2008 International Law Update, Volume 14, Number 4 (April)

2008 International Law Update, Volume 14, Number 4 (April)

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

EXTRATERRITORIALITY

Ninth Circuit holds that the General Aviation Revitalization Act’s eighteen‑year statute of repose for products liability claims applies to U.S. suits involving U.S. built aircraft whether or not aircraft accident occurred abroad

Defendant Raytheon was the manufacturer of a plane that crashed in Bosnia in 2004, killing the Macedonian president, his accompanying advisors, and two pilots. The State of Macedonia had bought the plane in 1980, and had retained ownership ever since. Following the crash, Plaintiffs brought a wrongful death suit in the California federal court; it alleged three causes of action under Macedonian law based on the defectiveness of the aircraft. The district court granted summary judgment for Defendant after finding that the General Aviation Revitalization Act of 1994 (GARA) 49 U.S.C. Section 40101 barred the claim. The Plaintiffs appealed, claiming that the presumption against extraterritoriality precludes GARA’s application to a Macedonian air crash.

The U.S. Court of Appeals for the Ninth Circuit affirms the summary judgment, holding that the presumption does not apply in this case. A statute that does not regulate conduct occurring abroad does not implicate the presumption against extraterritoriality.

GARA is a statute of repose that limits aircraft manufacturers’ liability to eighteen years after it delivers one its aircraft. It provides that “no civil action for damages for death or injury to persons or damage to property arising out of an accident involving a general aviation aircraft may be brought against the manufacturer” after the expiration of the eighteen‑year period. GARA Section 2(a). The accident in question took place twenty‑four years after the delivery of the aircraft. Plaintiffs nevertheless maintain that the presumption bars the application of GARA’s time bar in this case.

Under the presumption against extraterritoriality, courts are to assume that an act of Congress only regulates conduct within U.S. territory unless it can be shown by clear statement that Congress intended otherwise. The Court disagrees that the presumption applies in the suit. It holds that “[Plaintiffs] have failed to show that an application of GARA would impermissibly regulate conduct that has occurred abroad. GARA only regulates the ability of a party to seek compensation from general aviation airplane manufacturers in American courts. It is not a statute governing the substantive standards involved in tort claims.”

“GARA merely eliminates the power of any party to bring a suit for damages against a general aviation aircraft manufacturer in a U.S. federal or state court, after the limitation period. The only conduct it could arguably be said to regulate is the ability of a party to initiate an action for damages against a manufacturer in American courts, an entirely domestic endeavor. Congress has no power to tell courts of foreign countries whether they could entertain a suit against an American defendant. It would be up to any foreign court to determine whether it wanted to apply GARA to litigation occurring within its borders. Accordingly, the presumption against extraterritoriality simply is not implicated by GARA’s application.” [Slip op. at 11]

“Our approach is consistent with the case law applying the presumption against extraterritoriality. Uniformly, the cases invoke the presumption when applying a statute would have the effect of regulating specific conduct occurring abroad... [W]hen a statute regulates conduct that occurs within the United States, the presumption does not apply... Here, Congress passed a statute regulating the ability of a party to bring a suit against a general aviation aircraft manufacturer in American courts. Following these cases, GARA itself does not regulate any conduct that occurred abroad, so the presumption does not apply.” [Slip op. at 13].

Citation: Blazevska v. Raytheon Aircraft Co., 522 F.3d 948 (9th Cir. 2008).

FAMILY LAW

Relying in part on study of similar laws in twenty other nations including United States, Germany’s highest court upholds German law criminalizing incest, inter alia, to prevent genetic harm to innocent offspring

A couple had adopted Patrick S. (Defendant) when he was four years old. After spending many years in foster care, he first met his sister K. in 2000 when she was 16 years old and he was 24. K has now borne four children sired by Appellant. The lower court convicted and sentenced him for the crime of incest. It also found that the Appellant had physically attacked K at least once and that K suffers from a mild form of mental illness. Appellant duly filed an appeal.

On February 26, 2008, the Federal Constitutional Court (Bundesverfassungsgericht or BVG), Germany’s highest Court, rejected Defendant’s constitutional challenges to Section 173, & 2, s. 2, of the Criminal Code (StGB), which prohibits sexual relations between siblings.

The BVG gave considerable weight to a court‑ordered study prepared by the Max Planck Institute for Foreign and International Criminal Law. The Study surveyed the incest laws of 20 countries, and concluded that sexual intercourse between siblings is a criminal offense in 13 of the 20 countries surveyed. The Study notes that the statutes of some U.S. states go so far as to authorize life sentences for this offense.

On the other hand, incest as such is not a crime in China, the Russian Federation, Turkey, Spain, France, The Netherlands and Ivory Coast. There are, however, other legal sanctions in the laws of these seven countries hostile to the mating of siblings such as a bar against marriage between siblings and the non‑recognition of children from incestuous relationships.

In particular, the Court upholds the constitutionality of Section 173 on three bases. First, the statute does not seriously restrain an individual’s right to sexual self‑determination. The law is limited to barring sexual intercourse between siblings.

Secondly, Section 173 seeks to foster lawful marriages and normal familial relationships. Scientific studies report that incestuous relationships seriously damage families and social relations. For example, they bring about overlapping family relationships and disruption to traditional family roles. Moreover, eugenic considerations support the ban because recessive genes carry an increased risk of harm to incestuous offspring.

Finally, the built‑in flexibility of Section 173 meets the constitutional test of proportionality. In cases of sibling incest where jail time seems inappropriate, for instance, the courts have the discretion to dismiss the charges, or to modify the sentence for special considerations or to impose no criminal punishment at all.

Citation: Bundesverfassungsgericht, Beschluss vom 26. Februar 2008, 2 BvR 392/07.

FOREIGN JUDGMENTS

Where one foreign nation’s judgment conflicts with judgment from another nation, New York Court of Appeals interprets its version of Uniform Foreign Money Judgments Recognition Act as granting its courts discretion either to enforce latest judgment, or earlier judgment or neither judgment

Byblos Bank Europe, S.A. is a Belgian bank (Plaintiff) and Sekerbank Turk Anonym Syrketi (Defendant) is a Turkish bank. According to Plaintiff, in 1988, it issued two $2.5 million loans to Defendant. An employee of Defendant apparently obtained the loans by issuing a fraudulent loan guaranty to Plaintiff and ultimately made off with the money. After paying some interest due on the first transfer at the outset, Defendant refused to make further payments.

Plaintiff filed attachment proceedings and actions for breach of the loan agreements in the courts of Belgium, Turkey and Germany, nations where Plaintiff believed that Defendant held assets. In 1992, the Turkish court of first instance entered judgment dismissing the action on the merits, and a Turkish appellate court upheld that judgment in 1994.

Thereafter, in the German and Belgian proceedings, Defendant sought recognition of the Turkish judgment dismissing Plaintiff’s claims. In March 1996, the German court of first instance granted Defendant’s application for recognition of the Turkish judgment; a German court of appeal affirmed that judgment the following year. [246]

Meanwhile, in August 1996, the Tribunal de Commerce de Bruxelles (the Belgian court of first instance) ruled that res judicata barred the relitigation of Plaintiff’s claims and dismissed the complaint. On Plaintiff’s appeal, the Cour d’Appel de Bruxelles, the intermediate appellate court, reversed the judgment of the Tribunal de Commerce in October 2003 and declined to accord the Turkish judgment preclusive effect. The court relied upon a now‑repealed section of the Belgian Judicial Code which required review of foreign judgments on the merits before deciding whether or not to recognize them. The Cour d’Appel concluded that substantial error “affected” the Turkish judgment. Upon its own review of the facts, it ruled in Plaintiff’s favor on the merits and entered judgment awarding Plaintiff $5 million, plus interest. In September 2005, the Cour de Cassation de Belgique denied Defendant’s petition for cancellation of the judgment.

Plaintiff then tried to enforce the Belgian judgment in the New York state courts based on its belief that Defendant had assets in the state. In March 2006, Plaintiff moved ex parte for an order of attachment pursuant to C.P.L.R. 6201(5) seeking to attach up to $12,140,518.32 of Defendant’s New York assets. This sum represented the principal and accumulated interest of the Belgian judgment as of January 2006.

The N.Y. Supreme Court issued the attachment order and directed Plaintiff to confirm the attachment within five days after the levy. Plaintiff also filed an action for summary judgment in lieu of complaint pursuant to C.P.L.R. 3213 seeking recognition and enforcement of the Belgian judgment.

Plaintiff timely moved for an order confirming the attachment; it argued that it would probably succeed on the merits of its cause of action because the Belgian judgment was entitled to recognition under C.P.L.R. Article 53 pursuant to the last‑in‑time rule, i.e., [that] among conflicting sister state judgments, the last judgment handed down generally prevails.

Defendant cross‑moved to vacate the attachment. It urged , inter alia, that the Supreme Court should have exercised its discretion under C.P.L.R. 5304(b)(5) to deny recognition of the Belgian judgment because it conflicted with the prior Turkish judgment. Defendant also argued that the New York courts did not have to apply the last‑in‑time rule where the conflicting judgments came from foreign courts.

The New York Supreme Court denied Plaintiff’s motion to confirm the attachment and granted Defendant’s cross motion. After concluding that it did not have to recognize the Belgian judgment pursuant to the last‑in‑time rule, the court, in the exercise of its discretion under C.P.L.R. 5304(b)(5), declined to recognize the Belgian judgment because it did conflict with the earlier Turkish judgment.

The Appellate Division modified this judgment to the extent of dismissing the C.P.L.R. 3213 complaint but otherwise affirmed. The court rejected Plaintiff’s primary contention that New York law required application of the last‑in‑time rule. It its view, that rule “lacks any justification where, as here, the foreign country court that rendered the last judgment [did] not give the party against whom enforcement is sought any kind of opportunity to argue the binding effect of the earlier judgment.”

The Appellate Division further held that Defendant had demonstrated its entitlement to nonenforcement of the Belgian judgment under C.P.L.R. 5304(b). Defendant had done so “by showing that the ... judgment was issued in contravention of the principles of comity pursuant to a [Belgian] statute that has since been repealed and superseded by a statute directly to the contrary”.

After granting Plaintiff leave to appeal further, the New York Court of Appeals unanimously affirms.

“As we recently reiterated, ‘New York has traditionally been a generous forum in which to enforce judgments for money damages rendered by foreign courts’ See, e.g., Sung Hwan Co., Ltd. v. Rite Aid Corp., 7 N.Y.3d 78, 82, 817 N.Y.S.2d 600, 850 N.E.2d 647 (2006), ... New York courts have historically recognized foreign country judgments ‘under the doctrine of comity ... [a]bsent some showing of fraud in the procurement of the foreign country judgment or that recognition of the judgment would do violence to some strong public policy of this State’.”

“The doctrine of comity ‘refers to the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states’ Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 482 U.S. 522, 543 n. 27 (1987); see also Hilton v. Guyot, 159 U.S. 113, 163‑164 (1895). Comity, in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws.”

“Our State’s recognition of foreign judgments is governed by C.P.L.R. Article 53, the Uniform Foreign Country Money‑Judgments Recognition Act, which was enacted in 1970 ‘to codify and clarify existing case law on the subject and, more importantly, to promote the efficient enforcement of New York judgments abroad by assuring foreign jurisdictions that their judgments would receive streamlined enforcement here’ CIBC Mellon Trust, 100 N.Y. 2d at 221, 762 N.Y.S. 2d 5, 792 N.E. 2d 155 (2003).” [248].

“This statute ‘applies to any foreign country judgment which is final, conclusive and enforceable where rendered’ (C.P.L.R. 5302). C.P.L.R. 5304(a), however, makes clear that a foreign judgment is ‘not conclusive,’ and thus not entitled to recognition, where the foreign country fails to provide impartial tribunals or due process or where the tribunal lacked personal jurisdiction over the defendant. C.P.L.R. 5304(b) contains the discretionary grounds for refusing foreign court judgment recognition. As relevant here, C.P.L.R. 5304(b)(5) states that ‘[a] foreign country judgment need not be recognized if ... the judgment conflicts with another final and conclusive judgment.’”

“Here, the Belgian court judgment which Plaintiff seeks to enforce conflicts with an earlier Turkish judgment in Defendant’s favor, and a German judgment granting that judgment reciprocity. Under C.P.L.R. 5304(b)(5), New York courts may, in the exercise of discretion, refuse to enforce a foreign judgment that ‘conflicts with another final and conclusive judgment.’”

“It should be noted, however, that the statute does not specify which, if any, of the two conflicting foreign judgments is entitled to recognition. Rather, under C.P.L.R. 5304(b)(5), the court may recognize the earlier judgment, the later judgment or neither of them. The last‑in‑time rule, applicable in resolving conflicting sister state judgments under the Full Faith and Credit Clause of the Constitution, see Treinies v. Sunshine Mining Co., 308 U.S. 66, 76‑78 (1939), [added cite], need not be mechanically applied when inconsistent foreign country judgments exist. Rigid application of the rule would conflict with the plain language of C.P.L.R. 5304(b)(5) vesting New York courts with discretion to decide whether a foreign judgment that conflicts with another judgment is entitled to recognition.”

“Specifically, the last‑in‑time rule should not be applied where, as here, the last‑in‑time court departed from normal res judicata principles by permitting a party to relitigate the merits of an earlier judgment. In the present case, the Belgian court declined to accord recognition to an earlier Turkish judgment that had been previously recognized by a German court and in so doing departed from generally‑accepted principles of res judicata and comity. Thus, [the court below] properly exercised its discretion under C.P.L.R. 5304(b)(5) to deny recognition of the Belgian judgment, which disregarded B and conflicted with B a previously rendered Turkish judgment.” [248‑49]

Citation: Byblos Bank Europe, S.A. v. Sekerbank Turk Anonym Sirketi, 10 NY3d 243, 2008 WL 731029 (N.Y.C.A. 2008).

FOREIGN LAW

In securities fraud litigation where Plaintiffs included claims that Defendants Swiss Banks violated Swiss banking regulations, Third Circuit vacates dismissal of complaint because recent congressional restrictions on securities class actions in state courts did not preempt state law to extent of preempting Swiss banking laws

Prior to its financial demise, AremisSoft (the Bankrupt) was a software enterprise incorporated in Delaware. Between 1998 and 2001, two of the Bankrupt’s directors and officers, Lycourgos Kyprianou and Roys Poyiadjis (collectively, the Directors), allegedly carried out a classic “pump‑and‑dump” scheme.

According to the complaint, they artificially inflated Bankrupt’s stock price by misrepresenting that its financial position was strong. Having “pumped” the stock price, they “dumped” the Bankrupt’s stock they had bought by selling their shares on the open market to unsuspecting investors.

To cover up their schemes, the Directors allegedly ran these insider‑trading transactions through a variety of sham entities and bank accounts. They allegedly did all this with the aid and knowledge of Bordier et Cie and Dominick Company (Defendants), both banks organized under the laws of Switzerland. A few months and some hundreds of millions of dollars later, the market found out about the Bankrupt’s real financial status and sent the stock to the basement.

In March 2002, AremisSoft sought relief under Chapter 11 of the Bankruptcy Code in the New Jersey Bankruptcy Court. A federal class‑action securities suit, was already pending against Bankrupt. In it a group who had bought Bankrupt’s stock (the Buyers) sought rescission of their stock‑purchase contracts. To settle the Buyers’ suit, the bankruptcy parties agreed that the reorganization plan would assign to the Buyers all causes of action owned by the Bankrupt.

These claims took many forms, from contract and tort claims to, as here, claims for disloyalty against corporate fiduciaries and their aiders and abettors. Bankruptcy is a process of gathering and preserving all of the debtor’s assets, so as to distribute them to creditors and interest holders in an orderly fashion. Legal claims owned by the Bankrupt can be important assets of the bankruptcy estate. Thus they are fair game for distribution to the debtor’s creditors and equity holders.

The reorganization plan provided for the creation of a state‑law trust (the Trust) to take title to, and prosecute, the assigned claims for the Buyers’ benefit. The Buyers also assigned to the Trust any causes of action that they owned individually stemming from the purchase of the Bankrupt’s securities.

Joseph LaSala and Fred Ziedman (Plaintiffs) became the Trustees and are bringing this lawsuit in New Jersey federal court. The Bankrupt’s estate and the Buyers allegedly assigned all their causes of action to the Trust. Plaintiffs asserted four causes of action against Swiss banks, Bordier et cie and Dominick Company, A.G. (Defendants). As internationally pertinent here, there were two counts of violating Swiss money‑laundering laws, one against each Swiss Defendant.

The Plaintiffs have alleged in counts III and IV that the Banks violated Swiss banking regulations by failing properly to investigate and interdict the Directors’ alleged money‑laundering transactions. The Trust has further alleged that it, as assignee of the Buyers, is entitled under Swiss law to recover damages for the Banks’ violations. [See F. R. Civ. Pro. 44.1].

The Defendants moved to dismiss, arguing, inter alia, that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) preempted the Plaintiffs’ lawsuit. Congress enacted SLUSA to supplement the Private Securities Litigation Reform Act (PSLRA) of 1995. As pertinent here, the District Court dismissed Counts III and IV relating to Swiss law issues. Plaintiffs noted their appeal. The U.S. Court of Appeals for the Third Circuit vacates and remands.

Congress enacted the PSLRA because a majority had decided that securities plaintiffs and their attorneys were bringing abusive securities class actions against corporations that had no legitimate chance of success; the expenses of discovery were enough of a hazard to cause many defendants to settle non‑meritorious claims.

Moreover, each class member usually recovered very little from those settlements, while class counsel walked away with exorbitant fees. In response, the plaintiffs’ securities bar began to stay clear of the federal courts altogether and started to file suits under state securities laws that did not impose the additional federal impediments.

SLUSA, however, only preempts covered class actions “based upon the statutory or common law of any State.” The statute then defines “State” as “any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States.” Despite this apparently clear language, the Swiss Defendants maintain that SLUSA preempts the [Plaintiffs’] Swiss‑law claims.

The Defendants contend that SLUSA sought to create uniform standards for class‑action securities‑fraud lawsuits, and so letting Plaintiffs avail themselves of differing foreign‑law standards is inconsistent with that purpose. Thus, they argue, the court should read SLUSA as preempting foreign‑law claims that otherwise contain the same elements as the alleged class‑action and securities‑trade violations. Essentially, this is an argument that Congress implicitly preempted foreign law because allowing more than 50 plaintiffs to file a foreign‑law‑based securities fraud suit in a state or federal court would get in the way of the federal goal of providing uniform standards for restricting class‑action securities fraud litigation

So far as pertinent here, the District Court dismissed Counts III and IV and Plaintiffs took an appeal.

The U.S. Court of Appeals for the Third Circuit vacates and remands. The appellate court then sets forth its rationale. “In determining legislative purpose, ‘[i]t is not our job to speculate upon congressional motives,’ Riegel v. Medtronic, Inc., 128 S.Ct. 999 (2008); our job is to hew as closely as possible to the meaning of the words Congress enacted. ‘We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.’ Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253‑54 (1992). Here, the difficulty with divining congressional intent to preempt foreign‑law claims is that Congress specifically described the claims preempted as those ‘based upon the law of any State.’ as defined above.” [138]

“Moreover, Congress has demonstrated its ability to extend the reach of securities statutes to foreign law and foreign courts when it so desires. ... Moreover, SLUSA’s legislative history refers to state, not foreign, law. ... Given that Congress made the explicit policy choice in the 1934 [SEC] Act of defining ‘state’ so as not to include foreign countries, and, in SLUSA, chose not to alter that definition while defining other terms, we conclude that, when Congress extended SLUSA preemption to claims ‘based upon the law of any State,’ it meant just that.”

“In addition, the notion that allowing the [Plaintiffs] to litigate counts III and IV would impede a federal objective is overblown. According to those counts, Switzerland imposes liability for the complained‑of conduct on banking institutions organized under Swiss law. To state the obvious, Switzerland is a sovereign nation. It may regulate institutions organized under its laws in any manner it sees fit.”

“Congress, through 28 U.S.C. Section 1332, has instructed United States district courts to entertain ‘all civil actions’ (provided the matter in controversy is of sufficient value), as long as there is complete diversity of citizenship. To be sure, Congress has the authority to counter‑instruct district courts not to entertain particular categories of civil actions arising under foreign law, but we do not believe that we should readily imply such a result from statutory text that appears to direct otherwise.”

Do these Swiss‑law claims depend on state law? The Court thinks not. “The [Defendants] argue that the Swiss‑law claims are preempted because they are actually based on Delaware fiduciary‑duty law. Specifically, they argue that, only if the Directors breached their Delaware‑law fiduciary duties can the [Defendants] be liable under Swiss law.”

“This argument appears to be based upon a misreading of the complaint. The Swiss laws invoked in the complaint allegedly require that, inter alia, Swiss banks conduct due diligence (e.g., verify the customer’s identity), investigate unusual or suspicious transactions, and freeze assets in accounts whose owner has been concealed. We read the complaint as alleging that a bank can violate these Swiss laws regardless whether the account owners in fact breached a state‑law fiduciary duty.” [139]

Another one of the Defendants’ arguments is that New Jersey’s choice‑of‑law rules are “state laws” that trigger the application of Swiss law to the present dispute. “The [Defendants] rightly point out that the District Court’s subject matter jurisdiction rests on diversity of citizenship. Under Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) and Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941), therefore, the forum state’s choice‑of‑law rules govern the dispute. Thus New Jersey’s choice‑of‑law rules, ... direct the application of Swiss law.”

“The Defendant Swiss Banks invoke Klaxon, and argue that, if the [Plaintiffs’] characterization of New Jersey’s choice‑of‑law rules is correct, those New Jersey choice‑of‑law rules form the basis of the [Plaintiffs’] Swiss‑law claims. This argument emerges from the [Defendants’] efforts to categorize the Swiss‑law claims as ‘based upon the statutory or common law of any State,’ here, New Jersey.”

The Third Circuit brands these contentions as “creative” but unpersuasive. “The Banks read more into Klaxon than is there. In Klaxon, a diversity action brought by a New York corporation against a Delaware corporation in the District Court for the District of Delaware. Plaintiff, having secured a jury verdict in the amount of $100,000, then moved for an award of prejudgment interest covering the years in which the suit was pending. The District Court granted the motion. This court affirmed. The Supreme Court reversed.”

“It declared that ‘The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware’s state courts. Otherwise the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side. Any other ruling would do violence to the principle of uniformity within a state upon which the Tompkins decision is based. Whatever lack of uniformity this may produce between federal courts in different states is attributable to our federal system, which leaves to a state, within the limits permitted by the Constitution, the right to pursue local policies diverging from those of its neighbors. ...”

“Here, the Plaintiffs contend that New Jersey’s choice‑of‑law rules require that, in a dispute in a New Jersey court in which Swiss banks are charged with failing to comport with proper standards of oversight of entities utilizing the services of Swiss banks, Swiss law, not New Jersey law, should govern.”

“If the Plaintiffs’ formulation of New Jersey’s choice‑of‑law rules, as embodied in counts III and IV of it complaint, is accurate, this would reflect the unsurprising conclusion by New Jersey’s lawgivers, whether judicial or legislative, that, whatever New Jersey’s law with respect to bank misconduct may be, when the allegedly miscreant bank is a Swiss enterprise executing Swiss banking transactions, Swiss banking law, not New Jersey banking law, should control. To conclude that, within the intendment of SLUSA, those claims are ‘based upon the ... law of’ New Jersey would require attributing to Congress a subtlety of such exquisite reach as to have no place in the legislative process.” [140]

“The District Court held, and the [Defendants] argue, that because counts III and IV ‘reallege and incorporate by reference herein in their entirety the allegations’ supporting the state‑law claims, and the state‑law claims are, as the [Defendants] contend, preempted, the Swiss‑law claims must also be preempted. Aside from the fact that we are not persuaded that the state‑law claims are preempted, the view advanced by the District Court and the [Defendants] appears to stem from a misinterpretation of language in this Court’s opinion in Rowinski v. Salomon Smith Barney, Inc., 398 F.3d 294, 299‑300 (3d Cir. 2005).”

“In Rowinski, we held that a claim alleges ‘a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security,’... which subjects it to SLUSA preemption, when an allegation of a misrepresentation in connection with a securities trade is a ‘factual predicate’ of the claim, even if misrepresentation is not a legal element of the claim. Rowinski, supra at 300.”

“Thus, when, as in Rowinski, a plaintiff alleges that a misrepresentation made in connection with a securities trade breaches a contract, the plaintiff cannot avoid SLUSA preemption by arguing that misrepresentation is not an element of a breach‑of‑contract action. In other words, when one of a plaintiff’s necessary facts is a misrepresentation, the plaintiff cannot avoid SLUSA by merely altering the legal theory that makes that misrepresentation actionable.”

“Here, as to the Swiss‑law claims, the allegations of misrepresentation appear to be extraneous. ... [T]he Swiss‑law counts allege that the [Swiss Defendants] violated their Swiss‑law duty properly to investigate and freeze the Directors’ various money‑laundering transactions. The Directors’ prior alleged misrepresentations are not factual predicates to these claims because, according to the [Plaintiffs’] characterization of the Swiss‑law claims, they have no bearing on whether the [Defendants’] conduct is actionable; rather, they are merely background details that need not have been alleged, and need not be proved.” [141]

The Defendants also contend that SLUSA preempts Swiss‑law claims because they are so closely tied to the state‑law claims. The Court, however, disagrees. “This argument is unpersuasive because it relies on a readily distinguishable case. The District Court and the [Defendants] invoke a decision of the [Delaware District Court] ruling that a particular state‑law claim, though it did not specifically allege conduct that would constitute fraud ‘in connection with’ a security, was nonetheless ‘in connection with’ a security (and thus preempted), because it alleged conduct by the defendant that was part of a ‘unitary scheme of fraud’ which began before the ‘purchase or sale’ of securities and continued afterward.’ Zoren v. Genesis Energy, L.P., 195 F. Supp.2d 598, 604‑06 (D. Del. 2002).”

“Because the [Zoren] claim was in this sense ‘tie[d] ... so closely’ to the other claims that clearly alleged fraud in connection with securities trading, the claim was itself deemed a claim of fraud in connection with securities trading and therefore preempted. Zoren simply involved an application of SLUSA’s ‘in connection with’ language, concluding that the claim in question alleged fraud in connection with securities trading. Thus, we conclude that the [Defendants’] contention that the Swiss claims are preempted as ‘closely tied’ to the state‑law claims is without merit.”

“As to the foreign‑law claims, notwithstanding our holding, plaintiffs relying on foreign law must survive two preliminary challenges: (1) they must state validly pleaded claims which, under applicable choice‑of‑law principles, govern their case, and (2) they must show that a United States court is the most convenient forum, which, particularly for foreign‑law claims asserted against foreign entities, is rarely an easy task.” [142]

“In other words, foreign‑law claims, though not preempted by SLUSA, are only permissible at the confluence of two rarely aligned factors: (1) a foreign country has the most significant interest in having its law apply (the traditional choice‑of‑law test), and (2) the United States is the most appropriate forum (the traditional forum‑non‑conveniens test). Nothing in our experience, the legislative history of SLUSA, or the legislative history of the PSLRA suggests that these are hurdles that plaintiffs can routinely overcome. Thus, as Congress intended, manifest strike suits will, expectably, be dismissed on the pleadings, even if the plaintiffs try to plead foreign claims. Only quite unusual cases will survive.”

“We hold that SLUSA does not prevent the [Plaintiffs] from bringing [the Bankrupt’s] Delaware‑law aiding‑and‑abetting‑breach‑of‑fiduciary‑duty claims against the [Defendants]. These are direct corporate claims assigned to the [Plaintiffs] from [the Bankrupt’s] estate. SLUSA’s text and legislative history yield the conclusion that Congress did not intend to preempt direct corporate claims such as these.”

“We further hold that SLUSA does not prevent the [Plaintiffs] from asserting Swiss‑law claims against the Banks for violating Swiss money‑laundering regulations. This conclusion flows directly from the text of SLUSA which, by its terms, only affects claims based upon the laws of a state or territory of the United States.” [143]

Citation: LaSala v. Bordier et Cie, 519 F.3d 121, Fed. Sec. L. Rep. P 94,597, 49 Bankr.Ct.Dec. 177 (3rd Cir. 2008).

HUMAN RIGHTS

In action against U.K. government officials by mothers of two sons killed in Iraq conflict, House of Lords rules that Article 2 of European Human Rights Convention on right to life does not apply governmental decisions to go to war nor does implied corollary of Convention requiring full investigation of reasons for doing so demand new public inquiry into said reasons

The Claimants here, Rose Gentle and Beverley Clarke, are the mothers of two young men, both aged 19, who lost their lives while serving in the British army in Iraq. The Defendants are the Prime Minister, the Secretary of State for Defense and the Attorney General.

Fusilier Gordon Campbell Gentle was stationed with the 1st Battalion The Royal Highland Fusiliers when a roadside bomb killed him in June 2004. Trooper David Jeffrey Clarke was serving with the Queen’s Royal Lancers when he died from “friendly fire” in March 2003. Official inquests in the U.K. have fully looked into these deaths, leaving no outstanding questions about when, where and in what circumstances these two deaths came to pass.

As to the law, the Claimants contend that, by virtue of sections 1 and 2 of the U.K.’s Human Rights Act of 1998 and Article 2 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the Convention) [November 4, 1950, 312 U.N.T.S. 221, as amended], they have an enforceable right under domestic law to require Her Majesty’s Government to make an independent public inquiry into all the circumstances surrounding the invasion of Iraq by British forces in 2003; it would specifically include the steps taken by the Government to obtain timely expert advice on the legality of the invasion.

As an inferential corollary of this right, they say, is a duty binding on the Government to set up such an inquiry. It is a duty owed, the Claimants contend, to all members of our armed forces deployed to Iraq and their families. Presumably, the government owed a duty also to all military personnel liable to be deployed to Iraq and their families.

“In these proceedings, the Claimants do not ask the House [of Lords] to decide whether such an inquiry would be desirable in the public interest (a question not appropriate for the House to consider in its judicial capacity), but only whether they have a right to require the government to conduct such an inquiry. Nor do they invite the House to consider whether the U.K.’s use of armed force in Iraq in 2003 was lawful or unlawful under international law. That question would also lie outside the scope of the public and independent inquiry the Claimants seek. They merely wish the government to explain the process by which the Government obtained legal advice and not to the correctness of the advice it got or should have gotten.”

“There is an appearance of unreality here. Relying on a number of familiar documents now in the public domain, the Claimants’ real complaint (which they would have wished to advance) is that the U.K. went to war for an unlawful reason, without proper United Nations sanction and on the strength of legal advice which was either adverse or equivocal until just before the invasion. The correctness of this complaint is not, I repeat, a matter which is up for decision in this appeal.”

The Claimants see a duty on Convention Member States to protect human life. which applies to the lives of soldiers. Armed conflict exposes soldiers to the risk of death. Therefore, they say, a state should take timely steps to obtain reliable legal advice before committing its troops to armed conflict. Had the U.K. done this before invading Iraq in March 2003, it would arguably have decided not to invade. Had it not invaded, Fusilier Gentle and Trooper Clarke would not have lost their lives.

The bedrock of the Claimants’ argument rests on Convention Article 2. So far as relevant here, it provides: “Everyone’s right to life shall be protected by law.” The European Court of Human Rights (ECHR) has often interpreted Article 2 of the Convention as imposing substantive duties on member states not to take life without justification. This involves the establishment of a framework of laws, precautions, procedures and means of enforcement which will, to the greatest extent reasonably practicable, protect human life.

“A procedural obligation implements this substantive obligation derived from Article 2 The ECHR has also read Article 2 as imposing on member states a duty to launch a thorough public investigation by an independent official body into any death that took place in circumstances in which it appears that one or other of the foregoing substantive obligations has been, or may have been, breached in a away that suggests that agents of the state are, or may be, in some way involved. This procedural duty does not derive from the express terms of Article 2, but was no doubt implied in order to make sure that the substantive right was effective in practice. Here, the Claimants seek to invoke the procedural obligation under Article 2. But it is clear [cites] that the procedural obligation under Article 2 depends upon the existence of the substantive right, and cannot exist independently.”

“Thus to make good their procedural right to the inquiry they seek, the Claimants must show, as they concede, at least an arguable case that the substantive right arises on the facts of these cases. Unless they can do that, their claim must fail. Despite the Claimants’ careful and detailed submissions, I am driven to conclude that they cannot establish such a right.”

“The question whether the state unjustifiably took life or failed to protect it will arise with respect to a particular deceased person, as it did at the inquests that looked into the deaths of Fusilier Gentle and Trooper Clarke. The House is unanimous that there is no warrant for reading Article 2 as a generalized provision to protect life, irrespective of any specific death or threat. In the present case the Claimants, tragically, lost their sons. But the right and the duty they seek to assert do not depend on the fact of their sons’ deaths. If they exist at all, they would have arisen before either young man was killed and would exist had both young men not died in the conflict.”

“Significantly, the Courts have never applied Article 2 to the process of deciding on the lawfulness of a resort to arms, despite the number of times Member States have made that decision over the past half century and despite the obvious fact that such a decision almost always exposes military personnel to the risk of fatalities. There are, I think, three main reasons for this.”

“First, the lawfulness of military action has no immediate bearing on the risk of fatalities. Indeed, a flagrantly unlawful surprise attack such as took place at Pearl Harbor in December 1941, is likely to minimise the aggressor’s casualties. In this case, as the Defendants pointed out, Fusilier Gentle died after U. N. Security Council resolution 1546 had legitimated British military action in Iraq; thus that military action by then was not unlawful, even if it had earlier been so.”

“Secondly, the draftsmen of the European Convention cannot, in my opinion, have had in mind that Article 2 would provide a suitable framework or machinery for resolving questions about the resort to war. They would have been clearly aware of the U. N. Charter, adopted not many years earlier, and would have seen it for what it was. Its role was as the instrument, operating as between states, which provided the relevant code and means of enforcement in that regard, as compared with a Convention devoted to the protection of individual human rights.”

“It must (further) have been obvious that an inquiry such as the Claimants’ claim would involve the courts with issues which judicial tribunals have traditionally been very reluctant to entertain. This is because they recognise their limitations as suitable bodies to resolve them. This is not to say that, if the Claimants do have a legal right, the courts cannot decide it. The Defendants agree that, if the Claimants do have a legal right, it is justiciable in the courts; they are not trying to mark out areas into which the courts may not intrude.”

“They do, however, rightly say that, in deciding whether a right exists, it is relevant to consider what exercise of the right would entail. Thus the restraint traditionally shown by the courts in ruling on what has been called high policy B peace and war, the making of treaties, the conduct of foreign relations B does tend to militate against the existence of the right.” [Cite].

“This consideration is fortified by the reflection that war is very often made by several states acting as allies: but a litigant would be required to exhaust his domestic remedies before national courts in which judgments would be made about the conduct of states not before the court, and even if the matter were to reach the [ECHR], there could be no review of the conduct of non‑member states who might nonetheless be covered by any decision.”

Third, “[t]he obligation of Member States under Article 1 of the Convention is to secure ‘to everyone within their jurisdiction’ the rights and freedoms in the Convention. Subject to limited exceptions and specific extensions, the application of the Convention is territorial: the rights and freedoms are ordinarily to be secured to those within the borders of the state and not outside.”

The deaths of Fusilier Gentle and Trooper Clarke occurred in Iraq and, although they were subject to the authority of the Defendants, they were clearly not within the jurisdiction of the U.K. as that expression in the Convention has been interpreted.

“The Claimants seek to overcome that problem, in reliance on authorities such as Soering v. United Kingdom (1989) 11 E.H.R.R. 439, by stressing that their complaint relates to the decision‑making process (or lack of it) which occurred here, even though the ill‑effects were felt abroad. There is, I think, an obvious distinction between the present case and the Soering case, and such later cases as Chahal v. United Kingdom (1996) 23 E.H.R.R. 413 and D v. United Kingdom (1997) 24 E.H.R.R. 423. In each of [these], action relating to an individual in the U.K. was likely to have an immediate and direct impact on that individual elsewhere. But I think there is a more fundamental objection: that the Claimants’ argument, necessary to meet the objection of extra‑territoriality, highlights the remoteness of their complaints from the true purview of [Convention] Article 2.”

“Even if, contrary to my conclusion, the Claimants were able to establish an arguable substantive right under Article 2, they would still fail to establish a right to a wide‑ranging inquiry such as they seek. Nothing in the Strasbourg case‑law on Article 2 appears to contemplate such an inquiry. [Cites].”

“The procedural right under discussion is, ... a product of implication, and while the implication of terms may be both necessary and desirable, it is a task to be carried out by any court, particularly a national court, with extreme caution. This is because states ordinarily seek to express the terms on which they agree in a Convention such as this; terms which are not expressed may have been deliberately omitted; terms, once implied, are binding on all member states, and may be terms they would not have been willing to accept. I find it impossible to conceive that the proud sovereign states of Europe could ever have contemplated binding themselves legally to establish an independent public inquiry into the process by which a decision might have been made to commit the state’s armed forces to war.”

“Both the [High Court] judge, [cite] and the Court of Appeal, [cite] dismissed the Claimants’ claim, despite the sympathy they felt for the Claimants personally. Although my own reasons are simpler, and do little justice to the arguments of counsel, I reach the same conclusion. I would dismiss the appeal ...” [Paras. 8‑10].

Citation: Regina (Gentle et al.) v. Prime Minister [2008] 2 W.L.R. 879; [2008] U.K.H.L. 179; 2008 WL 833633 (HL); [2008] U.K.H.L. 20 (April 9, 2008).

POLITICAL QUESTION

District of Columbia Circuit dismisses common law claims by widow of Guatemalan rebel fighter who was allegedly killed with support of U.S. government officials because such matters involve Political Questions or fall within FTCA’s “foreign country” exception to waiver of immunity

Jenny Harbury (Plaintiff), a U.S. citizen, is the widow of the Guatemalan rebel fighter Efrain Bamaca‑Velasquez, whom the Guatemalan army allegedly killed during that country’s civil war. She sued numerous U.S. government officials, including CIA Directors and a Secretary of State, who were allegedly involved in the mistreatment and death of her husband.

Accordingly to the complaint, during the 1990s, the CIA hired and trained Guatemalan army officers as informants to gather information about the rebel forces. The CIA allegedly knew that the informants would use torture to extract such information. Guatemalan forces captured Plaintiff’s husband in March 1992, and he allegedly committed suicide. Plaintiff maintains, however, that the Guatemalan military forces tortured and killed him.

The District Court dismissed most of her claims early on. Only Plaintiff’s common law claims against individual CIA defendants remained. These alleged that the CIA employees conspired to cause the imprisonment, torture and death of Plaintiff’s husband. In March 2000, Attorney General Janet Reno certified that the individual CIA defendants had acted within the scope of their employment; this removed those defendants from the tort action and substituted the U.S. as the sole defendant.

The District Court then dismissed the remaining common law tort claims because the Federal Tort Claims Act (FTCA) does not extend the U.S.’s waiver of sovereign immunity to acts that took place in a foreign country. Plaintiff appealed, arguing inter alia that the CIA defendants did not act within the scope of their employment under District of Columbia law because “torture can never fall within the scope of employment.” Plaintiff also claims that some of the injuries, such as her emotional distress, occurred in the U.S. and are thus not barred by the FTCA’s foreign country exception. Plaintiff appealed.

The U.S. Court of Appeals for the District of Columbia Circuit, however, affirms on two bases. First, the case presents a non‑justiciable Political Question, and second, the FTCA governs Plaintiff’s claims so that sovereign immunity does apply since the complained of activities took place in a foreign country.

The Court first turns to the FTCA. The FTCA is a limited waiver of the government’s sovereign immunity; it allows injured plaintiffs to sue the U.S. in federal court for tortious acts committed by government employees within the scope of their employment. 28 U.S. C. Sections’ 1346(b), 2671‑80. The FTCA, however, contains several exceptions, among them for tort acts that took place in foreign countries. 28 U.S. C. Section 2680.

Here, the FTCA governs Plaintiff’s claims. In Rasul v. Myers, 512 F.2d 644 (D.C. Cir. 2008), see 2008 International Law Update 9, former Guantanamo Bay detainees sued a former Secretary of Defense and other government officials. The Attorney General certified that the officials had acted within the scope of their employment, and thus converted the claims into FTCA claims against the U.S. government. The plaintiffs challenged that certification, but the court found that the alleged torts were incidental to the defendants’ legitimate employment duties.

The conclusion in the present case is the same: the jobs of the individual CIA defendants here were to hire and manage informants and to gather intelligence. In performing those duties, they worked with individuals who abused and killed Plaintiff’s husband. The CIA Defendants’ actions were “foreseeable” as a “direct outgrowth” of their responsibility to gather intelligence on behalf of the government. See Rasul, above at 657.

Also in this case, the government validly converted Plaintiff’s state law claims into FTCA claims leading the court to dismiss based on the “foreign country” exception. The Court also rejects Plaintiff’s claims that her distress did take place in the U.S. as “creative pleading.” Her new exception would swallow the foreign country exclusion whole.

The Court then turns to the Political Question issue. This doctrine bars judicial resolution of issues which the Constitution exclusively commits to one or both of the elected branches of the Federal Government. See Baker v. Carr, 369 U.S. 186, 217 (1962).

The rulings in three analogous Political Question precedents in the D.C. Circuit require dismissal of Plaintiff’s claims. These are: Schneider v. Kissinger, 412 F.3d 190, 192 (D.C. Cir. 2005) (plaintiffs alleged that National Security Advisor approved the kidnapping and murder of General Rene Schneider in Chile); Gonzalez‑Vera v. Kissinger, 449 F.3rd 1260 (D.C. Cir. 2006) (National Security Advisor allegedly supported the coup d’etat in Chile); and Bancoult v. McNamara, 445 F.3d 427 (D.C. Cir. 2006) (U.S. officials allegedly caused the forcible relocation of residents of Diego Garcia so as to establish a military base there).

“Under our recent decisions in Schneider, Gonzalez‑Vera, and Bancoult, the political question doctrine plainly applies to this case. In all three cases, as in Plaintiff’s case, the Attorney General certified that the defendants had acted within the scope of their employment. [Cites]. In Schneider and Gonzalez‑Vera, as in Plaintiff’s case, it was contended that U.S. officials were responsible for physically abusing and killing foreign nationals in their home country. [Cites] And although the plaintiffs in all three cases argued that they were challenging specific acts and not general Executive Branch foreign policy decisions, this Court reasoned that the cases sought determinations whether the alleged conduct should have occurred, which impermissibly would require examining the wisdom of the underlying policies.[Cites].”

“In sum, we find no remotely plausible basis to distinguish this case from [the above precedents]. Therefore, ... we must dismiss Plaintiff’s claims based on the political question doctrine.” [Slip op. 8‑9].

Citation: Harbury v. Hayden, 522 F.3d 413 (D.C. Cir. 2008).

German Constitutional Court restricts cyber spying by government authorities. The German Constitutional Court (Bundesverfassungsgericht) has held that government authorities may not remotely spy on suspected criminals and terrorists (cyber spying). Cyber Spying involves using software to extract information from a remotely situated target computer. The Court has held that such investigations violate a personal right to privacy and the government can use it only in exceptional cases. In this case, investigatory authorities in the State of North Rhine‑Westphalia began using cyber spying to investigate criminal suspects pursuant to a local statute. A journalist, a member of a leftist political party, and three lawyers brought a constitutional complaint against the State law which allows such investigatory techniques. The Court held, in particular: that information technology is very important for the personal development of many citizens. The acquisition of information from such citizens’ computer hard drives would even enable government authorities to create a personality profile. Thus, the law should protect such information. The current constitutional protections of (1) telecommunications secrecy and (2) of the inviolability of the living space are not adequate to achieve this result. While telecommunications secrecy does protect e‑mail correspondence B though the government may monitor it in appropriate cases B entering a suspect’s computer enables the authorities to look into matters unrelated to any e‑mail communications. In addition, the State Law at issue does not meet the constitutional requirements of proportionality. It allows high‑intensity inference with fundamental rights, and would require procedural safeguards such as warrants to protect the affected individuals. The Court notes, however, that communications such as internet chats, where the suspect voluntarily discloses information to an undercover investigator, do not require any such safeguards. Citation: [German] Bundesverfassungsgericht, Urteil vom 27. Februar 2008, 1 BvR 370/07; 1 BvR 595/07.

European Union‑United States “Open Skies” Agreement enters into force. The EU‑US Air Transport Agreement, also known as the “open skies” agreement, entered into force on Sunday, March 30, 2008. It is the largest air transport agreement to date, covering markets that account for 60 percent of the world’s air traffic. The Agreement replaces previous existing bilateral arrangements between the U.S. and 21 European nations and sets up an “Open‑Skies Plus framework” between the U.S. and the 27 EU member states. The Agreement authorizes all U.S. and EU air carriers to make direct flights between every U.S. city and every EU city. It also removes prior restrictions on routes, prices, and numbers of weekly flights. Under the previous regime, airlines could only make flights to the U.S. from their home countries. Though the Agreement permits European airlines to make transatlantic flights from all European airports, it bars EU carriers from making purely domestic flights between U.S. cities. Flights between London’s Heathrow Airport and the U.S. will increase by 20 percent . The Agreement limits ownership of U.S. airlines by foreign nationals to 25 percent of voting equity and 49.9 percent of total equity. U.S. nationals may partially own EU airlines so long as majority ownership remains with EU member nations or their nationals. Citation: European Union in the U.S. press release, http://www.eurunion.org/News/press/2008/2008026.htm.

Japanese author wins court case over World War II Okinawa atrocities. The 1994 Nobel laureate, Kenzaburo Oe, won a significant court case over a book he wrote more than 30 years ago. It told the story of how Japanese soldiers persuaded, and sometimes coerced, Okinawan civilians to commit suicide rather than surrender to U.S. forces in the closing days of World War II. The topic is a highly sensitive issue on the several southern Japanese islands; battles raged there from late March through June 1945, leaving more than 200,000 civilians and soldiers dead and hastening the undoing of Japan’s defenses. Historians generally agree that hundreds of Okinawan civilians did kill themselves under such circumstances, and there is a much supporting testimony from survivors and their relatives. Two former army members sued Mr. Oe in 2005, however, alleging that the Defendant’s account was untrue. On March 28, the Osaka District Court ruled for the Defendant. The Court held that “there are reasons to believe” that the military was indeed responsible for such atrocities on Okinawa and other southern islands. The ruling was a major setback for a vocal lobby among Japanese conservatives who have long been trying to discredit or censor materials that document Japanese excesses during the war, such as government‑supported prostitution for the military, the rape of Nanking and other like incidents. The U.S. occupied Okinawa until 1972. Citation: The Associated Press (online); Tokyo, Japan; Friday, March 28, 2008 at 08:26:19 GMT (byline of Mari Yamaguchi, AP writer).

Brazilian state court bans video game based on bullying. According to an April 10 report of a prosecutor in Rio Grande do Sul state, Brazil, a state court has prospectively banned the sale of the U.S. marketed video game “Bully” throughout Brazil. A local youth support center had asked for the ban. The court found that its content is overly violent for playing by younger children and teens. According to the announcement, “The aggravating factor is that all the [violent] action takes place inside a school. That is not acceptable.” RockstarGames, a wholly‑owned subsidiary of Take‑Two Interactive Software, Inc., had developed the game. The principal corporation has its domestic headquarters in New York City and its chief foreign headquarters in Geneva, Switzerland. JPF Maggazine is the main Brazilian distributor of “Bully.” The game enables players to follow the daily life of a 15‑year‑old student as he struggles to find ways of dealing with teachers and cliques at his boarding school. In October 2006, the game had appeared in the U.S. for playing through the Sony Corporation’s PlayStation 2 gaming console. In March 2008, it also became playable on Microsoft Corp.’s Xbox 360 and Nintendo Co.’s Wii. One of RockstarGames’s top sellers is the “Grand Theft Auto” game series; in playing these games, youngsters and others can hone their ability to hijack cars and to run over pedestrians.

Citation: Associated Press (online), Sao Paulo, Brazil, Friday, April 11, 2008 at 14:02:09 GMT (byline of Tales Azzoni AP Writer) and Website of Take‑Two Interactive Software, Inc.

New Chinese labor law may price some U.S. and other foreign companies out of China. Wei Hoqiang used to work in a toy factory . His boss had forced him to sign a labor contract it did not allow him to read. His salary was 30 cents an hour, and he worked in a room that was freezing during the winter and stifling during the summer. On January 1, 2008, however, a landmark new labor contract law went into effect. The law seeks to declare war on labor abuses such as forced labor, withholding of pay, and unwarranted dismissals. A major victory for Chinese workers, it has emboldened legions of workers in recent months to talk about quitting or striking to insist on higher wages and better work conditions. For companies already battling inflation, high energy costs, the falling dollar and environmental crackdowns, however, the new law has been ruinous. It has added to the rising cost of doing business in China; in turn, this has led to the flight of thousands of factories from major industrial areas like the Pearl River Delta in southern China. According to a first quarter 2008 survey by the Shanghai branch of the American Chamber of Commerce along with Booz Allen Hamilton, 20 percent of companies with foreign ownership or investment have concrete plans to move some or all of their operations out of China. Another study by the Federation of Hong Kong Industries reports that, in the Delta, which turns out about 1/3 of the country’s exports, about 10,000 companies are planning to scale back or shut down. Citation: Washington Post Foreign Service, Washington, D.C., Monday April 14, 2008, Page A01 (byline of Ariana Eunjung Cha).