2006 International Law Update, Volume 12, Number 11 (November)

2006 International Law Update, Volume 12, Number 11 (November)

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

COMPETITION

In suit against General Motors of Canada, by auto chassis upgrader who sold its products in United States, Manitoba Court of Appeal found no violation of Canadian competition laws since Plaintiff’s receivership came about in large part due to strengthening of Canadian versus U.S. dollar

Conversions by Vantasy Ltd. and Vantasy Ltd. (Plaintiffs) were doing business for several decades as upgraders of incomplete van chassis. It consisted of outfitting them with installations such as custom painting, sound systems, special seating arrangements and upholstery, and wall and storage units.

Its operations were originally located in Selkirk, Manitoba from 1978 until the fall of 1987, when it moved to Winnipeg. Plaintiff Michael Hoffer wholly owned Vantasy Ltd. which in turn owned Conversions. He was the operating mind of both corporate Plaintiffs.

Plaintiffs obtained chassis on consignment from General Motors of Canada Ltd. (Defendant), a wholly-owned subsidiary of General Motors Corp. with its headquarters in Detroit. It made GM cars for sale in Canada and the U.S. Starting in 1983, U.S. sales became a significant part of Plaintiffs’ operations.

In 1986, Defendant put into effect a marketing incentive program under which it would not charge for an air conditioning option on certain van chassis. The contents of three agreements between Plaintiffs and Defendant were virtually the same. They made it clear that Defendant had no duty to supply chassis to Plaintiffs and that either party could call off the agreement at any time.

In 1987, Plaintiffs’ incentive was worth $950 per chassis. That policy, however, was not extended for chassis to be exported to the U.S. with U.S. specifications. It is this policy that forms the genesis of this lawsuit. Another key factor in making a profit by Plaintiffs was the exchange rate differential between a stronger U.S. dollar and a weaker Canadian dollar. If the Canadian dollar strengthened, as it did, this substantially reduced Plaintiffs’ profit margin.

After suffering business reverses, its bankers put Plaintiffs into receivership. It then sued Defendant in the Manitoba courts for damages based on alleged unlawful interference with Plaintiffs’ economic interests and negligent misrepresentation. According to its complaint, the no-charge air policy contravened the price discrimination provisions of the Canadian competition law.

The first instance court, however, dismissed the suit. Plaintiffs appealed on the basis that the trial judge had applied the wrong test in finding that Defendant was not liable.

The Manitoba Court of Appeal dismisses. The Court points out that unlawful interference with economic interests is a developing tort, thus accompanied by a number of uncertainties at its margins. It is generally accepted that there are four elements which a plaintiff has to prove: (1) that the defendant had an intention to injure the plaintiff; (2) that the plaintiff suffered economic loss or a related injury; (3) that the means employed by the defendant was unlawful. and (4) that the wrongful conduct caused actual damage to the plaintiff.

The key ingredient is that there must be an illegal act. Even under a generous definition of “illegal or unlawful act,” Plaintiffs have not shown that such an act existed or that the trial judge should have so found.

“The free air policy that [Defendant] initiated was not, in and of itself, an unlawful or illegal act nor was it a policy directed against the [Plaintiffs]. It was a policy established to enhance the marketability of its product and, I would expect, would be an added bonus to the appellants and other converters in enhancing their Canadian sales.”

“Furthermore, the actions of GM were entirely consistent with the provision of the consignment agreement that was in force and regulated the relationship of the [Plaintiffs] and [Defendant]. If one looks closely at the content of the most recent consignment agreement, one can readily conclude that it provides certain distinct advantages and benefits in favour of [Defendant] that one might describe as one-sided but that is neither here nor there as the [Plaintiffs] voluntarily entered into that agreement as well as prior ones. As the old chestnut states: ‘business is business.’”[¶¶ 32-33]

The Court then takes up the issue of negligent misrepresentation by a Mr. Cornhill and finds no merit in Plaintiffs’ claim of error. “The law requires that a misrepresentation must pertain to an existing fact and not a future promise. The Cornhill Statement was a future promise as to pricing and was not a representation of an existing fact.”

“One must consider the alleged misrepresentation in the context of what it was replying to and the starting point to that analysis is Hoffer’s letter of February 26, 1987, to Gerein. The letter in question does not in any of its six pages deal with the question of no charge air policy. The letter deals primarily, and in a very general way, with the question of importing product to the U.S. and to what the writer claimed to be ‘a rising tide’ of negativity on the part of General Motors with respect to exports to the United States of van conversions produced in Canada, on General Motors vans supplied under the ‘Consignment program.’”

“Again, a letter from Cornhill dated March 25, 1987, deals with the requirement of value added to conversions destined for the U.S., a policy with which the appellants agreed as evidenced by the transcript of another recorded telephone conversation between Hoffer and another GM employee, Dan McColl, dated March 10, 1987.”

“Based on the evidence, the concern that the [Plaintiffs] primarily wished addressed in the early part of 1987 was the guarantee that they could continue exporting their product to the U.S. That was confirmed by more than one GM employee. There is however no evidence of a telephone conversation, written undertaking or otherwise, that could lead the [Plaintiffs] to the understanding that [Defendant’s] free air policy would apply to U.S. exports. The evidence is in fact to the contrary.” [¶¶ 47-50].

“The concern that the [Plaintiffs] raised with the employees of [Defendant] through the early months of 1987 was that their U.S. sales not be curtailed or shut down in answer to the grey market problem. The assurances they received were that such a situation would not occur. It did not. The representations made to the [Plaintiffs] if they were made, were not untrue, inaccurate or misleading if considered reasonably in the context of the ongoing developments between the parties.” [¶ 52].

“There are many reasons why the [Plaintiffs] ran into financial difficulties and those reasons are set out in the judge’s decision [below]. Tortuous [sic] conduct on the part of the [Defendant] is not one of those reasons. The [Plaintiffs], as far as their U.S. market was concerned, were in a changing and fluid market over which they had little control. It eventually led to their financial predicament.”[¶ 55].

Citation: Conversions by Vantasy Ltd. v. General Motors of Canada Ltd., 2006 M.B.C.A. 69, [2006] 8 W.W.R. 413, 40 C.C.L.T. (3d) 28; 2006 CarswellMan 194.

DEFAMATION

Majority of House of Lords panel rules that Article 10 of European Human Rights Convention does not bar news corporation with commercial ties to English market from recovering in defamation action even in absence of alleging special damages

In this libel action, the Plaintiffs are Mohammed Jameel, a prominent Saudi Arabian businessman, and a trading company, Abdul Latif Jameel Co., Ltd., a Saudi Arabian trading corporation, of which Jameel was president and general manager. The Wall Street Journal Europe Sprl. (Defendant) published an article edited and printed in Belgium and distributed in Europe, the U.S. and the Middle East. [Editorial Note: In the U.S., the senior Wall Street Journal reportedly sold over 2 million copies in 2004.]

The article reported that, at the request of U.S. enforcement agencies, the Central Bank of Saudi Arabia (CBSA) was tracking certain bank accounts to preclude their use in directing funds to terrorist organisations. Moreover, the article named, as CBSA account holders, a number of individuals and companies, including that of the Plaintiffs’ trading group. Although the Plaintiff company neither owned property nor did business within the U. K., it had established a commercial reputation there. In its complaint, the Plaintiffs did not plead special damages, relying instead on the English common law presumption of damage.

In interlocutory proceedings, the first instance judge saw no merit in the Defendant’s claim that Article 10 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, as implemented by the U. K. Human Rights Act of 1998, Sch. 1, Pt I, had supplanted the common law rule. The Defendant also cited the defense of a qualified privilege that protects responsible journalism when it writes about matters of public concern. The judge, however, rejected the defense, inter alia, because the Defendant had neglected to obtain the Plaintiffs’ position on the inclusion of its name before publication. The jury found that Plaintiffs had proved the libel and awarded modest damages. The Court of Appeal (Civil Division) dismissed the Defendant’s appeal.

On Defendant’s appeal to the House of Lords, that body allows the appeal by a vote of 3 to 2. The majority rules that, under existing U. K. law, a trading company linked to the U. K. like Defendant (as noted above) could recover general damages for libel without pleading or proving special damage if the libelous article had a tendency to damage it in its line of business. Although the Convention regime attaches a fundamental importance to the freedom to speak and publish free from unjustifiable restraint, the rights under Article 10(1) are not absolute.

Thus, Convention Article 10(2) provides that: “The exercise of these [speech, press etc.] freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.”

The Article 10 precedents of the European Court of Human Rights (ECHR) at Strasbourg have generally accorded a wide “margin of appreciation” to national authorities. In any event, the majority notes, they have not looked upon the current U. K. rule as necessarily inconsistent with Article 10 and have not called for revision of existing U. K. law.

The Defendant newspaper in this case relied on Article 10(1) to contend that a domestic rule entitling a trading corporation to sue in libel when it can prove no financial loss is an unreasonable restraint on the right to publish protected by Article 10. A majority of the Lords of Appeal disagree.

“The tort of defamation exists to afford redress for unjustified injury to reputation. By a successful action the injured reputation is vindicated. The ordinary means of vindication is by the verdict of a judge or jury and an award of damages. Most plaintiffs are individuals, who are not required to prove that they have suffered financial loss or even that any particular person has thought the worse of them as a result of the publication complained of. I do not understand this rule to be criticised. Thus the question arises whether a corporation with a commercial reputation within the jurisdiction should be subject to a different rule.”

“There are of course many defamatory things which can be said about individuals (for example, about their sexual proclivities) which could not be said about corporations. But it is not at all hard to think of statements seriously injurious to the general commercial reputation of trading and charitable corporations: that an arms company has routinely bribed officials of foreign governments to secure contracts; that an oil company has wilfully and unnecessarily damaged the environment; that an international humanitarian agency has wrongfully succumbed to government pressure; that a retailer has knowingly exploited child labour; and so on. The leading figures in such corporations may be understood to be personally implicated, but not, in my opinion, necessarily so. Should the corporation be entitled to sue in its own right only if it can prove financial loss? I do not think so, for two main reasons.”

“First, the good name of a company, as that of an individual, is a thing of value. A damaging libel may lower its standing in the eyes of the public and even its own staff, make people less ready to deal with it, less willing or less proud to work for it. If this were not so, corporations would not go to the lengths they do to protect and burnish their corporate images. I find nothing repugnant in the notion that this is a value which the law should protect.”

“Nor do I think it an adequate answer that the corporation can itself seek to answer the defamatory statement by press release or public statement, since protestations of innocence by the impugned party necessarily carry less weight with the public than the prompt issue of proceedings which culminate in a favourable verdict by judge or jury.”

“Secondly, I do not accept that a publication, if truly damaging to a corporation’s commercial reputation, will result in provable financial loss, since the more prompt and public a company’s issue of proceedings, and the more diligent its pursuit of a claim, the less the chance that financial loss will actually accrue.” [¶¶ 24-26].

The majority also allows the appeal on the question of privilege “The decision of the House in Reynolds v Times Newspapers Ltd., 2 A.C. 127 [2001] built on the traditional foundations of qualified privilege but carried the law forward in a way which gave much greater weight than the earlier law had done to the value of informed public debate of significant public issues.”

“Underlying the development of qualified privilege was the requirement of a reciprocal duty and interest between the publisher and the recipient of the statement in question that, where the court considered that the public interest criterion was met, the publisher was required to satisfy the test of responsible journalism by showing that reasonable steps had been taken to verify the publication.” [¶¶ 28-29].

“Qualified privilege as a live issue only arises where a statement is defamatory and untrue. It was in this context, and assuming the matter to be one of public interest, that Lord Nicholls proposed, ... a test of responsible journalism, ... The rationale of this test is, ... that there is no duty to publish and the public have no interest to read material which the publisher has not taken reasonable steps to verify.”

“As Lord Hobhouse observed with characteristic pungency, ‘No public interest is served by publishing or communicating misinformation.’ But the publisher is protected if he has taken such steps as a responsible journalist would take to try and ensure that what is published is accurate and fit for publication.” [¶ 32].

The majority then applies these principles to the present case. “The Court of Appeal upheld the judge’s denial of Reynolds privilege on a single ground, discounting the jury’s negative findings concerning [the reporter’s] sources: that the newspaper had failed to delay publication of the respondents’ names without waiting long enough for the respondents to comment.”

“This seems to me, with respect, to be a very narrow ground on which to deny the privilege, and the ruling subverts the liberalising intention of the Reynolds decision. The subject matter was of great public interest, in the strictest sense. The article was written by an experienced specialist reporter and approved by senior staff on the newspaper and [the] ‘Wall Street Journal’ who themselves sought to verify its contents. The article was unsensational in tone and (apparently) factual in content.”

“The respondents’ response was sought, although at a late stage, and the newspaper’s inability to obtain a comment recorded. It is very unlikely that a comment, if obtained, would have been revealing, since, even if the [Plaintiffs’] accounts were being monitored it was unlikely that they would know. It might be thought that this was the sort of neutral, investigative journalism which [the] Reynolds privilege exists to protect. I would accordingly allow the appeal and set aside the Court of Appeal judgment.” [¶ 35].

Citation: Jameel v. Wall Street Journal Europe Sprl., [2006] 3 W.L.R. 642, 2006 WL 2794164 (HL), [2006] U.K.H.L. 44 (House of Lords, October 11).

FOREIGN LAW, PROOF OF

In case of first impression, Tenth Circuit rules that choice-of-Swiss-law clause in interpreting international contract requires remand for lower court to determine that law under guidelines of Civil Rule 44.1

Orhan Yavuz, a Turkish citizen (Plaintiff), has engaged in various international business transactions with Adi Kamel Mohamed, a.k.a. Kamal Adi, a dual Syrian and Swiss citizen (Defendant), since the early 1980s. Frustrated with the treatment that he received in connection with an investment in certain real property in Tulsa, Oklahoma (the Tulsa Property), Plaintiff sued Defendant and others in an Oklahoma state court in June 2002, seeking relief under the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Section 1964(c), and a variety of other causes of action based on alleged misrepresentations and breaches of contract.

A limited partnership, 61 MM, Ltd., whose general partner is 61 MM Corp., an Oklahoma corporation, holds the title to the Tulsa Property. The partnership and the corporation are both parties to this dispute (the 61MM Defendants). The remaining party is FPM S.A. d/b/a Finastate Projects Management S.A. (FPM), a Swiss corporation whose principal place of business is Fribourg, Switzerland.

Plaintiff alleged that he had first transferred “gold, silver and foreign currencies” to Defendant Adi and Euroeast in “the early 1980’s” for “various investment purposes,” including an interest in the Tulsa Property. According to the parties’ investment agreement, Plaintiff was to have a 20% ownership share in the Tulsa Property.

At some unspecified point in the 1980s, Plaintiff found out that the defendants “had misappropriated much of the gold and silver” that he had lodged with them. He confronted Defendant Adi in 1989 about the missing commodities. Adi offered to settle the dispute by compensating Plaintiff in the form of a loan in addition to the 20% interest in the Tulsa Property. The loan amounted to about $735,000, the value of the gold and silver that Adi had “misappropriated,” plus accumulated interest.

The Fiduciary Agreement of December 31, 1989 between Plaintiff and FPM (which Adi controlled and directed) memorialized the new arrangement. Article 10 contains the following choice-of-law and forum-selection provisions: “This convention is governed by the Swiss law, in particular article 394 and following of the Swiss Code of Obligation. Place of courts is Fribourg.”

There followed several years of receiving “sporadic and sketchy” information about the Tulsa property. According to Plaintiff, communications between Plaintiff and the defendants about the property continued. These culminated in a letter dated November 27, 2000, from FPM to Plaintiff. This letter allegedly “contained false and misleading accounting data” that Adi and FPM had put together in cooperation with the 61 MM Corp. For one thing, it demanded that Plaintiff transfer $874,703 to a bank in Fribourg, Switzerland, in order to vest his interest in the Tulsa Property.

During this period, Plaintiff alleged that the Defendants defrauded and misled him by “structuring” the finances of 61 MM Corp. (by “creating layers of affiliate corporations and entities,”) so that his 20% equity interest in 61 MM Corp. and his $735,000 loan “are essentially worthless.” Finally, the Defendants have allegedly been selling portions of the Tulsa Property since 1997, receiving over $800,000 from sales without sharing any profits with him.

The 61 MM Defendants filed their answer to the Second Amended Petition on August 18, 2003, and asserted a counterclaim against Plaintiff for alleged abuse of process. Ten days later, they removed the case to federal district court.

The district court later dismissed the suit for improper venue based on the above forum-selection clause in the Fiduciary Agreement between Plaintiff and Finastate S.A. (FSM is the successor in interest to Finastate SA, and Court refers to the latter as FSM in its opinion.) On appeal, Plaintiff argued, inter alia, that the district court had erred in failing to apply Swiss law in construing the Fiduciary Agreement.

In a September 20, 2006 opinion, the U.S. Court of Appeals for the Tenth Circuit reverses and remands for further proceedings (1) as to the meaning under Swiss law of the forum selection clause as interpreted under the law chosen by the parties and (2) as to whether dismissal may be appropriate under the doctrine of forum non conveniens.

The district court interpreted the forum-selection provision to require that Plaintiff bring all the claims in his complaint in a Swiss court. In reaching this result, the court had to resolve several subsidiary questions: (1) Is the forum-selection provision mandatory or permissive? That is, does it require that the claims be brought in a Swiss court, or does it simply permit the claims to be brought there? (2) Are all of Plaintiff’s claims governed by the provision, or only some? For example, perhaps the contract claims are so governed but the provision does not govern the tort or RICO claims? (3) Does the clause bind Plaintiff with respect to claims against all the defendants, or only with respect to his claims against FPM, or perhaps only those against FPM and Mr. Adi?

To answer those questions, a court would have to first resolve a preliminary question: What law does it apply to answer them? This choice-of-law issue is one of first impression for this court, and, with the exception of a very recent decision by a district court in our circuit, TH Agriculture & Nutrition, L.L.C. v. Ace European Group Ltd., 416 F.Supp.2d 1054 (D. Kan. 2006), and one recent law-review article, it has received virtually no attention from the federal courts, or even from scholars, in the context of international contracts.

“A forum-selection clause is part of the contract. We see no particular reason, at least in the international context, why a forum-selection clause, among the multitude of provisions in a contract, should be singled out as a provision not to be interpreted in accordance with the law chosen by the contracting parties. See Restatement on Conflicts of Law Section 204(a) (meaning of ambiguous contractual terms should be determined ‘in accordance with the local law of the state chosen by the parties’).

“To be sure, the [leading] Supreme Court opinions [Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 537-38 (2000); Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974), M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)] did not address the choice-of-law issue presented here. In those cases there was no question regarding the meaning of the contractual forum-selection provision at issue, only its enforceability.”

“But the same reasoning applies: If the parties to an international contract agree on a forum-selection clause that has a particular meaning under the law of a specific jurisdiction, and the parties agree that the contract is to be interpreted under the law of that jurisdiction, then respect for the parties’ autonomy and the demands of predictability in international transactions require courts to give effect to the meaning of the forum-selection clause under the chosen law, at least absent special circumstances (such as, perhaps, the chosen jurisdiction’s refusal to hear a case that has no ties to the jurisdiction).”

“In other words, just as the Supreme Court has made clear that, under federal law, the courts should ordinarily honor an international commercial agreement’s forum-selection provision, we now hold that under federal law the courts should ordinarily honor an international commercial agreement’s forum-selection provision as construed under the law specified in the agreement’s choice-of-law provision.” [430]

“The practice, although apparently merely reflexive, of applying the law of the jurisdiction in which the suit is pending (lex fori) is unsatisfactory. As one author has expressed the point: ‘Lex fori is, in most circumstances and for a number of reasons, a poor choice of law to govern an international [forum-selection clause]: it risks subjecting the contract to multiple laws, it makes it difficult for parties to anticipate at the contract drafting stage which law will actually be applied to [the forum-selection clause], it may promote forum shopping, and it ignores the parties’ bargained-for jurisdictional expectations by overlooking a contract’s explicit or implicit choice of law.’ [Jacob Webb Yackee, Choice of Law Considerations in the Validity & Enforcement of International Forum Selection Agreements: Whose Law Applies?, 9 UCLA J. Int’l L. & Foreign Aff. 43, 83 (2004)].”

Turning to the Fiduciary Agreement, the Tenth Circuit notes that the choice-of-forum clause states: “Place of courts is Fribourg.” “Under American law this language appears rather ambiguous. We would be inclined to hold that the clause is permissive rather than mandatory, see K & V Scientific Co. v. Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494 (10th Cir.2002), and it is hardly obvious what claims against what parties are governed by the clause. We might reach the same conclusions under Swiss law, but perhaps not. See Yackee, supra, at 61 (noting that European Union law presumes forum-selection clauses are exclusive). The parties have not addressed the issue.”

“What is not ambiguous is that the parties agreed that Swiss law governs the Fiduciary Agreement. Accordingly, we hold that the choice-of-forum provision in that contract must be construed under Swiss law. We recognize that we have some discretion to decide to determine ourselves what Swiss law provides. See Fed. R. Civ. P. 44.1; Swiss Credit Bank v. Balink, 614 F.2d 1269, 1272 (10th Cir. 1980) (applying Swiss law on appeal).”

“But the better practice is to remand to district court to permit the parties to present the applicable law and perhaps to develop further any facts that may be relevant under that law. See S.E.C. v. Dunlap, 253 F.3d 768, 777 (4th Cir. 2001) (remanding to district court with instructions to determine ‘what Costa Rican law actually provides, and its significance, if any, in this matter’); Banque Paribas v. Hamilton Indus. Int’l, Inc., 767 F.2d 380, 386 (7th Cir. 1985) (remanding with instructions to ‘determine, in accordance with Rule 44.1 of the Federal Rules of Civil Procedure, whether there was any violation of the guarantee, when that guarantee is interpreted in accordance with Saudi Arabian law’).” [431].

The Court finally points out that a determination that venue is inappropriate under the forum non conveniens doctrine, which is another key issue in this case, may moot the foreign law issue. The Court also notes that similar litigation is already pending between the same parties in the Swiss court at Fribourg.

Citation: Yavuz v. 61 MM, Ltd., 465 F.3d 418 (10th Cir. 2006).

INTERNATIONAL TRADE

When presented with appeal from U.S. Court of International Trade which had ruled that improper customs’ procedure had been followed in reclassification of Plaintiff’s product, Federal Circuit dismisses for lower court’s lack of jurisdiction

International Custom Products, Inc. (Plaintiff) imports and distributes products sold to makers of processed food. In April 1999, Plaintiff began importing “white sauce,” a milkfat-based product used in sauces, salad dressings, and other food products. Plaintiff had gotten an advance ruling from the U.S. Bureau of Customs and Border Protection (Customs) on the classification of the sauce; it issued on January 20, 1999, as New York letter ruling D86228.

The ruling categorized the product under subheading 2103.90.9060 of the Harmonized Tariff Schedule of the United States (HTSUS), which has since been renumbered as subheading 2103.90.9091. Relying on the ruling, Plaintiff formed a three-year purchase contract with its foreign supplier and a three-year supply agreement with its largest U.S. customer. Plaintiff also relied on the advance ruling by preparing to set up a manufacturing business. This consisted of buying a plant site and carrying on product research and development.

In March 2004, Customs told Plaintiff that it was starting a tariff rate investigation. Based on it, and without providing notice and comment, Customs issued a Notice of Action (NOA) dated April 18, 2005. In it, Customs declared that it would classify 86 unliquidated entries of white sauce under subheading 0405.20.3000, substantially boosting the tariff. On May 6, 2005, 60 of the 86 subject entries were liquidated.

Plaintiff then sued the U.S. (Defendant) in the Court of International Trade (CIT). The suit alleged that Customs’ actions violated 19 U.S.C. Section 1925(c)(1) or (2) by effectively revoking the advance letter ruling without following proper procedures. The trial court held that it had jurisdiction under 28 U.S.C. Section 1581(I)(4) and ruled the NOA null and void for noncompliance with 19 U.S.C. Section 1925(c)(1).

The CIT also ordered Customs to reliquidate the entries, and ordered that the advance ruling remain in full force until properly modified or revoked by Customs. The Defendant appealed. The U.S. Court of Appeals for the Federal Circuit held, however, that the CIT lacked subject matter jurisdiction. In an October 17 ruling, it reverses the CIT’s jurisdictional holding, vacates its judgment on the merits, and remands for dismissal of the complaint.

“It is a ‘well-established principle that federal courts ... are courts of limited jurisdiction marked out by Congress.’” Norcal/Cosetti Foods, Inc. v. United States, 963 F.2d 356, 358 (Fed. Cir.1992). ... In subsection 1581(a), Congress set an express scheme for administrative and judicial review of Customs’ actions. The system provides for a protest before Customs, and review of protest denials in the [CIT]. Here, [Plaintiff] did not file a protest and avail itself of jurisdiction under subsection (a).”

“[Plaintiff] contends,...that jurisdiction nevertheless existed under section 1581(I)(4). Although we have described subsection 1581(I)(4) as a ‘broad residual jurisdictional provision,’ [cite], and even a ‘catch-all provision,’[cite], the unambiguous precedents of this court make clear that its scope is strictly limited, and that the protest procedure cannot be easily circumvented, see, e.g., Am. Air Parcel Forwarding Co. v. United States, 718 F.2d 1546, 1549 (Fed. Cir. 1983) (‘[W]here a litigant has access to [the Court of International Trade] under traditional means, such as 28 U.S.C. 1581(a), it must avail itself of this avenue of approach by complying with all the relevant prerequisites thereto. It cannot circumvent the prerequisites of 1581(a) by invoking jurisdiction under 1581(I) ....’ [Cites].”

“Indeed, we have repeatedly held that subsection (I)(4) ‘may not be invoked when jurisdiction under another subsection of Section 1581 is, or could have been, available, unless the remedy provided under that other subsection would be manifestly inadequate.’ [Cite]. Here, the [Plaintiff] does not contend that subsection (a) was unavailable, but that it was manifestly inadequate. We conclude that the remedy provided by subsection 1581(a) is not manifestly inadequate, and that, therefore, the [CIT] lacked jurisdiction under subsection 1581(I)(4).”

“First, [Plaintiff] alleges many forms of financial hardship that would result from proceeding under subsection 1581(a), including an imminent threat of bankruptcy. In [the] American Air Parcel [case], the importer made similar allegations. 718 F.2d at 1549. We rejected the argument there, and it is equally insufficient here, to confer residual jurisdiction.”

“Equally unavailing is [Plaintiff’s ] contention that the lack of prospective relief under subsection (a) renders it manifestly inadequate. [Cite]. To find the relief under subsection (a) inadequate on this ground, we would have to assume that Customs would disregard a court ruling on the current imports when classifying identical imports in the future. We decline to indulge such an assumption.” [Slip op. 2].

“[Plaintiff] further contends that the delays inherent in proceeding under subsection 1581(a) would render any available relief manifestly inadequate due to its financial distress. However, delays inherent in the statutory process do not render it manifestly inadequate. [Cite]. Moreover, Congress has provided for an accelerated protest disposition process, 19 U.S.C. Section 1515(b), and this accelerated process was available to [Plaintiff] for some of its entries.”

“Finally, [Plaintiff] contends that a protest would be futile. In Pac Fung Feather Co. v. United States, 111 F.3d 114, 116 (Fed. Cir. 1997), we held that residual jurisdiction was available because the ‘preordained ruling’ available to the importers was a mere formality in light of Customs’ regulations, which ‘unmistakably’ indicated how it would determine the issue in dispute.”

“Here, there are no such regulations in place that would make the protest process futile, and despite the revocation of the advance letter having involved higher level Customs officials, Congress’ express scheme cannot be bypassed.”

“The [CIT] itself has previously warned parties against making such assumptions of futility: ‘Plaintiff cannot take it upon itself to determine whether it would be futile to protest or not. In order to protect itself, a protest should have been filed and an accelerated review should have been requested.’ Inner Secrets/Secretly Yours v. United States, 869 F. Supp. 959, 966 (Ct. Int’l Trade 1994). We reiterate that warning.”

“Because the [CIT] lacked jurisdiction over the case, we have no jurisdiction to reach ICP’s argument concerning Customs’ purported statutory violations. Glasstech, Inc. v. Ab Kyro Oy, 769 F.2d 1574, 1577 (Fed. Cir. 1985) (‘[A]n appellate court has no jurisdiction to decide the merits of the case if the court from which the appeal was taken was without jurisdiction.’). Therefore, we vacate the trial court’s decision on the merits.”

Citation: International Custom Products, Inc. v. United States, 2006 WL 2949151 (Fed. Cir. 2006).

JURISDICTION (DIVERSITY)

In deciding diversity of citizenship issues, Seventh Circuit rules that permanent resident aliens domiciled in U.S. state have both state and foreign citizenship for purposes of 28 U.S.C. Section 1332

Intec USA, LLC of North Carolina (Plaintiff) and its founder Raph Engle (a New Zealand citizen) (Defendant) settled a dispute through arbitration in 2003. In 1997, Engle had sold a majority interest in Plaintiff. The new owners then claimed that Engle’s other business endeavors violated their non-competition agreement.

There were also indications that Engle was not complying with the 2003 arbitration result. It provided, inter alia, that North Carolina law would apply but did not address the issue of consent to litigate there. Plaintiff first brought an action in North Carolina against Defendant and several entities controlled by him.

Of the seven defendant entities, three are based in New Zealand, two in Australia, one in Brazil and one in the United Kingdom. These entities do not do business in North Carolina and argued that its courts, therefore, lack personal jurisdiction over them.

Plaintiff then filed a new action in an Illinois federal court, serving Defendant’s son and the corporate entities at an Illinois trade show dealing with the food-processing industry. The district court dismissed based on forum non conveniens because the action had no relation with Illinois. Intec appealed. The U.S. Court of Appeals for the Seventh Circuit remands with directions to dismiss the case.

On appeal, Plaintiff urged that the courts should ordinarily respect a plaintiff’s choice of forum. On these facts, the Seventh Circuit disagrees. “We doubt that this proposition has controlling force in litigation among firms all of which trade worldwide. ... [Plaintiff] has an affiliate (Intec Pacific) in Oceania, and the materials-handling business is international; it is not as if a person with no dealings outside the Great Plains were being dragged halfway around the world to litigate.”

Plaintiff also contended that American courts should be the ones to enforce its rights: (1) to protect the rights of a domestic firm, and (2) because its claims rested on U.S. law. “Why courts should favor their citizens in court - and why the first litigant to reach a courthouse should receive this benefit (if it is one) - are mysteries. International business transactions depend on evenhanded application of legal rules; home-town favoritism is the enemy of commerce.”

“As a nation whose policy favors free international trade, the United States does not doubt the competence or honesty of the foreign judicial system. ... [Plaintiff] does not offer any reason to think that New Zealand would be a biased forum for this litigation. North Carolina law is ‘foreign’ even to a federal court in Chicago (or for that matter North Carolina).”

“Under Erie R.R. v. Tompkins, 304 U.S. 64 (1938), the federal court’s task is not to make an independent decision but to predict how the Supreme Court of North Carolina would understand and apply its own law. New Zealand would try to do the same. Just as federal courts routinely enforce the laws and judicial decisions of other jurisdictions, so do the courts of other nations. ... [Plaintiff] has not cited any decision implying that New Zealand is unwilling to enforce choice-of-law clauses that specify other jurisdictions’ norms or that it is hostile to any of the substantive rules of North Carolina’s law. ... ” [Slip op. 2]

The Court ultimately fails to reach the question of how much weight it should give to the Plaintiff’s choice of forum. The reason is that it finds diversity jurisdiction absent. Plaintiff is a limited liability company which, therefore, has the citizenship of each of its members. It has five members who are all North Carolina citizens. One of them, however, is also a national of New Zealand. Arguably, this makes Plaintiff a citizen of both North Carolina and New Zealand. That would defeat diversity jurisdiction because there would be New Zealand citizens on both sides of the case.

Plaintiff cites 28 U.S. C. Section 1332(a), which provides that an alien who is a permanent resident of the U.S. shall be deemed a citizen of the state where he or she is domiciled. That language still leaves open two jurisdictional possibilities: (1) that such a person is a citizen only of his domiciliary U. S state or (2) that he is a citizen of both his local domicile and the foreign state.

When the meaning of this sentence in Section 1332(a) came before it, the D. C. Circuit held that it could take into account the law’s genesis. “Because it unambiguously shows that the text’s function is to add a (deemed) domestic citizenship to an alien who otherwise would come within the jurisdiction under Section 1332(a)(2) or Section 1332(a)(3), the Court ... held that the alien retains his national citizenship for purposes of Section 1332(a). See Saadeh v. Farouki, 107 F.3d 52 (D. C. Cir. 1997).”

In a later case, however, “we cited Saadeh and remarked [that] this language gives every permanent-resident alien two citizenships. Karazanos v. Madison Two Associates, 147 F.3d 624, 627 (7th Cir. 1998). ... [Plaintiff] observes that the question had not been briefed in Karazanos and it asks us to revisit the subject ... Fair enough. We have reconsidered – and, for reasons that by now should be apparent, we conclude that ... Karazanos [is] right.” [...]

“ ... [H]aving selected the best reading of the text (that permanent-resident aliens have both state and foreign citizenship) a court should be willing to follow through logically. The belief behind the drafting choices made in 1988 was that dual citizenship usually would move cases to state court (as does dual corporate citizenship), but like other language it may have unanticipated effects at the fringes. ... Congress passed, and the President signed, concrete language, not the Judicial Conference’s raw intent or expectations. ...” [Slip op. 5] This action cannot proceed in federal court.

Citation: Intec USA, LLC v. Engle, No 06-1117 (7th Cir. November 2, 2006).

JURISDICTION (HIGH SEAS)

In case of drug seizure on high seas by U.S. authorities, Ninth Circuit finds that Maritime Drug Law Enforcement Act validly assigned determination of constitutional nexus to judge rather than jury

In March 2001, the Navy frigate, U.S.S. Rodney M. Davis, intercepted the fishing vessel Svesda Maru, registered in the State of Belize, sailing in international waters off the coast of southern Mexico. Something appeared fishy on board the vessel. There were only 12 fish of the size that would ordinarily be caught by fishermen, and the bait was frozen solid.

The Davis’s crew searched the fishing vessel for four days. On the fifth day, a U.S. Coast Guard crew also examined the ship and found more than 9200 kilograms [about 20 tons] of cocaine hidden behind a fuel tank. This was one of the largest drug seizures in U.S. maritime history.

The Coast Guard seized the vessel based on a bilateral treaty with Belize and on the express permission of the Belize Government. The Guard took the vessel’s crew to San Diego. Anatoli Zakharov (Defendant), one of the crew members, eventually admitted that he knew of the cocaine and that he was to be paid $20,000 for the trip.

A federal grand jury indicted Defendant for conspiring to possess large amounts of cocaine and for possessing the drug with intent to distribute. After a trial, he was convicted. Defendant appealed his conviction. The U.S. Court of Appeals for the Ninth Circuit affirms the judgment but remands for resentencing.

In his appeal, Defendant challenged the Maritime Drug Law Enforcement Act (MDLEA) (46 U.S.C. app. Sections 1901-1904) as unconstitutional. His main point was that Congress had improperly removed the jurisdiction issue from those enumerated elements of the maritime drug-smuggling offense that a jury would have to decide beyond a reasonable doubt.

Section 1903(a) of the MDLEA bans drug smuggling by “any person on board a vessel of the United States, or on board a vessel subject to the jurisdiction of the United States, or who is a citizen of the United States or a resident alien of the United States on board any vessel.” Moreover, Section 1903(f) provides that “[j]urisdiction of the United States with respect to vessels subject to this chapter is not an element of any offense. All jurisdictional issues arising under this chapter are preliminary questions of law to be determined solely by the trial judge.”

Defendant contended (1) that the district court erred in failing to submit facts necessary to establish jurisdiction to the jury, and (2) that the Government failed to put on enough evidence to establish a nexus between the U.S. and the seized cocaine.

In the Ninth Circuit’s view, the MDLEA is constitutional as applied to Defendant. First, he failed to challenge the underlying statutory jurisdiction below. Second, the statute validly assigned the determination of the nexus jurisdiction to the court, rather than to the jury.

“[T]here is no factual question pertaining to statutory jurisdiction for the jury to decide. There is no dispute for purposes of Section 1903 that the district court possessed statutory jurisdiction in the instant action: the Svesda Maru was a Belizean-flagged vessel registered in Belize, and the Coast Guard received consent to enforce United States law aboard her both expressly from the Belizean government and pursuant to our bilateral treaty with Belize, 46 U.S.C. app. Section 1903(c)(1)(C) (extending statutory jurisdiction to ‘a vessel registered in a foreign nation where the flag nation has consented or waived objection to the enforcement of United States law by the United States’).”

“Unlike statutory jurisdiction, the constitutional nexus requirement is not an express element of the crime but is ‘a judicial gloss applied to ensure that a defendant is not improperly haled before a court for trial.’ [United States v. Klimavicius-Viloria, 144 F.3d 1249, 1257 (9th Cir. 1998)]. To accord with due process, we require a sufficient nexus between the United States and the defendant’s activities before exerting jurisdiction over foreign vessels.”

“... Nexus is a constitutional requirement analogous to ‘minimum contacts’ in personal jurisdiction analysis. ... Nexus has been treated as a non-element of an offense ...; Klimavicius-Viloria, supra at 1257 (‘Nexus is part of the jurisdictional inquiry, but it is an inquiry for the court, not the jury.’).”

“In this context, MDLEA Section 1903(f) merely codified this court’s longstanding rule that the constitutional nexus inquiry is a matter for the court’s determination. ... Accordingly, we reject [Defendant’s] contention that the constitutional nexus inquiry must be submitted to a jury.” [Slip op. 3-4]

Furthermore, the evidence here is enough to support the required nexus between the U.S. and Defendant’s drug smuggling. Except for stateless ships, due process requires a district court to find such a nexus even when the flag nation has consented to the application of U.S. laws. (The Court incidentally notes that the First and Fifth Circuits do not require a finding of nexus for foreign vessels when the flag national has consented to the application of U.S. laws to their passengers or crew.)

Here, the district court found by a preponderance of the evidence that the cocaine shipment was likely to have effects in the U.S. for three reasons. First, authorities had previously seen four of the twelve markings on the cocaine bundles seized in the U.S. Second, the vessel’s location and navigational charts indicated that it was heading toward the U.S. Finally, the circumstances made it unlikely that either Russia or Europe were the intended destinations.

Citation: United States v. Zakharov, No. 03-50214 (9th Cir. November 15, 2006).

SOVEREIGN IMMUNITY

Eleventh Circuit holds that foreign state’s offer of reward for providing information to catch fugitive is “commercial activity” within FSIA exception

In the 1990s, Vladimiro Lenin Montesinos Torres served as an advisor to Peruvian President Alberto Fujimori and as head of Peru’s National Intelligence System. He is currently embroiled in a series of corruption scandals. Montesinos has been accused of arms trafficking, drug dealing, money laundering, extortion, as well as several murders. A report of the United States Southern Command of January 6, 1997, compared him to “Rasputin, Darth Vadar, Torquemada and Cardinal Richelieu.”

The accusations mounted in September 2000, when Peruvian television aired a video showing Montesinos bribing a congressman-elect. In fact, it appears that Montesinos did more than collect video tapes of crimes. Montesinos fled Peru in October 2000, underwent plastic surgery in Venezuela, and disappeared. To find him, the Peruvian Government issued Emergency Decree No. 049-2001, providing for a $5 million reward for information leading to his capture.

Jose Guevara (Plaintiff) provided shelter and body guards to Montesinos in Venezuela. Months later, U.S. authorities arrested Plaintiff in Miami. For Plaintiff, the choice was go to jail or to disclose Montesinos’ whereabouts and collect the reward. But when Plaintiff provided the information that let to Montesinos’ capture in Venezuela, Peru failed to pay Plaintiff the reward.

Plaintiff then brought a Florida federal suit against Peru, as well as the Peruvian Ministry of the Interior and several officials (Defendants). He alleged breach of contract, fraudulent inducement, and fraudulent misrepresentation. Defendants moved to dismiss, claiming immunity under the Foreign Sovereign Immunities Act, 28 U.S.C. Section 1602 (FSIA).

The district court eventually entered a final dismissal of Plaintiff’s action, and this appeal ensued. The U.S. Court of Appeals for the Eleventh Circuit reverses and remands, holding that Peru’s activities fell within the FSIA’s “commercial activity” exception.

The FSIA provides the sole basis for obtaining subject matter jurisdiction over a foreign sovereign in the U.S., along with several statutory exceptions. Here, the “commercial activity” exception of Section 1605(a)(2) controls. It says that “(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case – ... (2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”

The district court had swallowed Peru’s argument that offering a reward for a fugitive criminal is a uniquely sovereign activity. The Eleventh Circuit disagrees.

“The location and capture of a fugitive by law enforcement officials of a country may be a sovereign act, but that is not what this case is about. Peru’s contractual offer of a reward did not promise that, in return for the information it was seeking, Peru would locate and capture Montesinos, and [Plaintiff] is not seeking to compel it to do so.”

“All that [Plaintiff] is seeking is what Peru promised in the reward offer, which is that it would pay five million dollars to anyone who furnished information of the nature and quality that enabled Peru to capture Montesinos. The information that [Plaintiff] provided fit the requirements of the offer: it enabled Peru to capture Montesinos. The question in this appeal is whether [Plaintiff] can use the courts of this country to compel Peru to keep its contractual promise to pay him the money it offered.”

“ ... Peru could have attempted to use its police and investigatory powers to search for Montesinos without offering money for information from anyone outside the government. However, Peru ‘did not have the resources or the . . . expertise,’ ... it needed to get the job done. After the trail ran cold, Peru ‘ventured into the marketplace,’ ... ., to buy the information needed to get its man. ... [Plaintiff] provided that information for a price, the price being the five million dollars that Peru had offered to pay for it. The underlying activity at issue – the exchange of money for information – is ‘commercial in nature and of the type negotiable among private parties.’...” [...]

“ ... [T]he contract did not contain a condition precedent requiring Montesinos’ capture. Article One of the emergency degree specifies that the reward ‘shall be given to the person or persons who provide(s) accurate information that will directly enable locating and capturing..., Montesinos ....’ ... This condition describes the extent and quality of the information that an informant must provide to qualify for the reward. It does not require an actual capture.” [Slip op. 7-8]

Basic contract principles apply even if a sovereign state is involved. Peru was trying to acquire a commodity which is useful in its performance of sovereign functions, just as if it were to go out and buy army boots or bullets.

Citation: Guevara v. Republic of Peru, No. 05-16235 (11th Cir. November 1, 2006).

SOVEREIGN IMMUNITY

D.C. Circuit finds that FSIA definition of “hostage taking” focuses on state of mind of hostage taker thus making it unnecessary for plaintiff to show that hostage taker communicated demand showing underlying intent to third party

In February 1987, a Mediterranean storm drove the private yacht carrying Sandra Jean Simpson (Plaintiff) and her husband, Dr. Mostafa Karim, off course. Eventually, it docked in the Libyan port of Benghazi. Libyan officers boarded and arrested the passengers and crew. The Libyans released Simpson after three months. They held her husband, however, seven more months under grim conditions. He died of cancer in 1993.

Plaintiff sued Libya, alleging, inter alia, torture, hostage-taking, and battery. Libya moved to dismiss (1) for lack of subject-matter and (2) personal jurisdiction, and (3) for failure to state a claim for torture and hostage-taking on which relief may be granted. The district court denied the motions.

On appeal, the District of Columbia Circuit remands the case so that the Plaintiff could amend her complaint to state a cause of action for hostage taking under the 1996 Terrorism Amendment to the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1605(a)(7) (Terrorism Amendment).

Libya moved to dismiss the amended complaint on grounds of sovereign immunity. The district court denied the motion. In this interlocutory appeal, Libya challenged Plaintiff’s hostage-taking claim because she failed to show the essential “intended purpose.”

The U.S. Court of Appeals for the District of Columbia Circuit holds that the FSIA definition of hostage–taking in Section 1605(e)(2) focuses solely on the state of mind of the hostage taker. Thus, an FSIA plaintiff does not have to show that the hostage taker communicated a demand to a third party that reflected the hostage taker’s intended purpose. The Court therefore affirms the denial of Libya’s motion to dismiss based on sovereign immunity, and remands for further proceedings.

Congress added the Terrorism Exception to the FSIA in 1996. through the Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. No. 104-132, 110 Stat. 1214-1241-42. It removes sovereign immunity where “money damages are sought against a foreign state for personal injury or death that was caused by an act of ... hostage taking ...” 28 U.S.C. Section 1605(e)(2). Article I of the 1985 International Convention Against the Taking of Hostages, T.I.A.S. 11081 (ICATH) defines what constitutes hostage taking. It requires a “quid pro quo” arrangement whereby the hostage is released upon the performance or non-performance of an action.

In addition, for the hostage-taking exception to apply, a Plaintiff has to satisfy three additional criteria: (1) the foreign state must be a “state sponsor of terrorism” at the time of the incident; (2) the foreign state was given a reasonable opportunity to arbitrate the claim; and (3) the claimant or victim was a national of the U.S.

The only question here is whether Plaintiff’s claims fall within the main part of the exception. Libya contended that the issue of a third-party’s awareness of a hostage-taker’s intent is an essential ingredient of the hostage-taking exception; it has to be pled as a jurisdictional fact and supported by evidence.

“The plain text of the FSIA definition, explanatory commentary on the Convention, and precedent under the Federal Hostage Taking Act (FHTA), 18 U.S.C. Section 1203, which defines the behavior proscribed in terms identical to the Convention, all reflect that a plaintiff need not allege that the hostage taker had communicated its intended purpose to the outside world. ...”

“Case law under the FHTA reflects the same analysis. Where air hijackers prosecuted under the FHTA told their hostages of their intended purpose, evidence that a third party was aware of that purpose was not an essential element for conviction. United States v. Yunis, 924 F.2d 1086, 1089-90, 1096-97 (D.C. Cir. 1991) ...”

“Libya’s assertion that these cases are inapplicable because they involve private actors who, unlike a sovereign, have no authority to detain foreigners misses the point. The text of the Terrorism Exception and the commentary make clear that plaintiffs need not demonstrate that a third party was aware of the hostage taking.”

“It suffices, then, for a plaintiff bringing suit under the FSIA Terrorism Exception to allege a quid pro quo as the hostage-taker’s intended result from the detention at issue. ... Such an allegation is legally sufficient to withstand a motion to dismiss, and the law requires no further showing with respect to third-party awareness of the defendant’s hostage-taking intent.”

“Here, the plaintiffs have alleged the required quid pro quo, and thus their jurisdictional facts are legally sufficient to state a claim under the Terrorism Exception. However, a sovereign defendant disputing FSIA jurisdiction may also contest the jurisdictional facts alleged by the plaintiff. ... In such cases, the court is obliged to review any determinations of factual sufficiency made by the district court.” [Slip op. 4-5]

Citation: Simpson v. Socialist People’s Libyan Arab Jamahiriya, No. 05-7048 (D.C. Cir. November 21, 2006).

WORLD TRADE ORGANIZATION

On complaint brought by United States, WTO Appellate Body decides that, in some instances, EC agencies do not administer their customs laws and classifications uniformly and reasonably

On November 13, 2006, the Appellate Body of the World Trade Organization issued its report in the dispute over customs matters of the European Communities (EC). The U.S. had brought the original complaint in March of 2005, claiming that the EC administers the Community Customs Code, the Implementing Regulation, the Common Customs Tariff, and the Integrated Tariff of the European Communities (TARIC) in a non-uniform manner. Article X:3(a) of GATT 1994 requires a Member’s customs system to operate in a uniform, impartial and reasonable manner.

Furthermore, so the U.S. argument went, the EC does not provide for the prompt review and correction of administrative action in customs matters, as required by Article X:3(b). The U.S. itemized the 25 different national agencies dealing in some way with customs and described the absence of effective coordination procedures among them. For example, the various agencies sometimes classify LCD monitors as having a zero duty rate and sometimes as having a 14 % duty.

The Panel Report of June 16, 2006 concluded that the administration of European customs law is in several ways inconsistent with GATT 1994. See 2006 International Law Update 136. (The Panel declined to consider whether the European customs system is inconsistent with Article X:3(a).) Both the U.S. and the European Communities appealed certain issues. In particular, the Appellate Body (AB) made nine separate rulings.

First, it reversed the Panel’s finding in ¶ 7.20 of its Report that the “measure at issue” for purposes of a claim under Article X:3(a) of GATT 1994 has to be “the manner of administration that is allegedly non-uniform, partial and/or unreasonable.” Secondly, the AB overturned the Panel’s finding in ¶¶ 7.33 and 8.1(a)(I) of the Panel Report as to the specific measures at issue. They are in fact the Community Customs Code, the Implementing Regulation, the Common Customs Tariff, and the TARIC, as they are administered.

Third, the AB reversed the Panel’s finding that the wording and the content of the Panel request had the effect of barring the U.S. from challenging the EC’s system of customs administration as a whole. It also sets aside the Panel’s finding in ¶ 7.119 of the Panel Report that Article X:3(a) of GATT 1994 always relates to the application of laws and regulations, but not to their content as such.

The AB’s fifth conclusion is that the Panel failed to find that Article X:3(a) of GATT 1994 requires uniformity of “administrative processes.” The AB sixthly upholds the Panel’s finding in ¶¶ 7.305 and 8.1(b)(v) of the Panel Report that “[t]he tariff classification of liquid crystal display (LCD) monitors with digital video interface amounts to non-uniform administration within the meaning of Article X:3(a) ...” In the seventh place, the AB reverses the Panel’s finding in ¶¶ 7.385 and 8.1(c)(ii) of the Panel Report that “the European Communities does not administer its customs law concerning successive sales ... in a uniform manner, in violation of Article X:3(a) ...”

In item number 8, the AB finds itself unable to complete the analysis with respect to the U.S. claim that the EC’s system of customs administration as a whole is not administered in a uniform manner, as Article X:3(a) demands. Finally, the AB affirms the Panel’s conclusion in ¶¶ 7.359, 7.556 and 8.1(e) of the Panel Report that “Article X:3(b) ... does not necessarily mean that the decisions of the judicial, arbitral or administrative tribunals or procedures for the review and correction of administrative action relating to customs matters must govern the practice of all the agencies entrusted with administrative enforcement throughout the territory of a particular [WTO] Member.”

The Appellate Body thus recommends that the EC bring all measures which do not square with GATT 1994 into conformity with its trading obligations.

Citation: European Communities—Selected Customs Matters (AB-2006-4) (WT/DS315/AB/R) (13 November 2006). The Report is available on WTO website at www.wto.org; U.S. Trade Representative Press Release of 11/13/2006.

Federal court awards damages against Haitian warlord. On October 24, a New York federal court ruled that Emmanuel Toto Constant, a former Haitian warlord, had to pay three women plaintiffs a total of $19 million. They alleged that he had ordered his henchmen to rape them and to slash their breasts, in some instances, in front of their young children. The Court concluded that the defendant was “liable for torture, attempted extrajudicial killing and crimes against humanity.” In 1993, he had formed a paramilitary force in Haiti to torture those who supported overthrown president Jean-Bertrand Aristide and opposed the subsequent military regime. Some time thereafter, he had come to New York and become a real estate agent. At present, defendant is in a Long Island prison on charges of taking part in a million-dollar mortgage fraud. Citation: Washingtonpost.com (from Reuters), New York City, Wednesday, October 25, 2006 (byline of Matthew Varrinder).

Federal Court dismisses accounting firm from suit that alleges misleading of oil company investors. On September 20, a New Jersey federal court granted a motion to dismiss a second amended complaint filed by accounting firm, KPMG; the court found that the pleadings failed to specify in what way KPMG had taken part in an alleged plot to improperly book proven oil reserves of Royal Dutch Petroleum Co., and Shell Transport and Trading Co. The complaint generally averred that, between 1998 and 2004, the defendants had put out materially false and misleading statements about the reportedly proved foreign oil and gas reserves of the two companies. Oil company investors had filed the January 2004 lawsuit claiming that the actions of many defendants, including KPMG, contravened Section 10(b) of the Securities and Exchange Act of 1934. Citation: FindLaw, New Jersey, Wednesday, September 20, 2006 (byline of Chip Giambrone, Correspondent for Andrews Publications).

U. K. Internet gambling company settles with U.S. government. On November 9, the United States Attorney in St. Louis announced that she had settled a large government civil action against BetOnSports PLC (Defendant), an Internet gambling outfit. While not admitting any wrongdoing, the London-based Defendant agreed never to accept any more online bets from U.S. sources. The online gambling industry has been generating about $6 billion annually from U.S. players. The civil settlement reportedly does not affect a criminal action pending against several of Defendant’s officials, one of whom is under local house arrest. Moreover, an expert on the subject of Internet gambling opined that the gambling companies are much more worried about the impact of the Unlawful Internet Gambling Enforcement Act which the U.S. President signed into law last October 13. It may force such companies to decide whether it is worth the risk to keep on doing business in the U.S. Citation: The Associated Press via Findlaw, St. Louis, Missouri, Sunday, November 12, 2006 at 04.36.37Z (byline of Christopher Leonard, AP writer).

Conviction of CIA contractor upheld in death of Afghan detainee. A federal court in North Carolina declined to overturn the conviction of David Passaro (Defendant) for assaulting an Afghan detainee who died afterwards. Prosecutors had put on evidence that Defendant had beaten Abdul Wali, who seemed to have been a young man in good health when he arrived, over a two day period in July of 2003. Defendant could receive up to eleven years in prison and a $250 thousand fine. Reportedly, Defendant was the first U.S. civilian charged with maltreating a detainee either in Iraq or in Afghanistan. He was serving as a contractor to the Central Intelligence Agency. Citation: The Associated Press (via FindLaw online), Raleigh, North Carolina, Thursday, October 26, 2006 at 02:20:24Z.

Morocco joins nuclear anti-proliferation group. On October 30, 2006, Morocco became the first Arab state to join a global anti-nuclear initiative founded by the Russian Federation and the United States. The occasion was a meeting in Rabat between the five major nuclear states and seven other member nations to make plans on carrying out a nonproliferation program to counter threats of nuclear terrorism. Britain, China and France are the other nuclear members while hitherto the remaining states were Australia, Canada, Germany, Italy, Japan, Kazakhstan, and Turkey. The U.S. spokesman told the meeting that the members must labor together to prevent terrorists from gaining access to nuclear materials, to bar terrorism by nuclear means and to respond effectively should a nuclear terrorist attack take place. He also hoped that the meeting itself will send a positive signal to other nations on these matters. Citation: The New York Times (online) (via Reuters), Rabat, Morocco, Monday, October 30, 2006 at 6:44 pm ET.

U.S. issues new regulations on citizen use of passports. On November 22, 2006, the U.S. Department of State (DOS) and the Department of Homeland Security (DHS) announced that, as of January 23, 2007, citizens of the U.S., Canada, Mexico and Bermuda will have to present a valid passport (or other accepted document that establishes the bearer’s identity and nationality) to enter or re-enter the U.S. when arriving by air from within the Western Hemisphere. The 9/11 Commission had recommended these measures and Congress later enacted them into law in the Intelligence Reform and Terrorism Prevention Act of 2004. The final regulations in Phase 1 of the Western Hemisphere Travel Initiative (WHTI) are in the Federal Register at www.regulations.gov. Perhaps as early as January 2008, Phase 2 regulations may come out dealing with entries into the U.S. over land and sea border crossings. U.S. Citizens can find out how to apply for a passport at travel.state.gov or by calling 1-877-487-2778. Citation: Media Note 2006/1066, Office of the Spokesman, U.S. Department of State, Washington, D.C., released Wednesday, November 22, 2006 at 3:00 pm.

After lifting “mad cow” ban, Japan allows import of frozen U.S. beef. On October 26, 2006, Japan announced that it will admit about 900 tons of frozen U.S. beef which it has been holding at customs since December 2005 when it had re-imposed a ban on American beef imports. All of this beef met the safety standards settled on in a 2006 bilateral agreement between Tokyo and Washington. Japan had raised the ban in late July of 2006 and has since imported 2,700 tons of U.S. beef. In December 2003, the Japanese had issued a total ban on U.S. beef imports when it found out about the first reported case of “mad cow” disease in an American herd. The latter is a degenerative nerve disease found in older cattle which has been linked to the rare but fatal human variant, Creutzfeldt-Jakob disease. Citation: The Associated Press (online via FindLaw), Tokyo, Japan; Thursday, October 26, 2006 at 15.59.31Z.