oil royalties from Agip Recherches Congo (“Agip”) in exchange for the right to drill for oil in Congo. Congo then promised these royalties to a U.S. corporation, Occidental Congo Inc. (“Occidental”), who, in return, promised to assist Congo in a “structural adjustment program.” The Purchase Agreement contained provisions ratified by Congo acknowledging the transactions involved in the Agreement were commercial in nature, and explicitly waiving sovereign immunity in disputes that arose from the Agreement.

Occidental soon amended the Agreement, with the consent of Congo, to assign a portion of Occidental’s rights in the oil to Gulf in exchange for Gulf taking over the structural adjustment program. The Amendment specifically referenced the initial agreement between Occidental and Congo, but contained no waiver provisions of its own. The dispute arose when Congo allegedly instructed Agip to redirect payments from Gulf back to Congo before full payment was made.

Gulf sued Congo for various tort and contract claims in the District of Columbia federal court. Congo claimed sovereign immunity and moved to dismiss under F.R.Civ.Pr. 12(b)(1) for lack of subject matter jurisdiction. The plaintiffs argued that subject matter jurisdiction was proper under the waiver clause of the Foreign Sovereign Immunities Act (“FSIA”) [28 U.S.C. Section 1602] and, alternatively, under the second clause of the commercial activity exception. The district court granted the motion. This appeal ensued. The U.S. Court of Appeals for the District of Columbia Circuit reverses and remands.

The waiver exception of the FSIA provides, “[a] foreign state shall not be immune from the jurisdiction of the court of the United States ... in any case ... in which the foreign state has waived its immunity either explicitly or by implication.” 28 U.S.C. Section 1605(a)(1).

Congo acknowledges that the original Purchase Agreement contains a waiver of sovereign immunity. Congo argues, however, that this waiver does not apply to Gulf, because Gulf was not a party to the original Purchase Agreement.

The Court finds that the application of the waiver exception is appropriate in this case. It was uncontested by Congo that the waiver in the Agreement applies to disputes arising with Occidental. Congo instead argued that (1) the Amendment is not sufficiently linked to the Agreement for Gulf to take advantage of the waiver provision in the Agreement, and (2) that the waiver provision was intended only to apply to disputes between Congo and Occidental, not to third parties controversies.

The Court finds specific language in the Agreement and the Amendment indicating that the terms of the Agreement were intended to apply to third parties like Gulf. First, the language of the amendment clearly “set[s] it within the framework of the original” Agreement. [Slip op. 15] Second, the Agreement “clearly anticipated the possible addition of new participants in the sale of royalty oil.” [Slip op. 16]

After the Court of Appeals finds that the Agreement waiver provisions apply to Gulf, it turns to whether the facts of the current situation trigger these provisions. The Court of Appeals points to Article 10.1(j) of the Agreement which reads: “the Government shall not ... (iii) avail itself of ... any other benefits or protections of any nature whatsoever which might otherwise be available to the Government connected with the Government’s status as a sovereign state in relation to this agreement.” [Slip op. 20] Congo argues that this provision refers to a waiver of some other, unspecified and unidentifiable, defense. The Court is unpersuaded and finds that the language in Art. 10.1(j)(iii) of the Agreement constitutes Congo’s explicit waiver of sovereign immunity by Congo.

Citation: Gulf Resources America, Inc. v. Republic of Congo, 370 F.3d 65 (D.C. Cir. 2004).

WTO adopts panel report in U.S.-Mexico telecom dispute. On June 1, 2004, the Dispute Settlement Body of the World Trade Organization (WTO) adopted the panel report in the matter “Mexico- Measures Affecting Telecommunications Services” (DS204). See 2004 International Law Update 60. While both the U.S. and Mexico maintained objections to the panel report, they agreed the same day to resolve their dispute amicably. Their agreement includes that (a) Mexico will remove the requirement of Mexican Law that the carrier with the greatest proportion of outgoing traffic negotiate the settlement rate for all Mexican carriers, and permit resale-based international telecommunications services by 2005; and (b) the U.S. accepts that Mexico will continue to restrict International Simple Resale (use of leased lines to carry cross-border calls) to prevent unauthorized carriage of telecommunications traffic. Citation: WTO News Dispute Settlement Body 1 June 2004; U.S. Trade Representative press release 2004-46 (June 1, 2004).

EU and U.S. conclude agreement on Passenger Name Record (PNR) data by air carriers provided to U.S. Department of Homeland Security. The European Union has issued Council Decision 2004/496/EC approving the “Agreement between the European Community and the United States of America on the processing and transfer of PNR data by Air Carriers to the United States Department of Homeland Security, Bureau of Customs and Border Protection.” The Agreement is attached to the Decision. It permits U.S. authorities to electronically access PNR data from air carriers’ reservation and departure control systems in the EU. Citation: 2004 O.J. of the European Union (L 183) 83, 20 May 2004.

Four leading maritime nations initial agreement to protect Titanic site. On June 18, 2004, the U.S. Department of State (DOS) announced an international agreement among the four most interested nations to better preserve the RMS Titanic wreck site as an historic artifact and memorial to those who went down with the ship. These are Canada, France, the U. K. and the U. S. Coordinated action by these four should bar the financing and the technology needed to carry on unregulated salvage and other potentially damaging actions. The National Oceanic and Atmospheric Administration (NOAA) recently visited the 2,000-fathom-deep site and observed considerable new damage to the wreck; it appeared to have come from the landing of submarines on the deck for salvage operations as well as from filming and tourism. The DOS is quoted as explaining: “The Agreement enters into force when two or more nations have ratified or accepted it. ... Pursuant to the Titanic Memorial Act of 1986, ... the Department of State will forward the signed Agreement and recommended implementing legislation to Congress.” Citation: U.S. State Department Media Note #2004/689, Office of the Spokesman, Washington, D.C., Friday, June 18, 2004; The New York Times, June 19, 2004, page A2.

China and U.S. substantially expand mutual air services. On June 18, 2004, American and Chinese negotiators initialed a landmark protocol that amends the U.S.‑China Bilateral Air Services Agreement. It has gone into effect provisionally as of the above date. During the next half-dozen years, the Agreement as amended will allow for an almost five-fold growth in the number of weekly flights that U.S. air carriers can maintain with China, i.e., from 54 to nearly 250. In addition, the number of U. S. airlines allowed to serve China will go from four to nine. Finally, the Agreement will authorize the air carriers of each signatory to set up cargo hubs in the other’s territory with liberal operational rights. Citation: U.S. State Department Press Statement #2004/693, Adam Ereli, Deputy Spokesman, Washington, D. C., Friday, June 18, 2004; Journal of Commerce, June 28, 2004, page 32.

Amended Compact between U.S. and Micronesia has entered into force. On June 25, 2004, the United States and the Federated States of Micronesia (FSM) [consisting of the four states of Chuuk, Kosrae, Pohnpei, and Yap, as well as their 607 islands, spread across 2,500 kilometers of the Western Central Pacific Ocean] exchanged diplomatic notes in Palikir that brought into force the Compact of Free Association, as amended. The parties entered into the original bilateral agreement in 1986. Over the next two decades, the Amended Compact will serve as a defense commitment on the part of the U.S. Its grants will also advance the economic and social development of all citizens of the FSM. The Compact also sets up a Trust Fund. The parties have designed it to provide an income stream after the twenty-year period for grants has ended. Citation: Press Statement # 2004/714, U. S. Department of State, Adam Ereli, Deputy Spokesman, Washington, D. C., Friday, June 25, 2004.

U.S. and Morocco sign important Free Trade Agreement. On June 15, 2004, the U.S. and Morocco signed an important Free Trade Agreement that is expected to help pave the way for a Middle East Free Trade Area by the year 2013. Negotiations for this Agreement commenced in January 2003 and resulted in a draft text in March 2004 that was finalized one month later. The Agreement provides, for example, for the immediate elimination of tariffs on 95 percent of bilateral trade in consumer and industrial products. All remaining tariffs will be eliminated within nine years. Citation: U.S. Trade Representative press release 2004-53 (June 15, 2004). Further information on the Agreement is available on the website of the U.S. Trade Representative, www.ustr.gov.2004 International Law Update, Volume 10, Number 6 (June)

ANTI-SUIT INJUNCTIONS

Second Circuit affirms anti-suit injunction against plaintiff in Brazilian litigation where its agreement with U.S. defendant provides for arbitration of dispute and U.S. court has already decided dispute’s arbitrability

Paramedics Electromedicina Comercial, Ltda. (known as “Tecnimed”) distributed the products of the medical equipment manufacturer GE Medical Systems Information Technologies, Inc. (a Wisconsin corporation, hereinafter referred to as “GEMS-IT”) in Brazil. Their two 1999 agreements, a Service Agreement and a Distribution Agreement, contained broad arbitration clauses.

In early 2001, Tecnimed allegedly owed GEMS-IT approximately $1.2 million. Tecnimed, in turn, accused GEMS-IT of bypassing them and selling directly in Brazil. In April 2002, GEMS-IT invoked the arbitration clauses and requested arbitration. In May 2002, Tecnimed filed suit in Brazil, against GEMS-IT and a related company, General Electric do Brasil (“GE Brasil”). Further, Tecnimed alleged that the Inter-American Commercial Arbitration Commission (IACAC) lacked jurisdiction for an arbitration and petitioned a New York State court to permanently stay the arbitration.

Next, GEMS-IT removed the petition to a New York federal court. It also counterclaimed for an order to compel arbitration and for an anti-suit injunction to stay the Brazilian action. In the meantime, in April 2003, the IACAC panel rejected Tecnimed’s challenges to arbitration.

In June 2003, the district court ruled in favor of GEMS-IT. The Court ordered the arbitration and directed Tecnimed to have the Brazilian action dismissed. Tecnimed instead asked the Brazilian court to put the action on a “suspense” calendar. The district court, however, held that this was not enough compliance and imposed sanctions on Tecnimed. Inter alia, it not only ordered Tecnimed to arbitrate the dispute and but also enjoined Tecnimed from continuing the Brazilian action.

Tecnimed appealed from the orders of the district court. The U.S. Court of Appeals for the Second Circuit affirms in part and dismisses in part. As for the anti-suit injunction and the order to arbitrate, the Court affirms.

The standard of review for an anti-suit injunction is abuse of discretion. The Court explains: “It is beyond question that a federal court may enjoin a party before it from pursuing litigation in a foreign forum. [Cite] ... But principles of comity counsel that injunctions restraining foreign litigation be ‘used sparingly’ and ‘granted only with care and great restraint.’ ...”

“An anti-suit injunction against parallel litigation may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined. ... Once past this threshold, courts are directed to consider a number of additional factors, including whether the foreign action threatens the jurisdiction or the strong public policies of the enjoining forum. ...” [Slip op. 10-11]

Here, Tecnimed argued that GEMS-IT had satisfied neither of the requirements. The Court disagrees. First, although GE Brasil is not a party to the New York action, Tecnimed’s claims against GE Brasil do arise out of the same facts, circumstances, and relationships as alleged in the dispute between Tecnimed and GEMS-IT. Tecnimed’s own complaint in the Brazilian action alleges that GEMS-IT owns more than 70 percent of GE Brasil, and GE Brasil takes an active part in GEMS-IT’s business. Further, Tecnimed served process in the Brazilian action at GE Brasil’s address, claiming that defendant was an affiliate of GEMS-IT.

Secondly, the Court notes that the issue here is whether the ruling on arbitrability disposes of the Brazilian action, even though arbitral panel (not the court) is to resolve the merits of the underlying disputes. Here, the Court concludes that the district court’s ordering of arbitration disposes of the Brazilian action.

Federal policy favors the enforcement of arbitration agreements. “Therefore, ‘the existence of any broad agreement to arbitration creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.’ ... The arbitration agreement here, covering as it does ‘any controversy, claim or dispute’ arising out of the Agreements, is of the broad type. ‘If the allegations underlying the claims ‘touch matters’ covered by the parties’ ... agreements, then those claims must be arbitrated.’ ...”[Slip op. 16]

Finally, the Court rules that the foreign proceeding does not threaten a strong public policy or the jurisdiction of the domestic forum. Public policy favors the enforcement of arbitration clauses, particularly in international disputes. Through the Brazilian action, Tecnimed did try to sidestep arbitration, but that alone may not be enough to support an anti-suit injunction. In any case, the fact that one court has already reached a judgment in favor of arbitrability weakens any comity considerations to the contrary.

Citation: Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Information Technologies, Inc., 365 F.3d 645 (2d Cir. 2004).

COMPETITION

In class action suit by vitamin buyers against vitamin distributors, U.S. Supreme Court holds that Sherman Act does not reach foreign antitrust activity occurring within and outside United States that causes injury to foreign customer where that injury is independent of any injury to domestic customer

The Foreign Trade Antitrust Improvement Act of 1982 (FTAIA) [15 U.S.C. Section 6a, a 1982 amendment to the Sherman Act] excludes from the reach of the Sherman Act anticompetitive conduct that merely causes injury abroad. The statute initially creates a blanket provision stating that the Sherman Act “shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. It provides for exceptions, however, to the general rule where that conduct significantly harms imports, domestic commerce, or American exporters.

The foreign buyers of vitamins and related products brought this action against several U.S. and foreign companies which were distributing those vitamin products internationally and which were allegedly conspiring to control prices for these products. See 2003 International Law Update 20. The district court dismissed the foreign plaintiffs for lack of subject matter jurisdiction under FTAIA since their alleged injuries lacked a connection to U.S. commerce.

On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed. It held that where the anticompetitive conduct does the requisite harm to U. S. commerce, FTAIA does permit suits by foreign plaintiffs who are injured solely by that conduct’s effect on foreign commerce.

Because of a split among the Circuits in this area, the Supreme Court granted certiorari on two questions. “First, does that conduct fall within the FTAIA’s general rule excluding the Sherman Act’s application? That is to say, does the price-fixing activity constitute ‘conduct involving trade or commerce ... with foreign nations’? We conclude it does.”

“Second, we ask whether the conduct nonetheless falls within a domestic-injury exception to the general rule, an exception that applies (and makes the Sherman Act nonetheless applicable) where the conduct (1) has a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce, and (2) ‘such effect gives rise to a [Sherman Act] claim.’ Sections 6a(1)(A). We conclude that the exception does not apply where a plaintiff’s claim rests solely on the independent foreign harm.” [Slip op. 6-7]

The Petitioners (the original defendants) argued that the FTAIA does not apply. The relevant language of the FTAIA reads, “Sections 1 to 7 of this title [the Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.” 15 U.S.C. Section 6a. According to the Petitioners, this language implies that the FTAIA only applies to conduct involving export trade or commerce because this is the only other type of commerce that can occur “with foreign nations” other than import trade or commerce, which the statute specifically exempts.

The Court rejects this argument based in part on the legislative history of the FTAIA. “... [T]he FTAIA originated in a bill that initially referred only to ‘export trade or export commerce.’ H. R. 5235, 97th Cong., 1st Sess., Section 1 (1981). But the House Judiciary Committee subsequently changed that language to ‘trade or commerce (other than import trade or import commerce).’ 15 U.S.C. Section 6a. And it did so deliberately to include commerce that did not involve American exports but which was wholly foreign.” [Slip op. 13].

After rejecting Petitioners’ threshold argument, the Court set out to resolve the issue based on the exception to the FTAIA on which it granted certiorari. It finds the Petitioners’ argument unpersuasive and that the FTAIA exception does not apply (and thus the Sherman Act does not apply) for two main reasons.

First, prescriptive comity dictates that courts construe unclear statutes to avoid unreasonable interference with the sovereign authority of other nations. This rule of construction reflects principles of customary international law, which Congress ordinarily seeks to follow.

In enacting the FTAIA, Congress intended to protect against domestic injury regardless of the situs of the anticompetitive activity. It is unreasonable, however, to validate a cause of action based on the current scenario; protecting foreign plaintiffs against an injury they do not share with domestic plaintiffs would interfere with the foreign state’s sovereignty where the U.S. has little or no legal interest. In the absence of clear Congressional intent to the contrary, the Court reasons that the FTAIA exception does not apply to the current case.

The Court then rejects Respondents’ two counter arguments to its comity analysis. First, the Respondents argued that applying the exception to this case would not unduly interfere with foreign sovereign power because foreign countries have similar antitrust laws. Citing amicus briefs from Germany and Japan to the contrary, however, the Court points to the many differing foreign laws. Second, the Respondents maintained that comity does not require an across-the- board rejection of this type of case, but rather it encourages a case-by-case analysis. On the contrary, the Court finds this approach too costly and time-consuming.

To reinforce its holding, the Court examines the legislative history of the FTAIA. “[T]he language and history suggest that Congress designed the FTAIA to clarify, perhaps to limit, but not to expand in any significant way, the Sherman Act's scope as applied to foreign commerce.” [Slip op. 24]. After distinguishing prior cases, the Court can find “no pre-1982 case [that] provides significant authority for application of the Sherman Act in the circumstances we here assume.” [Slip op. 30].

The Court leaves open the possibility that a valid cause of action under the Sherman Act might arise if the Respondents could show that a foreign injury depends on the domestic injury. The Court, however, leaves this determination to the lower court.

Citation: F. Hoffmann-La Roche Ltd. v. Empagran S.A., 124 S. Ct. 2350 (U.S. 2004).

JUDICIAL ASSISTANCE (EVIDENCE)

In competition complaint matter before EC Commission, U.S. Supreme Court holds that target of complaint is “interested person” under 28 U.S.C. Section 1782 on international judicial assistance and that Congress did not intend to impose foreign-discoverability limitation as bar to obtaining documents in records of federal court where target was litigant

As urged by the Commission on International Rules of Judicial Procedure (CIRJP), and part of an effort to improve judicial assistance between the United States and foreign countries, Congress in 1964 completely revised 28 U.S.C. Section 1782(a). This farseeing provision had long authorized federal courts to offer judicial assistance to other nations without any treaty or other guarantee of reciprocity.

The modern version of Section 1782(a) provides that a federal district court “may order” a person residing or found in the district to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal ... upon the application of any interested person.” [The 1964 overhaul of Section 1782(a) had taken out the prior law’s words, “in any judicial proceeding pending in any court in a foreign country.” (Emphasis added by Court.)]

In October 2000, Respondent, Advanced Micro Devices, Inc. (AMD), filed an antitrust complaint against petitioner here, Intel Corporation (Intel), with the Directorate‑General for Competition (DGC) of the EC Commission. The charge claimed that Intel had violated European competition laws, allegedly by abusing its dominant position in the European market such as through loyalty rebates, exclusive purchasing agreements with manufacturers and retailers, price discrimination, and standard‑setting cartels.

Upon receiving a complaint, or sua sponte, the DGC preliminarily looks into alleged violations of EU competition laws. The DGC may not only take into account the information provided by a complainant, but it may also look for information from a complainant’s target. Its investigation leads to a formal written decision on whether to pursue the complaint. If the DGC decides not to proceed, the complainant may appeal its decision to the Court of First Instance (CFI) and, ultimately, to the Court of Justice for the European Communities (ECJ).

When the DGC does pursue a complaint, it typically serves the investigation’s target with a formal “statement of objections”. The target has the right to a hearing before an independent officer, who files a report of it to the DGC. Once the DGC makes its recommendation, the whole Commission may either dismiss the complaint or decide to hold the target liable and impose sanctions. Upon an adverse ruling, the complainant may secure a review of the Commission’s final action in the CFI and the ECJ. Since a “complainant” does not have formal “litigant” status in Commission proceedings, the above procedural rights bear importantly on this case.

Here, the DGC turned aside AMD’s recommendation to seek the documents Intel had turned over in a private antitrust suit in an Alabama federal court. AMD next petitioned a California federal court under Section 1782(a) for an order directing Intel to produce those documents. The District Court concluded that Section 1782(a) did not authorize such discovery.

The Ninth Circuit reversed and remanded with instructions to rule on the application’s merits. On certiorari, the U. S. Supreme Court affirms. It holds inter alia, that Section 1782(a) empowers but does not mandate the district court to provide document discovery to AMD on these facts.

First of all, the Court declares that a complainant before the Commission, such as AMD, qualifies as an “interested person” within Section 1782(a)’s purview. The Court rejects Intel’s contention that this phrase applies only to litigants, to foreign sovereigns, or to a sovereign’s designated agents. To support its reading, Intel points to Section 1782's caption, which reads “[a]ssistance to foreign and international tribunals and to litigants before such tribunals” (emphasis added). A statute’s caption, however, cannot undo or limit the plain meaning of its text. Section 1782(a) plainly reaches beyond the universe of persons designated “litigant.”

Moreover, the assistance that AMD asked for meets Section 1782(a)’s limiting language: “for use in a foreign or international tribunal.” The Commission qualifies as a “tribunal” when it acts as a first‑instance decisionmaker. Both the CFI and the ECJ are tribunals, of course, but they are not fact finders; the law limits their review to the record made before the Commission. Hence, AMD could “use” evidence in those reviewing courts only by submitting it to the Commission in the current, investigative stage. In adopting the CIRJP recommendations noted above, Congress opened the way for judicial assistance in foreign administrative and quasi‑judicial proceedings. This Court would not be justified in excluding the EC Commission, to the extent that it acts as a trial-type decisionmaker, from Section 1782(a)’s ambit.

Under the statute, the “proceeding” for which discovery is sought under Section 1782(a) must be within reasonable contemplation, but need not be “pending” or “imminent.” The Court rejects Intel’s argument that the Commission investigation launched by AMD’s complaint does not qualify for Section 1782(a) assistance. The 1964 revision deleted the prior law’s reference to “pending”matters. The 1964 legislative history corroborates Congress’ recognition that judicial assistance would be available for both foreign proceedings and investigations.

To resolve the conflicts in the Circuits on this point, the Court holds that Section 1782(a) does not impose a “foreign‑discoverability” stricture. It is true that Section 1782(a) expressly shields from discovery matters protected by legally applicable privileges; but nothing in Section 1782(a)’s text confines a district court’s power to order production to materials discoverable in the foreign jurisdiction if located there. Nor does the legislative history suggest that Congress wanted to lay down such a blanket restriction.

Intel raised two policy arguments in support of a foreign‑discoverability limitation on Section 1782(a) aid: (1) refraining from giving offense to foreign governments, and (2) maintaining procedural equality between litigants. Noting that comity and equality factors may be proper criteria for a district court’s exercise of discretion in particular cases, the Court explains that they do not cabin the scope of the statute.

“We question whether foreign governments would in fact be offended by a domestic prescription permitting, but not requiring, judicial assistance. A foreign nation may limit discovery within its domain for reasons peculiar to its own legal practices, culture, or traditions ‑‑ reasons that do not necessarily signal objection to aid from United States federal courts. [Cites] A foreign tribunal's reluctance to order production of materials present in the United States similarly may signal no resistance to the receipt of evidence gathered pursuant to Section 1782(a). See South Carolina Ins. Co. v. Assurantie Maatschappij "De Zeven Provincien" N.V., [1987] 1 App. Cas. 24. (House of Lords ruled that nondiscoverability under English law did not bar litigant in English proceedings from seeking assistance in U. S. under Section 1782).”

“When the foreign tribunal would readily accept relevant information discovered in the United States, application of a foreign‑discoverability rule would be senseless. The rule in that situation would serve only to thwart Section 1782(a)’s objective to assist foreign tribunals in obtaining relevant information that the tribunals may find useful but, for reasons having no bearing on international comity, they cannot obtain under their own laws.” [Slip op. 12]

“Concerns about maintaining parity among adversaries in litigation likewise do not provide a sound basis for an across‑the‑board foreign‑discoverability rule. When information is sought by an ‘interested person,’ a district court could condition relief upon that person's reciprocal exchange of information. [Cites] Moreover, the foreign tribunal can place conditions on its acceptance of the information to maintain whatever measure of parity it concludes is appropriate.”

“We also reject Intel’s suggestion that a Section 1782(a) applicant must show that United States law would allow discovery in domestic litigation analogous to the foreign proceeding. Section 1782 is a provision for assistance to tribunals abroad. It does not direct United States courts to engage in comparative analysis to determine whether analogous proceedings exist here. Comparisons of that order can be fraught with danger. For example, we have in the United States no close analogue to the European Commission regime under which AMD is not free to mount its own case in the [CFI] or the [ECJ] but can participate only as complainant, an ‘interested person,’ in Commission‑steered proceedings. [Cite].” [Id.]

To this point, no court has ruled on the merits of whether Section 1782(a) assistance is proper in this case. To guide the lower court on remand, the Court mentions some factors bearing on that question.

“First, when the person from whom discovery is sought is a participant in the foreign proceeding (as Intel is here), the need for Section 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad. A foreign tribunal has jurisdiction over those appearing before it, and can itself order them to produce evidence. [Cites] In contrast, nonparticipants in the foreign proceeding may be outside the foreign tribunal’s jurisdictional reach; hence, their evidence, available in the United States, may be unobtainable absent Section 1782(a) aid.”

“Second, as the 1964 Senate Report suggests, a court presented with a Section 1782(a) request may take into account the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal‑court judicial assistance. [Cite]”

“Further, the grounds Intel urged for categorical limitations on Section 1782(a)’s scope may be relevant in determining whether a discovery order should be granted in a particular case. Specifically, a district court could consider whether the Section 1782(a) request conceals an attempt to circumvent foreign proof‑gathering restrictions or other policies of a foreign country or the United States. Also, unduly intrusive or burdensome requests may be rejected or trimmed. [Cites].” [Slip op. 13]

At this juncture, the Court declines Intel's suggestion that it exercise its supervisory authority to adopt rules barring Section 1782(a) discovery here. Any such effort should await further experience with Section 1782(a) applications in the lower courts. Several aspects of this case remain largely unexplored. While Intel and its amici are worried that granting AMD’s application in any part may end up disclosing confidential information, encourage “fishing expeditions,” and undermine the Commission’s program offering prosecutorial leniency for admissions of wrongdoing, no one has suggested that AMD’s complaint to the Commission is pretextual. Nor has Intel shown that Section 1782(a)’s preservation of legally applicable privileges and the controls on discovery available under Federal Rule of Civil Procedure 26(b)(2) and ( c) would be ineffective to prevent discovery of Intel’s confidential information. The Court leaves it to the courts below, applying closer scrutiny, to assure enough of a revelation to determine what, if any, assistance is appropriate.

Citation: Intel Corporation v. Advanced Micro Devices, Inc., No. 02-572, 2004 WL 1373133 (U.S. June 21, 2004).

JURISDICTION (DIVERSITY)

In suit by partnership with Mexican citizen members at time of filing against Mexican corporation, narrow majority of U.S. Supreme Court holds that postverdict discovery of missing diversity at filing was not cured by withdrawal of Mexicans from partnership before trial

Respondent, Atlas Global Group, L.P., is a limited partnership created under Texas law. It sued petitioner, Grupo Dataflex, a Mexican corporation, in a diversity action in federal court. After the jury returned a verdict for Atlas, but before entry of judgment, petitioner moved to dismiss for lack of subject‑matter jurisdiction because the parties had not been diverse at the time Atlas had filed its complaint. It invoked the accepted rule that, as a partnership, Atlas is a citizen of each state or foreign country of which any of its partners is a citizen. Granting the motion, the Magistrate Judge found that Atlas was a Mexican citizen because two of its partners, also respondents, were Mexican citizens at the time of filing.

On appeal, Atlas pressed the Fifth Circuit to overlook the diversity failure at the time of filing because the Mexican partners had left Atlas before the trial began and, thus, diversity existed after that point. Relying on Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), the Fifth Circuit held that the conclusiveness of citizenship at the time of filing is subject to an exception. That is where, as here, the parties did not identify the jurisdictional error until after the jury’s verdict and where the postfiling change in the partnership cured the jurisdictional defect before it was identified.

On certiorari, the U.S. Supreme Court, 5 to 4, reverses and remands. The majority holds that, in a diversity action, a party’s postfiling change in citizenship cannot cure a lack of subject‑matter jurisdiction that existed at the time of filing. This Court has long adhered to the rule that subject‑matter jurisdiction in diversity cases depends on the differing citizenship of the adverse parties at the time of filing. Unlike this case, a dismissal of the party that had ruined diversity cured the defect Caterpillar addressed, being a remedy that had long been an exception to the time‑of‑filing rule.

Dismissal for lack of subject‑ matter jurisdiction, in the Court’s view, is the only option available here. Allowing a citizenship change in the partnership to cure the jurisdictional defect existing at the time of filing would go against weighty precedent. The assumed advantages of another rule, e.g., that finality, efficiency, and judicial economy can justify a lifting of the time‑of‑filing rule, would create an exception of indeterminate scope that is certain to produce expensive collateral litigation.

“The Court of Appeals sought to cabin the exception with the statement that ‘[i]f at any point prior to the verdict or ruling, the [absence of diversity at the time of filing] is raised, the court must apply the general rule and dismiss regardless of subsequent changes in citizenship.’ This limitation is unsound in principle and certain to be ignored in practice.”

“It is unsound in principle because there is no basis in reason or logic to dismiss preverdict if in fact the change in citizenship has eliminated the jurisdictional defect. Either the court has jurisdiction at the time the defect is identified (because the parties are diverse at that time) or it does not (because the postfiling citizenship change is irrelevant). If the former, then dismissal is inappropriate; if the latter, then retention of jurisdiction postverdict is inappropriate.”

“Only two escapes from this dilemma come to mind, neither of which is satisfactory. First, one might say that it is not any change in party citizenship that cures the jurisdictional defect, but only a change that remains unnoticed until the end of trial. That is not so much a logical explanation as a restatement of the illogic that produces the dilemma. There is no conceivable reason why the jurisdictional deficiency which continues despite the citizenship change should suddenly disappear upon the rendering of a verdict.”

“Second, one might say that there never was a cure, but that the party who failed to object before the end of trial forfeited his objection. This is logical enough, but comes up against the established principle, reaffirmed earlier this Term, that ‘a court’s subject‑matter jurisdiction cannot be expanded to account for the parties’ litigation conduct.’ Kontrick v. Ryan, 124 S.Ct. 906, 916 (2004). ‘A litigant generally may raise a court’s lack of subject‑matter jurisdiction at any time in the same civil action, even initially at the highest appellate instance.’ Id., at 915. Because the Fifth Circuit’s attempted limitation upon its new exception makes a casualty either of logic or of this Court’s jurisprudence, there is no principled way to defend it.” [1927]

Citation: Grupo Dataflux v. Atlas Global Group, L. P., 124 S.Ct. 1920 (U.S. 2004).

REVENUE RULE

In suit against Vanuatu bank and others, Australian Court of Appeal rules that suit by U.S. court-appointed receiver of company which banked in Australia proceeds from defrauded American credit-card holders was not enforcing foreign penal statute in seeking such proceeds since Federal Trade Commission Act authorizes Commission to have receivers appointed to collect ill-gotten gains for return to victims

The plaintiff, Robb Evans of Robb Evans & Associates, is the receiver of Benford Ltd., and other companies controlled by the Taves family. Benford is a company incorporated in Vanuatu (formerly the New Hebrides), an eighty-island republic 1500 miles northeast of Australia. The defendant is the European Bank of Vanuatu (EBV).

Starting in 1997, one Kenneth Taves and others had bought almost a million credit card numbers from Charter Pacific Bank and used various schemes to extract fees from the card owners. During 1998, Mr. Taves and his companies debited around 912,125 credit card accounts totaling US$ 47,512,530, supposedly for access to web sites. According to the U. S. Federal Trade Commission (FTC), most of this activity was fraudulent.

Based on victim complaints, the FTC petitioned a California federal court in January 1999 to enjoin the Taves and their companies, to rescind contracts, to order disgorgement of ill-gotten gains and restitution. Its chief reliance was upon 15 U.S.C. Sections 45 of the Federal Trade Commission Act (FTCA) which forbids unfair and deceptive practices in commerce. This court appointed the plaintiff as the receiver of Benford.

Between February and April of 1999, the EBV had accepted sums totaling US$ 7,527,900 into a deposit account in the name of Benford Ltd. According to the FTC, those funds were the partial proceeds of the more than US $47 million fraud noted above. The defendant later deposited the funds under its own name in an interest-bearing account with Citibank Ltd. in Sydney.

Meanwhile, the plaintiff sued in a New South Wales (NSW) court, Equity Division, to get those funds back from the defendant. The defendant opposed the claim, contending that the Australian court lacked jurisdiction to entertain an action for the enforcement of a foreign penal or public law, namely the FTCA. The trial court ruled the plaintiff’s claim unenforceable, and dismissed it.

Plaintiff appealed further. He disputed the trial judge’s characterization of the proceedings as subject to the “exclusionary rule,” i.e., the doctrine that bars a party from enforcing a foreign penal or public law. The plaintiff also contested the trial judge’s conclusion that the defendant was not the constructive trustee of the deposit with Citibank for Benford Ltd. The Court of Appeal division of the NSW Supreme Court, however, dismisses the appeal in part and allows it in part. It first points out that the exclusionary rule prevents the enforcement in Australian courts of laws whose operation would secure a governmental interest of a foreign state, in the sense of the exercise of “powers peculiar to government.”

“The various formulations ‑‑ ‘governmental interests’ or ‘governmental claims’ or ‘the exercise of powers peculiar to government’ or ‘an assertion of sovereign authority’ or ‘an assertion of the authority of government’ ‑‑ each identifies a specific and limited range of statutory provision which falls within the exclusionary rule. The identification of a public interest protected by legislation does not constitute sufficient grounds for the application of the exclusionary rule. Any statute can be characterised as in some manner serving a public interest. A more limited range of public laws is involved in the exclusionary rule. Insofar as it remains appropriate to distinguish penal, revenue and ‘other public laws’, the latter must be read down in the manner suggested.” [¶ 42]

Whether a foreign statute meets this standard depends upon the nature of the provisions being enforced and the substance, rather than the form, of the proceedings. Not all statutes that advance the public interest fall within the exclusionary rule. In the sphere of consumer protection, for example, regulatory regimes may serve a public interest and be classified as public laws, without implicating a governmental interest of the relevant kind.

A famous opinion of then Judge Cardozo in Loucks v. Standard Oil Co of New York, 120 N.E. 198 (N.Y.C.A 1918), identified the importance of the litigations’s goal. That case involved a statute that provided for the payment of certain sums to the family of a deceased in a wrongful death matter. The payments would vary between a specified minimum and maximum, based on the degree of the tortfeasor’s culpability.

In Loucks, the court concluded that the statutes were not penal for the purposes of the exclusionary rule of private international law. Judge Cardozo said at 198‑199: “[T]he question is not whether the statute is penal in some sense. The question is whether it is penal within the rules of the private international law. A statute penal in that sense is one that awards a penalty to the state, or to a public officer in its behalf, or to a member of the public, suing in the interests of the whole community to redress a public wrong. ... The purpose must be, not reparation to one aggrieved, but vindication of the public justice.” [¶¶ 50-51]

The Court of Appeal agrees with the plaintiff that the exclusionary rule does not apply in this case. The possibility of returning any undistributed surplus to the U.S. Treasury, and the initial “pooling” of recouped funds (rather than directly refunding them to particular fraud victims), does not change the compensatory nature of the proceedings.

“The recoupment of funds with a view to their return to persons deprived of those funds is a normal consequence of the application of the civil law. In my opinion, as a matter of substance, that is what is occurring in the present proceedings. There is nothing in this case of the character of a governmental interest in the sense in which that concept is applied in the Australian authorities, i.e., as the exercise of a power peculiar to government. In my opinion the particular proceedings before the court should not be characterised in that manner. The exclusionary rule does not apply and this court should not decline jurisdiction.” [¶ 89]

On the other hand, the equitable remedies the plaintiff seeks here are not available against defendant Citibank. Benford Ltd. did hold the stolen funds on a presumed or resulting trust for the credit card holders. Courts should equate such a trust with an express trust for the purposes of the duty to get in the trust estate.

The duty to invade the trust estate, however, did not confer upon the plaintiff as receiver of Benford Ltd., an equitable right to trace into, and claim, the defendant’s deposit with Citibank Ltd. The plaintiff stands in the shoes of one who owns a debt enforceable at common law. The defendant’s deposit with Citibank was not a substitute for, or transformation of, Benford’s deposit with the defendant and did not amount to equitably traceable proceeds of the defrauded funds. When defendant put the money into Citibank, it created no separate equitable estate or interest in the plaintiff. Finally, the defendant did not deal with the Benford deposit so as to violate the trust of which it presumably had constructive knowledge; it acted as an ordinary depository.

Citation: Evans v. European Bank of Vanuatu Ltd., CA 40359/03, 2004 N.S.W.C.A. 82 (March 25, 2004).

SOVEREIGN IMMUNITY

In federal litigation with Austrian museum over rights to six Gustav Klimt paintings originally owned by Jewish family in Austria, U.S. Supreme Court rules that jurisdiction under Foreign Sovereign Immunities Act (FSIA) can extend to contemporary litigation over conduct that took place long before its enactment in 1976

The following case presents the continuation of the litigation over six Gustav Klimt paintings currently held by the Austrian Gallery and other parties. Maria Altmann, the original plaintiff in this case, filed suit in California district court under Austrian, international, and California law against the Austrian Government.

The Czech sugar magnate Ferdinand Bloch-Bauer, a Jew, originally owned the paintings in question. His wife Adele died in 1925 and requested in her will that the paintings be given to the state-owned Austrian Gallery. Ferdinand never did so. In 1938, he fled to Switzerland after Nazi Germany’s annexation of Austria. For many years the Gallery claimed that the owner had donated the paintings at Adele’s request. A recent investigation by a journalist into the records of the Gallery, however, revealed that individuals associated with the Nazi government had appropriated the art works.

The journalist then alerted Maria Altmann, a surviving heir of the Bloch-Bauer estate. Altmann initially filed suit in Austria against the Gallery. Unfortunately, under the Austrian legal system, court fees are based on a percentage of the relief requested. In this case, with the estimated value of the paintings at over $100 million dollars, court fees would have exceeded $1 million. This led Altmann to file her suit in California against the Austrian government and the Gallery. Altmann asserted jurisdiction over the Austrian government through the “expropriation exception” of the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Section 1602]. One problem with this was the fact that the conduct that gave rise to the dispute had occurred before the FSIA had gone into effect in 1976.

The district court agreed with Altmann and rejected Austria’s arguments. The district court based its analysis on the Supreme Court’s decision in Landgraf v. USI Film Prods, 511 U.S. 244 (1994) (“Landgraf”).

The U.S. Supreme Court granted certiorari on one issue: whether the FSIA applies to conduct that took place before its enactment in 1976. The Court affirms the judgment of the Ninth Circuit.

In its analysis, the Court finds that the application of the Landgraf rule does not provide a clear answer to the issue of whether the FSIA applies retroactively. The Landgraf rule establishes a presumption against retroactivity when Congress does not expressly intend it. It then establishes a mode of analysis for situations where Congressional intent is unclear and gives three examples of situations where the statute creates new substantive rights: the statute (a) impairs the rights a party possessed when it acted, (b) increases a party’s liability for past conduct, or ( c) imposes new duties with respect to transactions already completed. Under Landgraf, the courts should not apply the FSIA retroactively in these three situations. The concerns that apply when analyzing statutes that change substantive rights are not, however, relevant in cases where the statute merely confers or ousts jurisdiction.

The Landgraf rule does not resolve this issue for two reasons. First, the FSIA does not fit clearly in one of the sample situations in Landgraf because it is neither clearly substantive nor clearly procedural. Second, the Landgraf rule is geared towards private - not public - rights.

Next, the Court looks at the origin of foreign immunity and finds that it is not a right, but a policy decision of the political branches based on comity. In the context of foreign immunity, “it [is] more appropriate, absent contraindications, to defer to the most recent decision of the political branches – namely, the FSIA – than to presume that decision inapplicable because it postdates the conduct in question.” [Slip Op. 38]

The Court ascertains the Congressional intent in enacting the FSIA “... [A]pplying the FSIA to all pending cases regardless of when the underlying conduct occurred is most consistent with two of the Act’s principal purposes: clarifying the rules that judges should apply in resolving sovereign immunity claims and eliminating political participation in the resolution of such claims. We have recognized that, to accomplish these purposes, Congress established a comprehensive framework for resolving any claim of sovereign immunity:”

“‘We think that the text and structure of the FSIA demonstrate Congress’ intention that the FSIA be the sole basis for obtaining jurisdiction over a foreign state in our courts. Section 1604 and 1330(a) work in tandem: Section 1604 bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and Section 1330(a) confers jurisdiction on district courts to hear suits brought by United States citizens and by aliens when a foreign state is not entitled to immunity. ...”

“... Quite obviously, Congress’ purposes in enacting such a comprehensive jurisdictional scheme would be frustrated if, in postenactment cases concerning preenactment conduct, courts were to continue to follow the ambiguous and politically charged ‘standards’ that the FSIA replaced.”

“We do not endorse the reasoning of the Court of Appeals. Indeed, we think it engaged in precisely the kind of historical inquiry that the FSIA’s clear guidelines were intended to obviate. Nevertheless, we affirm the panel’s judgment because the Act, freed from Landgraf’s anti-retroactivity presumption, clearly applies to conduct, like petitioner’s alleged wrongdoing, that occurred prior to 1976 and, for that matter, prior to 1952 when the State Department adopted the restrictive theory of sovereign immunity.” [Slip op. 42-44]

The Court, however, notes the narrowness of its holding and declines to review whether the expropriation exception is appropriate in this case. The Court also rejects the recommendation of the U.S. to bar application of the FSIA to claims based on pre-FSIA conduct.

In his concurrence, Justice Scalia, who wrote the Landgraf opinion, finds that the majority miscategorizes the FSIA. The Justice believes that although the FSIA is a jurisdiction-creating statute, “the application of a new jurisdictional statute to cases filed after its enactment is not retroactive even if the conduct sued upon predates the statute.” [Slip op. 49]

Now that the Court has determined the FSIA provides for judicial jurisdiction, Mrs. Altmann’s next hurdle is to show that the expropriation exception is applicable. In addition, she must overcome the presumptive applicability of the Act of State doctrine in this case.

Citation: Republic of Austria v. Altmann, 124 S.Ct. 2240 (U.S. 2004).

SOVEREIGN IMMUNITY

In breach of oil-drilling contract case, D.C. Circuit rules that Republic of Congo had waived its FSIA immunity by signing contract with private company that contained waiver clause

The plaintiffs, Gulf Resources Corp., a Panamanian corporation, and their U.S. subsidiary, Gulf Resources America, Inc. (collectively “Gulf”), filed suit alleging causes of action in contract and tort against the Republic of the Congo (“Congo”) arising out of an alleged breach of contract.

The Agreement that gave rise to the claim consists of several separate but interdependent agreements, including a Purchase Agreement. Essentially, Congo was to receive oil royalties from Agip Recherches Congo (“Agip”) in exchange for the right to drill for oil in Congo. Congo then promised these royalties to a U.S. corporation, Occidental Congo Inc. (“Occidental”), who, in return, promised to assist Congo in a “structural adjustment program.” The Purchase Agreement contained provisions ratified by Congo acknowledging the transactions involved in the Agreement were commercial in nature, and explicitly waiving sovereign immunity in disputes that arose from the Agreement.

Occidental soon amended the Agreement, with the consent of Congo, to assign a portion of Occidental’s rights in the oil to Gulf in exchange for Gulf taking over the structural adjustment program. The Amendment specifically referenced the initial agreement between Occidental and Congo, but contained no waiver provisions of its own. The dispute arose when Congo allegedly instructed Agip to redirect payments from Gulf back to Congo before full payment was made.

Gulf sued Congo for various tort and contract claims in the District of Columbia federal court. Congo claimed sovereign immunity and moved to dismiss under F.R.Civ.Pr. 12(b)(1) for lack of subject matter jurisdiction. The plaintiffs argued that subject matter jurisdiction was proper under the waiver clause of the Foreign Sovereign Immunities Act (“FSIA”) [28 U.S.C. Section 1602] and, alternatively, under the second clause of the commercial activity exception. The district court granted the motion. This appeal ensued. The U.S. Court of Appeals for the District of Columbia Circuit reverses and remands.

The waiver exception of the FSIA provides, “[a] foreign state shall not be immune from the jurisdiction of the court of the United States ... in any case ... in which the foreign state has waived its immunity either explicitly or by implication.” 28 U.S.C. Section 1605(a)(1).

Congo acknowledges that the original Purchase Agreement contains a waiver of sovereign immunity. Congo argues, however, that this waiver does not apply to Gulf, because Gulf was not a party to the original Purchase Agreement.

The Court finds that the application of the waiver exception is appropriate in this case. It was uncontested by Congo that the waiver in the Agreement applies to disputes arising with Occidental. Congo instead argued that (1) the Amendment is not sufficiently linked to the Agreement for Gulf to take advantage of the waiver provision in the Agreement, and (2) that the waiver provision was intended only to apply to disputes between Congo and Occidental, not to third parties controversies.

The Court finds specific language in the Agreement and the Amendment indicating that the terms of the Agreement were intended to apply to third parties like Gulf. First, the language of the amendment clearly “set[s] it within the framework of the original” Agreement. [Slip op. 15] Second, the Agreement “clearly anticipated the possible addition of new participants in the sale of royalty oil.” [Slip op. 16]

After the Court of Appeals finds that the Agreement waiver provisions apply to Gulf, it turns to whether the facts of the current situation trigger these provisions. The Court of Appeals points to Article 10.1(j) of the Agreement which reads: “the Government shall not ... (iii) avail itself of ... any other benefits or protections of any nature whatsoever which might otherwise be available to the Government connected with the Government’s status as a sovereign state in relation to this agreement.” [Slip op. 20] Congo argues that this provision refers to a waiver of some other, unspecified and unidentifiable, defense. The Court is unpersuaded and finds that the language in Art. 10.1(j)(iii) of the Agreement constitutes Congo’s explicit waiver of sovereign immunity by Congo.

Citation: Gulf Resources America, Inc. v. Republic of Congo, 370 F.3d 65 (D.C. Cir. 2004).

WTO adopts panel report in U.S.-Mexico telecom dispute. On June 1, 2004, the Dispute Settlement Body of the World Trade Organization (WTO) adopted the panel report in the matter “Mexico- Measures Affecting Telecommunications Services” (DS204). See 2004 International Law Update 60. While both the U.S. and Mexico maintained objections to the panel report, they agreed the same day to resolve their dispute amicably. Their agreement includes that (a) Mexico will remove the requirement of Mexican Law that the carrier with the greatest proportion of outgoing traffic negotiate the settlement rate for all Mexican carriers, and permit resale-based international telecommunications services by 2005; and (b) the U.S. accepts that Mexico will continue to restrict International Simple Resale (use of leased lines to carry cross-border calls) to prevent unauthorized carriage of telecommunications traffic. Citation: WTO News Dispute Settlement Body 1 June 2004; U.S. Trade Representative press release 2004-46 (June 1, 2004).

EU and U.S. conclude agreement on Passenger Name Record (PNR) data by air carriers provided to U.S. Department of Homeland Security. The European Union has issued Council Decision 2004/496/EC approving the “Agreement between the European Community and the United States of America on the processing and transfer of PNR data by Air Carriers to the United States Department of Homeland Security, Bureau of Customs and Border Protection.” The Agreement is attached to the Decision. It permits U.S. authorities to electronically access PNR data from air carriers’ reservation and departure control systems in the EU. Citation: 2004 O.J. of the European Union (L 183) 83, 20 May 2004.

Four leading maritime nations initial agreement to protect Titanic site. On June 18, 2004, the U.S. Department of State (DOS) announced an international agreement among the four most interested nations to better preserve the RMS Titanic wreck site as an historic artifact and memorial to those who went down with the ship. These are Canada, France, the U. K. and the U. S. Coordinated action by these four should bar the financing and the technology needed to carry on unregulated salvage and other potentially damaging actions. The National Oceanic and Atmospheric Administration (NOAA) recently visited the 2,000-fathom-deep site and observed considerable new damage to the wreck; it appeared to have come from the landing of submarines on the deck for salvage operations as well as from filming and tourism. The DOS is quoted as explaining: “The Agreement enters into force when two or more nations have ratified or accepted it. ... Pursuant to the Titanic Memorial Act of 1986, ... the Department of State will forward the signed Agreement and recommended implementing legislation to Congress.” Citation: U.S. State Department Media Note #2004/689, Office of the Spokesman, Washington, D.C., Friday, June 18, 2004; The New York Times, June 19, 2004, page A2.

China and U.S. substantially expand mutual air services. On June 18, 2004, American and Chinese negotiators initialed a landmark protocol that amends the U.S.‑China Bilateral Air Services Agreement. It has gone into effect provisionally as of the above date. During the next half-dozen years, the Agreement as amended will allow for an almost five-fold growth in the number of weekly flights that U.S. air carriers can maintain with China, i.e., from 54 to nearly 250. In addition, the number of U. S. airlines allowed to serve China will go from four to nine. Finally, the Agreement will authorize the air carriers of each signatory to set up cargo hubs in the other’s territory with liberal operational rights. Citation: U.S. State Department Press Statement #2004/693, Adam Ereli, Deputy Spokesman, Washington, D. C., Friday, June 18, 2004; Journal of Commerce, June 28, 2004, page 32.

Amended Compact between U.S. and Micronesia has entered into force. On June 25, 2004, the United States and the Federated States of Micronesia (FSM) [consisting of the four states of Chuuk, Kosrae, Pohnpei, and Yap, as well as their 607 islands, spread across 2,500 kilometers of the Western Central Pacific Ocean] exchanged diplomatic notes in Palikir that brought into force the Compact of Free Association, as amended. The parties entered into the original bilateral agreement in 1986. Over the next two decades, the Amended Compact will serve as a defense commitment on the part of the U.S. Its grants will also advance the economic and social development of all citizens of the FSM. The Compact also sets up a Trust Fund. The parties have designed it to provide an income stream after the twenty-year period for grants has ended. Citation: Press Statement # 2004/714, U. S. Department of State, Adam Ereli, Deputy Spokesman, Washington, D. C., Friday, June 25, 2004.

U.S. and Morocco sign important Free Trade Agreement. On June 15, 2004, the U.S. and Morocco signed an important Free Trade Agreement that is expected to help pave the way for a Middle East Free Trade Area by the year 2013. Negotiations for this Agreement commenced in January 2003 and resulted in a draft text in March 2004 that was finalized one month later. The Agreement provides, for example, for the immediate elimination of tariffs on 95 percent of bilateral trade in consumer and industrial products. All remaining tariffs will be eliminated within nine years. Citation: U.S. Trade Representative press release 2004-53 (June 15, 2004). Further information on the Agreement is available on the website of the U.S. Trade Representative, www.ustr.gov.