2010 International Law Update, Volume 16, Number 2 (February)

2010 International Law Update, Volume 16, Number 2 (February)

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

EXTRADITION FROM U.S. TO FOREIGN NATION

Seven U.S. Supreme Court Justices declined to consider on the merits whether it is proper to prevent extradition of Panamanian strongman Manuel Noriega to France; two Justices, however, write opinion on why they would favor granting certiorari to consider important issues that affect detainees and scope of Geneva Conventions

On January 25, 2010, the U.S. Supreme Court failed to muster four votes to review on the merits whether it was lawful to extradite Manuel Noriega (Petitioner) to France. Failing to grant a writ of certiorari, in effect, left the lower courts free to allow this extradition to take place.

From 1983 until his surrender to U.S. troops in 1990, Petitioner was the de facto leader of Panama. Though he had for a time been an important U.S. regional ally, a federal court convicted him of drug‑related offenses and sentenced him to 30 years in jail. The district court also designated Petitioner as a “prisoner of war.” In 2007, just before his scheduled release on parole, France asked for his extradition on drug charges.

Relying on the district court’s “prisoner of war” (POW) designation, Petitioner then filed a habeas corpus petition. Petitioner argued that, as a POW, the U.S. must return him to his home country of Panama. The district court agreed that his POW designation did entitle him to the protections of the Geneva Conventions, but dismissed the habeas claims. See Geneva Convention Relative to the Treatment of Prisoners of War, Aug. 12, 1949, 6 U.S.T. 3316, 75 U.N.T.S. 135; Geneva Convention Relative to the Protection of Civilian Persons in Time of War, Aug. 12, 1949, 6 U.S.T. 3516, 973 U.N.T.S. 336. Petitioner refiled the same claims under 29 U.S.C. Section 2241, and the district court stayed the extradition pending Petitioner’s appeal.

The Eleventh Circuit disagreed with Petitioner. See 2009 International Law Update 44. The Court accepted the district court’s designation of Petitioner as a POW; it agreed, however, with the Government’s interpretation of the Military Commissions Act of 2006 (MCA) Pub. L. No. 109‑366, 120 Stat. 2631. Section 5(a) provides that the Geneva Conventions are neither self‑executing or nor judicially enforceable in habeas corpus actions.

In the absence of four justices who favor granting certiorari, the U.S. Supreme Court cannot review the matter. Justices Thomas and Scalia, however, voted to grant the writ. The two justices consider it the Supreme Court’s duty to clarify important questions of federal law. In this case, the Supreme Court would have had a chance to elucidate several sections of the Geneva Convention on Prisoners of War:

These were the two issues they deemed most important: [1] Whether Section 5 of the MCA does preclude Petitioner from invoking the Geneva Convention Relative to the Treatment of Prisoners of War, as a source of rights in a habeas corpus proceeding’; and ‘[2] Whether, assuming Petitioner can assert a claim based on the Geneva Convention, his extradition to France would violate the Convention.’ ...”

“Answering just the first of these questions would provide much‑needed guidance on two important issues with which the political branches and federal courts have struggled since we decided Boumediene v. Bush, 551 U.S. 1160 (2007). The first is the extent, if any, to which provisions like [MCA] Section 5 affect 28 U.S.C. §2241 in a manner that implicates the constitutional guarantee of habeas corpus. The second is whether the Geneva Conventions are self‑executing and judicially enforceable.”

“It is incumbent upon us to provide what guidance we can on these issues now. Whatever conclusion we reach, our opinion will help the political branches and the courts discharge their responsibilities over detainee cases, and will spare detainees and the Government years of unnecessary litigation. These considerations alone justify review.” [Slip op. 1‑2]

“Petitioner’s petition challenges both the Eleventh Circuit’s interpretation of MCA § 5(a) and the provision’s constitutionality. Petitioner begins by asserting that the Court of Appeals erred in holding ‘that [MCA § 5(a)] absolutely and unambiguously prohibits persons from raising any claim based upon the four Geneva Conventions’ in a habeas corpus action. ...”

“Petitioner next asserts that, if the Eleventh Circuit’s interpretation of § 5(a) is correct, the provision violates the Supremacy Clause ... and the Suspension Clause ... Petitioner’s Supremacy Clause argument is that, to the extent MCA § 5(a) governs his Geneva Convention claims, the provision impermissibly effects a ‘complete repudiation’ of the treaty. ...”

“.... As the Eleventh Circuit’s opinion makes clear, the threshold question in this case is whether MCA § 5(a) is valid. Answering that question this Term would provide courts and the political branches with much needed guidance on issues we left open in Boumediene. ... Providing that guidance in this case would allow us to say what the law is without the unnecessary delay and other complications that could burden a decision on these questions in Guantanamo or other detainee litigation arising out of the conflict with Al Qaeda.”

“Boumediene invalidated MCA § 7’s attempt to strip federal courts of habeas jurisdiction over claims by a specified class of non‑citizen detainees (‘unlawful enemy combatants’), but did not determine the ‘content of the law that governs petitioners’ detention,’ ..., or the extent to which 2241’s substantive provisions affect the constitutional ‘procedural protections of habeas corpus,’ ... Section 2241 broadly confers jurisdiction over a habeas corpus action by any person who claims to be held ‘in custody in violation of the Constitution or laws or treaties of the United States.’ See Rasul v. Bush, 542 U.S. 466, 473 (2004). MCA 5 §(a) eliminates the Geneva Conventions as a source of rights upon which 2241 petitioners may rely in challenging their detentions.”

“Statutory amendments to an existing law ordinarily involve nothing more than a valid exercise of Congress’ Article I authority. ... Petitioner asserts that the difference in this case is that the statutory amendment narrows the scope of § 2241. Assuming that is correct, the indeterminate interplay between the constitutional and statutory guarantees of habeas corpus under our precedents permits Petitioner to argue that the manner in which MCA 5§ (a) affects §2241 proceedings implicates the Suspension Clause. Only we can determine whether the Eleventh Circuit correctly rejected that argument.”

“The Suspension Clause provides that ‘[t]he Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.’ U.S. Const., Art. I, 9, cl. 2. Because the Clause addresses only the suspension not the content or existence of the ‘Privilege of the Writ,’ ..., we have long recognized the ‘obligation’ the first Congress ‘must have felt’ to ‘provid[e] efficient means by which this great constitutional privilege should receive life and activity.’ ...”

“But we have also steadfastly declined to adopt a date of reference by which the writ’s constitutional content, if any, is to be judged, ... and thus have left open the question whether statutory efforts to limit 2241 implicate the Suspension Clause ... This question, which has already divided the Court in other contexts ... is clearly presented here. Petitioner asserts that MCA §5(a) is unconstitutional because it ‘effectively works a suspension of the writ’ ... The Eleventh Circuit, however, saw no constitutional problem with the statute and upheld it as valid and distinguishable from the provision deemed unconstitutional in Boumediene. ...”

“Addressing Petitioner’s challenge to the Eleventh Circuit’s decision would resolve the important statutory and constitutional questions here and would guide courts and the political branches in addressing the same and similar issues in other detainee cases. ... Recent court decisions, as well as recent Executive Branch court filings and policy determinations, specifically invoke the Geneva Conventions as part of the law that governs detainee treatment in the United States and abroad. For example, in September 2009, the U.S. District Court for the District of Columbia issued a redacted version of a classified memorandum opinion in which it granted habeas corpus relief in the oldest of the pending Guantanamo cases because the petitioner’s indefinite detention was based ‘almost exclusively’ on unreliable ‘confessions’ obtained ‘using abusive techniques that violated the Army Field Manual and the 1949 Geneva Convention Relative to the Treatment of Prisoners of War.’ Al Rabiah v. United States, Civ. Action No. 02‑828, Unclassified Mem. Op. (DC DC Sept. 17, 2009), pp. 1‑2, 43.” [...]

“The extent to which noncitizen detainees may rely on the Geneva Conventions as a source of rights against the United States has also been the subject of increasing debate in the political branches. ... Recent Executive Branch Orders and court filings cite the Conventions in articulating the legal standards that govern detainee treatment. See, e.g., Exec. Order No. 13491, 3, 74 Fed. Reg. 4894 (2009) (making ‘Common Article 3 standards’ the ‘minimum baseline’ for the treatment of any individual who, in the course of ‘any armed conflict,’ comes into the ‘custody or under the effective control of an officer, employee, or other agent of the United States’ or is ‘detained within a facility owned, operated, or controlled by a department or agency of the United States’) ...”

“Congress, in turn, is considering new legislation that would further clarify the extent to which detainees can enforce Geneva Convention obligations against the United States in federal courts, but progress on these proposals has been complicated by uncertainty over the statutory and constitutional questions in this case. ...”

“As noted, addressing these questions now, ... if only the statutory issues, would avoid years of litigation and uncertainty no matter what we conclude on the merits. A decision upholding MCA §5(a) would obviate the need for detainees, the Government, and federal courts to struggle (as they did here) with Geneva Convention claims in habeas corpus proceedings. ... And, it would give the political branches a clearer sense of the constitutional limits to which new legislative or policy initiatives must adhere.”

“The latter benefit would also follow if we were to invalidate MCA §5(a). In addition, such a ruling could well allow us to reach the question we left open in [Hamdan v. Rumsfeld, 548 U.S. 557 (2006)] whether the Geneva Conventions are self‑executing and judicially enforceable because this case is not governed by the Uniform Code of Military Justice provisions on which the Hamdan majority relied in holding Common Article III applicable to the proceedings in that case. ...”

“Finally, if the Court were to conclude that the Conventions are self‑executing and judicially enforceable in habeas corpus proceedings, this case would present two additional questions relevant to noncitizen detainee litigation: [1] whether federal courts may classify such detainees as POWs under the Third Convention, and whether any of the Conventions requires the United States immediately to repatriate detainees entitled to release from U.S. custody. ...” [Slip op. 6‑15] Therefore, the dissenters would grant certiorari in this case.

Citation: Petitioner v. Pastrana, Docket No. 09‑35 (U.S. 2010); The Washington Post, Justices won’t block Petitioner’s extradition to France, January 26, 2010, page A3; BBC News Report, 15.57 GMT, Monday, 25 January 2010. Note: Subsequently, a French court convicted Petitioner of laundering drug‑trafficking money and on July 7, 2010, sentenced him to seven years in prison.

EXTRADITION FROM FOREIGN NATION TO U.S.

Eleventh Circuit rejects “rule of specialty” and “dual criminality” challenges to extradition from Spain to United States presented after criminal conviction in Florida, because such challenges concern the court’s personal jurisdiction over defendant, and defendant should have raised issues by pretrial motion pursuant to Fed. R. Crim. Proc. 12

Manuel Isaac Marquez, Sr (Defendant), took part in a criminal enterprise. Based on a Florida indictment, he was arrested in Madrid, Spain, pursuant to the U.S.‑Spain Extradition Treaty [May 29, 1970, 22 U.S.T. 737].

After Defendant lost his legal challenges to the extradition in the Spanish courts, Spanish authorities extradited him to the U.S. in April 2005. A U.S. federal court later convicted him under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961. On appeal, Defendant challenges his extradition from Spain, contending, inter alia, that it violated the Rules of Specialty and Dual Criminality.

Under the rule of Specialty, “the requesting state, which secures the surrender of a person, can prosecute the person only for the offense for which he or she was surrendered by the requested state or else must allow that person an opportunity to leave ...” United States v. Herbage, 850 F.2d 1463, 1465 (11th Cir. 1988). See Treaty on Extradition, U.S.‑Spain, supra. Under the rule of dual criminality, one nation can extradite a person only “when his [alleged] actions constituted an offense in both the requesting and requested states.” Herbage, Ibid. See Second Supplementary Treaty on Extradition, U.S.‑Spain, February 9, 1988, art. II, S. Treaty Doc. No.102‑24. The U.S. Court of Appeals for the Eleventh Circuit affirms, however, because Defendant failed to raise his extradition challenges in a timely manner.

A claim of a violation of the rules of specialty and dual criminality questions whether the extradition process had conferred on the American court personal jurisdiction over the defendant. As such, a defendant must raise them in a pretrial motion pursuant to Fed. R. Crim. Proc. 12.

Here, the district court set an October 2005 deadline for pretrial motions. Defendant did not, however, present his challenges based on violations of specialty and dual criminality until March 2008. Thus, Defendant had waived the rights he may have had under the rules of speciality and dual criminality.

While Fed. R. Crim. P. 12(e) does allow for a showing of good cause for relief from a waiver, Defendant does not point to any good cause here. Neither does he explain why he failed to timely file a Rule 12 motion. The Court therefore affirms.

Citation: United States v. Marquez, No. 08‑12588 (11th Cir. January 22, 2010).

INSURANCE LAW

In Canadian mining company’s lawsuit against U.S. insurance companies, Saskatchewan Court of Appeal upholds principle that prohibits insured from recovering more than full indemnity under multiple insurance policies covering the same risk since full indemnity by one insurer effectively extinguishes the right of the insured to further recovery from co‑insurer

During the summer of 1995, Cameco Corporation was digging a gold mine in Kyrgyzstan. In October, a tragic helicopter crash killed ten Canadian workers, nine of them having been residents of Saskatchewan. A procedural dispute soon came up among Cameco’s three insurers: Global Aerospace, Inc. (Global), Insurance Company of the State of Pennsylvania (ICSOP) and American Home Assurance Company (AHAC). It dealt mainly with Global’s efforts to obtain equitable contribution from the other two U.S. insurers to help with the costs of the defense and the settlement of liability claims against Cameco paid out by Global. Both ICSOP and AHAC denied any legal duty to do so.

In February, 1999, Cameco filed suit in the Saskatchewan courts against ICSOP and AHAC (hereafter, “the Cameco action”); the suit sought declarations that these insurers had a duty to defend the claims of the employees’ estates and to indemnify Cameco in relation to any liability arising out of the claims. ICSOP filed a third party claim against Global in this action claiming contribution to the payment of any damages, settlement or costs incurred should it be found liable to Cameco. The Cameco action then continued to move forward through discovery. During this time, Global and Cameco pursued settlements on behalf of Cameco in relation to the claims of the deceased employees’ estates. As of February 2005, these parties had settled their claims and Global had incurred a total cost of about $6,411,000 in defending and settling these actions. This constituted a full indemnity for Cameco in relation to these claims. Attempts at discussions and mediation among global, ICSOP and AHAC as to sharing this loss by way of equitable contribution ultimately failed.

At this point Global’s then counsel advised it that The Limitations Act, barred any formal action for equitable contribution as against ICSOP and AHAC. Accordingly, in March, 2007, Global unsuccessfully applied to the Court of Queen’s Bench for an order to amend the statement of claim in the Cameco action to add itself as a plaintiff and to claim payment in accordance with the policies of insurance directly from ICSOP and AHAC to Global by way of contribution to the costs of defence and indemnity paid by Global on behalf of Cameco. The judge ruled, however, that the Rules do not allow a party to amend the pleadings of another party.

All parties were at this time, however, under the impression that the Limitations Act barred Global from directly bringing an action for equitable contribution on its own behalf. Nevertheless, the judge held that the same transaction was involved and the parties would suffer no prejudice so he allowed the proposed amendments to the Cameco actions.

In April 2008, however, the Saskatchewan Court of Appeal overturned that ruling. The majority concluded that § 20 did not permit amendments so sweeping that they would, in effect, transform a contract claim by Cameco against its insurers into a claim for equitable contribution by another insurer.

Following this decision, Global retained new lawyers in June 2008. They took the view that the limitation period against ICSOP and AHAC had not, in fact, expired.

In June, 2008, Cameco applied to the Court of Queen’s Bench to allow it to amend the action so as to explicitly convert it into a subrogation action on Global’s behalf. In response, however, ICSOP and AHAC moved to dismiss the Cameco action in its entirety. They argued first that Cameco, having now been fully indemnified for its loss, ceased to have any valid claim against ICSOP and AHAC. Secondly, they opposed Cameco’s amendment application, arguing that Global could not pursue what was actually a claim for equitable contribution by way of a subrogation action. The chambers judge allowed the amendments sought by Cameco and dismissed the Appellants’ applications to summarily dismiss the action. This decision is the subject of the instant appeals.

Meanwhile, prior to the hearing of these motions, Global, relying on advice of its new counsel, launched a new and separate action directly against the appellant insurers claiming equitable contribution in relation to its costs of the defence and settlement of the claims against Cameco by the estates of its deceased employees.

ICSOP and AHAC then applied for summary dismissal of the Global action; they maintained that the Court of Appeal had already determined that the limitation period applicable to Global’s claim for contribution had expired, that this issue was res judicata, or governed by the principle of issue estoppel, and that the court should either strike the claim as an abuse of process or dismiss it. The chambers judge dismissed this application and her decision on this matter is the subject of the companion appeals.

The majority opinion on appeal explains its reasoning and cites several Canadian authorities. “Although the parties do raise subsidiary issues, the primary question raised by the instant appeal is whether, where more than one insurer has issued a policy of liability insurance with respect to the same risk and one of the insurers has fully indemnified the insured, the paying insurer can maintain a subrogated action, in the name of the insured, against the non‑paying insurer(s).”

The appellants’ position is that Canadian law does not recognize any such action and that the only relief available to the paying insurer is a contribution action, in its own name, against the non‑paying insurers. They argue that any claim by the insured against the non‑paying insurers ceases to exist once the paying insurer has fully indemnified the insured. In their view, the chambers judge erred [1] in allowing the application by Cameco to amend the Cameco action to reflect a subrogation claim on behalf of Global, and [2] in declining to dismiss the Cameco action in response to the appellants’ application. The Saskatchewan Court of Appeal agrees on both points and reverses the judgment below.

“The principle upon which such contribution can be recovered has not, I think, been put more clearly in any case than it was put by the Lord Ordinary (Lord Law) in The Sickness and Accident Insurance Association Ltd. v. The General Accident Assurance Corporation Ltd. (1802), 19 R. (Court of Session) 977, at p. 980: ‘... a rule which has been long recognized is that when the insured has recovered to the full extent of his loss under one policy, the insurer under that policy can recover from other underwriters who have insured the same interest against the same risks a rateable sum by way of contribution.” [¶¶ 14‑15].

“The foundation of the rule is that a contractor of marine insurance is one of indemnity, and that the insured, whatever the amount of his insurance or the number of underwriters with whom he has contracted, can never recover more than is required to indemnify him. The different policies being all with the same person, and against the same risk, are therefore regarded as truly one insurance, and if one of the underwriters is compelled to meet the whole claim, he is entitled to claim contribution from the other underwriters, just as a surety or cautioner who pays the whole debt is entitled to claim rateable relief against his co‑sureties or co‑cautioners.”

22 “It is also clear that, generally speaking, the fact that the nominal plaintiff has already received full indemnity for his loss from the insurer does not defeat a claim by way of subrogation on behalf of an insurer.”

23 “Nonetheless, as insurance law has developed, these principles have been interpreted in a more restrictive way where the third party against whom a claim is sought to be asserted by way of subrogation is another insurer of the same insured for the same peril .... Essentially, where an insured is double insured, the law treats the various policies as one insurance, thereby preventing the insured who has recovered from one insurer from recovering again from another insurer. As the Court commented, distinguishing this circumstance from one where the insured has a primary right against a third party, ‘In double insurance the [fully indemnified] assured has no primary right against any third party and so there is no right which an insurer can use to enforce its right to a pro rata contribution from any other insurer.’... It is for this reason that equity (and, now, also legislation) allows the paying insurer to bring an action for proportional contribution against other insurers of the same peril.”

24 “It might be argued that neither the right to subrogation nor the right to contribution should be interpreted in a narrow, technical way, for both are equitable remedies to which a liberal interpretation must be given. The point is not merely a technical one, however, for this reason. Where a claim is advanced by way of subrogation, the subrogated party, the insurer, is entitled to all of the amount recovered by the nominal plaintiff (the insured) as against the third party up to the amount of its indemnity. In a contribution action, however, the proportionate liability of each insurer is determined and the paying insurer will recover from the other insurers only such amount as exceeds his proportionate share.”

“That is, a contribution action, unlike a subrogation claim, permits the court to determine proportionate liability to indemnify the insured’s loss as among the multiple insurers of the same risk, and to order recovery accordingly. A subrogation action, on the other hand, depends entirely on the liability of the insurers to the insured. This liability, is not, generally, for only a portion of the loss, but for the whole of it, subject, of course, to the limits of the policy at issue.”

25 “In other words, an insured who has two separate policies, for example, each covering a $1 million dollar loss, and who suffers a $1 million dollar loss for a risk falling within each policy, has a right of action against the insurer of his or her choice for the entire amount. He or she is not limited to claiming a proportionate amount from each insurer. Therefore, if the paying insurer were to be subrogated to the insured’s right as against the other insurer, (were such a right not to be extinguished by the payment of indemnity to the insured by the first insurer), it would be in a position to recover the whole of the amount it had paid and the entire loss would fall on the second insurer.”

26 “It seems clear from these considerations that a claim by an insurer for contribution against co‑insurers of the same insured for the same peril is substantively, and not merely technically, a different claim than a claim brought by an insurer in the insured’s name by way of subrogation.” [¶¶ 21‑26].

32 “In my respectful view, these cases do not provide compelling authority for the proposition that a paying insurer has an option to seek contribution from another insurer of the same risk by way of a subrogated claim in the name of the insured.”

33 “Global argues that its claim raises the question of whether the various insurers covered the ‘same risk’, and that its claim is therefore not limited to a claim for contribution. For example, it is argued, it might be found that ICSOP is solely liable under its policy for the first $1 million of the loss and that American Home and Global are both liable for the loss in excess of that amount, but that all three were liable to defend.”

“This, in my respectful view, is exactly the sort of claim that should be brought in a contribution action and is not susceptible to resolution by way of a subrogated action. In a subrogation action, the plaintiff (the insured) seeks recovery on behalf of the paying insurer of the whole amount paid by way of indemnity, not some part or proportion of it.”

34 “On the first issue on this appeal, I would find that the chambers judge erred in permitting the amendments that would convert the Cameco action to a subrogated action brought on behalf of Global.”

35 “The same considerations lead to the conclusion that the appellants must also succeed on the question of whether the chambers judge erred in refusing their application to dismiss the Cameco action pursuant to Rule 173(c) and (e) or Rule 247, which permits judgment on the basis of an admission. In the amendments sought, Cameco pled that it had been fully indemnified for its loss by Global.”

“In accordance with the principles discussed above, and, in particular, the principle prohibiting an insured from recovering more than full indemnity under multiple insurance policies covering the same risk, full indemnity by one insurer effectively extinguishes the right of the insured to further recovery from a co‑insurer. Thus, this admission is inconsistent with any further claim in this regard by Cameco against the appellant insurers, regardless of any interpretation of the policies at issue. The claim therefore has no chance of success and must be dismissed either as an abuse of process ..., or on summary judgment ...”

36 “Accordingly, both appeals are allowed on both points argued. The appellants have requested double costs. Given the litigation history of this matter, where the appellants have been required to defend two similar attempts to amend the Cameco action to permit a claim by Global for contribution, this is a reasonable request. The appellants shall have double their taxable costs in the matter.” [ ¶¶ 32‑36].

Citation: Cameco Corp. v. Insurance Co. of Pennsylvania, 2010 CarswellSask 481, 2010 SKCA 95 (Sask. Ct. App. 2010).

JURISDICTION

In action to enforce judgment of Quebec court, First Circuit reverses summary judgment for lower court’s failure to resolve genuine issues of fact as to extent of party’s business activities in Quebec

According to the complaint, Kitchen International, Inc. (Defendant) and Evans Cabinet Corp. (Plaintiff) entered into a contract in 2004. Plaintiff agreed to supply Defendant with manufactured cabinetry for several residential building sites on the U.S. East Coast. Defendant placed these orders from its Montreal headquarters with the Plaintiff’s Georgia offices.

Defendant also claims that the two parties agreed in 2004 that they would set up a products showroom at Defendant’s office in Montreal. According to Defendant, Plaintiff manufactured and shipped cabinetry and related products plus sales and promotional materials to Quebec for use in the showroom later that year. Plaintiff denies the existence of such an agreement.  

At some point, various issues came up as to the quality and conformity of the products that Plaintiff had shipped to the East Coast projects. As a result, in May 2006, Defendant hired a Canadian attorney to sue Plaintiff in the Superior Court of Quebec for breach of contract Plaintiff was duly served with process. Plaintiff, however, failed to answer or otherwise respond to the suit. On May 31, 2007, the Superior Court of Quebec entered a default judgment against Plaintiff in the amount of $149,354.74.

On April 23, 2007, Plaintiff filed this diversity action for breach of contract and quantum meruit in the Massachusetts federal court. Defendant moved to dismiss on the ground that res judicata barred the action. Plaintiff opposed the motion contending that the Superior Court of Quebec had lacked jurisdiction over it. On November 4, 2008, the district court gave summary judgment to Defendant.

The court first determined that, because it was sitting in diversity, it should apply the Massachusetts’s version of the Uniform Foreign Money‑Judgments Recognition Act (UFMJRA or the Act) to determine whether it should enforce the Quebec judgment. In order to enforce a judgment under the Act, the court reasoned, the Quebec court must have had the power to exercise personal jurisdiction over Plaintiff.

The court first noted that Massachusetts courts had interpreted its long‑arm statute as an assertion of personal jurisdiction to the limits allowed by the U.S. Constitution. The district court then ruled that the Quebec Superior Court’s exercise of personal jurisdiction over Plaintiff did not contravene traditional notions of fair play and substantial justice since the Plaintiff had had several meaningful contacts with Quebec.

As a result, the court employed Quebec rules of res judicata to determine whether it should give the default judgment preclusive effect. The court then concluded that Canadian law would bar Plaintiff’s suit. The district court, therefore, held that res judicata precluded the present action and entered summary judgment for Defendant. Plaintiff duly noted an appeal. The U.S. Court of Appeals for the First Circuit reverses.

The Court then set forth its rationale. “Defendant’s motion to dismiss the Massachusetts action did not attempt simply to bar the prosecution of the current action in Massachusetts on the ground that the district court lacked authority to adjudicate Plaintiff’s present contract claim there. Rather, it was a motion addressed to the merits of the Massachusetts action.”

“It sought a ruling that Plaintiff was precluded from obtaining the substantive relief that it sought in the Massachusetts action because an earlier judgment obtained in another court precluded any further litigation of the matter. As part of that assertion, Defendant submits that the earlier judgment was rendered by a court that had personal jurisdiction over the defendant in that action, i.e. Plaintiff. Plaintiff takes the opposite view. This is a merits dispute properly analyzed at this stage of the proceedings by conventional summary judgment analysis.” [140].

“When sitting in diversity and asked to recognize and enforce a foreign country judgment, federal courts tend to apply the law of recognition and enforcement of the state in which they sit, as required by Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). However, some courts and commentators have suggested that recognition and enforcement of foreign country judgments deserves application of a uniform federal body of law because suits of this nature necessarily implicate the foreign relations of the United States. This question has not been decided definitively in this circuit.”           

“We shall follow the same course in this case because we need not resolve the matter here. Neither party has suggested that the district court ought to have followed a rule other than that of Massachusetts. In any event, even if the reciprocity rule of Hilton v. Guyot, 159 U.S. 113 (1895) were applicable under the facts of this case, the Massachusetts rule of recognition and enforcement also contains a reciprocity requirement.”

“According to Hilton, a diversity case from the pre‑Erie era, foreign judgments shall be recognized so long as [1] the rendering court afforded an opportunity for full and fair proceedings; [2] the court was of competent jurisdiction over the persons and subject matter; [3] the [foreign] court conducted regular proceedings, which afforded due notice of appearance to adversary parties; and [4] the court afforded a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries. See Hilton supra at 202‑03. The Hilton rule also requires reciprocity in the recognition and enforcement of United States judgments from the jurisdiction of the rendering court. Id. at 210, 226‑27.”

“With respect to the recognition of foreign country judgments, Massachusetts, like many other states of the Union, has enacted a version of the [UFMJRA]. This [statute] clearly requires that the rendering court have personal jurisdiction over the defendant in order for the resulting judgment to be recognized in Massachusetts. The statute does not state explicitly, however, whether the correctness of that exercise of jurisdiction by the rendering court ought to be determined according to the law of the rendering or [of] the enforcing jurisdiction. The district court suggested that there is currently a division of authority on this question among the states that have enacted a form of the [UFMJRA]. The district court also noted that the Supreme Judicial Court of Massachusetts has not yet spoken squarely on the matter.” [142‑43].

“The district court, faced with the ambiguity about the prevailing rule in Massachusetts with respect to the law governing personal jurisdiction in the rendering court, explicitly declined to resolve the matter and instead applied the governing rule of both jurisdictions. On appeal, neither party has contended that the district court erred in this regard....”

“We turn, then, to the question of whether Defendant established that the Superior Court of Quebec [had] properly exercised personal jurisdiction over Plaintiff. In the district court, Defendant submitted the affidavit of a Canadian attorney and argued that the Québec court properly exercised jurisdiction under Article 3136 of the Quebec Civil Code....” [143‑44].

It provides that “[e]ven though a Quebec authority has no jurisdiction to hear a dispute, it may hear it, [1] if the dispute has a sufficient connection with Québec, [2] where proceedings cannot possibly be instituted outside Québec or [3] where the institution of such proceedings outside Québec cannot reasonably be required. Civil Code of Quebec, R.S.Q., ch. 64, art. 3136. ... Moreover, the opinion of the district court appears to have interpreted Defendant’s position as relying entirely on this provision ...

“There are two problems with this analysis. First, the Quebec provision relied upon by Defendant, Article 3136, is clearly a provision that permits Quebec courts to assume personal jurisdiction over parties in exceptional cases when there is no other available jurisdiction to which the parties may litigate their dispute. See GreCon Dimter, Inc. v. J.R. Normand, Inc., [2005] 2 S.C.R. 401 ¶ 33. Such a situation is clearly not the case here. The litigants are American corporations which are amenable to suit in the state of their corporate domicile and, with respect to particular transactions, in the states where they have the requisite minimum contacts with the other party and with the transaction at issue in the lawsuit.”

“Because there obviously are other forums quite able to assume jurisdiction over the parties, we must conclude that Defendant has not carried its burden of establishing that this provision can serve as an adequate basis for jurisdiction over Plaintiff in the courts of that province. ... Under these circumstances, we normally would have little difficulty in concluding that Defendant had not met its burden of establishing that the Quebec court had personal jurisdiction over Plaintiff on the basis of Article 3136.” [144].

“First, ... the district court indicated to the parties that it believed Quebec’s Code authorized jurisdiction if the contract had been made in Quebec or if the cause of action had arisen there. Additionally, Plaintiff, ... explicitly admits in its brief before this court that the Québec court could have had jurisdiction if the contract had been concluded in Quebec or if the cause of action arose in Quebec”.

“Under these circumstances, we must conclude that Defendant may be able to demonstrate that the Quebec court was authorized to exercise jurisdiction if it can demonstrate [1] that a contractual relationship was established with Plaintiff in Quebec or [2] that there was a breach of that agreement in Quebec or that one of the obligations arising from the contract was to be performed in the Province. A provision of the Civil Code of Quebec authorizes the exercise of jurisdiction on these bases. [Cite]. ....”

“... [T]he district court took the view that the authority of Quebec to exercise jurisdiction over Plaintiff had been established because all of the orders, communications, payments, correspondence and dealings’ between the parties had taken place through Defendant’s Montreal office. ... The district court also concluded that the parties had [in fact] agreed to create a product showroom to display Plaintiff’s products to potential customers and sales agents from New England and Canada.”

“An examination of the record makes clear, however, that the district court’s factual conclusions were not undisputed. ... Plaintiff denied, explicitly, any joint venture to establish a showroom in Montreal. Indeed, none of the affidavits make explicit the precise relationship between the alleged showroom and the specific sales of allegedly defective products by Plaintiff. Under these circumstances, it is clear that genuine issues of fact remain to be resolved before the authority of Quebec to exercise personal jurisdiction over Plaintiff can be established. ...” [145].

“The exercise of personal jurisdiction over a defendant such as Plaintiff is governed by the Commonwealth’s long‑arm statute insofar as the exercise of jurisdiction also comports with the requirements of the federal Due Process Clause.[Cite] ... The Massachusetts long‑arm statute permits the exercise of personal jurisdiction when a person has transacted business within the Commonwealth or when the person has contracted to supply services or things within the Commonwealth. This conferral of jurisdiction creates a specifically affiliating jurisdictional nexus; the personal jurisdiction conferred is only with respect to litigation arising out of the transaction within the Commonwealth, ...”

“ ‘First, the claim underlying the litigation must directly arise out of, or relate to, the defendant’s forum‑state activities. Second, the defendant’s in‑state contacts must represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state’s laws and making the defendant’s involuntary presence before the state’s courts foreseeable. Third, the exercise of jurisdiction must, in light of the Gestalt factors, be reasonable.’”

“The Gestalt factors that a court will consider include: ‘[1] the defendant’s burden of appearing, [2] the forum state’s interest in adjudicating the dispute, [3] the plaintiff’s interest in obtaining convenient and effective relief, [4] the judicial system’s interest in obtaining the most effective resolution of the controversy, and [5] the common interests of all sovereigns in promoting substantive social policies.”

“The Quebec Superior Court’s exercise of personal jurisdiction over Plaintiff did not contravene traditional notions of fair play and substantial justice. Plaintiff had several contacts with Quebec. All the orders, communications, payments, correspondence and dealings between Parties occurred through Defendant’s Montreal office. Moreover, [the] Parties agreed to create a product showroom at Defendant’s Montreal office, which was ultimately constructed. The purpose of this showroom was to display Plaintiff’s products to potential customers and sales agents from Canada and New England.”

“However, as we have noted in our earlier discussion of the Quebec jurisdictional statute, the affidavits supplied by the parties were in conflict. ... [on the key issues]. Furthermore, ... [a]bsent from the district court’s analysis is any discussion of the ‘Gestalt factors,’ which, we have made clear, a court must consider to determine the fairness of subjecting the defendant to a foreign jurisdiction. ...” [147].

“Jurisdiction in these circumstances may not be avoided merely because the defendant did not physically enter the forum State. Although territorial presence frequently will enhance a potential defendant’s affiliation with a State and reinforce the reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor’s efforts are purposefully directed toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.”

“Because the district court resolved material issues of fact against Plaintiff, the nonmoving party, the judgment must be reversed. The controverted issues of fact that Plaintiff has raised must be resolved. Accordingly, the judgment of the district court is reversed and the case is remanded for proceedings consistent with this opinion.” [148].

Citation: Evans Cabinet Corp. v. Kitchen International Inc., 593 F.3d 135 (1st Cir. 2010).

TAXATION

Swiss Administrative Court agrees with U.S. taxpayer that bank data does not have to be provided to IRS despite assistance agreement between Switzerland and the U.S.; to justify disclosure, Swiss‑U.S. Double Taxation Convention requires affirmative fraudulent acts, not just mere inaction

Thousands of wealthy U.S. taxpayers are suspected of maintaining assets in Switzerland to evade U.S. taxation. The following decision of the Swiss Bundesverwaltungsgericht (Federal Administrative Tribunal) (Tribunal), is the first case where a U.S. taxpayer challenges the disclosure of Swiss bank account information to U.S. authorities.

In sum, the Tribunal concludes that the 2009 Agreement between the U.S. and Switzerland to disclose certain Swiss bank account information to U.S. authorities is a “general understanding” that cannot change or modify the countries’ Double Taxation Convention (DTC). Swiss authorities can provide assistance to U.S. authorities only if DTC covers the alleged underlying offense According to the DTC, the Swiss government can provide assistance only in matters of tax fraud and the like. Such an offense requires affirmative action. Mere inaction, such as failure to file a W‑9 form in the U.S., is not enough.

The W‑9 “Request for Taxpayer Identification Number and Certification” is used for U.S. taxpayers to notify entities such as banks of their Social Security Number or Taxpayer Identification Number, so that the bank, in turn, can notify U.S. tax authorities. Here, U.S. authorities claimed that the Plaintiff failed to file such a W‑9 form. Such inaction alone is not fraudulent. Thus, Swiss authorities cannot provide assistance in this matter.

This case arose out of two agreements concluded on August 19, 2009:

[1] To settle a lawsuit by the U.S. against UBS Bank (U.S. v. UBS AG, 09–cv‑20423, S. D. Fla.), UBS agreed to provide data on 4,450 accounts held by U.S. taxpayers to the Swiss Federal Tax Administration (SFTA). To receive the account data, the U, S. Internal Revenue Service (IRS) was to submit a Treaty Request pursuant to Article 26 of the DTC.

[2] At the same time, Switzerland and the U.S. entered into the “Agreement Between the United States of America and the Swiss Confederation on the request for information from the Internal Revenue Service of the United States of America regarding UBS AG, a corporation established under the laws of the Swiss Confederation.”

This Agreement provides for information exchange regarding the 4,540 UBS bank accounts, to enforce U.S. tax compliance while at the same time respecting Swiss sovereignty. The Agreement has an Annex with “Criteria for Granting Assistance Pursuant to the Treaty Request” which essentially requires that the IRS demonstrate a reasonable suspicion of “tax fraud or the like.” The Court refers to this Agreement as “Agreement 09.”

Pursuant to Agreement 09, the IRS submitted a Treaty Request to SFTA on August 31, 2009; it referred to the DTC and other agreements. The Treaty Request sought information on UBS bank account signatories who had access to such accounts between December 31, 2001 and December 31, 2008, and for whom UBS (1) did not have a completed W‑9 form, and (2) had not notified the IRS through filing a 1099 “miscellaneous income” form. The IRS request explained that UBS employees in the U.S. had assisted U.S. taxpayers in setting up bank accounts in ways to avoid U.S. taxation. For example, they opened bank accounts in the name of various off‑shore companies.

On September 1, 2009, SFTA ordered UBS to provide the customer files for all cases that meet the Annex to Agreement 09. SFTA received the Plaintiff’s file on November 9, 2009, and concluded that the case meets the criteria in the Annex. Plaintiff filed her action on December 14, 2009 before the Tribunal to prevent the disclosure of her file to the IRS.

In its decision of January 21, 2010 in this matter, the SFTA first discusses extensively its own jurisdiction and the applicability of international law.

Then the Tribunal turns to the question at issue ‑ whether SFTA can provide assistance to the IRS in these matters. See Section 4 of the decision. The DTC allows for Swiss authorities to provide assistance to U.S. authorities only in matters that involve “tax fraud or the like.” See Article 26 of the Convention. The Protocol to the Convention clarifies that “tax fraud or the like” refers to actions such as falsifying documents or filing fraudulent documents.

The Tribunal then addresses the relationship between the 1969 Vienna Convention on the Law of Treaties (23 May 1969, U.N.T.S. vol. 1155, page 331), specifically Article 31 of the DTC, and Agreement 09. The DTC, however, does not define “tax fraud or the like.” Moreover, Agreement 09 is itself not a treaty, but merely an “agreement of understanding”, which must refer back to the relevant Treaty. It is merely an interpretation within the framework of a Treaty. See Article 46 of the Convention.

The Tribunal then concludes that it must review the IRS assistance request based solely on the DTC. The question then is whether the facts alleged in the IRS assistance request qualify as “tax fraud or the like” as referred to in Article 26 of the DTC.

Applying Article 31 of the Vienna Convention, the clause “tax fraud or the like” must refer to instances broader than the understanding of tax fraud under Swiss law. The Protocol to the Convention refers to fraudulent acts that cause (or intend to cause) an unlawful and substantial reduction of tax liability. Thus, a fraudulent act must occur which causes the reduction of tax liability. No Swiss court has decided whether “mere” evasion of large tax amounts is fraudulent behavior within the meaning of the DTC Neither have U.S. courts interpreted the meaning of “tax fraud or the like.”

Section 10 of the Protocol explains that the term “fraudulent conduct” refers to situations where a taxpayer uses, or has the intention to use, a forged or falsified document, or has the intention of using a “scheme of lies” (Luegengebaeude). Thus, there must be frauds that exceed mere inaction. As interpreted in Switzerland, simple inaction or failure to file IRS Form W‑9, is not fraudulent within the meaning of Section 6.5.4 of the DTC. The preparatory documents and discussions leading to the DTC confirm this reading.

The Tribunal therefore reverses the SFTA decision to disclose Plaintiff’s file to the IRS. Also, the Tribunal awards the Plaintiff costs in the amount of Sfr 25,000. The Swiss legal system does not allow for an appeal from this decision

Citation: Bundesverwaltungsgericht, Urteil vom 21. Januar 2010, Abteilung I, A‑7789/2009. The decision is available in German on the Tribunal’s website: www.bundesverwaltungsgericht.ch. The IRS settlement agreement with UBS is available at: http://www.irs.gov/pub/irs‑drop/bank_agreement.pdf.The Switzerland‑United States assistance agreement may be found at http://www.irs.gov/pub/irs‑drop/us‑swiss_government_agreement.pdf. The Annex with the Criteria for Granting Assistance for the Swiss‑U.S. assistance agreement is available on the website: http://www.financialtaskforce.org. The DTC is available at http://www.irs.gov/pub/irs‑trty/swiss.pdf.

U.S. President signs bill to increase safety of cruise ship passengers. In response to a series of high‑profile sexual assaults and disappearances on cruise ships in recent years, President Obama, on July 27, signed into law tougher new rules for reporting crimes at sea, improving ship safety and training ship staff on how to collect accurate assault evidence. Critics have long taken to task the $40‑billion cruise line industry; they point out that cruise ships registered in foreign countries have taken advantage of murky lines of jurisdiction to ignore the responsibility for misdeeds that occur on their ships in international waters. The bill, inter alia, requires cruise lines to raise the minimum height of railings from 42 to 54 inches; to install peepholes on passenger stateroom doors and crew members’ quarters as well as add on‑deck surveillance cameras, among other safety improvements. It also mandates that cruise personnel to contact both the FBI and the U.S. Coast Guard as soon as passengers report such serious crimes as homicides, suspicious deaths, missing U.S. nationals, kidnappings or assaults. The law takes effect in 18 months. The U.S. may deny cruise lines entry into U.S. ports that fail to comply and may impose civil penalties of up to $50,000 per violation and criminal penalties of as much as $250,000 and one year’s imprisonment. Several persons who have been sexually assaulted or who have lost a loved one on board say that the new law is a solid first step in protecting cruise passengers. Citation: Los Angeles Times, Washington, D.C., Wednesday, July 28, 2010 (byline of Hugo Martin).