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

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

2001 International Law Update, Volume 7, Number 10 (October)

CONSULAR RELATIONS

Sixth Circuit rules that Vienna Consular Convention does not grant rights that would be enforceable by individuals, thus defendant cannot obtain dismissal of indictment or reversal of conviction based on United States’ noncompliance with Convention’s notice requirement

Canadian authorities arrested Chucks Emuegbunam, a Nigerian citizen, in Canada and extradited him to the U.S. on federal narcotics charges. He had allegedly provided 675.5 grams of heroin to one Johnnie Player. The district court denied defendant’s numerous pretrial motions that he filed pro se. Emuegbunam was convicted and, on appeal, challenged the U.S. failure to notify the Nigerian Embassy of his arrest because it allegedly might have helped him to procure evidence of his innocence from Nigeria. The U.S. Court of Appeals for the Sixth Circuit affirms the district court.

Article 36 of the Vienna Convention on Consular Relations (April 24, 1963, 21 U.S.T. 77, 596 U.N.T.S. 261 (1969)) requires signatories (which include the U.S. and Nigeria) to notify the diplomatic representative of foreign detainees. Defendant first complained of a possible Vienna Convention violation approximately one year after his extradition from Canada. The prosecutor later sent written notice to the Nigerian Embassy of the situation, and defendant separately sought assistance from the Embassy to procure witnesses and other evidence from Nigeria. To have a speedier trial, defendant later decided to go to trial without additional evidence from Nigeria.

In general, the rights created by an international treaty belong to the state and are not privately enforceable. The U.S. Supreme Court, however, has recognized that treaties and conventions can create individually enforceable rights in some circumstances. Without express language in the treaty, federal courts will not vindicate private rights unless it creates fundamental rights equivalent to those protected by the Constitution. As for the Vienna Convention, the U.S. Supreme Court has not yet resolved the question of whether it creates individual rights. The Sixth Circuit states in this opinion that the Vienna Convention does not create rights that are individually enforceable in federal courts.

In either case, if U.S. authorities had breached defendant’s rights under the Vienna Convention and if private individuals can claim rights under it, defendant cannot obtain a dismissal of his indictment. The cases have held that, although some judicial remedies may exist, there is no right to keep evidence out of a criminal prosecution or to have an indictment thrown out due to a violation of Article 36.

The final question then is whether reversal of a conviction is a proper remedy for a violation of the Vienna Convention. The Court then reviews the Convention and its structure, as well as its ratification history and subsequent operation, the position of the U.S. Department of State, and federal court precedent. The Court then holds that “the Vienna Convention does not create a right for detained foreign nationals to consult with the diplomatic representatives of his nation that federal courts can enforce. A contrary conclusion risks aggrandizing the power of the judiciary and interfering in the nation’s foreign affairs, the conduct of which the Constitution reserves for the political branches. (Cits.) Significantly, the Supreme Court has twice held that the Vienna Convention does not provide a signatory nation a private right of action in the federal courts to seek a remedy for a violation of Article 36. (Cits.) If a foreign sovereign to whose benefit the Vienna Convention inures cannot seek a judicial remedy, we cannot fathom how an individual foreign national can do so in the absence of express language in the treaty.” [Slip op. 30-31]

Citation: United States v. Emuegbunam, No. 00-1399 (6th Cir. October 5, 2001).

COPYRIGHT

In copyright litigation brought by U.S. company, English Court of Appeal upholds lower court findings that individual director of corporation was personally liable as joint tortfeasor with corporation for flagrant breaches of copyright law

In an action brought by MCA Records, Inc. and MCA Records Ltd. an English court of first instance, found that Mr. Jean Luc Young was liable for infringement by the copying and public issuance of Chess sound recordings by Charly Records Ltd. There is no dispute about the claimants title to the copyright.

MCA Records, Inc. is a California corporation while MCA Records Ltd. is its United Kingdom subsidiary (collectively MCA). The Chess Labels Discography was compiled by Michel Ruppli and published by Greenwood Press in 1983. The recordings were originally made over a period from 1947 to 1975 and featured many jazz greats.

Mr. Young had set up a Liechtenstein company, from 1980 on known as Charly Holdings Aktiengesellschaft (CHA), whose function it was to hold master sound recordings. He also founded Charly Music Ltd (CML) in the U.K. to exploit the rights held by CHA by turning out re-issues of sound recordings in the fields of blues, jazz, rhythm and blues and rock and roll. Charly Holdings Inc. (Holdings) is a Panamanian company administered from Zurich by M. Raymond-Claude Foex but whose directors are Panamanian lawyers.

Mr. Young claims ignorance of Holdings’ shareholders and Mr. Foex contends that Swiss law prevents him from revealing their identities. In 1981, Mr. Young sold much of CHA’s catalogue to Holdings while Holdings then proceeded to set up two wholly owned subs, Charly Records, Ltd. (CRL) in the U.K. and Charly International APS (International) in Denmark. Young served as a director of Holdings until 1982 and continued as an employee of CRL until 1996.

In 1987, Holdings obtained an 11.5 year license from Red Dog Express, Inc., a company controlled by Marshall Sehorn, purporting to grant it a non-exclusive world wide license to exploit the Chess master recordings. Mr. Young signed the license on behalf of Holdings and CRL as guarantor.

Since August 1988, CRL made and distributed Chess records using masters from Red Dog. This activity gave rise to the present law suit.

In 1992, MCA sued Sehorn and Red Dog in California court and won, an appeal having been dismissed in 1994. The court ruled that Sehorn had failed to prove the 1976 license and that he and Red Dog did not have, and never did have, any title to the Chess master recordings.

Upon learning that CRL was exploiting the Chess material in the U.K., MCA sued CRL, Holdings and International in California in January 1992 for unfair competition which the court treated as in essence a breach of copyright claim. Two years later, the court held that Holdings and International had never had any rights to the Chess catalogue. The rationale was that, as privies of Sehorn, the prior judgment stopped them from disputing its findings. Although the court approved a total of about fourteen million dollars in damages, apparently only about $100,000 has actually been collected. The state appellate court rejected appeals based on lack of jurisdiction in October 1997.

In an apparent test case, MCA sued CRL in an English court in February 1993 and the court, citing the defendant’s dishonest disregard of the California judgments, entered flagrancy damages.

In February 1994, MCA started out by suing CRL alone abut after the judgment in the test action, plaintiff joined the other defendants listed above. The court entered default judgments against CRL, International and Holdings leaving only Mr. Young to go to trial.

Plaintiffs contended that Young was the moving spirit and directing mind of the corporate defendants and hence was personally liable for their unlawful actions. The main relief sought was an injunction and turnover order involving over 2,000 titles.

While unable to find sufficient evidence that Young authorized, directed or procured Holdings’ activities, the court did not hesitate to find enough proof that, despite his denials, Young negotiated both of the licenses on behalf of CRL. and International.

Based on the evidence at the hearing, the trial judge found it clear that Mr Young must be taken at least to have impliedly directed or procured the tortious acts of infringement by CRL of which MCA complains.

In the Court of Appeal, Young challenged both the lower court’s legal standard for the personal liability of a corporate director as well as that court’s application of the test to the facts. After a careful analysis of the authorities, the lead opinion in the Court of Appeal comes to the following conclusions on the legal principles.

“First, a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company that is to say, by voting at board meetings. That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person. Nor, as it seems to me, will it be right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company for example by voting at general meetings and by exercising the powers to appoint directors.” [para. 49]

“Second, there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder. In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control.” [para. 50]

“Third [in the field of intellectual property] liability as a joint tortfeasor may arise where, ...the individual intends and procures and shares a common design that the infringement take place.” [para. 51]

“Fourth, whether or not there is a separate tort of procuring an infringement of a statutory right, actionable at common law, an individual who does intend, procure and share a common design that the infringement should take place may be liable as a joint tortfeasor.” [para. 52]

Applying these standards to the evidence put before the judge below, the Court of Appeal upholds his factual findings. “Viewed in the light of the test which I have set out there was abundant evidence to support the conclusion that Mr Young was liable with CRL as a joint tortfeasor. It is plain from the judges’ findings of fact that Mr Young induced CRL to copy the Chess recordings and to issue copies to the public. It is plain that he and CRL joined together in concerted action to ensure that those acts were done. That was the whole purpose of obtaining the licences (or purported licences) for CRL. There was never any question but that CRL would exploit the licences in respect of the Chess recordings which Mr Young had negotiated on its behalf. If evidence of that be required it is found in Mr Young’s witness statement in the 1993 test proceedings: I was involved in the planning of all [CRL] product releases which reproduced the Chess masters. Further confirmation of the inducement to infringe can be found in the December 1992 advertisement Business as usual to which the judge referred in paragraph 83 of his judgment.” [para. 61]

With respect to the lower court’s findings of “flagrancy,” the Court of Appeal is satisfied. “It seems to me that the judge was entitled to reach the conclusion that, after Mr Young had knowledge of the judgment in the action brought by MCA against Mr Sehorn in California, the continued infringement of MCA’s copyright in the Chess recordings was, indeed, about as flagrant as it could be. I do not find it necessary to add to the reasons which the judge gave for that conclusion.” [para. 67]

Two members of the Court concur with the lead opinion that the appeal is to be dismissed.

Citation: MCA Records Inc. v. Charly Records Ltd., 2001 WL 1135084, [2001] E.W.C.A. Civ. 1441 (Ct. App. (Civ. Div.), 5 October 2001) (Smith Bernal Trans.).

EXPERT TESTIMONY

Ninth Circuit reverses contracts case where purported “expert” gave general opinion testimony about allegedly “fraudulent business practices” typical of Korean business people

On November 16, 1994, JR International Corporation of Korea and its U.S. subsidiary, Jinro America, Inc. (hereinafter “Jinro”) entered into a contract with Brian Bishop, Burnett Watkins, Cobbi International Food Products, and Landmark Forward Companies, Inc. (hereinafter “defendants”). It provided that Jinro would buy large quantities of frozen the chicken from Landmark and immediately sell it to Cobbi. Cobbi would already have buyers and sales orders lined up for the chicken at an elevated price. Jinro agreed to advance $10 million to Landmark.

By June of 1995, no chicken had been sold or bought, and Jinro sued to bar the transfer of its $10 million advance from Saratoga Investments, Inc. where it had been placed on hold. Jinro then found out that no funds were on hold at Saratoga in its name, and amended the suit to include breach of contract, racketeering, and assorted fraud claims.

Defendants assert that the written contract was a sham from the start, created as a legal shroud to conceal the real agreement: a verbal contract for a collaboratory involvement in a high-risk, high-yield investment scheme dubbed the “roll program.” A “roll program” is an illegal investment scheme in Korea, designed to avoid Korean currency regulations by using sham companies to buy foreign banks’ commercial paper. The defendants allege that Jinro approached them, asking them to join this scheme and to set up the sham companies. Defendants also assert that Jinro became disenchanted with the profits from the scheme, and is suing to recover its initial investment by acting as though the chicken contract had been a legitimate agreement.

The Arizona district court bifurcated the trial to have a jury decide the alleged sham. Based on the testimony of an expert witness, a private investigator by the name of Pelham, the jury in fact found that the transaction was a sham, and the Arizona district court gave summary judgment to the defendants. Jinro duly appealed. The U.S. Court of Appeals for the Ninth Circuit reverses based on the erroneously admitted expert testimony.

Pelham had been the general manager of the Pinkerton Detective Agency’s office in Korea since 1994. He provided “commercial security” to non-Korean companies doing business in Korea but had no formal education or training in business or as a cultural expert. Pelham had not investigated Jinro itself but his testimony purportedly educated the jury about the modus operandi of Korean businesses in general.

His opinion testimony included generalizations such as “Korean businessmen don’t like laws that restrict their freedom to [sic] business and make money.”Asked how Korean businessmen achieve these frauds, Pelham explained that they use “just outright theft ... smuggling ... or ... through some kind of a phony contract...” He opined that the chicken trading agreement at issue was “the sort of agreement” that Korean businessmen might use to commit fraud. Pelham based his opinions on things he had “heard of” and read in the Wall Street Journal and the Korean Herald newspapers.

The Court finds that (a) Mr. Pelham had received no formal education or training in business or as a cultural expert; (b) Mr. Pelham was not a lawyer; (c) Mr. Pelham had not conducted any research on, or surveillance of, Jinro; (d) Mr. Pelham’s testimony consisted entirely of generalizations about Korean businessmen as untrustworthy, criminal, and routinely involved in “roll programs” to circumvent Korean currency regulations; and (e) Mr. Pelham admitted before the trial that he had only “heard of” such practices, in direct conflict with his testimony that he “had personal knowledge of” the activities. In light of these points, the court agrees with Jinro that admission of Mr. Pelham’s testimony as an expert witness was contrary to the Rules of Evidence.

“We conclude that Pelham should not have been allowed to testify as he did for two reasons. First, his qualifications as an expert were suspect at best, and his testimony was extremely unreliable; it should not have been admitted under Rule 702. Second, even assuming his expert testimony was admissible, it was far more prejudicial than probative and should have been excluded under Rule 403.”

“Pelham came before the jury cloaked with the mantle of an expert. This is significant for two reasons: First, it allowed him to testify based on hearsay information, and to couch his observations as generalized ‘opinions’ rather than first-hand knowledge about Jinro and its activities in particular. Second, as the opinion of a purported ‘expert’ on Korean business practices and culture, his statements were likely to carry special weight with the jury. For these reasons, care must be taken to assure that a proffered witness truly qualifies as an expert, and that such testimony meets the requirements of Rule 702.” [Slip op. 26-27]

Here, the district court failed to ascertain whether Pelham’s testimony was “reliable,” that is, whether he had a reliable basis in the knowledge and experience of the relevant discipline.

“... Pelham offered his impressionistic generalizations about Korean businesses based on his personal investigative experiences, his ‘hobby’ of studying Korean business practices, unspecified input from his office staff and his marriage to a Korean woman – hardly an adequate foundation for the type of expert opinion he offered to the jury ... We recognize that persons experienced in a particular field may have a ‘practical’ expertise or specialized knowledge that might qualify them to provide relevant and reliable information to a lay jury. For example, Pelham perhaps might have been qualified to testify based on his experience as a professional commercial investigator (his ‘discipline’) about the structure of the Korean governmental and banking systems – to illuminate for the jury how that country’s regulatory system worked. ... Instead, relying on his training and work as an investigator whose experience necessarily focused on persons or businesses suspected of corrupt behavior, Pelham culturally stereotyped Korean businesses – leading the jury to believe that the subset of Korean companies and individuals Pelham dealt with or ‘had heard of’ typified most such companies and individuals.” [Slip op. 32-34]

Further, Pelham’s testimony is clearly more prejudicial than probative under Rule 403. It is not a new problem testimony portrays a defendant’s conduct as typical of a particular racial or ethnic group, or nationality. Such testimony may be admissible in some instances. There is, however, great risk of ethnic stereotyping, appealing to bias, guilt by association, and even xenophobia.

Since the jury relied heavily on this testimony to decide that Jinro had created the written agreement as a “sham,” the court reverses the summary judgment and remands the case for proceedings consistent with its findings.

Citation: Jinro America Inc. v. Secure Investments, Inc., No. 99-16133 (9th Cir. September 14, 2001).

EXPERT TESTIMONY

Sixth Circuit affirms judgment against American bank which had guaranty from Small Business Administration over claim that trial court erred in admitting expert testimony that bank had failed to comply with commonplace international practices in coping with challenges by Yugoslavian bank to documents underlying international letter of credit

This litigation arises from a loan agreement between the First Tennessee Bank National Association (hereinafter First Tennessee) and the Small Business Administration (hereinafter SBA). In September 1978, First Tennessee and the SBA entered into an agreement wherein the SBA promised to guarantee certain loans made by the bank to small businesses. The agreement required that First Tennessee close and disburse each loan in accordance with the terms and conditions of the approved loan authorization. The agreement also required the bank to “execute documents and take such other actions which shall, consistent with prudent closing practices, be required in order to fully protect and preserve the interest of Lender [First Tennessee] and SBA in the loan.”

In June of 1990, First Tennessee asked the SBA to guarantee a revolving line of credit for Telware International, Inc. (hereinafter Telware), an export company. Deryl Bauman, Commercial Loan Officer for First Tennessee, helped to draft the agreement and the SBA later approved the request. It issued a loan authorization and agreed to guaranty up to $882,350, or eighty-five percent of the bank’s revolving line of credit. The loan authorization specifically required FCIA insurance or confirmation of the letter of credit.

In December 1990, Telware entered into an agreement to sell 1,000 metric tons of navy beans and 1,000 metric tons of pinto beans to Centrocoop, a Yugoslav food distributor. On January 29, 1991, the Yugoslav bank Beogradska Banka provided Telware with a letter of credit to secure Centrocoop’s payment for the beans. First Tennessee later advanced the funds to Telware so that the company could buy the beans for re-sale. First Tennessee, however, neither asked for nor received confirmation from Beogradska Banka, nor did First Tennessee have enough time to obtain FCIA insurance. Telware obtained a waiver of the SBA requirement that there be either insurance or a confirmed letter of credit.

Before the transaction could be complete, the Yugoslav bank refused to accept Telware’s documentation, claiming that the endorsement on certain bills of lading were incorrect. After Beogradska Banka’s rejection of the documentation, Telware notified Bauman at First Tennessee of the problem. While Bauman was concerned about the situation, he took no action. Instead, he left on a scheduled vacation.

Despite Telware’s efforts to resolve the problem, the company had to default on the loan and had to sell the beans in Malta for much less than the intended price. First Tennessee requested that the SBA repurchase eighty-five percent of the outstanding balance as per the guidelines of the guaranty agreement. The SBA refused to honor the guaranty agreement, however, contending that First Tennessee had materially breached its terms by not servicing the Telware loan prudently, as required by SBA regulations and by the guaranty agreement itself.

At trial, testimony indicated that Bauman had only spoken to Telware’s management. He did not contact Tennessee’s international department and he did not notify SBA about Beogradska Banka’s rejection of the documents. In addition, the SBA introduced expert testimony from Mr. Peter Iorlano, who had worked in the international departments of various banks from 1950 to 1997 in matters of international letters of credit. Iorlano opined that First Tennessee should have handled the document presentation to the foreign bank personally and that a bank’s international department is best suited to address discrepancies in a manner that might persuade a foreign bank to accept the document and to honor a letter of credit. First Tennessee could have (1) had a vice-president contact the foreign bank, (2) put pressure on a U.S. representatives of the foreign bank, or (3) or presented the dispute to an international banking organization for review and assistance. As a result, Iorlano opined that First Tennessee had acted imprudently by failing to take any of these commonplace steps in international letter of credit transactions, and by allowing Telware to interact with Beogradska Banka.

The district court entered judgment in favor of the SBA. The U.S. Court of Appeals for the Sixth Circuit affirms.

First Tennessee argued on appeal that the court had erred in allowing the court’s expert witness to testify at trial. The Court the cites Federal Rule of Evidence 702 governing the admissibility of expert witnesses.

Upon reviewing the record, the Court holds that there was no error or abuse of discretion on the part of the district court in allowing Mr. Iorlano to testify. Indeed, Iorlano’s testimony was both relevant and sufficiently reliable. To the extent that Iorlano may not have been familiar with some aspects of banking relationships, the Court agrees with the district court that such unfamiliarity merely affected the weight and credibility of his testimony, not its admissibility.

First Tennessee also argued that the expert testimony was not based upon valid reasoning or methodology as demanded by the Supreme Court’s decision in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). The Court opines that although Daubert specifically dealt with scientific evidence, the Sixth Circuit has recognized that the “gatekeeper” analogy applies to all expert testimony under Rule 702. The Court further points out that recent case law supports the notion that whether Daubert’s specific factors are, or are not, reasonable measures of reliability in a particular case is a matter that the law grants the trial judge broad latitude to determine. Consequently, the Court finds no merit in First Tennessee’s claim that Iorlano’s testimony lacked enough indicia of reliability, and therefore was inadmissible under Daubert.

Citation: First Tennessee Bank National Ass’n v. Barreto, No. 98-6020 (6th Cir. October 9, 2001).

INSURANCE

In action by international insurance companies against State of Florida, Eleventh Circuit holds that Florida’s Holocaust Victims Insurance Act violates Due Process because it requires insurers who had corporate affiliates in Europe during Holocaust to report information even though the affiliates lacked any other contacts with Florida

The plaintiffs in the following case are international insurance companies doing business in Florida that may have issued insurance policies to Holocaust victims prior to 1945. The plaintiffs are affiliated with two German insurance companies that issued insurance policies in Germany between 1920 and 1945, Gerling-Konzern Lebensversicherungs-AG, and Gerling-Konzern Allgemeine Versicherungs-AG. There are, however, no indications at this point of any unpaid claims remaining from the Holocaust era involving these companies.

The Insurance Commissioner of Florida issued broad subpoenas to the plaintiffs, requesting virtually all documents of the European affiliates dealing with the 25-year period specified in Florida’s Holocaust Victims Insurance Act (Fla. Stat. ch. 626.9543). The Act seeks to ensure the payment of insurance claims to identified Holocaust victims. To this end, it requires that all insurers doing business in Florida report any relationship they may have had with international insurers that issued policies to Holocaust victims between 1920 and 1945, and disclose any paid and unpaid claims. Moreover, the Act creates a private cause of action for individuals harmed by a violation of the Act, providing for treble damages, attorneys’ fees and costs.

The plaintiffs sued in federal court to challenge the Act’s constitutionality. The district court agreed that, in trying to regulate matters with an insufficient connection with Florida, the Act violated the Due Process Clause. It accordingly gave summary judgment to the plaintiffs. The Florida Insurance Commissioner appealed. The U.S. Court of Appeals for the Eleventh Circuit, however, affirms.

The Court reviews not only the contacts between the regulated party and the State, but also the contacts between the State and the regulated subject matter. It agrees with the plaintiffs’ narrow argument that the Act’s reporting requirement, as applied to the plaintiffs, violated legislative Due Process constraints.

“While there may be a connection between the State of Florida and that subject to the extent it relates directly to the activities of Florida insurers, there is virtually no connection between the State of Florida and that subject to the extent it concerns insurance transactions involving Plaintiffs’ German affiliates that took place years ago in Germany, among German residents, under German law, relating to persons, property, and events in Germany. Significantly, the reporting provisions are not on their face limited to information regarding policies that allegedly may be payable to current Florida residents.”

“Nor is there any dispute that Plaintiffs’ German affiliates do not conduct business in Florida and have not otherwise purposefully availed themselves of benefits provided by Florida. ... The reporting provisions pertain to, and as a practical matter unquestionably seek to regulate, a subject matter – the German affiliates’ payment or non-payment of Holocaust-era policy claims – with no jurisdictionally-significant relationship to Florida. The reporting provisions violate Due Process to that extent, regardless of whether there are minimum contacts between the State of Florida and these particular Plaintiffs, the (nominally) regulated parties.” [Slip op. 27-28]

The Court, however, does not address the broader issue of whether the whole scheme of the Act is unconstitutional. Nor does it decide whether the Insurance Commissioner might be able to obtain this information based on other Florida insurance laws.

Citation: Gerling Global Reinsurance Corp. v. Gallagher, No. 00-16542 (11th Cir. October 2, 2001).

INTERNET

In dispute over allegedly defamatory article published in Barrons Magazine, Victoria, Australia, court reviews whether there is jurisdiction based on publication in the internet, whether there is long-arm jurisdiction, and whether Victoria, rather than New Jersey, is an appropriate forum

On October 30, 2000, Barrons Magazine published an article entitled “Unholy Gains: When Stock Promoters Cross Paths with Religious Charities, Investors had Better be on Guard”. The article painted a portrait of a well-known Australian philanthropist, Mr. Joseph Gutnick (hereinafter “plaintiff’), as being the largest customer of a reputed money-launderer. In effect, the article branded Mr. Gutnick as a tax-evader engaged in the misuse of charity funds for the purpose of manipulating stock prices. A few copies of this article were sold over the internet.

Dow Jones & Co. Inc. which also publishes the Wall Street Journal, owns Barrons (“defendant”). Mr. Gutnick sued the defendant on the grounds that the magazine had defamed his character. Defendant filed for a stay of proceeding. The Supreme Court of Victoria, Australia denies this application.

First, both parties agree that the forum for deciding this case should be at the locus delicti. There is a dispute, however, as to where this is. Authors and staff write and edit Articles for the Barrons OnLine Website in New York. A computer translates them and then sends them to six servers in New Jersey where they are made available to the Website. The defendant alleges that the tort in question (the “publication” of the article) therefore took place in New Jersey when the article was loaded onto the website there.

This assertion centers around the logistics of “push-pull”computer technology. “Push” services, such as e-mail applications, take place in the absence of a prerequisite solicitation from the user. “Pull” services occur only when the user has submitted an electronic transmission requesting service. To download the offensive article, a user had to send the qualifying electronic request by clicking on the appropriate button.

On the other hand, the plaintiff maintains that the tort happened in Victoria, Australia when users in Victoria downloaded the article from the Barrons OnLine Website. The Court agrees with this interpretation. It also finds the Victorian long-arm statute applicable because (a) 1,700 prominent subscribers to the website are based out of Victoria; (b) the court can infer that hundreds of these individuals accessed the defamatory article; (c) the plaintiff lives in Victoria and works in Victoria; (d) the plaintiff’s reputation has suffered injury in Victoria; and (e) Victoria is where the plaintiff wishes to vindicate his reputation.

Second, the defendant argued that it did not shoulder responsibility for causing the material to be published in Victoria. The mere act of placing an article on a website does not constitute publication. Moreover, if ‘publication’ did indeed transpire at the time Victorian residents downloaded the material, then the users themselves would be responsible for the “publication,” because the material was obtained as the fruit of their deliberate actions.

The defendant noted the dissimilarity between its system and a radio broadcast because it is likely that a listener would not have explicitly requested exposure to the defamatory rhetoric. In response, the court drew a parallel between this argument and the outrageousness of the same hypothetical radio station claiming that it is not responsible for causing a defamatory broadcast because the listener initially chose to tune the dial to that station, thereby “soliciting” the broadcast.

Third, the court rejected the defendant’s forum non conveniens claim. It rested upon the additional expenses, time consumption, and assorted inconveniences (including the difficulty of producing trial witnesses principally located in the U.S.) during a legal proceeding occurring in Victoria. Also refused under this claim was the defendant’s assertion that its case would fare better under U.S. law. Victorian defamation law presumes falsity and places the burden of proof on the defendant, whereas U.S. law requires the plaintiff to first establish the falsity of the publication. Moreover, the defendant claimed that its American employee created a story that (a) was “indelibly American,” (b) complied with all standards of American journalism, and (c) would prevail under American defamation law.

Finally, the Court points out that shifting the forum to New Jersey would pose just as much of an elevated inconvenience to the plaintiff as holding the proceedings in Victoria would pose to the defendant. Moreover, the question of preferred law is largely irrelevant, as the court is not likely to switch from the application of one nation’s law to another merely to bring about a victory for the defendant. Finally, regardless of the forum, Victorian law would apply because the court has determined that the tortious harm had taken place there.

Citation: Gutnick v. Dow Jones & Co. Inc., Supreme Court of Victoria (Australia), Common Law Division, No. BC200104980, 28 August 2001.

SOVEREIGN IMMUNITY

Federal district court in District of Columbia dismisses actions by Korean “comfort women” against Japan on grounds of sovereign immunity

On October 4, 2001, the United States District Court for the District of Columbia dismissed a suit brought against Japan by 15 Asian women who had been used as “comfort women” by the Japanese Army during World War II on the grounds of immunity granted to Japan under the Foreign Sovereign Immunities Act of 1976 [28 U.S.C. Section 1602] (“FSIA”).

During World War II, the Japanese government kept approximately 200,000 Asian women as “comfort women” in state-sponsored and government-resourced “comfort houses.” Japanese forces abducted these women from their homes in Japanese-occupied territories (including Taiwan, Korea, the Philippines, and Guam) and forced them to provide sexual favors to members of the Japanese army. The soldiers paid a fee to enter, the time and lengths of visits being determined based on rank. The proceeds of these comfort houses benefitted the Japanese military.

The court acknowledged that, with several exceptions, countries retain their traditional sovereign immunity from suit under the FSIA, unless they have explicitly and unambiguously waived it. The plaintiffs allege that Japan waived this immunity (a) by accepting and signing the Potsdam Declaration, it explicitly waived immunity under Section 1605 (a) (1), (b) by taking part in slavery, a jus cogens violation, it impliedly waived immunity under Section 1605 (a) (1), and (c) by engaging in activities that fall within the definition “commercial activity” exception in Section 1605 (a) (2), where the actions committed outside of U.S. territory had a direct effect within the United States. For the purposes of the case, the court interpreted the FSIA to apply to violations occurring before 1952.

First, the court ruled that signing the Potsdam Declaration did not constitute an explicit waiver on the part of Japan under Section 1605 (a) (1). According to precedent, the waiver must be clear, intentional, and unambiguous. The Potsdam Declaration did not contain within its text an explicit statement that Japan intended to waive its immunity and subject itself to civil actions in United States courts.

A foreign government cannot waive its immunity under Section 1605 (a) (1) by signing an international agreement that contains no mention of a waiver of immunity to suit in United States courts or even the acknowledgment of a possible cause of action in the United States. See Argentine Republic v. Amerada Hess Shipping Corp., 448 U.S. 428 (1989). While the Potsdam provision does hold individuals accountable for war crimes, it cannot be read to extend this accountability to holding the government of Japan liable to a U.S. civil suit. International conventions and declarations require jurisdiction over crimes, but not necessarily over civil actions or over foreign states. See Von Dardel v. Union of Soviet Socialist Republics, 736 F.Supp. 1 (D.D.C. 1990)).

Second, although the “egregious conduct” of Japan undoubtedly constituted a jus cogens violation, such a violation does not qualify as a waiver of sovereign immunity under Section 1605 (a)(1). Citing Princz v. Federal Republic of Germany, 26 F.3d 1166 (D.C. Cir. 1994), the court continued the prevailing trend of the circuit: “the jus cogens theory of implied waiver is incompatible with the intentionality requirement implicit in Section 1605 (a)(1) [because] an implied waiver depends upon the foreign government’s having at some point indicated its amenability to suit.” [26 F.3d 1166, 1174].

Third, the comfort house operation does not qualify as a commercial activity under Section 1605 (a) (2). Because the activity was a premeditated and subsidized government plan, it cannot be a commercial activity. Although members of the military did pay money to engage in the sexual services provided by the comfort houses, this is not enough to constitute a commercial activity.

The court quotes the holding of the U.S. Supreme Court in Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992): “When a foreign government acts ¼ in the manner of a private player within the market, the foreign sovereign’s actions are ‘commercial’ within the meaning of the FSIA ¼ the question is not whether the foreign government is acting with a profit motive ¼ rather, the issue is whether the particular actions that the foreign state performs are the type of actions by which a private party engages in ‘trade and traffic or commerce.’” [504 U.S. 607, 614]

Finally, the court found that even if Japan did not enjoy sovereign immunity, the Plaintiffs’ claims must still be dismissed because they present a non-justiciable political question.

“There is no question that this court is not the appropriate forum in which plaintiffs may seek to reopen those discussions nearly half a century later. Just as the agreements and treaties made with Japan after World War II were negotiated at the government-to-government level, so too should the current claims of the ‘comfort women’ be addressed directly between governments. Several district courts have recently reached this same conclusion with respect to reparations for victims of the Nazi regime. These courts concluded that ‘the post-war claims settlement regime had been exclusively constructed by political branches, and that it was not the place of courts to resolve [these] claims.’ (Cits.) Although the cases addressing reparations for victims of Nazi atrocities arose in a slightly different factual context than that of the ‘comfort women,’ the result nonetheless remains the same. The court therefore concludes that even if Japan did not enjoy sovereign immunity, plaintiffs’ claims are nonjusticiable and must be dismissed.” [Slip op. 39-40]

Citation: Hwang v. Japan, Civil Action 00-02233 (HHK) (U.S. District Court for the District of Columbia, October 4, 2001).

WORLD TRADE ORGANIZATION

WTO Appellate Body essentially upholds Panel Report favoring Pakistani side in U.S.-Pakistan dispute over U.S. safeguard measures for cotton yarn

On October 8, 2001, the World Trade Organization (“WTO”) Appellate Body handed down a decision regarding the United States appeal of a June 2000 Panel ruling concerning U.S. transitional safeguard measures on combed cotton yarn from Pakistan. The U.S. asserted that its transitional safeguard measure was warranted, due to an influx of imports from Pakistan that was resulting in “serious damage” to the American industry. The WTO Panel had found the measure in violation of Articles 6.2 and 6.4 of the Agreement on Textiles and Clothing (“ATC”).

The U.S. interprets the second sentence of Article 6.4 in a manner that supports a comparative analysis of the effect of imports from ONE particular member, without conducting a same or similar analysis for other Members from whom there has been a sharp or significant increase in imports. Here, the word “sharp” refers to the rate of the increase, while “significant” connotes the amount of the increase.

Pakistan asserts that the second sentence of Article 6.4 mandates a “comparative analysis” in the event that there is more than one Member from whom there has been a “sharp and substantial” increase in imports. The Appellate Body upholds paragraph 8.1 (b) of the Panel’s earlier findings, agreeing with Pakistan’s interpretation of this clause. In the absence of an assessment of damages caused by other Members who have exhibited a “sharp and substantial” increase in imports (namely Mexico), the U.S. did not prove that the totality of the serious damage at issue is solely attributable to Pakistan.

The Appellate Body furthermore reiterated paragraph 8.1 (a) of the Panel’s previous findings, asserting that the U.S. acted out of step with Article 6.2 by defining the “domestic industry” in a manner which excluded from its scope the production of combed cotton yarn by vertically integrated producers for their own use.

Article 6.2 states that the domestic industry is defined as one producing “like and/or directly competitive products.” The WTO interpreted this as inclusive of every like product, of every directly competitive product, and of all overlap between the first two. The U.S. had interpreted the language of the Article to support a definition of the domestic industry as one producing a product that was both like and directly competitive with the imported product, which would allow the U.S. to define the domestic industry as the producers of yarn for sale in the merchant market.

The Appellate Body also contemplated the U.S. allegation that the Panel had erred in interpreting its standard of review by considering United States Census data for 1998. The U.S. asserted that the Panel exceeded the mandate of the WTO dispute settlement panels as defined under Article 11 of the Dispute Settlement Understanding (DSU) in finding that it could consider evidence that was not in existence at the time of the competent authority’s determination; such a standard of review would not amount to “objective assessment,” but rather constituted a “de novo review.”

The Appellate Body holds, in particular, that the Panel:

(1) had exceeded its mandate under Article 11 of the DSU by considering U.S. Census data for the calendar year 1998.

(2) had correctly found, in paragraph 8.1(a) of its Report, that the U.S. had acted inconsistently with Article 6.2 of the ATC by excluding from the scope of the domestic industry the production of combed cotton year by vertically integrated producers for their own internal use.

(3) had correctly found, in paragraph 8.1(b) of its Report, that the U.S. had violated Article 6.4 of the ATC by not taking into account the effect of imports from Mexico (and possibly other countries) when attributing serious damage to Pakistan.

The Appellate Body recommends that the U.S. bring its measure into conformity with its obligations under the ATC.

Citation: United States - Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan (WT/DS192/AB/R, AB-2001-3) (October 8, 2001). The Report is available on the website of the WTO at “www.wto.org.”

U.S. and Japan agree on solution for WTO dispute over Japan’s agricultural import restrictions. In 1997, the U.S. brought proceedings against Japan before the World Trade Organization (WTO), challenging the import restrictions that Japan had imposed allegedly to protect itself against the pest “codling moth” (WTO Dispute DS76 “Japan - Measures affecting agricultural products”). On October 27, 1998, a WTO Dispute Settlement Panel found in favor of the U.S. and recommended that Japan bring its import measures into compliance with GATT trading rules. The Appellate Body essentially affirmed on February 22, 1999. On August 23, 2001, Japan announced that it had reached an agreement with the U.S. on this matter. Japan agreed to lifting its import restrictions on eight products, including apples and nuts. On August 30, 2001, Japan and the U.S. released a joint communication that an agreement had been reached. Currently, Japan is completing the domestic legal procedure for implementing the new quarantine methodologies agreed upon with the U.S. Japan has already eliminated the varietal testing requirements that the WTO Panel had objected to, and the import restrictions will be lifted once Japan has implemented the agreed-upon methodologies. Citation: WTO News of 25 September 2001, available on WTO website “www.wto.org”; Japan - Measures Affecting Agricultural Products, Communication from Japan and the United States, World Trade Organization WT/DS76/12 (30 August 2001).

President Bush continues national emergency concerning UNITA. On September 24, 2001, President Bush extended for one year the national emergency previously established under President Clinton on September 26, 1993, in Executive Order No. 12865. This emergency prohibits the sale or supply of arms, petroleum, petroleum products, and related commodities from the U.S. or its citizens to the territory of Angola (excepting certain specifically designated points of entry) and to the National Union for the Total Independence of Angola (UNITA). The President further invoked his powers under section 202 (d) of the National Emergencies Act to extend all additional measures taken in Executive Order by President Clinton pursuant to the original declaration of emergency. These additional measures include the closing of all UNITA offices in the US, a block on all property and property interests of UNITA, and the ban on certain diamond imports exported from Angola. Citation: Federal Register Vol. 66, No. 186. September 25, 2001. 66 FR 49084.

President Bush blocks property and bars financial dealings with individuals determined to commit, facilitate, threaten, or foster terrorism. On September 24, 2001, President Bush signed into effect Executive Order 13224, freezing the financial assets of known terrorists, terrorist associates, and supporters of terrorism. This order was issued in response to the September 11 terrorist attacks, in which four American commercial airliners were hijacked, transformed into weapons of mass destruction, and aimed at significant U.S. landmarks. The Order further prohibits U.S. citizens and residents from donating to or transacting with terrorist organizations, and declares a national emergency in response to the continuing and immediate threat of further attacks on the U.S. and its people by foreign terrorism. The embargo extends as well to individuals who support, harbor, or interact with terrorists, and includes an Annex explicitly blacklisting some 27 persons or entities, including Osama bin Laden and his Al Qaeda network. The Order also bars financial institutions from forewarning the eligible that their assets will be frozen. Citation: 66 Federal Register 49079 (September 25, 2001).

FAA prohibits flight activity in Afghan airspace. Acting under the authority of sections 40101 (d) (1) and 44701 (a) of Title 49 US Code, the FAA has prohibited flight operations in Afghan airspace by all [non-military] U.S. air carriers, commercial operators, pilots, or individuals operating U.S.-registered aircraft. The referenced sections of Title 49 U.S.C. provide broad and sweeping authority to the FAA over the establishment and prescription of measures regulating all policies and procedures affecting the safety of U.S. air commerce and national security. The Action states that recent unrest in Kabul, fused with heightened security measures of the mobilized Taliban militia, could “result in an inadvertent attack on [U.S.] civil aviation.” The prohibition does not extend to foreign nationals engaged in the operation of U.S.-registered aircraft for foreign aircraft carriers. The measure is effective from September 24, 2001 until further notice. Citation: 66 Federal Register 48942 (September 24, 2001).

Department of Justices revises Foreign Claims Settlement Commission regulations. The U.S. Department of Justice has revised and re-published the regulations of the Foreign Claims Settlement Commission of the U.S. (45 C.F.R. Chapter V). The regulations describe the Commission’s structure, functions, procedures, and responsibilities. For example, the rules provide that a licensed attorney for a private party or an officer of the Department of Justice for the U.S. may appear in a claim proceeding. Citation: 66 Federal Register 49844 (October 1, 2001).

Department of Commerce removes sanctions on India and Pakistan. On September 22, 2001, President George W. Bush waived sanctions placed on India and Pakistan in May 1998 because of their nuclear tests. The U.S. Department of Commerce, Bureau of Export Administration, has therefore issued regulations to implement the waiver by removing the denial policy for items controlled for Nuclear Proliferation and Missile Technology reasons to India and Pakistan (15 C.F.R. Parts 742 and 744). Instead, the Department may issue licenses on a case-by-case basis. The rule also removes a large number of Indian and Pakistani entities from the Entity List. Citation: 66 Federal Register 50090 (October 1, 2001).

State Department Fact Sheet lists currently designated “Foreign Terrorist Organizations.” The U.S. Department of State has issued a fact sheet with all organizations that are currently designated as “Foreign Terrorist Organizations” (FTOs). The list of 28 organizations includes al Qa’ida, the I.R.A., and Hizballah. These designations result from the Immigration and Nationality Act, as amended by the Antiterrorism and Effective Death Penalty Act of 1996. U.S. persons must not support such organizations and U.S. financial institutions must block any known funds used to support terrorist activities. Citation: U.S. Department of State Fact Sheet (October 5, 2001).