2010 International Law Update, Volume 16, Number 12 (December)

2010 International Law Update, Volume 16, Number 12 (December)

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

FORUM NON CONVENIENS

Ninth Circuit reverses dismissal of Peruvian tribal lawsuit against Occidental Oil Company over its oil pollution in Peru because [1] Defendant failed to show that Peru is in fact more convenient forum than U.S.; [2] Defendant failed to overcome strong presumption in favor of Plaintiffs’ choice of forum; and [3] district court failed to impose mitigating conditions upon dismissal

Defendant Occidental Peruana, a company related to defendant Occidental Petroleum Corporation (jointly Occidental or Defendants) conducted extensive exploitation of oil resources in Northern Peru during 1972–2000, allegedly causing severe and harmful pollution. The Plaintiffs are 25 members of the Achuar indigenous tribe who depend on the affected lands for their subsistence, as well as Amazon Watch, a Montana non‑profit corporation headquartered in California. Amazon Watch began working with the Achuar in 2001 and helped produce a documentary film describing the pollution and its scope.

The Plaintiffs initially filed this lawsuit in the Los Angeles County Superior Court. The Complaint alleged negligence, strict liability, battery, fraud and other related causes of action. Defendants removed the case to federal court. They then moved to dismiss based on forum non conveniens, arguing that the Peruvian courts would be the more convenient forum. The district court agreed and dismissed the case and Plaintiffs filed the present appeal.

The U.S. Court of Appeals for the Ninth Circuit reverses. It holds that the district court abused its discretion by failing to impose mitigating conditions for the dismissal. Moreover, Defendants failed to meet their burden of proving that the Peruvian court system is truly a more convenient forum. Finally, the district court did not give enough weight to the strong presumption in favor of domestic Plaintiffs’ choice of forum.

To begin with, the Court states its view of the forum non conveniens doctrine and how it will conduct its review.

“The doctrine of forum non conveniens is a drastic exercise of the court’s ‘inherent power’ because, unlike a mere transfer of venue, it results in the dismissal of a plaintiff’s case. The harshness of such a dismissal is especially pronounced where, as here, the district court declines to place any conditions upon its dismissal. Therefore, we have treated forum non conveniens as ‘an exceptional tool to be employed sparingly,’ and not a ‘doctrine that compels plaintiffs to choose the optimal forum for their claim.’ ... The mere fact that a case involves conduct or plaintiffs from overseas is not enough for dismissal. See Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1181‑82 (9th Cir. 2006) (‘Juries routinely address subjects that are totally foreign to them, ranging from the foreign language of patent disputes to cases involving foreign companies, foreign cultures and foreign languages.’).”

“To prevail on a motion to dismiss based upon forum non conveniens, a defendant bears the burden of demonstrating an adequate alternative forum, and that the balance of private and public interest factors favors dismissal. ... In determining whether the district court abused its discretion in concluding that Occidental satisfied its burden, we examine: (1) the adequacy of the alternate forum; (2) the private and public factors and the deference owed a plaintiff’s chosen forum; and (3) the district court’s decision to dismiss Plaintiffs’ case without imposing any conditions on the dismissal.” [1144‑5].

“As for the first step in the analysis, an alternate forum is adequate if (1) the Defendant is amenable to process there; and (2) the other jurisdiction offers a satisfactory remedy. The district court failed to properly analyze whether Occidental ‘is amenable to process’ in Peru because of the statute of limitations that may have run. Neither did the district court consider how unfavorable Peruvian law is, and how discrimination and corruption affect the process.”

“The district court abused its discretion by accepting at face value Occidental’s ‘stipulation and consent to jurisdiction in Peru’ without considering the glaring absence of a waiver of the statute of limitations, which Occidental’s own expert suggests may have run. Dismissal on the basis of forum non conveniens is improper when a lawsuit would be time‑barred in the alternative jurisdiction. Moreover, where there is reason to believe that a defendant will seek immediate dismissal based on the foreign forum’s statute of limitations, dismissal should be conditioned on waiving any statute of limitations defenses that would not be available in the domestic forum. See Chang v. Baxter Healthcare Corp., 599 F.3d 728, 736 (7th Cir.2010) (‘[I]f the plaintiff’s suit would be time‑barred in the alternative forum, his remedy there is inadequate ... and in such a case dismissal on grounds of forum non conveniens should be denied unless the defendant agrees to waive the statute of limitations in that forum....’) ...”

“Occidental itself emphasizes that the Peruvian statute of limitations is tolled pending this appeal, but coyly adds ‘to the extent it had not already run.’ This caveat, together with Occidental’s failure to waive the Peruvian statute of limitations, suggests that when Plaintiffs do file in Peru, Occidental intends to argue that the Peruvian statute ran before this lawsuit was filed in 2007. ... Therefore, the district court erred by determining that Occidental was amenable to process in Peru based on its qualified stipulation.”

“... The district court also abused its discretion in concluding on this record that Occidental met its burden of proving that Peru could offer Plaintiffs a satisfactory remedy. A ‘dismissal on grounds of forum non conveniens may be granted even though the law applicable in the alternative forum is less favorable to the plaintiff’s chance of recovery,’ but an alternate forum offering a ‘clearly unsatisfactory’ remedy is inadequate. ... The parties offered conflicting expert affidavits that focused on two remedial issues: (a) Peruvian law itself, both substantive and procedural; and (b) special barriers confronting indigenous plaintiffs and general corruption in the Peruvian judicial system. In assessing whether Peru afforded Plaintiffs a satisfactory remedy, the district court erroneously failed to weigh Plaintiffs’ expert testimony, which unequivocally asserts that Peru provides no practical remedy at all for Plaintiffs.” [1145‑6].

The Court cautions that Peru is not generally an inadequate forum. In this particular case, based on the particular evidence, however, the district court overlooked troubling evidence. Turning to the balancing of the private and public interest factors, the Court should have deferred to the Plaintiffs’ chosen forum. When a domestic plaintiff (such as Amazon Watch) initiates litigation in its home forum, it is presumptively convenient. Even a foreign plaintiff’s choice is entitled to some deference. Occidental argues that Amazon Watch has no standing in this lawsuit, but the district court is permitted to rule on forum non conveniens before deciding the standing question.

The Court then sets forth the private interest factors. “The factors relating to the private interests of the litigants include: ‘(1) the residence of the parties and the witnesses; (2) the forum’s convenience to the litigants; (3) access to physical evidence and other sources of proof; (4) whether unwilling witnesses can be compelled to testify; (5) the cost of bringing witnesses to trial; (6) the enforceability of the judgment; and (7) all other practical problems that make trial of a case easy, expeditious and inexpensive.’ ...”

“Without analyzing each individual factor, the district court looked generally at the ‘witnesses and evidence located in Peru’ versus the ‘witnesses and evidence in California’ and concluded that the ‘private interest factors weigh overwhelmingly in favor of dismissal.’ In taking this approach, the district court neglected significant relevant evidence and failed to consider an entire factor ‑‑ the enforceability of the judgment ‑‑ that together weigh against dismissing this lawsuit.” [1152].

Here, as for the residence of the parties, the district court failed to consider the importance of local evidence, such as Occidental’s managers at its headquarters. That consideration, combined with the fact that Amazon Watch is local, Occidental is local, and other Plaintiffs say they are willing to travel to the U.S., suggest that the Plaintiffs’ choice of forum is the correct one. Most importantly, the district court failed to consider whether a judgment against Occidental could be enforced in Peru.

“... Occidental’s own expert presented compelling evidence of disorder in the Peruvian judiciary. Because the district court did not require Occidental to agree that any Peruvian judgment could be enforced against it in the United States, or anywhere else it held assets, as a condition for dismissal, Occidental remains free to attack any Peruvian judgment on due process grounds under California’s foreign judgments statute. The private factor of the enforceability of judgments thus weighs against dismissal.” [1153]

The Court then turns to the public interest factors. “The public factors related to the interests of the forums include: ‘(1) the local interest in the lawsuit, (2) the court’s familiarity with the governing law, (3) the burden on local courts and juries, (4) congestion in the court[s], and (5) the costs of resolving a dispute unrelated to a particular forum.’” [1153‑4]

The Court of Appeal thus recognizes that both California and Peru have an interest in the litigation, and that all of the remaining public interest factors raise considerations in both California and Peru. Thus, the public interest factors are neutral. In sum, most of the private and public interest factors are neutral, while the residence of the parties and the enforceability of the judgment weigh against dismissal. Moreover, since there is justifiable reason to suspect that Occidental will move to dismiss this lawsuit based on the Peruvian statute of limitations, the district court abused its discretion by dismissing on grounds of forum non conveniens without requiring Occidental to waive that defense.

One judge concurs in part and dissents in part, and would give some deference to the district court’s analysis. This court should remand the case to the district court, however, so that it can consider appropriate conditions for the dismissal, such as waiving the statute of limitations, accepting service as valid, and agreeing to the enforceability of any resulting judgment.

Citation: Cariajano v. Occidental Petroleum Corp., 626 F.3d 1137 (9th Cir. 2010).

FORUM SELECTION CLAUSES

In underlying contract dispute between United Kingdom and Virginia companies where language in forum selection clause makes such disputes “subject to jurisdiction” of United Kingdom courts, Fourth Circuit determines that U.S. Supreme Court’s 1972 ruling in The Bremen v. Zapata Off‑Shore Co. seems to favor enforcement of such clauses in international context

In 2005, a UK pharmaceutical company (Defendant), contracted with Albemarle International Corporation (Plaintiff), a Virginia corporation, to buy from Plaintiff one of the chemical substances needed for manufacturing anesthetics. The chemical substance di‑isopropyl‑phenol (DIP) was about to be replaced by a different substance, propofol. A forum selection clause (FSC) in the contract provided that if Defendant were to switch to propofol, Plaintiff would have the right of first refusal to supply Defendant with propofol.

When Defendant did switch to propofol about a year later, however, Plaintiff did not get Defendant’s business and sued in South Carolina state court. Defendant removed the case to federal court and then moved to dismiss for improper venue based on the FSC; it made the contract “subject to” the jurisdiction of the English High Court. The district court dismissed the Complaint. Plaintiff noted an appeal. The U.S. Court of Appeals for the Fourth Circuit affirms.

The key issue in this case is how to interpret the FSC that makes the contract “subject to jurisdiction” in the UK. The Court emphasizes that it should give effect to the parties’ expectations. Applying English law to construe the FSC, the Court concludes that this litigation must take place in an English court.

Plaintiff mainly argues that the district court should have not have enforced the FSC under English law. Instead, U.S. law should apply because it involves venue issues and statutes governed by federal law. According to Plaintiff, federal law does not necessarily require that an English court decide this lawsuit. The Court points out, however, that federal common law generally requires courts to enforce contractual jurisdiction and venue clauses.

“Following the majority rule, we ... conclude that a federal court interpreting an [FSC] must apply federal law in doing so. As an agreement purporting to modify or waive the venue of a federal court, an [FSC] implicates what is recognized as a procedural matter governed by federal law [as to] the proper venue of the court. Using this reasoning, the Supreme Court applied federal law in enforcing an [FSC] in a federal suit where a motion to transfer venue under 28 U.S.C. § 1404 had been filed. ...”

“When construing forum selection clauses, federal courts have found dispositive the particular language of the clause and whether it authorizes another forum as an alternative to the forum of the litigation or whether it makes the designated forum exclusive. IntraComm, Inc. v. Bajaj, 492 F.3d 285, 290 (4th Cir. 2007)] (ruling that a clause providing that either party ‘shall be free’ to pursue its rights in a specified court did not preclude jurisdiction or venue in the forum court). As we said in IntraComm, ‘A general maxim in interpreting [FSC’s] is that ‘an agreement conferring jurisdiction in one forum will not be interpreted as excluding jurisdiction elsewhere unless it contains specific language of exclusion.’ ...” [650‑1].

Federal courts, however, will give effect to the parties’ selection of the English forum only if it would not be unreasonable to do so. “Under The Bremen v. Zapata Off‑Shore Co., 407 U.S. 1 (1972), an [FSC] may be found unreasonable if: ‘(1) [its] formation was induced by fraud or over‑reaching; (2) the complaining party ‘will for all practical purposes be deprived of his day in court’ because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) [its] enforcement would contravene a strong public policy of the forum state.’ Allen v. Lloyd’s of London, 94 F.3d 923, 928 (4th Cir.1996)” [651].

Here, Plaintiff argues that enforcing the FSC violates South Carolina public policy, as S.C. Code Ann. Section 15‑7‑120(A) makes FSCs permissive and would not enforce the FSC in this case. The Court disagrees for several reasons. First, federal law pre‑empts inconsistent South Carolina procedural rules. Further, in specifically addressing state reluctance to recognize FSCs, The Bremen was presumably signaling the enforceability of such clauses.

Citation: Albemarle International Corporation v. Astrozeneca UK Ltd., 628 F.3d 643 (4th Cir. 2010).

MARITIME CRIMINAL JURISDICTION

In reviewing conviction for drug crimes committed by crew of vessel on high seas that lacked customary indicia of its nationality, First Circuit interprets Maritime Drug Law Enforcement Act (MDLEA) to support criminal jurisdiction of U.S. federal court over violators

A U.S. Coast Guard helicopter observed a low‑flying airplane dropping bales into the sea (later found to contain cocaine) about 30 to 35 miles off the coast of the Dominican Republic (DR). Three men in a fishing boat arrived on scene, but fled as the helicopter descended.

Upon the request of U.S. Customs officials, the DR Coast Guard later arrested Epifanio Matos‑Luchi and two others (Defendants) 25 miles off the coast of the DR. U.S. Coast Guard personnel questioned Defendants aboard the Dominican vessel. Defendants admitted that they held Dominican nationality and that their boat has set sail from the Dominican Republic. Their boat, however, bore no marks of its nationality. The U.S. took Defendants to Puerto Rico to be tried by the federal district court. The Court convicted Defendants of committing drug offenses while on board a “vessel without nationality” and thus within U.S. enforcement authority (see 46 Sections 70502(c)(1)(A), 70503(a)(1)).

This appeal ensued but the U.S. Court of Appeals for the First Circuit affirms. This appeal requires the Court to interpret the Maritime Drug Law Enforcement Act (MDLEA), 46 U.S.C. Section 70501 (2006). The Act provides for federal law enforcement authority over maritime drug crimes committed outside U.S. territorial limits.

“The most abstruse issue in the case, with which we begin, is whether the Defendants’ possession of the cocaine with intent to distribute occurred on board ‘a vessel subject to the jurisdiction of the United States,’ 46 U.S.C. § 70503(a)(1). ... [...] Underscoring its aim to reach broadly, Congress defined ‘a vessel subject to the jurisdiction of the United States’ to include six categories of boats (listed in full in an appendix to this decision) ‑‑ first among them ‘a vessel without nationality,’ 46 U.S.C. § 70502(c)(1)(A).”

“... ‘[A] vessel without nationality’ is defined to ‘include[ ]’ the following: ‘(1) a vessel aboard which the master or individual in charge makes a claim of registry that is denied by the nation whose registry is claimed; (2) a vessel aboard which the master or individual in charge fails, on request of an officer of the United States authorized to enforce applicable provisions of United States law, to make a claim of nationality or registry for that vessel; and (3) a vessel aboard which the master or individual in charge makes a claim of registry for which the claimed nation of registry does not affirmatively and unequivocally assert that the vessel is of its nationality. 46 U.S.C. § 70502(d)(1).’”

“That the listed examples do not exhaust the scope of section 70502(d) ... At the very least, Congress intended to include in section 70502(d), in addition to the specific examples given, those vessels that could be considered stateless under customary international law. ... Congress’ intent to reach broadly was reconfirmed in the Coast Guard Authorization Act of 1996, Pub.L. No. 104‑324, § 1138, 110 Stat. 3901, 3988‑89, which amended the MDLEA by providing that the ‘jurisdiction’ of the United States over a vessel under the MDLEA was ‘not an element of the offense’ but a matter to be determined ‘solely by the trial judge,’ id. § 1138(a)(5) (now codified at 46 U.S.C. § 70504(a)), and that a defendant had no standing to claim that enforcement violated ‘international law’ ‑‑ reserving such objections only to foreign nations, id. § 1138(a)(4) (now codified at 46 U.S.C. § 70505). ...”

“Against this background, the district court’s determination that the Defendants’ [boat] was ‘a vessel without nationality’ within the meaning of the MDLEA was correct. This is so regardless of whether that finding is to be made by a preponderance of the evidence—as one of our earlier decisions implies, ... —or beyond a reasonable doubt. Indeed, virtually none of the raw facts bearing on the reach of the statute is disputed; the problem is primarily one of interpreting the statute.” [3‑5].

“... [T]he boat had various links to the DR. The crew members were Dominicans and the small vessel was likely headed there before its engine troubles and subsequent interception by the Dominican Coast Guard. At trial one Defendant said that the vessel was registered there in some fashion. But neither the MDLEA nor international law limits U.S. enforcement authority merely because the vessel has associations with another state.”

“Under international law, every vessel must sail under the flag of one and only one state; those that sail under no flag or more than one flag enjoy no legal protection. 1 L. Oppenheim, International Law § 261, at 595‑96 (H. Lauterpacht ed., 8th ed.1955) ... By custom, a vessel claims nationality by flying the flag of the nation with which it is affiliated or carrying papers showing it to be registered with that nation. ... Without a flag or papers, a vessel may also traditionally make an oral claim of nationality when a proper demand is made—a pattern the MDLEA follows.” [5‑6]

“Although enforcement jurisdiction presumptively lies with the flag state, ...‘[i]t is not enough that a vessel have a nationality; she must claim it and be in a position to provide evidence of it.’ ... [...] The MDLEA follows this approach, one might say, energetically. Section 70502(d) ‘includes’ in the phrase ‘vessel without nationality’ those ships for which a claim of nationality is made but rejected or not backed up by the nation invoked, 46 U.S.C. § 70502(d)(1)(A), (C), or those ‘aboard which the master of individual in charge’ fails on request ‘to make a claim of nationality or registration’ for the vessel, id. § 70502(d)(1)(B). In our case, the Defendants when questioned by the U.S. Coast Guard refused to make a claim of nationality for the [boat].” [...]

“Practically every vessel—including the legendary Flying Dutchman—has links with some country; but the stateless vessel concept in the MDLEA and in international law is designed prudentially. The controlling question is whether at the point at which the authorities confront the vessel, it bears the insignia or papers of a national vessel or its master is prepared to make an affirmative and sustainable claim of nationality. To read the MDLEA more restrictively would mean that the master and crew need only carry no papers and jump overboard to avoid having their vessel classed as stateless. ...”

“... [T]he MDLEA does not conflict with international law. For international law too treats the ‘stateless vessel’ concept as informed by the need for effective enforcement. Thus, a vessel may be deemed ‘stateless,’ and subject to the enforcement jurisdiction of any nation on the scene, if it fails to display or carry insignia of nationality and seeks to avoid national identification. This occurs ‘if a ‘ship’ repeatedly refuses, without reasonable excuse, to reveal its allocation [of nationality].”

“If no registration number is visible and no other indicator [of nationality] can be discerned, the cognoscibility is already demonstrably insufficient, and interference will then often be justifiable ... From the basic design of [the law of sea] and from the place the institution here called allocation occupies in it already it may be concluded that a ‘ship’ which obscures the cognoscibility of its allocation repeatedly, deliberately, and successfully may be treated as stateless.’ H. Meyers, The Nationality of Ships 322 (1967).”

“In sum, the instances specified by Congress—pertinently, the refusal ‘aboard’ the vessel to claim nationality, 46 U.S.C. § 70502(d)(1)(B)—are not departures from international law but merely part of a pattern consistent with it; and when Congress used the word ‘includes’ in listing specific instances, it allowed for reasonable extrapolation to functionally similar instances—including a refusal by the crew to claim nationality that happens to occur aboard a cutter which has the subject ‘vessel’ in tow.” [6‑7] The Court thus affirms.

The dissenter disagrees with the findings that the boat at issue was a “vessel without nationality” and that the Government met its burden of proof in that regard. It was the Government’s burden to show that the boat had no nationality, but it failed to properly investigate the issue. The Court now unduly emphasizes Congress’ aim to facilitate enforcement, and disregards the considerations of fairness and international law that suggest restraint in interpreting the MDLEA. The Court now extends U.S. drug laws to circumstances that Congress did not contemplate and that likely exceed the bounds of international law.

Citation: United States v. Matos‑Luchi, 627 F.3d 1 (1st Cir. 2010).

SOVEREIGN IMMUNITY

Where Plaintiffs obtained $2.6 billion default judgment against Iran under Foreign Sovereign Immunities Act for its involvement in 1983 suicide bombing of United States military barracks in Lebanon, Ninth Circuit raises “immunity from execution” defense sua sponte and affirms dismissal of case

In October 1983, a suicide bomber drove a truck loaded with explosives into the U.S. Marine barracks in Beirut, Lebanon. When he detonated the explosives, it killed 241 American servicemen and injured many more. Evidence showed that the bombers had planned and executed the attack with massive support from the Iranian government.

In 2001, representatives of the more than 1,000 victims and survivors (Plaintiffs) sued Iran in the federal district court for the District of Columbia. Iran failed to respond, and the district court entered a $2.6 billion default judgment. Plaintiffs then registered the judgment in the federal district court for the Northern District of California pursuant to 28 U.S.C. Section 1963. In later motions, Plaintiffs identified various shipping companies that allegedly owed payments to Iran and sought a court order assigning to Plaintiffs the rights to payment of damages. The first motion involved the French shipping company CMA CGM which allegedly serves the Iranian port of Bandar Abbas and thus must be making payments to the Iranian Ports & Shipping Organization.

Despite Iran’s failure to appear, the district court sua sponte raised the issue of Iran’s sovereign immunity. The district court concluded that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. 1602ff, had abrogated the immunity of Iranian property in the U.S. Nevertheless, Plaintiffs had not only failed to identify any such property but also had failed to properly serve Iran with the assignment motion.

Plaintiffs duly noted their appeal. The U.S. Court of Appeals for the Ninth Circuit, however, affirms. It rules that the alleged payments due to Iran are not “property in the United States” amenable to attachment. A key issue is whether immunity from execution is jurisdictional or an affirmative defense that the foreign state must appear and raise.

The Court first reviews whether the district court can raise immunity from execution sua sponte. “Few courts have squarely addressed the question of who may raise the issue of immunity from execution, and those that have are divided. One district court has held that immunity is an affirmative defense that can only be asserted by a foreign state defendant. Rubin v. Islamic Republic of Iran, 436 F.Supp.2d 938, 941 (N.D.Ill. 2006) ... The Fifth Circuit has disagreed and held that, when a court is asked to attach the property of a foreign state, it must raise and decide the issue of immunity from execution on its own initiative. See FG Hemisphere Assocs., LLC v. Republique du Congo, 455 F.3d 575, 590‑91 (5th Cir. 2006) ... We agree with the Fifth Circuit and, accordingly, affirm the district court’s order denying the Plaintiffs’ assignment motion.” [1124].

“Allowing courts to independently raise and decide the question of immunity from execution is not only consistent with historical practice, but also with the purposes underlying the FSIA. A burden‑shifting approach, unlike one that places the burden on the foreign state to plead and prove that its property is immune, is appropriately respectful of the ‘perfect equality and absolute independence of sovereigns, and th[e] common interest impelling them to mutual intercourse.’ The Schooner Exchange, 11 U.S. at 137, 7 Cranch 116 ... The FSIA was meant to spare foreign states not only from liability on the merits but also from the cost and inconvenience of trial. See Foremost‑McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 443 (D.C.Cir. 1990) (‘[S]overeign immunity is an immunity from trial and the attendant burdens of litigation, and not just a defense to liability on the merits.’. Requiring the plaintiff to prove that immunity does not exist, rather than placing the burden on the defendant foreign state, best accomplishes that goal.”

“These policy considerations apply more strongly in the context of immunity from execution. ‘[T]he judicial seizure of the property of a friendly state may be regarded as an affront to its dignity and may ... affect our relations with it.’ ... See Philippines v. Pimentel, 553 U.S. 851, 128 S.Ct. 2180, 2190, 171 L.Ed.2d 131 (2008). Congress was aware that, although the restrictive theory of sovereign immunity from suit had become an accepted principle of international law by the time of the FSIA’s enactment, ‘the enforcement of judgments against foreign state property remain [ed] a somewhat controversial subject.’ H.R.Rep. No. 94‑1487, 1976 U.S.C.C.A.N. at 6626 ...” “Accordingly, the exceptions to immunity from execution are more narrow than the exceptions from immunity from suit. Congress fully intended to create rights without remedies, aware that plaintiffs would often have to rely on foreign states to voluntarily comply with U.S. court judgments. ... In light of the special sensitivities implicated by executing against foreign state property, courts should proceed carefully in enforcement actions against foreign states and consider the issue of immunity from execution sua sponte.” [1127‑8]. Here, the Plaintiffs themselves admit that the rights to payment belong to Iran. Thus, the district court did not err by raising the issue sua sponte.

The Court then reviews whether Plaintiffs properly served notice of the default judgment upon Iran. “It is true that Plaintiffs’ counsel erred by mailing a copy of the default judgment to the Iranian Foreign Affairs Minister himself, rather than asking the clerk of the court to mail the papers. 28 U.S.C. § 1608(a)(3). This mistake, however, is not fatal. The Ninth Circuit has adopted a substantial compliance test for the FSIA’s notice requirements; a plaintiff’s failure to properly serve a foreign state defendant will not result in dismissal if the plaintiff substantially complied with the FSIA’s notice requirements and the defendant had actual notice. ...”

“CGM CMA and the United States go further and argue that Iran should have been served with the registration of judgment with the Northern District of California and the subsequent motion for assignment of Iran’s rights to payment from CMA CGM. Plaintiffs’ counsel did mail their various assignment motions by regular U.S. mail, apparently without delivery confirmation, to a variety of high‑level Iranian officials, including the Minister of Foreign Affairs. These papers do not appear to have been translated into Farsi.”

“The FSIA is quite clear what a plaintiff must serve on a foreign state before a court may enforce a default judgment against that state: the default judgment [itself]. Service of post‑judgment motions is not required. ‘Section 1608 sets forth the exclusive procedures with respect to service on ... a foreign state.’ ... We may not add to those requirements. ... If Congress had intended for foreign states to receive notice of every post‑judgment motion, it would have said so. The district court erred in concluding that it could not enforce the Plaintiffs’ assignment motion because they had not complied with FSIA’s service requirements.” [1129‑30]

“ ...[W]e must now decide whether Iran’s rights to payment from CMA CGM constitute ‘property in the United States.’ 28 U.S.C. § 1610(a). We hold that they do not and are, therefore, immune from execution. We affirm the district court’s denial of Plaintiffs’ assignment motion.”

“Enforcement proceedings in federal district court are governed by the law of the state in which the court sits, ‘but a federal statute governs to the extent that it is applicable.’ Fed. R. Civ. P. 69(a)(1). The FSIA does not provide methods for the enforcement of judgments against foreign states, only that those judgments may not be enforced by resort to immune property. See 28 U.S.C. §§ 1609‑1610. Therefore, California law on the enforcement of judgments applies to this suit insofar as it does not conflict with the FSIA. ...”

“California enforcement law authorizes a court to ‘order the judgment debtor to assign to the judgment creditor ... all or part of a right to payment due or to become due, whether or not the right is conditioned on future developments.’ Cal.Civ.Proc. Code § 708.510(a). The FSIA abrogates the immunity of all Iranian commercial property in the United States. 28 U.S.C. § 1610(a)(7). Therefore, a right to payment belonging to Iran is assignable only if that right is located in the United States.”

“A right to payment is intangible. It is difficult to assign a location to property that by definition ‘lacks a physical existence.’ ... ‘The situs of intangibles is in truth a legal fiction, but there are times when justice or convenience requires that a legal situs be ascribed to them.’ ... This is one of those times. To determine the location of an intangible right to payment, we must look to California state law. ...”

“In Philippine Export and Foreign Loan Guarantee Corp. v. Chuidian, 218 Cal.App.3d 1058, 267 Cal.Rptr. 457 (1990), the Court of Appeal of California ... squarely held that the location of a right to payment—at least for the purpose of applying section 708.510(a) in a suit against a foreign state defendant—is the location of the debtor. ... Accordingly, a foreign state defendant’s rights to payment from third‑party debtors are assignable only if those ‘debtors [ ] reside in the United States.’ Id. at 481. The Court of Appeal instructed the trial court to enter an ‘order compelling Philguarantee,’ an agency of the Philippines, ‘to assign to Chuidian all debts owing, or to become owing, to Philguarantee from individuals or entities located in the United States.’ Id.”

“CMA CGM is a French corporation, therefore the debt obligation it owes to Iran is located in France. Iran’s rights to payment from CMA CGM are not ‘property in the United States’ and are immune from execution. 28 U.S.C. Section 1610(a)(7). We affirm the district court’s denial of Plaintiffs’ motion to assign Iran’s rights to payment from CMA CGM.” [1130‑32].

The Court thus concludes: “The statutory text, structure, legislative history, and case law suggest that sua sponte consideration is appropriate and serves the dual goals of the FSIA: [1] affording American plaintiffs with a means for bringing suit against foreign states and ensuring that their disputes will not be resolved based on political considerations, and also [2] demonstrating a proper respect for foreign states and sparing them the inconvenience of litigation. We affirm the district court order on the basis that Iran’s rights to payment from CMA CGM are not ‘property in the United States’ that are amenable to attachment.” [1132]

The Dissenter opines that immunity from execution is an affirmative defense. Neither the history of sovereign immunity nor the purpose of the FSIA permit or require the Court to raise this issue sua sponte. The Dissenter would remand to the district court to review whether Iran’s right to payment was assignable under California law without consideration of the FSIA.

Citation: Peterson v. Islamic Republic of Iran, 627 F.3d 1117 (9th Cir. 2010).

TAXATION, INTERNATIONAL

In litigation involving U.S. citizen with U.S. residence who also had Canadian residence where he spent most of his time as business consultant, Canadian Federal Court of Appeal interprets Canada‑United States Income Tax Convention (1980) to require that U.S. citizen should pay Canadian taxes on his business income earned in Canada

Since 2000, R. H. Lingle, (Appellant), a US citizen, has been working as a consultant in Ontario. Throughout the relevant period, Appellant had both US and Canadian residences. Appellant’s family resided at a US house to which he returned one weekend per month. Appellant and his spouse separated in 2004 and sold their US house in 2006. Designating himself as a non‑resident of Canada, Appellant filed income tax returns for 2004 and 2005 tax years on his self‑employment business income. Appellant also filed returns in the US for these tax years.

On his Canadian returns, however, he claimed equivalent amounts as treaty deductions pursuant to the Canada‑United States Income Tax Convention (1980); TIAS 11087;1469 UNTS 189 [in eff. 1984]; with amending Protocols, 2121 UNTS 364 and 387 (in eff. 1984); 2030 UNTS 236 (in eff.1995) and 276 (in eff. 1997) (the Convention). The Canadian Tax Minister assessed Appellant’s Canadian income tax for 2004 during the period from January 1, 2005 to September 14, 2005. The Minister decided that Appellant was a resident of Canada because his habitual abode lay in Canada during this period. Thus the Convention required Appellant to pay Canadian income taxes on business earnings in these years.

 The administrative agency and the Tax Court dismissed Appellant’s appeals. These tribunals relied upon Article IV(2) of the Treaty. These tribunals found that that the Appellant did not have an “habitual abode” in the United States under the Treaty. Mr. Lingle went to the Federal Court of Appeal which unanimously dismisses his appeal. These are substantial excerpts from its opinion.

Paras. 1‑2. “The Tax Court of Canada was called upon to decide pursuant to the Convention whether the Appellant was required to pay to Canada the income tax on his Canadian business income. The taxation years in issue were 2004 and nine months of 2005. As between the United States and Canada, Article IV(2) of the Convention sets out five tie‑breaker rules in both English and French to assist in determining the jurisdiction in which the income tax is to be paid.”

3. “ ¼ [T]he parties agreed that the Appellant had a permanent home in both Canada and the United States during the relevant periods. They also agreed that they could not use the second tie‑breaker as it was impossible to determine in which country the Appellant had his ‘centre of vital interests.’ So the matter fell to be determined on the concept of ‘habitual abode’ found in the third tie‑breaker [see Article IV(3)]. ¼’”

4. “The Tax Court found that [Mr. Lingle] did not have an ‘habitual abode’ in the United States for the purposes of the Convention ¼I am in substantial agreement with the findings and conclusion of the Tax Court.”

5. “The definition and interpretation of ‘habitual abode’ involves a question of law reviewable on the standard of correctness. [T]he application of the definition to the facts of the case to determine whether the Appellant had an ‘habitual abode’ in both jurisdictions, however, raises a question of mixed fact and law which is immune from review by this Court unless there is an overriding and palpable error: see Housen v. Nikolaisen, [2002] 2 S.C.R. 235 (S.C.C.). I see no such error on the facts of this case.”

6‑7. “It would be unwise to attempt to set out a rule or a series of criteria which could fit all situations. The determination in each case will depend on the facts and circumstances of the case. The concept of ‘habitual abode’, as evidenced by the clearer French version of the text (séjourne de façon habituelle) involves notions of frequency, duration and regularity of stays of a quality which are more than transient.”

“To put it differently, the concept refers to a stay of some substance in the jurisdiction as a matter of habit, so that the conclusion can be drawn that this is where the Appellant normally lives. This is consistent with the French definition of ‘habituelle’ found in Le Petit Robert 2006: [1]. ‘Qui tient à l’habitude par sa régularité, sa constance’. [2]. ‘Qui est constant, ou très fréquent.’”

8. “This [interpretation] is also consistent with the commentary on Article IV(2) of the OECD Model where it is stated that, in comparing the stays in two States to determine if and where the individual has an ‘habitual abode’, ‘the comparison must cover a sufficient length of time for it to be possible to determine whether the residence in the two States is habitual and to determine also the intervals at which the stays take place’: see Model Tax Convention on Income and on Capital, OECD Committee on Fiscal Affairs, vol. 1, July 2008, at page C(4)‑6.”

9. “In ¼ his memorandum of fact and law and at the hearing, the Appellant submitted that the Tax Court judge applied the wrong test in that she went on to examine the social and economic ties which he had in Canada and the United States during the relevant periods. In doing so, she confused the second and the third tie‑breaker. He finds evidence of the judge’s error in the following sentence ¼ of the judge’s reasons for judgment: ‘Considering all the facts before me, his connections with the United States were weak when compared to his settled routine in Canada.’”

10. “This sentence is taken out of context and read in isolation. When the sentence is replaced in its proper context, the Appellant’s argument simply has no merit. What the judge was saying in that sentence is that the Appellant did not have a settled routine in the United States while he had one in Canada which showed that he did regularly, customarily or normally live in Canada.”

11. “The judge’s impugned sentence ¼ [lay in ] her reasons for judgment [as excerpted here]: ‘¼In the settled routine of [Appellant’s] life ‘he regularly, normally and customarily lived in Canada.’ He did not have any other contracts, clients or business in the USA. In addition, he spent only 69 days out of 623 days in the relevant period at his home in the United States. It is interesting that these agreed statements explicitly state that the Appellant ‘normally ... lived in Canada’ ¼ He did not have an habitual abode in the United States for the purposes of the Treaty because he did not regularly, customarily or normally live in the United States. Considering all the facts before me, his connections with the United States were weak when compared to his settled routine in Canada. Accordingly, the Appellant was a resident in Canada during this period and as such he is taxable on his business income earned as a consultant.’”

12. “To the extent that the [Tax Court’s] sentence per se could be found to be ambiguous, it is, however, clear from a reading of the reasons as a whole ¼ that, at the point where the sentence occurs, the judge had already concluded that the Appellant did not have an ‘habitual abode’ in the United States ‘because he did not regularly, customarily or normally live in the United States.’¼”

13. “The [Appellant] argued that the proper test to be applied for determining where a taxpayer has his ‘habitual abode’ is to look at where he or she ‘is habitually present’. He relies upon a tentative conclusion of Dr. J.F. Avery Jones who, the [Appellant] says, is currently a judge on the United Kingdom First Tier Tax Tribunal. In a paper presented at the Fifth Annual International Taxation Symposium in the United States, Dr. Avery Jones reviewed the elusive concept of ‘habitual abode’ and concluded: ‘Perhaps an habitual abode really means ‘is habitually present’, which would be much clearer.’”

14,15. “The Tax Court found that the [Appellant] ‘regularly, normally and customarily lived in Canada’: ... By the [Appellant’s] proposed test, the Tax Court found that he was habitually present in Canada, but not in the United States. For these reasons, I would dismiss the appeal with costs.” [The other two judges being in agreement, “the appeal is dismissed.”]

Citation: Lingle v. Regina, 2010 Carswell Nat. 1605; 2010 FCA 152; 2010 D.T.C. 5100 (Eng.); [2010] 5 C.T.C. 162; 403 N.R. 337 (Can. Fed. Ct. App. 2010).