2004 International Law Update, Volume 10, Number 12 (December)

2004 International Law Update, Volume 10, Number 12 (December)

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

ANTI-SUIT INJUNCTIONS

Second Circuit affirms denial of injunction against prosecution of lawsuit in Mexico where substance of foreign action turned on issue of Mexican law having to do with standing to arbitrate

A dispute arose between LAIF X SPRL (LAIF X or plaintiff) (a Belgian partnership) and Telinor Telefonia (Telinor) of Mexico. Plaintiff argued that Telinor had illegally diluted its ownership interest in Axtel, S.A. de C.V. (a Mexican telecommunications corporation)(Axtel). Telinor was Axtel’s controlling shareholder. Its bylaws require arbitration of disputes involving the company and its shareholders.

Plaintiff initially filed a demand for arbitration with the American Arbitration Association (AAA). Telinor then sued LAIF X in a Monterrey, Mexico court. Its thrust was that plaintiff had gotten its Axtel shares through an invalid assignment, thus depriving it of shareholder status. Responding to the arbitration demand, Telinor urged that there was no arbitrable dispute; alternatively, it claimed that a court should stay the arbitration pending the outcome of the Mexican lawsuit.

LAIF X then asked for an anti-suit injunction from a New York federal court, contending that Telinor had in fact balked at arbitration. By the time the district court heard the matter, however, it denied the injunction because Telinor had since submitted to arbitration. On plaintiff’s appeal, the U.S. Court of Appeals for the Second Circuit affirms.

Even though Telinor is now taking part in the arbitration, the Court holds that it has enough jurisdiction to rule on whether Telinor’s actions had amounted to a refusal to arbitrate under the Federal Arbitration Act (FAA), 9 U.S.C. Section 4. “‘Under the FAA, the role of the courts is limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and ii) whether one party to the agreement has failed, neglected or refused to arbitrate.’ ... A party has refused to arbitrate if it ‘commences litigation or is ordered to arbitrate the dispute [by the relevant arbitral authority] and fails to do so.’ ...” [Slip op. 7-8]

Here, even though Telinor had begun to litigate in Mexico, this did not necessarily mean that it has “refused” to arbitrate. In the first place, Telinor answered LAIF X’s arbitration demand, and the AAA panel itself could have decided whether the dispute was arbitrable and whether the panel should stay the arbitration.

Furthermore, where foreign law governs an issue that bears on standing to arbitrate, the submission of this issue to a foreign court need not constitute a refusal to arbitrate. Here, LAIF X was an investor in a Mexican company governed by Mexican law; it thus cannot claim to be handicapped by having a Mexican court decide its shareholder status under that law.

Turning to the merits of the anti-suit injunction, the Court points to the principles of comity that encourages sparing resort to such a measure. “‘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. ...’”

“Where these threshold requirements are satisfied, ‘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.’ ... A salient consideration in this case is that, given ‘the federal policy favoring the liberal enforcement of arbitration clauses,’ an anti-suit injunction may be proper where a party initiates foreign proceedings in ‘an attempt to sidestep arbitration.’”

In conclusion, the Court declares: “... [T]he district court did not abuse its discretion by declining to issue the anti-suit injunction because: (i) principles of comity counsel against issuing the anti-suit injunction; (ii) the United States federal courts have no interest in enjoining Telinor’s Mexican lawsuit; and (iii) Telinor’s Mexican lawsuit is not directed at sidestepping arbitration.” [Slip op. 11-12]

Citation: LAIF X v. Axtel, S.A. de C.V., 2004 WL 2664436; No. 04-1509-cv (2d Cir. Nov. 23, 2004).

ARBITRATION

In reviewing provisions of New York Arbitration Convention and Federal Arbitration Act relating to judicial confirmations of arbitral awards, Second Circuit concludes that, in Convention cases, 9 U.S.C. Section 207 preempts FAA Section 9's “consent-to-confirmation” requirement so that U.S. courts may confirm foreign arbitral awards even if arbitration agreement does not specifically say so

In 1993, Phoenix Aktiengesellschaft (a German corporation) licensed Ecoplas (a U.S. corporation) to produce and sell “Phoenix polyester - (UP) - moulding compounds.” To do this, Phoenix passed on confidential information and technical expertise to Ecoplas. The licensing agreement required arbitration of relevant disputes before the International Chamber of Commerce (ICC) in Zurich, Switzerland, with Swiss law applying. Phoenix later decided to sell certain assets to Bakelite AG. When Phoenix sought Ecoplas’ consent to the transfer of the licensing agreement, however, Ecoplas objected and declared the agreement terminated.

Phoenix next brought a complaint before the ICC’s International Court of Arbitration (ICA). It argued that the original licensing agreement between the parties continued in effect and that Ecoplas had failed to pay the licensing fees. Agreeing, the ICA awarded Phoenix about $100,000 in damages plus costs. Because Ecoplas failed to pay, Phoenix filed suit in New York federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) (June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997).

Ecoplas argued that the district court lacked jurisdiction because the arbitration agreement did not reflect the parties’ consent to judicial confirmation of the arbitration award, as required by Section 9 of the Federal Arbitration Act (FAA), 9 U.S.C. Sections 1-16, 201-08, 301-07 (2000).

Furthermore, Ecoplas maintained, under Article (V)(1)(b) of the Convention, the district court should not enforce the arbitration award because the arbitrator had refused to hear certain evidence as to the usefulness of Phoenix’ technical advice.

Nevertheless, the district court granted Phoenix’ motion to confirm the award. Ecoplas appealed. The U.S. Court of Appeals for the Second Circuit affirms. It holds that 9 U.S.C. Section 207 of the FAA preempts the consent-to-confirmation requirement of 9 U.S.C. Section 9 in cases based on the Convention.

The Court notes that this case presents an unresolved issue under the FAA, namely, the scope of the authority of federal courts under 9 U.S.C. Sections 9 and 207 to confirm an arbitration award. Section 9 provides that “[i]f the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, ... then ... within one year after the award is made any party ... may apply to the court so specified for an order confirming the award ...”

Section 207 provides that “within three years after an arbitral award ... is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award against any other party to the arbitration.”

The Court explains that the U.S. did not join the 1958 Convention, but later implemented it by enacting Chapter 2 of the FAA (now 9 U.S.C. Sections 201-208). Under Section 208, the pre-Convention provisions of the FAA, i.e., Chapter 1 (9 U.S.C. Sections 1-16), continue to apply to the enforcement of foreign arbitral awards except to the extent that Chapter 1 conflicts with the Convention or with Chapter 2.

Conformity with that “consent to confirmation” requirement is only necessary if Section 9 is consistent with Section 207. If the provisions conflict, the latter provision preempts the former (see 9 U.S.C. Section 208), and consent is unnecessary for confirmation by a court.

“Section 207 does not in any way condition confirmation on express or implicit consent. Because the plain language of Section 207 authorizes confirmation of arbitration awards in cases where Section 9's consent requirement expressly forbids such confirmation, we hold that the two provisions conflict. Accordingly, we hold that Section 207 preempts Section 9's consent-to-confirmation requirement in cases under the Convention. See 9 U.S.C. Section 208. The only other circuit court to rule on this issue has reached the same conclusion. See McDermott Int’l, Inc. v. Lloyds Underwriters of London, 120 F.3d 583, 588-89 & n. 12 (5th Cir. 1997).” [Slip op. 9-10]

The Court also sees no merit in Ecoplas’ claim that it was unable to present its case in arbitration and thus that the Court should not enforce the award on that ground. “Under Article V(1)(b) of the Convention, an exception to enforcement arises where ‘the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or was otherwise unable to present his case.’ See also 9 U.S.C. Section 207 (‘The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.’).”

“Ecoplas contends that the arbitral panel refused to permit it to substantiate its main defense by denying admission of testimony from Ecoplas’ technical staff regarding the defectiveness of the ‘transferred know-how.’ We find the Article V(1)(b) claim meritless.”

“The record reveals that Ecoplas received an opportunity to raise the defense question and that the arbitrator rejected it on the merits. Because the contract between Ecoplas and Phoenix required only transfer of sufficient know-how to manufacture Phoenix’s compounds, and not to develop them for new applications, the arbitrator found that the testimony concerning the transfer of additional development know-how was irrelevant to whether the contract had been breached. Given the arbitrator’s careful consideration of the issue, Ecoplas’s claim that it was ‘unable to present [its] case’ is groundless.” [Slip op. 14-15]

Citation: Phoenix Aktiengesellschaft v. Ecoplas, Inc., 2004 WL 2828941; No. 03-9000 (2d Cir. Dec. 10, 2004).

CRIMINAL LAW

Seventh Circuit dismisses Nigerian defendant’s appeal from district court’s refusal of downward departure at sentencing because lower court had discretion to decide whether likelihood of additional imprisonment in Nigeria for having U.S. drug conviction warrants such downward departure

U.S. authorities arrested Kafayat Abimbola-Amoo (hereinafter Amoo) in August 2003 after she arrived from her native Nigeria carrying 806 grams of heroin. After she pled guilty to possession of heroin, the court sentenced Amoo to 57 months imprisonment. At sentencing, she had argued for a downward departure.

She pointed out that, after serving her U.S. sentence and later being deported, the Nigerian authorities would probably imprison her again. She presented “Decree 33" of Nigeria’s National Drug Law Enforcement Agency. It provides for five years of imprisonment and assets forfeiture for those convicted of drug offenses abroad, thus bringing “the name of Nigeria into disrepute.” She further showed that the court backlogs in Nigeria are excessive.

The district court denied a downward departure, and Amoo appealed. In a 2 to 1 vote, the U.S. Court of Appeals for the Seventh Circuit dismisses the appeal for lack of jurisdiction. It rejects Amoo’s argument that the district court failed to realize that it had the power to reduce the sentence based on the evidence she put forth.

“She infers that, by framing the issue as whether a United States court should ‘ever’ consider a successive foreign punishment, the court was necessarily exploring the question as a categorical legal matter. Yet in the very next paragraph, the sentencing judge opined that Nigeria’s laws are for Nigeria alone, and that Amoo’s prospect of future imprisonment in Nigeria was not the concern of a United States court. ... [T]he judge made a value-laden judgment that foreign incarceration should be a matter for the foreign jurisdiction. This decision was the essence of discretion, and we may not second-guess it.” [Slip op. 11-12]

The dissenter would in fact consider the risk of additional imprisonment in Nigeria to a limited degree. “I would hold ... that the risk of foreign prosecution is not a forbidden ground of departure. Analogizing to the various sources of law I have discussed, ... I would treat it as a discouraged ground. The proper result here would be to vacate the district court’s decision and to remand for development of an appropriate record on the basis of which the court could then exercise its discretion. I respectfully dissent from the majority’s decision to dismiss this appeal for want of jurisdiction.” [Slip op. 16-20]

Citation: United States v. Abimbola-Amoo, 2004 WL 2660655; No. 03-4233 (7th Cir. Nov. 23, 2004).

FORUM NON CONVENIENS

In English defamation action brought against well-known boxing promoter by New York attorney, English Court of Appeal (Civil Division) rules that lower court had not abused its discretion in deciding that, under circumstances, England was appropriate forum for trial rather than New York

Don King, the plaintiff below, is a citizen of the United States and lives in Florida. A famous boxing promoter worldwide, but especially in the U.S. and the U. K., he has promoted a number of British boxers including Lennox Lewis, who was the original first defendant.

Lewis is a world class boxer, and a British citizen who mainly lives in New York. The original second defendant was Lewis’ promotion company, Lion Promotions LLC, with its headquarters in Nevada.

Plaintiff here, however, has agreed to drop the first two named defendants leaving Mr. Judd Burstein (defendant or Burstein) as the sole defendant. He is a New York attorney who has represented Lewis and Lion.

A skeleton context follows. In May 2003, Lewis and Lion filed suit in the New York state court against four defendants: (1) Mike Tyson, the ex‑world heavyweight champion, (2) his wholly-owned corporation called Mike Tyson Enterprises, Inc. (MTE), (3) King, the plaintiff below, and Don King Productions, Inc., (DKP).

Burstein represented Lewis and Lion. They claimed that the present plaintiff had interfered with a planned agreement between Lion, Lewis, MTE and Tyson. Under it, the parties would resolve their previous disputes and set up another world heavyweight bout between Lewis and Tyson.

The New York plaintiffs claimed that King’s and DKP’s “tortious interference” with the agreement and threats of bizarre violence caused Lion and Lewis to lose at least $35 million to which they would add $350 million in punitives. Burstein also posted the entire complaint on the Internet at boxingtalk.com, one of the California websites on which the alleged libels in the present case were to be published.

On the website, fightnews.com, Burstein also posted an item he wrote referring to an article in the New York Daily News in July 2003. The following are excerpts: “I have read Don King’s recent interviews with Tim Smith and others with great amazement. But for his plainly anti‑semitic remark ‑ calling me a ‘shyster lawyer’ ‑ I would have been merely amused by his desperate and ridiculous charges. ...”

“Since Don apparently believes that insulting Jews is appropriate conduct (indeed, he reportedly has even playfully imitated Hitler during a press conference), I am sure that no apology will be forthcoming for this more recent conduct.”

Defendant also alluded to an incident where plaintiff allegedly kept referring to a Mr. Finkel as Mr. Finkelstein. Burstein made similar comments several days later in an interview with someone from boxingtalk.com. which was later posted on that site.

King filed the present defamation case against Burstein in the English courts. Plaintiff alleged that the meaning of defendant’s words is that he is a “persistent, bigoted, and unashamed or unrepentant anti‑Semite.”

Preliminarily, the English first instance judge had to resolve competing claims as to which forum, New York or London, would be more convenient for the trial of plaintiff’s complaints about the posted Internet texts. Plaintiff pointed to his reputation ‑ indeed fame ‑ in England. He argued that, by posting the complaint in the New York proceedings on the Internet, defendant gave the disputes between the parties a world-wide character. On the other side, the defendant generally maintained that this was really an American case from first to last.

In response, defendant argued “that if he has to face trial here, [he] will encounter real difficulty in assembling his evidence. Crucial witnesses are in the United States. ... [For example], Mr. Gary Shaw speaks to a critical meeting; Mr English is witness to the ‘Finkelstein’ episode; they and some six other witnesses speak to Burstein’s reaction to being called a ‘shyster lawyer’. All (save Burstein’s wife), ... would or might only attend under subpoena. The consequent difficulties for the defendant if the trial is to be conducted in this jurisdiction will, it is said, be very serious.” [¶ 15]

The lower court, however, denied defendant’s motion to dismiss and set the case down for trial in England. Defendant appealed this ruling. The Court of Appeal (Civil Division), however, dismisses.

One of defendant’s main claims of serious error was that the trial judge had applied a “subjective” rather than an “objective” judgment in deciding that England was the more appropriate forum for this case. After weighing a number of factors, defendant contended, the judge gave substantial weight to the “juridical advantage” plaintiff would have in England in that his status as a “public figure” would, under U.S. First Amendment law, require him to prove malice on the defendant’s part in the New York court.

On the forum issue, the Court notes, “[t]he starting‑point is Spiliada Maritime Corp. v. Cansulex Ltd., [1987] A.C. 460 ... It was a shipping dispute. But it establishes two propositions which are central to the correct approach to be taken to issues of forum conveniens.”

“First, Lord Templeman stated: ‘... [I]t seems to me that the solution of disputes about the relative merits of trial in England and trial abroad is pre‑eminently a matter for the trial judge... An appeal should be rare and the appellate court should be slow to interfere.’”

“Lord Goff of Chieveley [also] made it clear that, despite the use of the Latin adjective conveniens, the real question in these cases was, which was the more appropriate forum.‘[It] is not merely that the burden of proof rests on the plaintiff to persuade the court that England is the appropriate forum for the trial of the action, but that he has to show that this is clearly so.’” [¶ 21]

Under English law, several strands are relevant to deciding forum appropriateness: “The first of these strands is that there exists an initial presumption that the natural or appropriate forum for trial of the dispute will be the courts of the place where the tort is committed.” [¶ 24]

“[In a defamation case, secondly] the judge is not required to disregard evidence that publication has taken place elsewhere as well as in England. On the contrary, this feature of the case, if present, will always be a relevant factor. The weight to be given to it will vary from case to case, having regard to the plaintiffs connection with this country ... The rule which applies to these cases is that the plaintiff must limit his claim to the effects of the publication in England. [Cites] ... .” [¶ 25]

“Thus the starting‑point for the ascertainment of what is clearly the most appropriate forum is to identify the place where the tort has been committed. That will, of course, by definition be England in a defamation case where leave to serve out has been obtained on the basis of publication here. But ... the more tenuous the claimant’s connection with this jurisdiction (and the more substantial any publication abroad), the weaker this consideration becomes.”

“The third strand [arises in] ‘trans‑national’ libels, thus including libels perpetrated on the Internet. The present case is, of course, an example. Such libels have generated a good deal of academic discussion, and have been passed on by the High Court of Australia in Gutnick v Dow Jones [see 2001 International Law Update 154 & 2002 International Law Update 179] [¶¶ 27-28]

“We do not suggest, ... that Gutnick is a gateway for the introduction of a new rule in the law of England relating to Internet publications. It established no new rule in Australia. But the court’s rejection of sweeping submissions that would have ... favour[ed] the ‘single publication rule’ known in many States of the U.S.A., alongside the dicta in Gutnick which emphasise the Internet publisher’s very choice of a ubiquitous medium, at least suggests a robust approach to the question of forum: a global publisher should not be too fastidious as to the part of the globe where he is made a libel defendant.”

“We by no means propose a free‑for‑all for claimants libelled on the Internet. The court must still ascertain the most appropriate forum; the parties’ connections with this or that jurisdiction will still have to be considered; there will be cases (like the present) where only two jurisdictions are really in contention. We apprehend [that] this third strand in the learning demonstrates no more than this, that, in an Internet case, the court’s discretion will tend to be more open‑textured than otherwise; for that is the means by which the court may give effect to the publisher’s choice of a global medium. But as always, every case will depend upon its own circumstances.” [¶ 31]

The Court then rejects the notion that, at least in Internet cases, it should take into account the defendant’s intention. “[I]t makes little sense to distinguish between one jurisdiction and another in order to decide which the defendant has ‘targeted’, when in truth he has ‘targeted’ every jurisdiction where his text may be downloaded.”

“Further, if the exercise required the ascertainment of what it was the defendant subjectively intended to ‘target’, it would, in our judgment, be liable to manipulation and uncertainty, and much more likely to diminish than enhance the interests of justice.” [¶ 34]

“The relative importance of all the factors which must then be examined ‑ the place of the tort, the parties’ connection with this or that jurisdiction, the publisher’s choice to go on the Internet ‑ are not legal rules. They are matters which will inform the judge who must decide where the balance of convenience lies. We think it is a pity that there is so much learning about them.”

“But it is a weakness of the common law that areas in which the litigants usually have ample resources with which to fund litigation tend to become too case‑bound. That is what has happened here. In adding yet more to the books, our only excuse is that it has seemed appropriate to say something about the refining of conventional approaches to the particular circumstances of Internet libels.” [¶ 36]

“We have to say, with the greatest deference, that we find this [a] rather difficult [area.] A principle requiring objective ascertainment of the appropriate forum, without regard to any particular legal or procedural advantages to claimant or defendant, would be one thing. A wider principle, allowing the court to take account of such juridical advantages to either side, and then exercise a broad discretion, would be another.”

“Both would be clear enough ... But we are not sure that we have grasped the idea of a principle which first enjoins ascertainment of the appropriate forum, but then allows the claimant to proceed in an inappropriate forum because he has acted reasonably in relation (for instance) to differential time bars applicable in the candidate jurisdictions.” [¶ 38]

Plaintiff stresses that his case would probably not survive in New York. “It is convenient first to identify the legal nature of this supposed advantage. It arises from what are said to be the effects of the celebrated decision of the Supreme Court of the United States in New York Times v. Sullivan, [376 U.S. 254 (1964)]. [Plaintiff argued] ... that King has issued his claim in England because he fears it would be defeated in New York by the ‘public figure’ rule; the judge has allowed the claim to proceed on that basis; and that is an impermissible outcome involving an error of law.” [¶ 40]

“[Defendant’s] primary case, of course, was that New York was the appropriate forum. There was a certain irony in his [pre-trial] assertion that proceedings brought in the appropriate forum would in effect be doomed to failure. ... [T]he judge [below] in essence did no more than notice the irony to which we have referred. His decision, in our judgment, was by no means based on an illegitimate approach to juridical advantage or disadvantage.” [¶¶ 41, 42]

“The judge took an overall view of appropriate forum. He was entitled, indeed obliged, to do so. He did not make the legal mistake laid at his door by [defendant].... In these circumstances, there is, in our judgment, no basis on which this Court could properly be invited to ascertain the appropriate forum for itself, and for all the reasons we have given, the appeal will be dismissed.” [¶¶ 44-45]

Citation: King v. Lewis, [2004] E.W.C.A. CIV. 1329, [2004] All E.R..(D) 234 (Oct.) (Approved judgment, Oct. 19,2004).

FREEDOM OF INFORMATION ACT

In law professor’s appeal of FOIA suit to compel Central Intelligence Agency to disclose their files about him, Seventh Circuit discusses exemptions dealing with intelligence disclosure and confirms that CIA is not obligated to disclose files under Freedom of Information Act and Privacy Act

Professor M. Cherif Bassiouni (plaintiff) is a prominent professor of international law, and head of DePaul University’s International Human Rights Law Institute. In 1983, plaintiff asked the CIA to produce all documents in its possession that mention him. The CIA responded that it did have some, but refused to give details.

Plaintiff tried again in 1999, this time invoking the Freedom of Information Act (FOIA) and the Privacy Act. The CIA again gave the same answer. Plaintiff was dissatisfied with the CIA’s refusal to describe and provide its internally generated documents or those received from sources other than the Department of State.

In his FOIA suit, the district court held that the CIA was under no duty to disclose the documents, and plaintiff appealed. The U.S. Court of Appeals for the Seventh Circuit, however, affirms.

As the Court explains: “Both the FOIA and the Privacy Act contain exceptions for classified information. 5 U.S.C. Section 552(b)(1) (FOIA); 5 U.S.C. Section 552a(k) (Privacy Act); (for Exemption 3, see Section 552(b)(3), which likewise covers properly classified documents in light of the National Security Act, 50 U.S.C. Section 403 ..., but we need not discuss it given exemption 1.). The Privacy Act also allows the CIA to exempt records in its possession by regulation. See 5 U.S.C. Section 552a(j)(1).

The Agency has used this authority, see 32 C.F.R. Section 1901.62 This leads [the plaintiff] to direct his fire against the CIA’s invocation of exemptions to the FOIA. The Agency does not contend that the contents of all documents mentioning Bassiouni are classified; it could hardly do so, given not only that its refusal to identify which documents it holds but also the certainty that its files contain many U.N. reports, newspaper clippings, and other non-classified materials.

Instead, the Agency maintained that providing a list of the documents that mention [plaintiff] and claiming document-by-document exemptions for those whose contents are classified, would reveal details about intelligence-gathering methods. These methods are classified independently of the information in materials the CIA collects. See Executive Order 12958 Section 1.5( c), (d) ... (Since this suit began, Executive Order 13292, 68 Fed. Reg. 15315 (Mar. 28, 2003) has superseded E.O. 12958), but the substantive criteria pertinent to [plaintiff’s] situation are unchanged. ...)” [Slip op. 2-3]

The problem here is that revelation of the information in the CIA files might reveal sensitive sources to other intelligence services. For instance, it might reveal a foreign source of information. In intelligence circles, “how” often indicates “from whom.”

Even a Vaughn index of such documents (named after Vaughn v. Rosen, 157 U.S. App. D.C. 340, 484 F.2d 820 (1973)) can identify undercover agents. If [plaintiff] were to obtain such information, anybody could do so. Foreign spy services would be most interested to learn who the CIA’s sources are.

“When a pattern of responses itself reveals classified information, the only way to keep secrets is to maintain silence uniformly. Today the agency’s silence is called a ‘Glomar response,’ taking its name from the Hughes Glomar Explorer, a ship built (we now know) to recover a sunken Soviet submarine, but disguised as a private vessel for mining manganese nodules from the ocean floor. ...”

“Every appellate court to address the issue has held that the FOIA permits the CIA to make a ‘Glomar response’ when it fears that inference from Vaughn indexes or selective disclosure could reveal classified sources or methods of obtaining foreign intelligence.” [Slip op. 6]

Moreover, the CIA did not waive any right to a Glomar response when it admitted that it did in fact have documents about plaintiff. “Perhaps it would be best to jettison the distinction between a ‘Glomar response’ (refusing to acknowledge whether the CIA has even one responsive document) and a ‘no number, no list response’ (acknowledging that the CIA has at least one responsive document but refusing to elaborate). Neither name has any magic; the statute and the executive order in combination, not the CIA’s nomenclature, are dispositive. Because it is the details that could tip the agency’s hand, they are what matter.”

“From now on, a ‘Bassiouni response’ could cover both situations, which are legally identical. Indeed, unless the CIA is willing to concede that its records system is like a roach motel – papers go in, but they don’t come out – disclosure that the agency had some documents identifying a person in Year t does not imply that it still has them in Year t + n.”

“The agency therefore could have made a flat Glomar response to Bassiouni’s 1999 request. This shows that the Glomar response and the no number, no list response are functionally identical and implies that the verbal distinction should be eliminated, lest it confuse or mislead requesters and judges into thinking that something depends on the turn of the phrase.” [Slip op. 8-9]

Finally, the Court rejects plaintiff’s argument that Section 552a(e)(7) of the Privacy Act, requiring the agency to “maintain no record describing how any individual exercises rights guaranteed by the First Amendment unless expressly authorized by statute or by the individual ... or [is] within the scope of an authorized law enforcement activity.”

Plaintiff correctly points out that the CIA must not maintain such records, but this does not imply that it must disclose such records. If plaintiff had been interested in purging his files, he could have asked the district court to review the files in camera.

Citation: Bassiouni v. Central Intelligence Agency, 2004 WL 2805780; No. 04-2258 (7th Cir. Dec. 8, 2004).

INSURANCE

Ontario Court of Appeal rules that, as distinguished from duty to indemnify, duty of Canadian insurer to defend insured in U.S. trademark litigation against insured turns primarily on allegations in plaintiff’s U.S. complaint rather than on its underlying facts

In December 1999, Gucci America, Inc. (Gucci) filed a federal suit for trademark infringement and unfair competition in the Southern District of New York. The defendants are Innopex, Ltd., Aaron Wagschel, its owner, and an employee, Joshua Frankel (collectively, Innopex). The suit alleged that Innopex marketed in the United States, without Gucci’s consent, various relatively inexpensive watches marked with what confusingly appears to be the true Gucci trademark.

Gucci has registered its marks in the U.S. Patent and Trademark Office (PTO). Seeking injunctive and financial relief, it invoked the U.S. Trademark Act of 1946 (or Lanham Act), 13 U.S. C. Sections 1015 et seq. plus New York statutory and common law.

A dispute then arose between Innopex and its insurer, the Halifax Insurance Co. of Canada; Halifax claimed that, under their policy, they had no duty to defend Innopex in the American lawsuit. After preliminary interchanges, Halifax filed the instant case in the Ontario Courts seeking a judgment against Innopex declaring that it had no obligation to mount a defense for Innopex in the New York case.

The Halifax-Innopex insurance policy has the following relevant language: 1a. “The Insurer will pay those sums that the insured becomes legally obligated to pay as compensatory damages because [of] ... ‘advertising liability’ to which this insurance applies.” This coverage applies only “b. if caused by an offence ... (3) Arising out of advertising done by, or for, the Named Insured in the normal course of the Named Insured’s business.”

Under Section 2, this policy does not apply to advertising liability that arises out of “(5)(b) infringement of trademark, service mark or trade name, other than titles or slogans, by use thereof on, or in connection with, goods, products, or services sold, offered for sale or advertised.” [emphasis added by Court]. [¶ 13]

Section V, sub 2 defines “Advertising liability” as referring to: “ ... injury arising out of an offence committed during the Policy Period occurring in the course of the Named Insured’s advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan [emphasis added by Court].” [¶ 14] The Ontario trial judge ruled that Halifax did not have a duty to defend based on the complaint, the policy terms and “the known facts” voluminously presented to her by way of extrinsic evidence. Innopex filed an appeal. The Ontario Court of Appeal allows the appeal.

Mark Lichty, a well-known author and insurance attorney hired by Halifax, reported that, based solely on the language of Gucci’s complaint and of the policy, Halifax would have great difficulty prevailing on the duty to defend issue.

“However, Mr. Lichty was of the opinion that the ‘known facts’ appeared to differ from the allegations in Gucci’s complaint. He stated that these facts indicated that there was no marketing or advertising involved in the ‘Gucci watch transactions’. ... He added that, in his experience, ‘the costs of defending U.S. trademark, patent and copyright actions is potentially extraordinary’.” [¶¶ 19, 20]

In the Court’s view, Mr. Lichty’s analysis of Gucci’s complaint strongly suggested that he believed the allegations gave rise to a duty to defend. He specifically referred to allegations that Innopex had distributed, sold and marketed watches to which it had “affixed, applied or used ... false descriptions and representations which tend falsely to describe or represent that the goods and services offered by [Innopex] are sponsored by, authorized by, or connected with, plaintiff Gucci”.

As well, he referred to Gucci’s reliance on Section 35( c) of the Lanham Trademark Act. It forbids any entity from falsely designating the origin of goods or falsely describing or representing its goods as the product of another.

Based on a review of American caselaw, Mr. Lichty had stated: “An overwhelming majority of U.S. Courts have found that trademark infringement falls within the ‘infringement of title or slogan offence’.”

Although Innopex challenged the admissibility of the extrinsic evidence generated by the summary judgment motions, the motion judge applied that evidence in making findings of fact relative to the underlying Gucci claim. This was contrary to the procedure generally followed on [an] application to determine a duty to defend issue. An inquiry into whether the insured had in fact engaged in the conduct complained of in the underlying action should not be part of the inquiry on a duty to defend application.

Occasionally, counsel has not framed the pleadings with enough precision to determine whether a policy does cover the claims. If, on a reasonable reading of the pleadings, a court can infer that a claim lies within coverage, this will trigger an obligation to defend. This principle squares with the contra proferentem rule, and the principle that courts should interpret coverage provisions broadly, while they should narrowly read exclusion clauses.

Whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. After trial, of course, it may turn out that the insurer has no liability and thus, there is no duty to indemnify. But that is not the issue when deciding the duty to defend.

Thus, the Court cannot favor an approach that will turn the duty to defend application into “a trial within a trial”. On the other hand, on a duty to defend application the court may take account of documents alluded to in the pleadings where it may assist in determining the substance and true nature of that claim.

As long as the facts as pleaded “come within the coverage in the policy, the insurer is under a duty to defend even though the actual facts may differ from the pleading. That is why extrinsic evidence going to the truth of the allegations pleaded, as occurred in this case, is not receivable. Moreover, the court must avoid findings that would compromise or affect the underlying litigation. ... As in this case, expert evidence is often helpful to the court in the interpretation of the insurance coverage and, on occasion, in interpreting technical language in the underlying claim.” [¶ 37]

“What [Halifax] did in this case, ... was to turn a duty to defend application into a duty to indemnify application by introducing extrinsic evidence pertaining to what it termed ‘the true facts’. It is well‑recognized that the insurer’s duty to defend is broader than its duty to indemnify. The time to determine the insurer's duty to indemnify, if at all, is at the conclusion of the underlying litigation.” [¶ 38]

“More importantly, ... it is alleged that Innopex marketed, distributed and sold goods that were imitations of the plaintiff’s product, all for the purpose of causing confusion and mistakes. ... Mr. Lichty points out that a number of courts have held that the term ‘marketing’ encompasses advertising activity.”

“In my view, implicit in any allegation of trademark infringement is the fact that the offences were committed in the course of advertising because infringement does not take place until the insured promotes its products to its customers: American Employers’ Ins. Co. v. Delorme Publishing Co., 39 F. Supp. 2d 64, 74 (D. Me. 1999).”

“Moreover, as Mr. Lichty states, citing Delorme and other cases, the pleading of a violation of Sections 43(a) and 35(a) of the Lanham Act, as Gucci has pleaded, raises the possibility that the impugned activity involved advertising. Although, should Gucci succeed in its suit against Innopex these allegations, without more, may not be sufficient for indemnity purposes, they are sufficient for duty to defend purposes.”

“The policy contains an exclusion for trademark infringement. However there is an exception for infringement of title. A majority of U.S. Courts have found that infringement of title clearly encompasses claims for trademark infringement. Bluntly, the inclusion of the exception impedes Halifax’s ability to rely on the trademark exclusion.”

“Most courts have adopted the meaning of ‘title’ that is set out in Black’s Law Dictionary, i.e., ‘a mark, style or designation; a distinctive appellation; the name by which anything is known.’ This seems to be the better view. There would seem no reason in logic or policy to exclude personal names from the definition of title, particularly when those names are registered [U.S.] trademarks.” [¶ 51]

“Moreover, it is very disturbing that Halifax followed this procedure in what appears to be a deliberate attempt to divert the court from deciding the real issue of whether it had a duty to defend, a result which its own expert believed to be virtually inevitable. When an insured person is sued for a claim that may fall within a risk that is insured, it is essential that he or she know at a very early stage whether or not the claim falls within the coverage, thereby creating a duty to defend, as it is necessary that prompt steps be taken to defend the lawsuit and to forestall default judgment. ...”

“The insurer’s procedure in this case did not result in either an early, or an economical, resolution of the issue. Indeed, it has now been more than four years since Halifax commenced its action claiming a declaration that it was not under a duty to defend.”

“In addition, I should say a brief word about my reliance on American authorities. In Zurich Insurance v. 686234 Ontario Ltd. (2002), 62 O.R. (3d) 447,. 461 (C.A.), this court stated that where there is little or no Canadian authority interpreting language commonly used in Canada and the United States in standard form insurance contracts, resort is had to American authorities to ensure uniformity in the construction of insurance contracts in use in both countries.” [¶ 56]

Citation: Halifax Insurance Co. of Canada v. Innopex Ltd., 2004 A.C.W.S.J. 14093; 134 A.C.W.S. (3d) 501 (Ont. Ct. App. Oct. 15, 2004).

SOVEREIGN IMMUNITY

D.C. Circuit finds that plaintiffs in tort action against Libya for its support of terrorism presented enough evidence to warrant invocation of terrorism exception in Foreign Sovereign Immunities Act

In 1980, Michael Price and Roger Frey were working in Libya for a Libyan company. Because they allegedly took illegal photographs around the capital of Tripoli, Libyan authorities confined them for 105 days under wretched conditions. A Libyan court later acquitted them and they returned to the U.S.

In 1997, they brought an action in D.C. district court jurisdictionally based on the “terrorism” exception to the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1605(a)(7). See 2002 International Law Update 101. The district court denied Libya’s motion to dismiss. On appeal, Libya argued that (1) sovereign immunity protects them because the plaintiffs contradicted key allegations in their case with their own testimony in another case, and (2) the plaintiffs failed to state a cause of action.

The U.S. Court of Appeals for the District of Columbia Circuit considers the facts in the amended complaint enough to strip Libya of sovereign immunity based on the terrorism exception. The Court does not, however, reach the viability of the substantive cause of action.

The “terrorism” exception denies sovereign immunity in any case “in which money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources ... for such an act ...”28 U.S.C. Section 1605(a)(7).

This points to a distinction between the sovereign’s burden on the merits, and on the jurisdictional facts. “In [Phoenix Consulting v. Republic of Angola, 342 U.S. App. D.C. 145, 216 F.3d 36, 40 (2000)], we explained how we reconcile these propositions: When a foreign sovereign disputes the fact(s) upon which the district court’s subject matter jurisdiction depend(s), the court must ‘go beyond the pleadings and resolve any disputed issues of fact the resolution of which is necessary to a ruling upon the motion to dismiss’”.

“This resolution, of course, is ‘not a conclusive determination’ but is ‘instead subject to change in light of further development of the facts.’ ... And, ... the district court ‘retains considerable latitude in devising the procedures it will follow to ferret out the facts pertinent to jurisdiction.’ ... Regardless of the procedures the court follows, however, the sovereign ‘defendant bears the burden of proving that the plaintiff’s allegations do not bring its case within a statutory exception to immunity.’ Phoenix Consulting, supra.” [Slip op. 10-11]

The parties disagree, however, as to the standard of review applicable in such a case. Nevertheless, the Court finds no confusion in the precedents. “The cases cited by the plaintiffs announce the unsurprising proposition that we review the district court’s findings of fact – including facts that bear upon immunity and therefore upon jurisdiction – for clear error; hence, we went on in [Price v. Socialist People’s Libyan Arab Jamahiriya, 352 U.S. App. D.C. 284, 294 F.3d 82, 91 (D.C. Cir. 2002) (Price II)] to state that, once the facts have been settled, we decide de novo whether those facts are sufficient to divest the foreign sovereign of its immunity. In this case, the legal issue we review de novo is whether the allegations in the amended complaint, viewed in light of the contradictions to which Libya points, are still sufficient to divest Libya of immunity from suit.” [Slip op. 12]

With that in mind, the Court rejects Libya’s niggling arguments about the plaintiffs’ supposedly incompatible statements. For example, Libya claims that the plaintiffs deposed that their Libyan lawyer smuggled their letter to their employer. In the amended complaint, however, the plaintiffs averred that their lawyer was a Libyan agent who told them that they would get the death penalty if they did not confess. It is not impossible to reconcile these statements. Thus, the lawyer may have been an agent but still decided to forward the letter to their employer in the hopes of pressing plaintiffs to confess.

“Having failed to impugn the plaintiffs’ credibility based upon irreconcilable differences between their amended complaint and their prior testimony, Libya cannot remain silent in the face of these allegations and still be said to have carried its burden of showing [that] this case does not come within the subject matter jurisdiction of the district court via the terrorism exception. ...”

“In short Libya has not exposed any contradiction that renders the facts stated in the amended complaint insufficient to deprive the defendant of its immunity from suit. The district court therefore correctly denied Libya’s motion to dismiss for lack of jurisdiction.” [Slip op. 16]

Citation: Price v. Socialist People’s Libyan Arab Jamahiriya, 389 F.3d 192 (D.C. Cir. 2004).

Japanese Inventor Compensation Statute may be costly for U.S. firms. Since 1921, Article 35 of the Japanese Patent Law, which has provided that technology companies have to “appropriately remunerate” their employee-inventors who assign them their job-linked patents, has lain dormant. In 2003, however, the Japanese Supreme Court awakened it by holding that the lower courts should be awarding the assignors substantial sums of money pursuant to Article 35. The courts are to calculate the amount, inter alia, based on the profits the company derives from marketing the patented item. As a result, the Japanese courts are often handing down inventor rewards worth more than $1 million, one having soared as high as $180 million. Moreover, a Japanese appellate court recently ruled that Article 35 extends to a Japanese company’s duty to pay for employee-patents developed abroad. In an attempt to balance the competing interests of both Japanese employers and employee organizations, the Diet recently amended Article 35. The amendments, however, only apply to patents assigned to employers on and after April 1, 2005. The original statute controls up until that date plus the twenty-year life of each patent. Though other industrial countries, such as Germany and the U.K., have analogous statutes, their courts have apparently read them narrowly. There is nothing comparable to Article 35 in the U.S. where inventor awards tend to be modest. The current reading of Article 35, however, might allow the Japanese employees of U.S. firms doing business in Japan to invoke the statute. Citation: David Schnapf, Esq., Japanese Statute: Bane of Employers, 27 National Law Journal S5, Col. 2 (October 11, 2004) (Special to N.L.J.); “Land of the Rising Patent Suit,” IP Law and Business, Volume 50, Number 10 (October 29, 2004). Further information on Japanese Patent Law in English is available on the website of the Japanese Patent Office at “www.jpo.go.jp”.

Egypt, Israel and United States sign limited free trade agreement. On December 14, 2004, representatives of Egypt, Israel and the United States signed a partial free trade arrangement, haled by some as the most important economic agreement in two decades among the three original Middle East peace partners. Setting up seven Qualified Industrial Zones (QIZs), the agreement resembles the existing deal set up between Jordan, Israel and the United States. Companies in a QIZ can export to the United States without duty or quota restrictions if the Egyptian goods contain at least an 11.7 % Israeli input. The zones include four in the Greater Cairo area, two near the Mediterranean port of Alexandria and one in the Suez Canal city of Port Said. The arrangement promises needed jobs for Egyptians while providing Israel with a symbolic economic link to the largest Arab nation. The Egyptian government says it is the first step toward a full free trade deal with the United States; meanwhile it will help bolster Egypt’s economy after U.S. quotas for imports of textiles and clothes ‑‑ which now favor Egyptian producers ‑‑ expire in January, 2005. According to the Egyptian Trade and Industry Minister, “Economic interests are not the only goals... It is our deep belief that the Qualified Industrial Zones protocol will contribute to a just and comprehensive peace.” Citation: U.S. Trade Representative Press Release of December 10, 2004; The New York Times (via Reuters International), Cairo, Tuesday, December 14, 2004, filed at 6:59 a.m. E.T.

Third Circuit declines to confirm European company’s asbestos settlement. On December 3, 2004, the U.S. Court of Appeals for the Third Circuit turned down a $1.2 billion asbestos settlement plan devised by ABB Ltd., a Swiss-Swedish engineering company with an American facility in Delaware. Both the Delaware bankruptcy court and the U.S. District Court had given their blessing to the scheme. The asbestos lawsuit brought by 111,000 plaintiffs principally involved ABB’s Combustion Engineering unit. After about 93% of the plaintiffs voted in favor of the settlement plan, this unit separately filed for bankruptcy. In declining to confirm the reorganization plan, the Circuit Court noted, inter alia, that “it may lack the requisite equality of distribution among creditors.” The court also pointed out that, while the lower court had urged a prompt confirmation that would keep ABB economically viable, it also had assessed the plan as “fragile”. In the appellate court’s opinion, further fact finding is needed on multiple issues. Citation: The Associated Press (online via Findlaw), Philadelphia, filed Friday, December 3, 2004 at 12:23:17 G.M.T. (See full text of opinion at: In re: Combustion Engineering, Inc., 2004 WL 2743565 (3rd Cir. Dec. 2)).

Unocal settles California suits over complicity in Burmese human rights abuses. Total, the French energy group, runs the Yadana gas project along with Thailand’s PTT and the Myanmar Oil and Gas Enterprise. It involves building a pipeline from offshore fields through Burma to Thailand. Unocal, a U.S. company, is a junior partner in the project. In 1996, plaintiffs sued Unocal in the California federal and state courts under the Alien Tort Claims Act, 28 U.S.C. Section 1350 on behalf of numerous aggrieved Burmese villagers. The complainants alleged that Burmese soldiers had coerced them to work on the pipeline, those who refused enduring abuses ranging from torture to murder. For years, Unocal has vigorously opposed any claims linking it to human rights abuses. Nevertheless, the judge in the California state case had recently agreed to take evidence on charges that Unocal had knowingly aided and profited from the offenses committed by Burmese soldiers. Not too long afterwards, Unocal announced on December 13 that it had reached a settlement with plaintiffs that would terminate both law suits. Citation: Financial Times (online) via The New York Times (online), Monday, December 13, 2004 [bylines of Edward Alden (Washington) and Doug Cameron (Houston)]; “Burmese Villagers Reach Settlement with US-Based Energy Company,” BBC Monitoring International Reports, December 16, 2004; The Washington Post, Page E2, December 14, 2004.

Highest French Administrative Court bans Arab-language satellite channel for its anti-Semitic broadcasts. On December 13, 2004, France’s Council of State, its highest tribunal on the administrative law side, voted to ban the Arab-language television channel, Al Manar. It ruled that the outlet based in Beirut has committed frequent violations of French anti-hate laws, flouting its own prior promise to eschew virulent anti-Semitic content. The Court directed the operators of the French satellite, Eutelsat, to stop transmitting the channel which the Hezbollah militia controls. Jewish groups in France and the United States had lobbied for a ban. A representative of the American Center for Democracy, however, reportedly criticized the narrow scope of the French ban, noting that many European satellite operators continue to carry Al Manar in possible violation of existing international agreements. An expert on Al Manar is also said to have pointed out that GlobeCast, a Paris-based outfit, is offering this channel worldwide. According to him, GlobeCast is a subsidiary of France Telecom, of which the French government is the major shareholder. Citation: “France bans Al Manar TV Channel,” The International Herald Tribune, page 5, December 15, 2004; The New York Times (Washington Final Ed.), Paris, Tuesday, December 14, 2004, Section A, page 12, Column 3 (byline of Doreen Carvajal).