2005 International Law Update, Volume 11, Number 4 (April)

2005 International Law Update, Volume 11, Number 4 (April)

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

ARBITRATION

Second Circuit overturns enforcement of Egyptian arbitration award against U.S. parent company since only subsidiary had agreed to arbitrate and since district court need not accept foreign finding that parent company may also be bound

The Sarhank Group is an Egyptian company with its principal place of business in Cairo, Egypt. In 1991, it entered into a contract with a subsidiary of Oracle Corporation. Oracle is a Delaware corporation with its principal place of business in California. The subsidiary (not a party to this action) is registered in Cyprus. The contract, extended annually through May 1997, required Sarhank to perform certain services for Oracle within Egypt.

Its arbitration clause provided for arbitration under Egyptian law. When the Oracle subsidiary terminated the contract in 1997, Sarhank resorted to arbitration against both Oracle and its subsidiary. Oracle itself was not a signatory to the contract, nor did it ever agree to arbitrate with Sarhank.

When arbitration began before the Cairo (Egypt) Regional Centre for Commercial Arbitration, Oracle objected to the arbitration because it had never signed any agreement with Sarhank. The three-member arbitration panel, ostensibly applying Egyptian law, found Oracle bound by the contract and later found both Oracle and its subsidiary liable for $1.9 million. Oracle unsuccessfully appealed to the Cairo Court of Appeals and to the Egyptian Court of Cassation (ECC).

Sarhank next filed a petition in a New York federal court, seeking to confirm the award based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention) [21 U.S.T. 2517; T.I.A.S. 6997; 330 U.N.T.S. 3 (in force for U. S., Dec. 29, 1970)] see also 9 U.S.C. Sections 201-208. The district court ruled in Sarhank’s favor and Oracle appealed. The U.S. Court of Appeals for the Second Circuit vacates and remands.

Oracle first argued that the district court lacked subject matter jurisdiction in the absence of a signed and written arbitration agreement between Sarhank and itself. The Court disagrees. “Where, as here, the Petition seeks relief under the Constitution or the laws of the United States, the federal courts have subject matter jurisdiction under 28.U.S.C. Section 1331, unless the federal claim is immaterial, frivolous and insubstantial or made solely for the purpose of obtaining jurisdiction. ...”

“Sarhank claimed jurisdiction under the Convention; described as a written agreement between [the Oracle subsidiary] and Sarhank; in effect, alleged that a legal relationship was created between Oracle and Sarhank because [the subsidiary] was a shell corporation; and described the arbitral award. Thus, Sarhank has, for subject matter jurisdiction purposes, adequately pleaded an arbitral award falling under the Convention.” [Slip op. 8]

Article V(2) of the Convention provides, however, that a U.S. court may not enforce an agreement if the subject matter is not capable of arbitration in the U.S., or if the enforcement of the award would be contrary to American public policy.

“Under American law, whether a party has consented to arbitrate, is an issue to be decided by the Court in which enforcement of an award is sought. An agreement to arbitrate must be voluntarily made, and the Court decides, based on general principles of domestic contract law, whether the parties agreed to submit the issue of arbitrability to the arbitrators. ... As arbitrability is not arbitrable in the absence of the parties’ agreement, the district court was required to determine whether Oracle had agreed to arbitrate.” [Slip op. 9-10]

Here, the district court failed to decide whether Oracle had consented to arbitration. The Egyptian Arbitral Tribunal found that an arbitration proceeding involving a subsidiary can implicate the parent company. In the Circuit Court’s view, however, that finding did not bind the district court as a matter of law. In enforcement actions, federal arbitration law controls. An American non-signatory does not have to arbitrate in the absence of a supporting legal theory based on American contract or agency law.

The Court therefore remands for a determination of whether Oracle had agreed to arbitrate, or whether there is support in American contract or agency law to otherwise bind Oracle.

Citation: Sarhank Group v. Oracle Corporation, No. 02-9383, 2004 WL 3267566 (2d Cir. April 14, 2005).

CONFLICTS (REVENUE RULE)

In prosecution for using interstate communications to carry out plot to bootleg U. S. liquor into Canada to evade its taxes, U. S. Supreme Court upholds conviction because interstate wire fraud statute does not run afoul of the common law “revenue rule”

Petitioners, David B. Pasquantino, Carl J. Pasquantino, and Arthur Hilts carried out a scheme to smuggle large quantities of liquor into Canada from the United States between 1996 and 2000 to dodge Canada’s heavy alcohol import taxes. Canadian taxes then due on alcohol bought in the United States and brought into Canada about doubled the liquor’s purchase price.

The petitioners in New York would order liquor over the telephone from discount package stores in Maryland. They then hired Hilts and others to drive the liquor over the Canadian border. The drivers would squirrel the liquor within their vehicles and omit to declare the goods to Canadian customs officials.

A Maryland federal court convicted them of violating the federal wire fraud statute, 18 U.S.C. Section 1343. That statute bans the use of interstate wires to carry out “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses.”

The Fourth Circuit affirmed their convictions. It spurned petitioners’ contention that their prosecution transgressed the traditional common‑law “revenue rule,” which restrains courts from enforcing the tax laws of foreign nations. A closely divided U.S. Supreme Court affirms.

In the majority’s view, the clear language of Section 1343 makes a crime out of petitioners’ plot. In the first place, Canada’s right to unpaid excise taxes on the liquor petitioners spirited into Canada constitutes statutory “property.” Canada is entitled to obtain money from petitioners, the possession of which, in ordinary usage, is “something of value” to, or “property” of, the Canadian Government. [Cite] Second, petitioners’ game was a “scheme or artifice to defraud” Canada of its tax revenue.

Moreover, the majority defends the above reading of Section 1343 as not debasing the common‑law “revenue rule.” The latter allows nations to avoid directly enforcing the tax laws of other states.

Petitioners argued that courts should read statutes that invade the common law with a presumption that supports the preservation of long‑established and familiar principles, except where a contrary legislative intent is clear. In their view, to avoid reading Section 1343 to derogate from the revenue rule, the Court should except frauds aimed at eluding foreign taxes from the otherwise‑applicable statutory language. Thus, before deciding that Congress aimed to absolve the present prosecution from the ample scope of Section 1343, the Court has to find that the revenue rule clearly inhibited such a prosecution as of 1952, the year Congress passed the wire fraud statute.

According to the majority, no common‑law case decided as of 1952 clearly established that the revenue rule barred the United States from prosecuting a fraudulent scheme to evade foreign taxes. Our courts have traditionally regarded the revenue rule as a corollary of the theory that “[t]he Courts of no country execute the penal laws of another.” The Antelope, 10 Wheat. 66, 123, 6 L.Ed. 268 (1825) (Marshall, C.J.). It first surfaced in U.S. lawsuits to collect money for the payment of foreign tax judgments.

“The present prosecution is unlike these classic examples of actions traditionally barred by the revenue rule. It is not a suit that recovers a foreign tax liability, like a suit to enforce a judgment. This is a criminal prosecution brought by the United States in its sovereign capacity to punish domestic criminal conduct. Petitioners nevertheless argue that common‑law revenue rule jurisprudence as of 1952 prohibited such prosecutions.” [Slip op. 9]

The majority disagrees. “Petitioners first analogize the present action to several cases that have applied the revenue rule to bar indirect enforcement of foreign revenue laws, in contrast to the direct collection of a tax obligation. They cite, for example, a decision of an Irish trial court holding that a private liquidator could not recover assets unlawfully distributed and moved to Ireland by a corporate director, because the recovery would go to satisfy the company’s Scottish tax obligations. Peter Buchanan Ltd. v. McVey, 1955 A.C. 516, 529‑530 (Ir.H.Ct.1950), app. dism'd, 1955 A.C. 530 (Ir.Sup.Ct.1951). The court found that ‘the sole object of the liquidation proceedings in Scotland was to collect a revenue debt,’ because if the liquidator won, ‘every penny recovered after paying certain costs ... could be claimed by the Scottish Revenue.’ Id., at 530.” [Id.]

“Buchanan and the other cases on which petitioners rely cannot bear the weight petitioners place on them,” the majority contends. “Many of them were decided after 1952, too late for the Congress that passed the wire fraud statute to have relied on them. Others come from foreign courts. Drawing sure inferences regarding Congress’ intent from such foreign citations is perilous, as several of petitioners’ cases illustrate.”

Importantly to the majority, none of these cases clearly show that the revenue rule bars this prosecution. “None involved a domestic sovereign acting pursuant to authority conferred by a criminal statute. ... A prohibition on the enforcement of foreign penal law does not plainly prevent the Government from enforcing a domestic criminal law. Such an extension, to our knowledge, is unprecedented in the long history of either the revenue rule or the rule against enforcement of penal laws.” [Id.]

“Moreover, none of petitioners’ cases ... barred an action that had as its primary object the deterrence and punishment of fraudulent conduct ‑‑ a substantial domestic regulatory interest entirely independent of foreign tax enforcement. ... Even those courts that, as of 1952, had extended the revenue rule beyond its core prohibition had not faced a case closely analogous to this one ‑‑ and thus we cannot say with any reasonable certainty whether Congress in 1952 would have considered this prosecution within the revenue rule.” [Id.]

Citing the Mandatory Victims Restitution Act of 1996, 18 U.S.C. Sections 3663A‑3664 (2000 ed. and Supp. II) (MVRA), petitioners point out that it demands restitution of the lost tax revenue to Canada. The majority sees no merit in this.

“We do not think it matters whether the provision of restitution is mandatory in this prosecution. Regardless, the wire fraud statute advances the Federal Government’s independent interest in punishing fraudulent domestic criminal conduct, a significant feature absent from all of petitioners’ revenue rule cases. The purpose of awarding restitution in this action is not to collect a foreign tax, but to mete out appropriate criminal punishment for that conduct.”

“In any event, any conflict between mandatory restitution and the revenue rule would not change our holding today. If awarding restitution to foreign sovereigns were contrary to the revenue rule, the proper resolution would be to construe the MVRA not to allow such awards, rather than to assume that the later enacted restitution statute impliedly repealed Section 1343 as applied to frauds against foreign sovereigns.”[Slip op. 10]

“Granted, this criminal prosecution ‘enforces’ Canadian revenue law in an attenuated sense, but not in a sense that clearly would contravene the revenue rule. From its earliest days, the revenue rule never proscribed all enforcement of foreign revenue law. For example, at the same time they were enforcing domestic contracts that had the purpose of violating foreign revenue law, English courts also considered void foreign contracts that lacked tax stamps required under foreign revenue law. [Cites].”

“Like the present prosecution, cases voiding foreign contracts under foreign law no doubt ‘enforced’ foreign revenue law in the sense that they encouraged the payment of foreign taxes; yet they fell outside the revenue rule’s scope. The line the revenue rule draws between impermissible and permissible ‘enforcement’ of foreign revenue law has therefore always been unclear.” [Slip op. 11].

The cases persuade the majority that the extent to which the revenue rule barred “indirect” recognition of foreign revenue laws was not settled as of 1952. “[F]or instance, Congress might well have thought that courts would enforce the wire fraud statute, even if doing so might incidentally recognize Canadian revenue law. The uncertainty highlights that ‘[i]ndirect enforcement is ... easier to describe than to define,’ and ‘it is sometimes difficult to draw the line between an issue involving merely recognition of a foreign law and indirect enforcement of it.’ 1 A. Dicey & J. Morris, Conflict of Laws 90 (L. Collins gen. ed. 13th ed. 2000). ... [P]etitioners’ cases do not yield a rule sufficiently well established to narrow the wire fraud statute in the context of this criminal prosecution.”[Slip op. 12]

“The present prosecution creates little risk of causing international friction .... This action was brought by the Executive to enforce a statute passed by Congress. In our system of government, the Executive is ‘the sole organ of the federal government in the field of international relations,’ United States v. Curtiss‑Wright Export Corp., 299 U.S. 304, 320 (1936), and has ample authority and competence to manage ‘the relations between the foreign state and its own citizens’ and to avoid ‘embarass[ing] its neighbor[s],’ [Cites].”

“...[W]e may assume that, by electing to bring this prosecution, the Executive has assessed this prosecution’s impact on this Nation’s relationship with Canada, and concluded that it poses little danger of causing international friction. We know of no common‑law court that has applied the revenue rule to bar an action accompanied by such a safeguard, and neither petitioners nor the dissent directs us to any. The greater danger, in fact, would lie in our judging this prosecution barred based on the foreign policy concerns animating the revenue rule, concerns that we have ‘neither aptitude, facilities nor responsibility’ to evaluate. Ibid.” [Id.]

“More broadly, petitioners argue that the revenue rule avoids giving domestic effect to politically sensitive and controversial policy decisions embodied in foreign revenue laws, regardless of whether courts need pass judgment on such laws. [Cite] ... . This worries us little here. The present prosecution, if authorized by the wire fraud statute, embodies the policy choice of the two political branches of our Government ‑‑ Congress and the Executive ‑‑ to free the interstate wires from fraudulent use, irrespective of the object of the fraud. Such a reading of the wire fraud statute gives effect to that considered policy choice. It therefore poses no risk of advancing the policies of Canada illegitimately.”[Slip op. 13]

“Still a final revenue rule rationale petitioners urge is the concern that courts lack the competence to examine the validity of unfamiliar foreign tax schemes. [Cite] Foreign law, of course, posed no unmanageable complexity in this case. The District Court had before it uncontroverted testimony of a Government witness that petitioners’ scheme aimed at violating Canadian tax law.”

“Nevertheless, Federal Rule of Criminal Procedure 26.1 addresses petitioners’ concern by setting forth a procedure for interpreting foreign law that improves on those available at common law. Specifically, it permits a court, in deciding issues of foreign law, to consider ‘any relevant material or source ‑‑ including testimony ‑‑ without regard to the Federal Rules of Evidence.’ By contrast, common‑law procedures for dealing with foreign law ‑‑ those available to the courts that formulated the revenue rule ‑‑ were more cumbersome. [Cite] Rule 26.1 gives federal courts sufficient means to resolve the incidental foreign law issues they may encounter in wire fraud prosecutions.” [Id.]

Finally, the majority rejects the notion that its interpretation accords Section 1343 extraterritorial effect. Petitioners’ offense was complete the moment they executed their scheme intending to defraud Canada of tax revenue inside the United States. [Cite]. Therefore, only domestic conduct is at issue here. In any event, because Section 1343 punishes frauds carried out ‘in interstate or foreign commerce,’ it is not a statute that involves only domestic concerns.

Citation: Pasquantino v. United States, No. 03‑725, 2005 WL 946716 (U.S. S. C. April 26).

EXTRADITION

Australian Federal Court of Appeal rules that Australian resident was extraditable to U.S. for his part in alleged international criminal conspiracy to pirate copyrighted software since U.S. had made adequate showing of double criminality

These proceedings began when the United States government filed an extradition proceeding in the Australian courts. It alleged that Hew Raymond Griffiths (appellant), an Australian resident at all relevant times, conspired to engage in, and had in fact engaged in, Internet software piracy in the U.S. in violation of its federal criminal copyright laws. A grand jury sitting in Virginia has indicted appellant and the U. S. has asked for his surrender under Australia’s Extradition Act of 1988 (Cth) (the Act).

Reversing a magistrate’s ruling, a single judge of the Federal Court of Appeal has found appellant eligible for surrender to the United States and has made specific orders in that respect. The appellant seeks review of those orders by a three-judge panel.

The main legal objection pertains to whether the U.S. has met the “double criminality” standard of Section 19(2)( c). Under the Act’s Section 19(2)( c), the magistrate must be satisfied that, “if the conduct of the person constituting the offence in relation to the extradition country, or equivalent conduct, had taken place in the part of Australia where the proceedings are being conducted and at the time at which the extradition request in relation to the person was received, that conduct or that equivalent conduct would have constituted an extradition offence in relation to that part of Australia.”

Here, a magistrate sitting in New South Wales found, pursuant to Section 19(10) of the Act, that appellant was not eligible for surrender. The U.S. sought review of that decision by a single judge of this Court under Section 21. That judge ruled against appellant and a three-judge appellate panel granted review. The Federal Court of Appeal dismisses Griffiths’ appeal.

The main document supporting extradition was an affidavit from Robert W. Wiechering, an Assistant U.S. Attorney for the Eastern District of Virginia. It sketched out his qualifications and legal experience; described the investigations that led to the charging of appellant, along with the grand jury indictment, the offenses, their elements and the evidence supporting them. The affidavit also attached, inter alia, the affidavit of Dawn A Gabel, a Special Customs Agent; a copy of the indictment; and the statements of four of appellant’s alleged co‑conspirators who have admitted, and been convicted for, their part in the alleged conspiracy.

According to the U.S., the sixty or so members of the conspiratorial group dubbed themselves “Drink Or Die” (DOD). Their alleged M. O. was substantially as follows. DOD members began with the work of “suppliers” who would upload new software onto DOD’s “drop site” prior to the manufacturer’s public release date. The drop site was a secure computer site hosted by a DOD member on the computer network of the Massachusetts Institute of Technology in Boston.

Appellant (alias “bandido”) and other high level DOD members controlled access through tight security measures. As leader, appellant oversaw the maintenance and operation of these sites. Other DOD members called “crackers” would then remove the software from the drop site and “crack” the software’s embedded copyright protection. “Testers” would then quality test the software and “packers” would break it down before “couriers” got it ready for release and sent it to DOD-affiliated computer storage sites throughout the world.

When newly “cracked” or pirated software became available, a DOD leader, usually appellant, would email other DOD staff members reporting the fact. Moreover, DOD kept monthly summary reports that laid out the details of each release. For example, the emails and reports from November 2000 to December 2001 show that DOD had cracked and released more than 275 software programs worth over $US1,000,000.

The indictment also specifies five overt acts in furtherance of the alleged conspiracy. Significantly, the charges are that conspirators carried out all of them in Virginia, and that appellant had taken part in many of them. Count 2 charges appellant with copyright infringement in breach of U.S. law. Cited provisions of U.S. law show that it includes appellant’s acts of aiding and abetting.

Section 371 of U. S. Code Title 18 provides that, if two or more persons conspire to commit an offense that is not a misdemeanor and one or more of such persons does an act to effect the object of the conspiracy, each shall be liable to a fine and/or imprisonment for up to five years.

As to copyright offenses, 17 U.S.C. Section 506 (a) defines “criminal infringement.” It declares that “[a]ny person who infringes a copyright willfully either ‑ (1) for purposes of commercial advantage or private financial gain, or (2) by the reproduction or distribution, including by electronic means, during any 180‑day period, of 1 or more copies or phone records of 1 or more copyrighted works, which have a total retail value of more than $1,000, shall be punished as provided under section 2319 of title 18, U.S. Code ...”

The latter statute provides a penalty of imprisonment for up to 5 years for an offense under Section 506(a)(1) of title 17 if the offense “consists of reproduction or distribution during any 180‑day period of at least ten infringing copies having a total retail value of more than $2,500.” Finally, the general section of Title 18, Section 2(a) provides that “Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.”

The Court then outlines the U.S. offense of conspiracy as set forth in the affidavit. “ ... [T]he crime is committed when two or more people agree to do something that is unlawful. It is not necessary for the conspirators to have made a formal agreement or to have agreed on every detail. One becomes a member of an unlawful conspiracy by wilfully participating in an unlawful plan with intent to advance an object or purpose of the conspiracy.” [¶ 32]

The affidavit then provides some evidentiary specifics that link appellant to the conspiracy. It particularly relies on the exhibited statements of appellant’s alleged co‑conspirators, implicating appellant as a leader of that conspiracy. All five of them have been convicted. Ms. Gabel’s affidavit also sets forth a body of evidence based on appellant’s materials which the Federal Police had seized in Australia. That evidence allegedly shows that appellant not only knew the purpose of DOD and knowingly joined it, but also that he rose rapidly to top leadership.

The U.S. prosecutor also alleges that an infringement of a copyright takes place under U.S. law: “whenever someone who is not the copyright owner and who has no authorization from the owner does an act that is the exclusive right of the copyright owner. Among the exclusive rights given to the copyright owner is the right to reproduce and the right to distribute the copyrighted work.” Neither appellant nor any other member of DOD had permission from the copyright holders to copy and market their copyrighted works.

The instant counterpart Australian offenses (CAOs) are breaches of Commonwealth laws. The CAOs include conspiracy within the Criminal Code and copyright infringement under the Copyright Act of 1968. They substantially track the essential principles of U. S. law. The statute limits copyright infringement to actions taken within Australia.

Before referring to what does emerge from the supporting documents, the Court makes the following observations. “First, as is well recognised, the agreement constituting a conspiracy is often incapable of being proved by direct evidence: [Cite] They are commonly proved by overt acts; and the overt acts often include the substantive crimes which are the object of the conspiracy. [Cite].”

“Secondly, proof of the offence of conspiracy may consist in evidence of the separate acts of the alleged co‑conspirators which, although separate, yet point to a common design and, when considered in combination, justify the conclusion that there must have been a combination such as that alleged in the indictment. [Cites].” [¶ 60]

Turning to the issue of double criminality, the Court makes the following comments. “We would note by way of preface that the supporting documents do not provide any account of federal copyright law in the United States. ... As in Australia, copyright can exist in computer software, video games, music and movies; a software manufacturer can be the copyright owner; and copyright infringement can happen when a copyright work is reproduced without the permission of the copyright owner.”

“It may be the case that there are idiosyncratic differences between the copyright laws of the United States and Australia. ... Nonetheless, what is clear from the supporting documents is that there is a common field of discourse concerning copyright between the two countries. It has not been suggested that such is not the case and it would be surprising if it was. Though not a matter of evidence, counsel for the United States, in drawing attention to Section 184 of the Copyright Act and the Copyright (International Protection) Regulations 1969 (Cth), noted that the United States was a party to the Berne Convention [as revised, eff. for U.S., March 1, 1989], and was a member of the World Trade Organisation.” [¶ 76]

“The appellant’s case is in substance that for the double criminality requirement to be satisfied ... it must be shown that conduct would have constituted an offence under Section 132(2)(b) of the Copyright Act. For this to be demonstrated, it has to be shown that, under Australian law, (I) copyright would have subsisted in the works in question ...; (ii) the owners of the relevant works were identified...; (iii) there was a reproduction without licence; and (iv) for the purposes of the Section 132(2)(b) offence there was, additionally, a ‘distribution’ of an article that the person knows, or ought reasonably to know, to be an infringing copy of the work to an extent that prejudicially affects the owner of the copyright.”[¶ 79]

“The requirement of Section 19(3)(c)(ii) is to provide a statement of the ‘conduct constituting the offence’. That conduct, as Section 10(2) indicates, is a reference to the acts or omissions by virtue of which the offence has been, or is alleged to have been, committed. Whether or not the pirated material is a matter of copyright in either the United States or Australia is not of itself a matter of conduct. It is more in the nature of ‘a state of things rather than an act’ [cite] which, as the United States acknowledges, it will be required to prove in any trial of the charges. The evidence of it was not required to be included in the supporting materials for the purposes of describing the conduct constituting the offence.” [¶¶ 84-85].

The heart of the appellant’s contention is that he was, at all relevant times, physically situated in Australia where the crimes were allegedly committed.

“Whatever may have been the particular place of origin of the conspiracy insofar as it concerned [appellant], the conduct constituting the offence, given its continuing character, can properly be said to have occurred in the United States and this includes [appellant’s] own conduct notwithstanding his actual physical presence in New South Wales.” [¶ 97]

The appellant also forcefully argued that the supporting documents are entirely silent on the matter of prejudice and that the judge erred in equating evidence of gain or advantage to one party with prejudice to the other. The Court is unpersuaded.

“Mr Wiechering’s affidavit and the exhibited indictment together indicate the context in which the conspiracy and copyright infringement occurred. It was one in which pirated software was to be provided to the underground Internet software piracy community. When a pirated product was released by DOD couriers, DOD members world‑wide would be able to access the cracked software and, in Mr Wiechering’s words, ‘were able to provide it to anyone they wished; as a result, unauthorized copies of copyrighted software were soon available to anyone with a computer and access to the Internet’. ... in the three years to December 2001, DOD was estimated to have caused the illegal reproduction and distribution of more than US$50,000,000 worth of pirated software, movies, games and music.” [¶¶ 105,106]

“Given the object of the conspiracy, the manner of its performance and the resultant open access it gave to software that was otherwise intended for commercial gain, it would in our view be open properly to infer [cite] that the release by DOD of any cracked software programme to its own sites would of itself without more ‘[affect] prejudicially the owner of [that] copyright’: Section 132(2)(b).”[¶ 107]

“This is not the basis upon which his Honour found that the prejudice requirement was made out, though it would be our preferred basis for concluding that the double criminality requirement had in this respect been satisfied.” [¶ 108]

Citation: Griffiths v. United States, 2005 WL 572006 (F.C.A.), [2005] F.C.A.F.C. 34 (March 10, 2005).

JUDGMENTS

In action to enforce British money judgments against U.S. parties, Tenth Circuit permits enforcement, rejecting challenges to the fundamental fairness of the English court system

Lloyd’s is the regulator of the London insurance market, authorized by an Act of Parliament. Individuals and company members of Lloyd’s are called “Names” and underwrite insurance. The Names have several (rather than joint) liability. A condition of membership is signing on to the General Undertaking Agreement, requiring submission of disputes to the English courts for resolution according to English law.

Judgments arising from underwriting obligations against six New Mexico individuals, and nine Utah individuals who had been Names in the London market between the late 1970s and the late 1980s were obtained by Lloyd’s. Eventually, Lloyd’s sought to enforce these judgments before the federal courts in New Mexico and Utah. Both district courts gave summary judgment to Lloyd’s. Of the New Mexico individuals, five settled with Lloyd’s. Of the Utah individuals, one settled.

Lloyd’s had solicited the New Mexico and Utah Names in the early 1980s, when it became aware of the liability problems arising from asbestos and toxic tort claims. The insurance reserves were inadequate to cover these claims. Lloyd’s did not timely disclose this problem to investors, however, and the Names filed suits across the U.S. See 2003 International Law Update 100. In 1995/96, Lloyd’s developed a reorganization plan, requiring all Names to become a party to a reinsurance contract through an appointed, substituted agent. The contract included a “pay now, sue later” clause.

The New Mexico and Utah Names neither signed that agreement, nor paid the assessment associated with that reinsurance. Lloyd’s then used its powers under the Lloyd’s Act of 1982 to appoint a Substitute Agent. This person signed the reinsurance agreement on behalf of the recalcitrant Names. Lloyd’s then sued those Names in the English courts.

Each Name got a summons through their solicitors of record, and appeared through the filing of an Acknowledgment. The New Mexico and Utah Names did not submit a notice of intention to defend. The English court ruled against all Names. Approximately 200 non-settling Names then brought a fraud case against Lloyd’s. The court required any Names with a fraud claim against Lloyd’s to join. The New Mexico and Utah names failed to join, leading the court to rule against all Names. Lloyd’s then launched cases in the U.S. to enforce the judgments.

On appeal, the remaining defendants raise a litany of challenges to the enforcement of the English judgments. These included arguments that the district court had erred in holding (1) that the English courts had provided due process to the Names, and (2) that the English cause of action did not violate the public policy of either New Mexico or Utah. The U.S. Court of Appeals for the Tenth Circuit, however, affirms.

New Mexico has adopted the Uniform Foreign Money-Judgment Recognition Act.(UFMJRA). Under this statute, a foreign judgment is not conclusive if it was rendered “under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law” and need not be recognized if “(1) the defendant ... in the foreign court did not receive notice ... in sufficient time to enable him to defend ... (3) the cause of action on which the judgment is based is repugnant to the public policy of this state ...”

As the Tenth Circuit explains: “The procedures the English courts afford need not be identical to ours, they must only be compatible in that they do not offend the notion of basic fairness. ... And when we look to the basic fairness of the system, the answer is clear: ‘Our courts have long recognized that the courts of England are fair and neutral forums.’ ...”

“... The Seventh Circuit similarly lauded the English system’s regard for due process in its highly persuasive opinion involving nearly identical claims: ‘Any suggestion that [the English] system of courts does not provide impartial tribunals or procedures compatible with the requirements of due process of law borders on the risible ...’ We agree with the Seventh Circuit’s reasoning and hold that given the structure of the English system, which is substantially similar to our own, the New Mexico Name’s suggestion that the English court system does not provide tribunals compatible with due process is untenable.” [Slip op. 23-25]

The Court also rejects the Name’s claim that enforcement of the English judgments would violate New Mexico’s public policy. The Name argued that Lloyd’s violated the New Mexico Securities Act through its solicitation of unregistered securities and by making fraudulent representations. Also, the New Mexico Unfair Practices Act allegedly prevents enforcement of the reinsurance contract.

“Even if we assume the shaky premises of these assertions to be true, ... we reject each of these claims for one overriding reasons: English law as applied here does not violate New Mexico’s public policy. ... [T]he view that every foreign forum’s remedies must duplicate those available under American law would render all forum selection clauses worthless ...”

“Furthermore, we reiterate that we must focus on the ‘cause of action’ and the ‘claim for relief’ underlying the English judgment, not the differences in the bodies of law, because slight differences between England’s and New Mexico’s laws do not trigger the public policy exception. N.M. STAT. Ann Section 39-4B-5(B)(3) ... Neither a breach of contract action nor a claim for money damages is repugnant to New Mexico public policy.” [Slip op. 26-27] Here, the English courts have considered and rejected each Name’s contentions that Lloyd’s took advantage of him. He cannot now seek to re-litigate these contentions.

On the other hand, Utah has not adopted the UFMJRA, which changes the analysis. The Utah Supreme Court has held that a foreign judgment can be enforced in Utah courts under principles of comity.

“According to the Utah Names, ... Utah’s comity requires an analysis of the fairness of the English judgment, not merely of the English judicial system. The judgment here was based upon the Utah Names’ signing the General Undertaking, which is a standardized contract between Lloyd’s and the individual Names. According to the Utah Names, their assent to the General Undertaking resulted in their unknowing waiver of future due process rights in the [reinsurance] contract.” [Slip op. 38-39]

Under Utah law, the courts test the validity of a foreign judgment by the law of the jurisdiction where the judgment was rendered. Thus, the Court must look to the entirety of the foreign judicial system, and not just the particular judgment at issue. Virtually all U.S. courts which have confronted the issue found the English system fair. Furthermore, the district court reviewed the underlying decisions of the English courts and rejected the challenges to the reinsurance agreement. In sum, the New Mexico and the Utah individuals received due process under the English system of jurisprudence and had ample opportunity to present their case.

Citation: Society of Lloyd’s v. Reinhart, 402 F.3d 982 (10th Cir. 2005).

POLITICAL QUESTION DOCTRINE

In case of claims by Holocaust Survivors against Vatican Bank for alleged support to Croatian puppet regime during World War II, Ninth Circuit finds property claims justiciable

Here, 24 individuals and four organizations (jointly the “Holocaust Survivors”) claim that the Vatican Bank (officially known as Instituto per le Opere di Religione), the Order of Friars Minor, and the Croatian Liberation Movement (Hvratski Oslobodilacki Pokret) profited from the genocidal acts of the Croatian Ustasha regime which was supported by Nazi forces during the Second World War. The ill-gotten profits allegedly passed through the Vatican Bank.

The Holocaust Survivors’ claims include conversion, unjust enrichment, as well as human rights violations. They base jurisdiction on the Alien Tort Claims Act (ATCA), 28 U.S.C. Section 1350, the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1605, 28 U.S.C. Section 1331, as well as federal common law to the extent it incorporates customary international law and treaties. The Vatican Bank and the Order of Friars Minor moved to dismiss. The district court held that the political question doctrine barred the Holocaust Survivors’ claims in their entirety. This appeal ensued.

The U.S. Court of Appeals for the Ninth Circuit affirms in part and reverses in part.

In its view, the political question doctrine applies to some of the plaintiffs’ claims and some are justiciable. The doctrine, however, does not bar the Holocaust Survivors’ claims as to lost and looted property while the alleged human rights violations related to the Vatican Bank’s alleged aid are nonjusticiable.

There may be cases that involve foreign relations and are nevertheless justiciable. “Our conclusion is rooted in the principles of Baker v. Carr. Despite the dissent’s cataclysmic and speculative projections about the sweep of our opinion, our decision boils down to letting the common law property claims proceed to the next stage and foreclosing the political, human rights and war-related claims. In doing so, we respect the limits of our jurisdiction as a national court, recognize the role of the Executive in foreign relations, and stick to our role of interpreting the law.” [Slip op. 7]

As for the property claims, the fact that they are “politically charged” does not make them “political questions.” According to the complaint, the property claims are ordinary claims for the recovery of property. For instance, “50 advanced industrial Singer sewing machines” taken from the family of one plaintiff, as well as “money and other belongings including gold” taken from the mother and grandmother of another plaintiff.

In essence, the property claims lead to the ultimate question of whether the Vatican Bank is wrongfully holding any of the looted assets. This is a simple determination that courts make, and does not implicate the political branches of the Government.

The Court then applies the Baker v. Carr formulations to this case:

“Beginning logically with the first Baker test, we divine no explicit constitutional reference that is applicable in this case ... Because the Property Claims do not raise questions ‘entrusted to one of the political branches or involving no judicially enforceable rights,’ ... we fulfill our duty to say what the law is.” [Slip op. 36-45]

As for judicially discoverable and manageable standards, the Court notes that “[t]he Holocaust Survivors’ most straightforward claims involve identifiable personal property for which federal statutes, common law, state law, and well-established case law provide a concrete legal basis for courts to reach a reasoned decision. See, e.g., 28 U.S.C. Section 1605(a)(3) (providing an expropriation exception to sovereign immunity in certain cases involving ‘rights in property taken in violation of international law’) ...” [Slip op. 48-49]

“Nor do we think that adjudicating the Property Claims will be impossible ‘without [making] an initial policy determination of a kind clearly for nonjudicial discretion.’ ... The Property Claims focus on the extent to which the Holocaust Survivors were wrongfully deprived of personal property and the value of such property that was transferred to the Vatican Bank. Adjudicating these discrete issues will not require the court to make pronouncements on foreign policy or otherwise trigger the third Baker test.” [Slip op. 55]

“The fourth Baker test requires us to consider whether it would be impossible for the courts to resolve the Property Claims without expressing a lack of respect for the political branches. ... As evidenced by the Vatican’s protest to the State Department, this case implicates foreign relations. Whether the court’s involvement would inevitably express a lack of respect for the Executive Branch’s handling of U.S.-Vatican relations, as well as relations with other foreign states, is a separate matter. ... We conclude that judicial handling of the Property Claims will not run afoul of this fourth test.” [Slip op. 55-56]

As for the fifth Baker formulation, “[w]e see no concern that judicial handling of the Property Claims will involve ‘an unusual need for unquestioning adherence to a political decision already made.’ ... Indeed, this case is before us not because the Holocaust Survivors disagree with a political decision made regarding their claims, but rather because there simply has been no decision. ... Because of the lack of a policy decision on point, we do not reach the question posed by the fifth Baker test whether there is an ‘unusual need for unquestioning adherence’ thereto.” [Slip op. 62-63]

“The only question remaining is whether adjudicating the Property Claims would ‘cause the potentiality of embarrassment from multifarious pronouncements by various departments on one question.’ ... On the contrary, this case is marked by the absence of ‘pronouncements’ by the political branches regarding the resolution of claims to the Ustasha treasury.”

“In the landscape before us, this lawsuit is the only game in town with respect to claimed looting and profiteering by the Vatican Bank. No ongoing government negotiations, agreements, or settlements are on the horizon. ... In sum, none of the Baker formulations is ‘inextricable’ from the Property Claims. ... The Holocaust Survivors have presented a justiciable controversy.” [Slip op. 63-65]

The Holocaust Survivors’ allegations that the defendants assisted the Ustasha regime present a nonjusticiable political question (“War Objectives Claims”). It is not the Court’s task “to step in a half-century later and condemn the Vatican Bank and related parties for ‘participating in the activities of the Ustasha Regime in furtherance of the commission of war crimes, crimes against humanity, [and] crimes against peace.’ We are not a war crimes tribunal. To act as such would require us to ‘intrude unduly on certain policy choices and value judgments that are constitutionally committed to [the political branches,]’ ...” [Slip op. 69] Neither are the slave labor claims justiciable.

Citation: Alperin v. Vatican Bank, Nos. 03-15208 & 03-16166, 2005 WL 878603 (9th Cir. 2005); The Jerusalem Post, April 20, 2005, page 6; Israel Faxx, April 20, 2005.

WORLD TRADE ORGANIZATION

WTO Panel generally sides with United States in U.S. - EU dispute over whether EU law on geographical indications of food products discriminates against U. S. trademarks

In 1999, the U.S. consulted with the EU government about EC Council Regulation No 2081/92 on the protection of geographical indications (GIs) and designations of origin for agricultural products and foodstuffs, as amended. GIs are protected geographic names particularly linked to a food product, such as “Roquefort cheese” or “Idaho potatoes.” The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) defines GIs as “indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation, or other characteristic of the good is essentially attributable to its geographic origin.”

The consultations failed to resolve the dispute, and, in August 2003, the U.S. asked to have a WTO Panel to review the matter. (Australia filed a separate complaint in this regard). On March 15, 2005, the World Trade Organization (WTO) Panel circulated its Report.

The Panel basically agrees with the U.S. that the EU Regulation was discriminating against U.S. producers and failing to protect U.S. trademarks. In the U.S., private rights of action pursuant to trademark laws protect GIs. In contrast, the enforcement of Regulation No. 2081/92 depends largely on government intervention. This makes it harder for U.S. companies to stop EU producers from using GIs (or confusingly similar designations) which are protected in the U.S.

The Panel passes on two major issues. First, it finds that the U.S. has made a prima facie and unrebutted case that the equivalence and reciprocity conditions in Article 12(1) of the Regulation extend to the availability of protection for third country GIs including WTO Members.

Second, the EU Regulation does not square with Article 3.1 of TRIPS in four respects: (a) the equivalence and reciprocity conditions, as applicable to the availability of protection for GIs; (b) the application procedures, insofar as they require examination and transmission of applications by governments; ( c) the objection procedures, insofar as they require verification and transmission of objections by governments; and (d) the requirements of government participation in the inspection structures under Article 10, and the provision of the declaration by governments under Article 12a(2)(b).

The Panel recommends that the EU bring its Regulation into compliance with TRIPS and GATT 1994. The Panel suggests that the EU could carry out the recommendations with respect to the equivalence and reciprocity conditions by amending the Regulation so that those conditions would not apply to the registration procedures for GIs located in other WTO Members. The EU represented to the Panel, however, that that is already the case.

Citation: European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs (WT/DS174/R) (15 March 2005). The Australian complaint is WT/DS290/R. The Report is available on WTO website “www.wto.org.” U.S. Trade Representative Press Release of March 15, 2005; Food Chemical News, Number 6, Volume 47, page 22, March 21, 2005; “EU/WTO: EU and US both claim victory in food names row,” European Report, March 16, 2005 (Number 2945).

Spanish court convicts former Argentine military officer. On April 19, 2005, a three-judge Spanish court handed down a 640-year sentence against Adolfo Scilingo, a 58 -year-old former naval officer, for committing crimes against humanity during the so-called “dirty war” in Argentina over twenty years ago. Specifically, the court convicted Scilingo for his role in hurling thirty naked and drugged prisoners into the ocean from an airplane. The sentenced mainly rested on twenty-one years for each victim plus five years each for torture and illegal detention. The ruling wound up Spain’s first trial under a domestic law giving Spanish courts jurisdiction to try charges of crimes against humanity regardless of where they took place. The law resembles similar international legislation applied by U.N. War Crimes Courts to analogous offenses committed in Yugoslavia and Rwanda. A human rights attorney representing relatives of the victims expressed his hope that the Scilingo conviction would energize Argentine officials to try other “dirty war” criminals. In 1990, then-President Menem pardoned nine junta leaders for their 1985 convictions for abduction, torture, and execution. The convictions of lower-ranking officers were also pardoned. In 2004, the Argentine Congress repealed the pardons but the validity of its action is reportedly before the Supreme Court. Citation: Associated Press (online via findlaw), Madrid, Tuesday, April 19, 2005 (byline of Mar Roman, AP Writer) filed 2005‑04‑20; T00:19:24Z; “Scilingo, a landmark judgement,” International Justice Tribune - English, April 25, 2005; Noticias Financieras (Latin America), April 22, 2005; The Guardian (London) - Final Edition, April 21, 2005, page 6.

Czech brewer claims victory over Anheuser-Busch. On April 20, 2005, the Associated Press reported a claim by Czech Republic brewery, Budejovicky Budvar, that it had won the latest battle in its century-long transnational war with Anheuser-Busch Ltd. Thanks to a Cambodian Supreme Court ruling in a case filed in 2000 and handed down in early April, the Czech brewery claims to have the right to sell beer in that country under its original brand names over the contentions of the U.S. firm’s Cambodian subsidiary. About forty similar lawsuits are pending worldwide. Budweis is the German name for Ceske Budejovice where beer has been made since 1265. Anheuser-Busch has been turning out “Budweiser” since 1876 whereas Budejovicky Budvar went into business in 1895. Since 2001, Budvar has been exporting lager to the United States under the name Czechvar. The trademark has been subject to disputes. See 2004 International Law Update 26 & 170. Citation: Associated Press (online via Findlaw), Prague, Czech Republic, Wednesday, April 20, 2005; filed 2005‑04‑20; T12:01:33Z; Datamonitor NewsWire, April 21, 2005, section MONEYSENSE, page 1; CTK Business News Wire, April 20, 2005.

Spanish high Court awards damages against bank for supplying plaintiff with bogus bank notes. On April 1, 2005, the Supreme Court of Spain ordered Banco Santander (SCH), a leading Spanish bank (defendant), to pay a plaintiff the equivalent of $440,000 in tort damages. U.S. authorities had detained the plaintiff for several hours in July 2004 because he was carrying $600 worth of phony banknotes he had gotten from one of defendant’s branches in Mexico. The damages were for the moral anguish he endured because of the fingerprinting and the detention. The Court found that giving plaintiff the false notes had breached his “sacrosanct right to personal liberty”. An employee at a bank in Cincinnati, Ohio, had noticed the counterfeit bills and called the police when the plaintiff had tried to open an account with them. In the court’s view, SCH was at fault for having failed to recognize the notes as fakes. In February, the Laredo branch had to pay another couple 156,000 euros in damages for supplying them with counterfeit dollar bills. Their case came to light after they tried to pass the notes in Russia. Citation: Agence France Presse English Wire (online), Madrid, Friday, April 1, 2005 at 17:55:00; The Financial Times, April 2, 2005, Section 34.

U.N. refers Darfur conflict to International Criminal Court. The United Nations Security Council (UNSC) has referred reports of the “heinous” crimes of murder and ethnic cleansing committed in Darfur to the International Criminal Court (ICC) for investigation and possible prosecution. A U.N. Commission had compiled a sealed list of fifty-one main suspects which reportedly includes the names of Sudanese officials, members of state-sponsored militias and Darfuri rebels. On April 5, 2005, the UNSC sent it to Luis Moreno-Ocampo, the ICC’s chief prosecutor. He intends to launch an immediate investigation into the two-year war which has killed hundreds of thousands and forced millions from their homes. This is the first case the Council has sent to the new court. The U.S., a nonmember, was one of four members who abstained, leaving eleven “yes” votes to carry the day. Since the Sudan is not one of the 98 members of the ICC, it has attacked the legality of the referral. It alleges that it has already arrested 15 unnamed suspects, apparently to indicate that it is able and willing to prosecute any offenses. If, however, the ICC finds that Sudan’s investigation is a sham aimed “to shield the suspect[s] from criminal responsibility”, it will likely dismiss the Sudanese objection and put its prosecutors to work. Citation: The Economist Newspaper, Saturday, April 9, 2005 at page 61, 2005 W.L.N.R. 5529743; International Enforcement Law Reporter, May 2005, Vol. 21, Number 5; The International Herald Tribune, April 30, 2005, page 2; The New York Times, April 29, 2005, Section A, page 12.

U.S. Trade Representative releases Special 301 report. On April 29, 2005, the U.S. Trade Representative released its annual “Special 301" report on the protection of intellectual property rights (IPRs) around the world. The Special 301 report is based on the 1974 Trade Act that requires the U.S. Trade Representative to annually identify countries that fail to provide effective protection for IPRs. Problem countries are listed as (1) Priority Foreign Countries, or on the (2) Priority Watch List, or on the (3) Watch List. For example, this year’s report leaves Russia on the Priority Watch List for its weak IPR enforcement and lack of data protection. As for China, it has been elevated to the Priority Watch List because of its alleged non-compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Citation: U.S. Trade Representative press release of April 29, 2005.