2010 International Law Update, Volume 16, Number 3 (March)

2010 International Law Update, Volume 16, Number 3 (March)

  

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

BANKRUPTCY

In international bankruptcy matter, Fifth Circuit holds that bankruptcy court has jurisdiction to offer avoidance relief under foreign law in Chapter 15 bankruptcy proceeding

Condor Insurance, Ltd., an insurance and surety bond business located in Nevis (in the Leeward Islands chain of the eastern Caribbean), filed a petition in a Nevis court to “wind down” (similar to a Chapter 7 proceeding in the U.S.) The Joint Official Liquidators (JOL) in the Nevis proceeding filed a Chapter 15 proceeding in a federal bankruptcy court in Mississippi. The suit alleges that Condor Insurance had allegedly used fraud when it transferred $313 million in assets to Condor Guaranty, Inc., a U.S. corporation.

A Chapter 15 proceeding permits a foreign representative of a foreign insolvency proceeding to seek the aid of the U.S. bankruptcy courts in an ancillary proceeding once the bankruptcy court has recognized the foreign proceeding as a foreign main or non‑main proceeding under the Chapter. Condor Guaranty moved to dismiss contending that avoidance actions are only available in U.S. Chapter 7 or Chapter 11 bankruptcy proceedings. Since Condor Insurance is a foreign company, Condor argued that it cannot file a Chapter 7 or 11 case in the U.S.

The Bankruptcy Court agreed and dismissed the Chapter 15 proceeding. The district court affirmed it. The foreign representatives appealed. The U.S. Court of Appeals for the Fifth Circuit reverses. It rules that the bankruptcy court does have jurisdiction in cases of this kind.

The Court first clarifies the issue at bar. “There is no question that the bankruptcy court has jurisdiction to recognize the Nevis proceeding as a foreign main proceeding. Our question is whether the exceptions listed in § 1521(a)(7) to the relief available in the ancillary proceeding exclude not only avoidance actions under U.S. law but also exclude reliance upon [the] domestic law of the foreign main proceeding. ...” [Slip op. 2]

“Our interpretive task in part guided by the circumstance that Chapter 15 implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross‑B order Insolvency. ... Chapter 15 directs courts to ‘consider its international origin, and the need to promote an application of th[e] chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions’ in interpreting its provisions. ...” [...]

“The UNCITRAL Model Law represents a culmination of a long standing effort by the United States and other countries to develop a uniform system guiding needed cooperation. ... That the final negotiations included thirty‑six UNCITRAL members—including the United States—representatives of forty observer states, and thirteen international organizations evidences its widespread support. ...The Model Law was ‘expressly designed to be integrated into local insolvency law’ ... and Chapter 15 closely hewed to the text of the enactment. ‘Any departures from the actual text of the Model Law . . . were [to be] as narrow and limited as possible.’ ... All this [was] part of an effort by the United States to harmonize international bankruptcy proceedings for the benefit of American businesses operating abroad. As directed by Congress, we mind this background as we discern the Chapter’s reach.”

“Chapter 15 provides for the ‘recognition’ of a ‘foreign proceeding’ and an ancillary proceeding to assist the foreign proceedings. To be recognized, the foreign proceeding must either fall within the definition of a ‘foreign main proceeding’... or ‘foreign nonmain proceeding.’ ... With recognition, the foreign representative may access federal courts with its claims under Chapter 15.”

“The foreign representatives seek relief under § 1521(a) of Chapter 15. Section 1521(a) provides that the bankruptcy court may grant ‘any appropriate relief,’ including staying various aspects of the proceedings, suspending rights of transfer, providing for discovery, granting administrative powers to the foreign representatives and ‘granting any additional relief that may be available to a trustee, except for relief available under §§ 522, 544, 545, 547, 548, 550, and 724(a).’ ...”

“This exception does not exist in the Model Law. ... While it is plain that relief under the listed sections is excluded, the statute is silent regarding proceedings that apply foreign law, including any rights of avoidance such law may offer.”

“The sections explicitly excepted from § (a)(7) are often referred to as ‘avoidance powers’—a trustee’s powers to avoid the transfer of debtor property that would deplete the debtor’s estate at the expense of creditors. Such powers, generally described, include those addressing exempt property (§ 522), the ‘strong arm’ power, which permits the trustee to act as a judicial lien creditor (§ 544), the power to avoid statutory liens (§ 545), the power to avoid transactions as ‘preferences’ (§ 547), the power to avoid fraudulent transfers (§ 548) ...” [...]

“Generally where there are enumerated exceptions ‘additional exceptions are not to be implied, in the absence of a contrary legislative intent.’ ... The statute provides for ‘any relief’ and excepts only actions under [the above cited] sections ... and includes no other language suggesting that other relief might be excepted. While the statute denies the foreign representative the powers of avoidance created by the U.S. Code absent a filing under Chapter 7 or 11 of the Bankruptcy Code, it does not necessarily follow that Congress intended to deny the foreign representative powers of avoidance supplied by applicable foreign law. If Congress wished to bar all avoidance actions whatever their source, it could have stated so; it did not. ...”

“The stated purpose and overall structure of Chapter 15 reflects its international origin and strongly suggests the answer—§ 1521(a)(7) does not exclude avoidance actions under foreign law. Section 1501 states the purpose of the Chapter is to further cooperation between the U.S. courts, parties in U.S. bankruptcy proceedings and foreign insolvency courts and authorities, as well as promote ‘greater legal certainty,’ ‘fair and efficient administration of cross‑border insolvencies that protects the interests of all creditors,’ ‘protection and maximization of the value of the debtor’s assets,’ and ‘facilitation of the rescue of financially troubled businesses.’ ... Whatever its full reach, Chapter 15 does not constrain the federal court’s exercise of the powers of foreign law it is to apply.”

“Chapter 15 functions through the recognition of a foreign proceeding. ... Only with recognition does broad relief become available: the representative is able to sue and be sued in U.S. courts, ... to apply directly to a U.S. court for relief, ... to commence a non‑Chapter 15 case, ... to intervene in any U.S. case in which the debtor is the party, ... and U.S. courts must grant comity and cooperation to the foreign representative. ... Under § 1520, upon recognition of a foreign main proceeding, certain relief is granted automatically including adequate protection, an automatic stay, and the power to prevent transfers of the debtor’s property. ... Additionally, as a catch‑all, under § 1507 the court has authority to provide additional assistance to a foreign representative subject to the restrictions elsewhere in the Chapter. ...” [...]

“ ...[T]he Model Law permitted the recognizing court to grant any appropriate relief and granted standing to the foreign representatives to bring avoidance actions under the law of the recognizing state. ... This purposefully left open the question of which law the court should apply ...—in deference to the choice of law concerns raised by the United States.” [...]

“This case is illustrative of Chapter 15’s response to concerns of the UNCITRAL delegation. The foreign representatives are not seeking to mix and match foreign and U.S. law—they only seek the application of Nevis law. The foreign representatives gain no powers not contemplated by the laws of Nevis through filing suit in the United States and the distribution regime established by Nevis law is not threatened by the potential application of conflicting avoidance rules.”

“Congress did not intend to restrict the powers of the U.S. court to apply the law of the country where the main proceeding pends. Refusing to do so would lend a measure of protection to debtors to hide assets in the United States out of the reach of the foreign jurisdiction, forcing foreign representatives to initiate much more expansive proceedings to recover assets fraudulently conveyed, the scenario Chapter 15 was designed to prevent. ...” [Slip op. 3‑13]

Chapter 15 was intended to facilitate cooperation between U.S. courts and foreign bankruptcy proceedings. Thus, the Court reads § 1521(a)(7) to permit relief under foreign avoidance law.

Citation: In re Condor Insurance Limited, No. 09–60193 (5th Cir. March 17, 2010).

CRIMINAL LAW

In matter of first impression, Eleventh Circuit finds that 18 U.S.C. § 2251A [selling or buying children for sexual purposes] applies extraterritorially to conduct by U.S. person that occurred in Cambodia

In 2004, Cambodian police detained one Kent Frank, a U.S. citizen (Defendant) in Cambodia after Officer Keo of the Cambodian National Police (CNP) saw several apparently underage girls leaving Defendant’s hotel room. He interviewed them. Defendant later confessed to CNP officers that he paid the underage girls money for sex acts and for letting him take sexually explicit photographs. Cambodian officers eventually released Defendant who fled to Vietnam. U.S. officials traced him to Vietnam and arrested him there.

A Florida federal court convicted Defendant of various offenses arising out of his sexual acts with the minors. He appealed his conviction claiming, inter alia, that the trial court should have suppressed his Cambodian confession and that 18 U.S.C. § 2251A has no application outside U.S. territory. The U.S. Court of Appeals for the Eleventh Circuit, however, affirms.

Defendant first argued that the lower court should have suppressed his confession in Cambodia because he had not received any Miranda warnings. The district court found that Miranda warnings were not required in this case and that Defendant’s confession was voluntary.

The Court of Appeals agrees. “Generally, ‘statements obtained by foreign officers conducting interrogations in their own nations have been held admissible despite a failure to give Miranda warnings to the accused.’ ... The reasoning behind this rule is that the exclusion of evidence by an American court has little to no deterrent effect on foreign police practices. .. That is, our ‘Constitution cannot compel such specific, affirmative action by foreign sovereigns.’ ... Two exceptions to this general rule are: (1) if the foreign officers’ conduct ‘shocks the conscience of the American court’ and (2) if ‘American officials participated in the foreign . . . interrogation, or if the foreign authorities were acting as agents for their American counterparts,’ also known as the “joint venture” doctrine. See U.S. v. Heller, 625 F.2d 594, 599 (5th Cir. 1980)] ...”

“... Defendant’s statements do not fall under the joint venture doctrine. American officials did not know of Defendant’s presence in Cambodia until after he was arrested and did not participate in Defendant’s detention or interrogation. When Agent Phillips attempted to interrogate Defendant, after giving him Miranda warnings, he was cut short when Cambodian officers came in to bring Defendant before a judge. At all times, the Cambodian officers acted out of their own interest in determining whether Defendant violated Cambodian laws. The officers then released Defendant and allowed him to travel to Vietnam without notifying the United States. Consequently, there is no evidence that the Cambodian officers acted as agents of the United States. ...”

“Second, Defendant’s interrogation does not shock the judicial conscience. Defendant was not held in a jail but allowed to sleep overnight in Officer Keo’s office. The interview lasted less than two hours. Defendant was treated with respect, offered food and water, and was not beaten or threatened in any way. Based on these facts, we also find that Defendant’s confession was voluntary. ... As such, the district court did not err in denying Defendant’s motion to suppress his statements resulting from interrogation by Cambodian officials.” [Slip op. 7‑9]

Defendant next argues that 18 U.S.C. § 2251A should not apply to conduct in Cambodia. In particular, §§ 2251A(b)(2)(A) and (C)(1) provide that “[w]hoever purchases ... a minor ... with intent to promote ... the engaging in of sexually explicit conduct by such minor for the purpose of producing any visual depiction of such conduct,” and “in the course of the conduct described ... the minor or the actor traveled in or was transported in or affecting interstate or foreign commerce” may be imprisoned for 30 years or for life.”

Congress does have the power to apply its laws extraterritorially. The Court then reviews whether Congress so intended in this case. “We presume that statutes only apply domestically, and give extraterritorial effect ‘where congressional intent is clear.’ ... However, in United States v. Bowman, 260 U.S. 94, 97‑98 ... (1922), the Supreme Court held that extraterritorial application can be inferred in certain cases even absent an express intention on the face of the statute.”

“We have interpreted Bowman to hold that extraterritorial application ‘may be inferred from the nature of the offense[] and Congress’ other legislative efforts to eliminate the type of crime involved.’ ... Crimes fall under the Bowman exception when limiting ‘their locus to the strictly territorial jurisdiction would be greatly to curtail the scope and usefulness of the statute and leave open a large immunity for frauds as easily committed by citizens . . . in foreign countries as at home.’ ... Thus, we have upheld extraterritorial application of statutes ‘where the nature of the activities warranted a broad sweep of power.’ ...”

“We must determine whether Congress intended § 2251A to apply to United States citizens engaged in conduct wholly outside of the United States. To date, no circuit court has decided this issue. ... After considering the language of the statute, the nature of the offense covered by 18 U.S.C. § 2251A, and Congress’s other efforts to combat child pornography, we find that 18 U.S.C. § 2251A applies extraterritorially to reach Defendant’s conduct.”

“[...] Section 2251A requires that, in the course of the prohibited conduct, the defendant or minor ‘travel[] in . . . interstate or foreign commerce,’ making plain Congress’s intent that the statute sweep broadly and apply extraterritorially. 18 U.S.C. § 2251A(c)(1) ... For example, 18 U.S.C. § 2423(c), which punishes anyone ‘who travels in foreign commerce, and engages in any illicit sexual conduct,’ has been applied extraterritorially. United States v. Clark, 435 F.3d 1100, 1106 (9th Cir. 2006) (holding that the title of the statute, ‘Engaging in illicit sexual conduct in foreign places,’ and the requirement that the defendant ‘travel[] in foreign commerce,’ evinced Congressional intent to apply the statute extraterritorially) ...”

“Furthermore, extraterritorial application is supported by the nature of § 2251A and Congress’s other efforts to combat child pornography. Section 2251A is part of a comprehensive scheme created by Congress to eradicate the sexual exploitation of children and eliminate child pornography, and therefore warrants a broad sweep. ... Since 1977, Congress has passed numerous statutes to combat child pornography and the sexual exploitation of children. ... As part of this effort, § 2251A was included in the Child Protection and Obscenity Enforcement Act of 1988, Pub. L. No. 100‑690, Title VII, Subtitle N, § 7512, 102 Stat. 4181 (1988) (‘1988 Act’). .... The statute falls under Chapter 110 of Title 18 of the United States Code, which punishes offenses dealing with the sexual exploitation and other abuse of children. [...]”

“Congress has also amended its laws to allow for extraterritorial application when it has discovered loopholes in its statutory scheme. ... For instance, Congress amended 18 U.S.C. § 2423 in 2003 to eliminate the requirement that the government had to prove the intent to engage in sexual activity, and instead allowed prosecution where the defendant traveled in foreign commerce and actually engaged in illicit sexual activity with a minor. See PROTECT Act, § 105, 117 Stat. at 654, codified as amended at 18 U.S.C. § 2423 (c); H.R. Rep. No. 107‑525 (2003) (Congress noted that this ‘legislation [would] close significant loopholes in the law that persons who travel to foreign countries seeking sex with children are currently using to their advantage in order to avoid prosecution’). Additionally, Congress enacted 18 U.S.C. § 2251(c) to clarify that acts covered under 18 U.S.C. § 2251(a) applied extraterritorially. See H.R. Rep. No. 108‑66, at 62‑63 (2003) (Conf. Rep.) (implying that the enactment of § 2251(c) was partly in response to Thomas).”

“The language of § 2251A requiring travel in foreign commerce, the broad sweep warranted by child pornography offenses, and Congress’s repeated efforts to prevent exploiters of children from evading criminal punishment demonstrate that Congress intended § 2251A to apply extraterritorially.” [Slip op. 10‑16]

Finally, the exercise of jurisdiction over Defendant comports with international law. Defendant is a U.S. citizen, thus there was jurisdiction based on the “nationality principle” which permits a country to exercise wide‑reaching criminal jurisdiction over one of its nationals.

Citation: United States v. Frank, 599 F.3d 1221 (11th Cir. 2010).

EXTRADITION

Eighth Circuit rules in criminal proceeding that Doctrine of Specialty and U.S.‑Mexico Extradition Treaty do not bar consideration of prior criminal history at Federal Court sentencing

Dino Lomeli, a Mexican citizen(Defendant) ran an auto repair shop in Corpus Christi, Texas. There, he loaded cars with marijuana for distribution in Iowa. The U.S. authorities charged Defendant with many crimes, including murder, but he fled to Mexico before they could arrest him. Mexico extradited Defendant back to the U.S. in 2004. He pled guilty to murder in a separate Texas state court proceeding and an Iowa federal court convicted him of drug‑related offenses.

At the federal sentencing proceeding, Defendant argued that the court should not consider his history of criminal activities in the U.S. because it would violate the treaty under which Mexico extradited him.

In disagreeing, the district court stated that if “the computation of the criminal history under the advisory guidelines is found to violate the Extradition Treaty between the United States of America and the United Mexican States (May 4, 1978, 31 U.S.T. 5059) (the Treaty), the Court would still impose the very same sentence after considering the statutory factors at 18 U.S.C. 3553(a), and for the same reasons that I have previously stated: Drug quantity, criminal history, his leadership role ...”

Defendant filed an appeal claiming that the doctrine of Specialty in the Treaty prohibits an American court from considering his prior criminal history in the sentencing. The U.S. Court of Appeals for the Eighth Circuit, however, affirms the conviction and sentence.

The Treaty provides in Article 17 that “[a] person extradited under the present Treaty shall not be detained, tried or punished in the territory of the requesting Party for an offense other than that for which extradition has been granted nor be extradited by that Party to a third State unless” certain exceptions apply.

“Article 17 is an explicit recitation of a general rule of extradition known as the Doctrine of Specialty. ... In general, the doctrine of specialty provides that ‘a defendant may be tried only for the offense for which he was delivered up by the asylum country.’ ... The doctrine dates back to the mid‑1800s, but was first adopted by the Supreme Court in 1886. ... [...]”

“The doctrine is now commonly included in many U.S. extradition treaties. ... It ‘is based on principles of international comity and is designed to guarantee the surrendering nation that the extradited individual will not be subject to indiscriminate prosecution by the receiving government.’ ...” [500‑501]

Defendant claims that considering his criminal history violates the Treaty as well as the doctrine of specialty. In his appellate brief, Defendant also quotes portions of his extradition paperwork filed by the Mexican government: “Section 10, Subparagraph II of the [Mexican] International Extradition Law demands the requesting country’s commitments that crimes committed prior to the extradition, omitted in the complaint as well as crimes not connected with the one specified in such complaint, shall not be subject to the process, not even as aggravating circumstances, unless the Defendant consents freely to be judged for such. ... This commitment is set forth in Section 17 of the Extradition Treaty between the United States of Mexico and the United States of America. ...”

The Court disagrees. First, “Defendant’s arguments run contrary to clearly established law in this circuit and others. We have previously held that the doctrine of specialty was not violated when a sentencing court took into account uncharged conduct when increasing a defendant’s parole guideline. ... [W]e rejected the argument ‘that the rule of specialty ... was intended to preclude the receiving government from taking any pre‑extradition conduct into account when making parole decisions.’ ... Instead, we held that ‘the doctrine is generally understood to prohibit indiscriminate prosecution of extradited individuals rather than to prohibit the receiving state’s consideration of pre‑extradition offenses while prosecuting the individual for crimes for which extradition was granted.’ ...”

“[T]he doctrine of specialty does not operate to bar consideration of all pre‑extradition conduct when determining a defendant’s punishment for the extradited offense. These holdings are in line with those of our sister circuits that have allowed nonextradited conduct to affect a defendant’s sentence. ...” [501‑502]

Furthermore, the Supreme Court has held that the “use of evidence of related criminal conduct to enhance a defendant’s sentence for a separate crime within the authorized statutory limits does not constitute punishment. Witte v. United States, 515 U.S. 389, 399... (1995).”

Finally, the Court expresses “some doubt whether Mexico intended the doctrine of specialty to shield Defendant in the manner he asserts. Although Defendant’s extradition resolution purports to prohibit the United States from using Defendant’s pre‑extradition conduct ‘even as aggravating circumstances,’ the resolution grounds this ‘commitment’ in Article 17 of the Treaty. As explained above, Article 17 does not prohibit the district court’s consideration of Defendant’s criminal history when sentencing him for the extradited offenses, and we fail to see how Defendant’s extradition resolution changes that analysis.”

“In sum, we reject Defendant’s argument that the doctrine of specialty prohibited the district court from correctly calculating Defendant’s criminal history under the Guidelines and from using that calculation to determine his advisory Guidelines sentencing range. To hold otherwise would ‘permit foreign intrusion into the evidentiary or procedural rules of the requisitioning state.’... The plain language of the Treaty prohibits the United States from punishing Defendant for nonextradited conduct. We hold that the district court’s consideration of Defendant’s [prior] criminal history did not constitute punishment for nonextradited conduct, therefore the treaty was not violated.” [502‑503]

Citation: United States v. Lomeli, 596 F.3d 496 (8th Cir. 2010).

JURISDICTION (PERSONAL)

German Federal Court of Justice finds personal jurisdiction over New York Times and its columnist based on allegedly libelous article published on Times’ website

In June 2001, Raymond Bonner (Codefendant), a journalist on the New York Times (Defendant ), wrote an article about Ronald Lauder, a U.S. businessman; it dealt with Lauder’s television licensing activities in the Ukraine. The article appeared in the Defendant’s print edition as well as in the online version. Lauder’s business allegedly associated with shady characters such as Boris Fuchsmann (Plaintiff).

The article states that “[a] 1994 F. B. I. report on Russian organized crime in the United States described Plaintiff as a gold smuggler and embezzler, whose company in Germany was part of an international organized crime network. He is barred from entering the United States.” The report also described Plaintiff’s company as part of this Russian network.

Plaintiff and his company Innova Film GmbH of Dusseldorf, Germany (Plaintiffs) proceeded to sue the Times and Bonner (Defendants) in the German courts.. To support jurisdiction, Plaintiff alleged that the Defendant Times was on sale at a local book store and at airport newsstands in Dusseldorf, and that subscribers and book stores in the Dusseldorf area received at least 30 copies of the Defendant Times.

Furthermore, Plaintiffs claimed international jurisdiction because the article appeared in the Defendant’s online version, which is intended to be accessible internationally. The Defendants averred that mere international accessibility of the article is not enough and that jurisdiction requires an independent domestic connection. In this case, there was no further German domestic connection because the article describes a U.S. personality, the article appeared in English not German, and aimed at a U.S. readership. The District Court in Dusseldorf [LG Dusseldorf] dismissed Plaintiff’s case for lack of jurisdiction.

The Court of Appeals [OLG Dusseldorf] affirmed. It explained that: “There is agreement that because of the unavoidable technical features of the Internet ... , the mere accessibility of a website from Germany cannot establish the international lex loci commissii of the German courts. Rather, it must be decisive whether the website the infringed party means to challenge is accessible in Germany in accordance with the intended use.”

“This is not the case unless the website has a sufficient connection to Germany beyond the mere fact that it is [electronically] accessible. Only in that case does the publisher of the press product demonstrate that he has the intention to address Internet users in Germany through his website. Accordingly, it is to be determined for each specific case whether the information presented on a website, based on an objective assessment of all relevant circumstances of the case, demonstrably addresses users in a specific country in accordance with the intended use ...”

“Indications as to whether a website has a connection to Germany beyond the mere fact that it is accessible may be the website language, the content of the website, the number of access transactions to the website by Internet users in Germany, the type of products offered on the website ... or, in the case of press publications, the content of the publication.”

“Accordingly, an analysis of the content of the allegedly infringing article decides whether the circulating party means to reach a specific country or whether there is any connection to that country. Based on these criteria, it cannot be presumed that the disputed article of Defendants has a ‘connection to Germany’ or is meant to reach the district of this Court. The article in dispute is largely adapted to a U.S. audience and particularly to an audience in the territory of New York.”

“It has been published in the news section ‘Metropolitan Desk’, the local news section which is made for and read in New York City. On the Internet, the article is displayed under the line ‘Metropolitan Desk.’ The article reports on the suspicion that media entrepreneur Ronald S. Lauder, who is well known in New York, paid more than 1 million dollars in bribes to Ukrainian officials to obtain a Ukrainian TV license. ...” [from the English translation of the Court of Appeals opinion, available at www.medialaw.org]. Plaintiff petitioned to the BGH, Germany’s highest court. The BGH granted the petition and reverses the Court of Appeals.

The BGH explains its disagreement with the Court of Appeals and therefore remands for further proceedings. In its opinion of March 2, 2010, the BGH finds enough links to Germany on which to base personal jurisdiction over both Defendants. The BGH holds that German courts may have jurisdiction where an internet article has clear references to Germany and adversely affects an individual’s personal rights (Section 16 of the opinion). The mere international accessibility of the content, however, is insufficient for jurisdiction. (Section 17).

German courts do have international jurisdiction according to Section 32 of the civil procedure rules [§32 ZPO] (see Section 8). Specifically, a court in the district where the tort occurred has jurisdiction. The “place where the tort occurred” is either the place where the tortious act was committed, or the place where the effect occurs.

In this case, the “place where the effect occurs” is Germany as Plaintiff’s personal rights were adversely affected in Germany. There is a clear connection to Germany because it refers to a German resident, Plaintiff, and links him to Russian organized crime. Based on the facts of this case, it is highly likely that the article was and will be read in Germany.

The NY Times is an internationally renowned newspaper with a global reach. Its online edition is accessible in Germany. When a user registers for access to the NY Times online version, “Germany” is included in the drop‑down menu as one of the possible countries of residence. At the time of the publication of the article, there were approximately 15,000 registered German users of the NY Times (about 0.5% of the registered NY Times online users).

The BGH cites a French court decision under EC Council Regulation (EC) No 44/2001 of 22 December 2000 on “Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.” There, the French court held that the number of views of the allegedly tortious content within the court’s jurisdiction is an important criterion. Tribunal de grande instance de Paris, Ordonnance du Juge de la Mise en Etat, rendue le 27 Avril 2009, 17. Ch. Press‑Civile, Nr. Rg. 08/15331; Ordonnance du Juge de la Mise en Etat, rendue le 6 Juillet 2009, 17. Ch. Press‑Civile, Nr. Rg. 08/15331 (Section 14).

The BGH, however, considers the number of internet views only an indication of the required domestic connection because the number of internet views is often difficult to determine, and such data is not always accessible for data protection reasons. (Section 19 ). Thus, the more important factor is whether the content has an objectively clear domestic connection so that a conflict of interests arises domestically (here: the interest of the Plaintiff in protecting his personal rights and the Defendants’ interest in presenting themselves on the internet and providing news). (Section 20).

The BGH also cites a supporting Australian case, Dow Jones and Company Inc. v. Gutnick [2002] HCA 56; 210 CLR 575; 194 ALR 433; 77 ALJR 255.

Citation: German Federal Court of Justice [Bundesgerichtshof, BGH], Urteil vom 2. Maerz 2010 ‑ VI ZR 23/09, available on the Court’s website http://juris.bundesgerichtshof.de. A translation of the Court of Appeals opinion is available at www.medialaw.org. The New York Times published the article at issue on June 12, 2001; it is available in the archives of www.nytimes.com.

JURISDICTION (PERSONAL)

Texas Supreme Court holds that German manufacturer is subject to personal jurisdiction in Texas where manufacturer specifically targeted Texas as one of its marketplaces; Defendant’s use of distributor‑intermediary fails to insulate Defendant from Texas jurisdiction

Spir Star AG (Defendant) is a German manufacturer of high‑pressure hoses and fittings. The company set up a distributorship in Houston, Texas in 1995. The distributorship, Spir Star Limited, is the Defendant’s exclusive U.S. distributor for its products but it also distributes the goods of other manufacturers.

In 2003, a high pressure hose manufactured by Defendant, and supplied to a U.S. company through the Texas distributorship, ruptured and injured Louis Kimich (Plaintiff), an employee. Defendant filed a special appearance in the Texas trial court, which the court denied. The Court of Appeals affirmed.

The Supreme Court of Texas grants Defendant’s petition for review and affirms.

The Court first outlines the applicable state and federal law. “Texas courts have personal jurisdiction over a nonresident defendant when (1) the Texas long‑arm statute provides for it, and (2) the exercise of jurisdiction is consistent with federal and state due process guarantees. ... Our long‑arm statute reaches ‘as far as the federal constitutional requirements for due process will allow.’ ... Consequently, the statute’s requirements are satisfied if exercising jurisdiction comports with federal due process limitations. ...”

“If a defendant has never invoked the protections that a forum offers its residents, or has no purposeful contact with it, the forum court’s jurisdiction is confined. Personal jurisdiction over nonresident defendants is constitutional only when: (1) the defendant has established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 ... (1945) ...”

“The catchphrase ‘traditional notions of fair play and substantial justice,’ first used in Milliken v. Meyer, 311 U.S. 457, 463‑64 (1940), has its origins in a 1917 decision that referred to both ‘fair play’ and ‘substantial justice’ when the Supreme Court considered whether service by publication comported with the due process clause. ... Since that time, we have incorporated the phrase into our own jurisprudence ... “

“Although this ‘fair play’ and ‘substantial justice’ test is well known to appellate courts, the expression is imprecise. It gains meaning, however, when viewed in light of the ‘minimum contacts’ a defendant has with the forum. Int’l Shoe, supra. at 316. Significant contacts suggest that the defendant has taken advantage of forum‑related benefits, while minor ones imply that the forum itself was beside the point. When a nonresident defendant has purposefully availed itself of the privilege of conducting business in a foreign jurisdiction, it is both fair and just to subject that defendant to the authority of that forum’s courts. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1984).” [Slip op. 1‑2]

In this particular case, the Texas Supreme Court finds that the lower court had specific jurisdiction over Defendant. “A court has specific jurisdiction over a defendant if its alleged liability arises from or is related to an activity conducted within the forum. ... Unlike general jurisdiction, which requires a ‘more demanding minimum contacts analysis,’ ..., specific jurisdiction ‘may be asserted when the defendant’s forum contacts are isolated or sporadic, but the plaintiff’s cause of action arises out of those contacts with the state.’ See 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002).”

“In such cases, ‘we focus on the ‘relationship among the defendant, the forum[,] and the litigation.’‘ ... Specific jurisdiction is appropriate when (1) the defendant’s contacts with the forum state are purposeful, and (2) the cause of action arises from or relates to the defendant’s contacts. ...”

“The ‘touchstone of jurisdictional due process [is] `purposeful availment.’ ... Purposeful availment requires a defendant to seek some ‘benefit, advantage, or profit by availing itself of the jurisdiction.’ .... Thus, sellers who reach beyond one state and create continuing relationships with residents of another state are subject to the specific jurisdiction of the latter in suits arising from those activities. ...”

“Notably, however, a seller’s awareness ‘that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.’ ... Instead, our precedent generally follows Justice O’Connor’s plurality opinion in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 ... (1987) which requires some ‘additional conduct’—beyond merely placing the product in the stream of commerce—that indicates ‘an intent or purpose to serve the market in the forum State.’ Asahi, supra at 112 ...”

“Examples of this additional conduct include: (1) ‘designing the product for the market in the forum State,’ (2) ‘advertising in the forum State,’ (3) ‘establishing channels for providing regular advice to customers in the forum State,’ and (4) ‘marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.’ Asahi, supra at 112 ... In this case, Plaintiff argues that Defendant’s substantial sales plus utilization of Limited as its distributor meets this standard.” [...]

“[O]ur concern is with Defendant’s own conduct directed toward marketing its products in Texas. When an out‑of‑state manufacturer like Defendant specifically targets Texas as a market for its products, that manufacturer is subject to a product liability suit in Texas based on a product sold here, even if the sales are conducted through a Texas distributor or affiliate. See Asahi, supra at 112 (‘Additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State, for example, . . . marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.’).”

“In such cases, it is not the actions of the Texas intermediary that count, but the actions of the foreign manufacturer who markets and distributes the product to profit from the Texas economy. As the U.S. Supreme Court stated in World‑Wide Volkswagen Corp. v. Woodson. 444 U.S. 286, 297... (1980)], purposeful availment of local markets may be either direct (through one’s own offices and employees) or indirect (through affiliates or independent distributors) ...” [...]

“There are several limitations inherent in this rule. First, it is limited to the specific jurisdiction context, because stream‑of‑commerce analysis ‘is relevant only to the exercise of specific jurisdiction; it provides no basis for exercising general jurisdiction over a nonresident defendant.’ ... If sales alone created general jurisdiction, a foreign manufacturer like Defendant could be sued in Texas for labor practices occurring in Germany even though they had nothing to do with Texas.”

“Second, specific jurisdiction is limited to claims that ‘arise out of or relate to’ a nonresident’s forum contacts. Burger King, supra at 472 ... In such cases, there must be a ‘substantial connection’ between the defendant’s contacts and the operative facts of the litigation. ... So when a nonresident’s only contacts with Texas involve indirect sales through a distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales. ...”

“Third, not every product claim against a foreign manufacturer is included; there must be a substantial connection. That similar products were sold in Texas would not create a substantial connection as to products that were not. Similarly, a nonresident that buys a Texas distributor might have no substantial connection with sales that occurred before that purchase. ...”

“Finally, the manufacturer must have intended to serve the Texas market. ... While use of a Texas distributor may satisfy this requirement, there may be situations in which it does not. A Texas distributorship may increase the manufacturer’s bottom line because it is more efficient or has greater access to economies of scale, and not because it is intended to serve Texas consumers. ...”

“Many transactions can be structured to avoid any benefit from, or availment of, Texas law—but not all. A nonresident manufacturer does not avoid Texas law merely by forming a Texas affiliate or utilizing a Texas distributor to sell its products in Texas markets. Just as manufacturers cannot escape liability for defective products by selling them through a subsidiary or distributor, neither can they avoid jurisdiction related to such claims by the same means.” [Slip op. 2‑4]

Defendant has purposefully directed acts towards Texas or purposefully availed itself of the benefits and protections of Texas law. Defendant marketed its products exclusively through the Texas distributor, and Plaintiff’s injuries were the result of Defendant’s purposeful direction of acts towards Texas. Having found specific jurisdiction, the Court reviews whether exercising jurisdiction over Defendant comports with traditional notions of fair play and substantial justice.

“To evaluate this component, we must consider Defendant’s contacts in light of: (1) ‘the burden on the defendant’; (2) ‘the interests of the forum state in adjudicating the dispute’; (3) ‘the plaintiff’s interest in obtaining convenient and effective relief’; (4) the interstate or international judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several nations or states in furthering fundamental substantive social policies. ... To defeat jurisdiction, Defendant must present ‘a compelling case that the presence of some consideration would render jurisdiction unreasonable”—something Defendant has not done. ...”

“Requiring Defendant to defend Plaintiff’s claim in Texas would not pose an undue burden for the company. The fact that Defendant is headquartered in Germany cannot, by itself, defeat jurisdiction. ... Houston is familiar territory for Defendant’s leadership: its president spends six months of the year there (and can carry on Defendant’s business while there), ... two of Defendant’s directors traveled to Houston to establish [the distributor] ... Three of Defendant’s directors collectively own seventy‑five percent of Limited, which will be litigating in Houston.”

“Moreover, Texas has a significant interest in exercising jurisdiction over controversies arising from injuries a Texas resident sustains from products that are purposefully brought into the state and purchased by Texas companies. ... Not only would Plaintiff face an undue burden were he forced to litigate his product liability claim against Defendant in Germany, but because the claims against [the distributorship] will be heard in Texas, it would be more efficient to adjudicate the entire case in the same place. ... In this case, that burden is minimal and is outweighed by Plaintiff’s and Texas’s interests in adjudicating the dispute here. ... Asserting personal jurisdiction over Defendant comports with traditional notions of fair play and substantial justice.” [Slip op. 6‑7]

The Court concludes that a manufacturer is subject to specific personal jurisdiction in Texas when it intentionally targets Texas as the marketplace for its products. Using a distributor‑intermediary provides no haven from the jurisdiction of Texas courts.

Citation: Spir Star AG v. Kimich, 53 Tex. Sup. Ct. J. 423, 310 S.W.3d 868 (Tex. Sup. Ct. 2010).

U.S. and Canada conclude agreement on government procurement. On February 12, 2010, the U.S. and Canada concluded the U.S.‑Canada Agreement on Government Procurement. U.S. Trade Representative, Ron Kirk, and Canadian Minister of International Trade, Peter van Loan, signed the Agreement on behalf of their respective countries. The Agreement provides for U.S. access to Canadian provincial, municipal and federal procurement, based on the terms of the World Trade Organization (WTO) Government Procurement Agreement (GPA). The U.S. grants Canadian companies access to 37 states that are already covered by the GPA. Citation: U.S. Trade Representative press release February 2010, available at www.ustr.gov. The full text of the agreement is also available on that website.