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.

2002 International Law Update, Volume 8, Number 4 (April)

ARBITRATION

In action to enforce foreign arbitral award, Ninth Circuit affirms dismissal of action by Dutch rice-purchasing company for lack of personal jurisdiction over Indian seller

Glencore Grain Rotterdam B.V. (Glencore), a Dutch company located in Rotterdam, concluded 11 contracts to buy 300,000 tons of rice from Shivnath Rai Harnarain Co. (Shivnath), a rice exporter doing business in New Delhi, India. Under the contracts, Shivnath was to have the rice delivered at the Port of Kandla, India. The arbitration clauses provided that a panel of arbitrators of the London Rice Brokers’ Association (LRBA) would decide all contract disputes. As for choice of law, the contracts provided that they “shall be deemed to have been made in England and ... shall be governed in all respects by English Law.”

A dispute sprang up between the parties about the delivery of the rice. In 1997, an LRBA panel awarded Glencore more than $7 million in damages and interest. The award became final in England and remains enforceable there. Shivnath neither paid, nor challenged, the award. In 1998, Glencore sought enforcement of the award in India, in an action currently pending in the High Court of Delhi. In 2000, Glencore sought enforcement of the award in district court in California under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards [June 10, 1958, T.I.A.S. 6997, 330 U.N.T.S. 38, 21 U.S.T. 2517, reprinted following 9 U.S.C.A. Section 201 (West 1999)]. Both the U.S. and the United Kingdom are parties to the Convention. In support of its claim, Glencore submitted evidence that Shivnath had a sales agent in California, and had made several shipments to California destinations. Shivnath filed a motion to dismiss based, inter alia, on the lack of personal jurisdiction over it.

The district court did in fact dismiss for lack of personal jurisdiction. First, it could not find that Shivnath carried on any direct business activity in the U.S. Secondly, the activities performed through a Shivnath sales agent failed to make out enough contacts for general jurisdiction. The district court refused to exercise specific jurisdiction because Glencore’s cause of action did not arise out of, or relate to, Shivnath’s activities within the forum. Glencore appealed. The U.S. Court of Appeals for the Ninth Circuit affirms.

Congress implemented the Convention by passing Chapter II of the Federal Arbitration Act (FAA) [9 U.S.C. Sections 201-208]. Section 203 provides that “an action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States ... shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.”

Glencore argued (1) that neither the Convention nor the FAA expressly requires personal jurisdiction over the party against whom confirmation of an arbitral award is sought, and (2) that lack of personal jurisdiction is not among the Convention’s seven defenses to recognition and enforcement of a foreign arbitral award (see Article V, 21 U.S.T. 2517).

The Court notes that the Convention did not eliminate the due process requirement that a federal court have jurisdiction over the defendant’s person or property in an action to confirm a previously issued arbitration award. See Restatement (Third) of Foreign Relations Law Section Sec. 487, cmt. c (1987) (an arbitral award is ordinarily enforced by confirmation in a judgment; an action to enforce a foreign arbitral award requires jurisdiction over the award debtor or his property).

Here, the district court lacked jurisdiction over Shivnath. “When, as here, subject matter jurisdiction is premised on a federal question, the exercise of personal jurisdiction over a non-resident defendant must be authorized by a rule or statute and consonant with the constitutional principles of due process. (Cite) Because there is no applicable federal statute governing personal jurisdiction, our starting point is California’s long-arm statute. See Fed.R.Civ.P. 4(k)(1)(A). (Cite) California’s long arm [sic] allows its courts to exercise jurisdiction over defendants to the limits of due process. See Cal.Civ. Proc. Code Section 410.10. (Cit.) Thus, our analysis of personal jurisdiction under California’s long-arm and the Constitution collapse into one, and we consider only whether the exercise of jurisdiction over Shivnath Rai comports with due process.”

“Constitutional due process is satisfied when a non-resident defendant has ‘certain minimum contacts with [the forum] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’‘ (Cite) Depending on the nature of a foreign defendant’s contacts with the forum, a federal court may obtain either specific or general jurisdiction over him. A court exercises specific jurisdiction where the cause of action itself arises out of, or has a substantial connection to, the defendant’s contacts with the forum. (Cite). Alternatively, a defendant whose contacts are substantial, continuous, and systematic is subject to a court’s general jurisdiction even if the suit concerns matters not arising out of his contacts with the forum. (Cite) Whether dealing with specific or general jurisdiction, the touchstone remains ‘purposeful availment.’” [Slip op. 16-18] In the Court’s view, Shivnath lacks enough contacts with California to meet this test.

The Ninth Circuit applies a three-part test to determine the propriety of specific jurisdiction: (1) whether the defendant purposefully availed himself of the privileges of conducting activities in the forum, (2) whether the claim arises out of or results from the defendant’s forum-related activities, and (3) whether the exercise of jurisdiction is reasonable. Here, Glencore’s action fails the second requirement.

“We apply a ‘but for’ test to assess whether Glencore Grain’s claims ‘arise out of Shivnath Rai’s forum conduct: Glencore Grain must show that it would not have been injured ‘but for’ Shivnath Rai’s contacts with California. (Cite) The contracts giving rise to this dispute were negotiated abroad, involved foreign companies, and required performance (i.e., delivery of rice) in India. In short, Glencore Grain’s claim does not arise out of conduct directed at or related to California. Thus, due process forbids the exercise of specific jurisdiction.” [Slip. op. 19]

Neither is general jurisdiction appropriate under the circumstances. Shivnath has had an independent sales representative in California, and made a total of about 16 rice shipments to California between March 1999 and March 2000. But Shivnath does not have any property, bank accounts, or employees in California.

The Court points out that engaging in commerce with residents of the forum state is not, in and of itself, the kind of activity that approximates physical presence within the state’s borders. Thus, Shivnath is at most a “visitor” to California, and its contacts with California do not amount to the “physical presence” necessary to assert general jurisdiction.

In concluding, the Court declares: “We arrive at what we deem an unremarkable holding: the Convention and the FAA authorize the exercise of subject matter jurisdiction but not personal jurisdiction. Personal jurisdiction must be based on a defendant’s person or property. Glencore Grain failed to identify any property of, or conduct by, Shivnath Rai that might serve as the basis for the court’s jurisdiction over it; even if Shivnath Rai’s conduct supported the exercise of jurisdiction, that exercise would be unreasonable given the circumstances of this case. Accordingly, the district court properly dismissed this action.” [Slip op. 31-32]

Citation: Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114 (9th Cir. 2002).

AVIATION

In two consolidated cases, House of Lords rules that mental or psychic injury aboard international airlines flight without physical manifestation does not qualify as “bodily injury” under Article 17 of Warsaw Convention

Fifteen-year-old Ms. Morris (plaintiff) was a paying passenger on a KLM flight from Kuala Lumpur to Amsterdam traveling by herself. Upon waking from a nap, she discovered the hand of the man next to her caressing her left thigh from her hip to her knee. Extremely distressed, she got up and told a flight attendant what had happened to her. The attendant got her another seat. Back in England, a doctor diagnosed plaintiff as suffering from clinical depression based on a single episode of a major depressive illness. In her English damage suit against KLM, she claimed only that the incident had caused her a mental injury. Plaintiff has gotten completely better from the incident.

A trial judge upheld her injury claim as within Article 17 of the Convention for the Unification of Certain Rules relating to International Transportation by Air, with additional Protocol (1929) [the “Warsaw Convention”], 49 Stat. 3000; T.S. 876; 137 L.N.T.S. 11. The English version of Article 17 (the French text being authoritative) is: “The carrier is liable for damage sustained in the event of the death or wounding of a passenger or any other bodily injury [lesion corporelle] suffered by a passenger, if the accident which caused the damage so sustained took place on board the aircraft or in the course of any of the operations of embarking or disembarking.” [emphasis added] The Court of Appeal, however, held that Morris’s claim did not constitute a “bodily injury.” From this ruling, she obtained review in the House of Lords.

In an unrelated appeal from the Scottish courts, the following incidents had taken place. Plaintiff Philip King was riding on board a helicopter which Bristow Helicopters Ltd. owned and operated. As they started to take off from a North Sea floating platform in bad weather, both engines failed, causing the craft to land heavily on the deck, enveloped by smoke. The blinded passengers panicked, afraid that the helicopter was going to fall over into the stormy sea. Nevertheless, everyone was able to get out of the ‘copter onto the platform.

King later developed post-traumatic stress disorder, leading to the onset of peptic ulcer disease. He sued Bristow in the Scottish courts, claiming both physical and mental injuries. (Eds. - while King’s flight was not “international,” a U.K. statute made Convention standards applicable.) Under his reading of article 17, the Lord Ordinary allowed proof only as to the peptic ulcer. The First Division court, however, allowed King’s appeal and ordered that his entire claim should go to trial. Bristow got its case into the House of Lords. The question applicable to both appeals is: to what extent, if at all, is an international carrier liable under article 17 where the injury that the passenger sustained in the accident was a mental and not a physical injury?

Mr. King’s counsel pitched his appeal on the basis that Mr King suffered two distinct kinds of injury as a result of the helicopter mishap. The first was a mental injury which led to three psychiatric conditions: post‑traumatic stress disorder, chronic depression and fear of flying. The second was a physical disorder consisting of the peptic ulcer disease which the psychiatric conditions had caused.

The five Lords of Appeal unanimously decide (1) to dismiss Ms. Morris’s appeal and (2) to allow Bristow’s appeal, restoring the decision of the Lord Ordinary.

Before 1929, injured international air passengers could sue airlines under a wide variety of applicable national laws in respect of damage caused by death, wounding and bodily injury; loss of or damage to property; and injurious delay. Carriers, of course, were free to protect themselves by insurance, while limiting their liability to passengers by exception and limitation clauses. This legal hodge-podge satisfied neither air travelers nor the still fragile aviation industry.

The Warsaw Convention sought to bring some degree of order to this tangled system of liability. For example, it placed ceilings on damages and partially harmonized the applicable laws. It made the airlines liable without fault for specified types of injuries to persons and cargo. Finally, it nullified any contractual provisions that tended to remove the carrier’s liability or to lower its limits. In view of the many compromises made, therefore, it is not a good idea to approach the meaning of the phrase “bodily injury” in article 17 of the Convention through the spectacles of full corrective justice. The question applicable to both appeals is: to what extent, if at all, is the carrier liable under article 17 where the injury which the passenger sustained in the accident was a mental and not a physical injury?

The lead opinion reviews the traveaux preparatoires of the Convention as well as leading prior judicial interpretations by the U.K., France, Germany, Australia and Israel. It then gives substantial weight to Eastern Airlines Inc v. Floyd, 499 U.S. 530 (1991). Passengers on an aircraft which narrowly avoided ditching in the Gulf of Mexico claimed damages solely for the mental distress arising out of the incident. The Supreme Court held that article 17 of the Convention does not allow recovery for mental or psychic injuries unaccompanied by a physical injury or a physical manifestation of injury.

In addition to parsing the French text, the Floyd Court had found no French cases allowing recovery under the Convention for psychic injury without physical manifestation even though such recovery was seemingly possible under French domestic tort law as early as 1929. On the other hand, the domestic law of many of the other civil and common law signatories did not at that time allow damage recoveries for purely psychic injuries. The American court found this a persuasive showing that the drafters had no specific intent to include such an innovation in the Convention.

The Lords of Appeal quote the Floyd opinion as declaring that “neither the language, negotiating history, nor postenactment interpretations of article 17 clearly evidences such intent ... Moreover, we believe our construction of article 17 better accords with the Warsaw Convention's stated purpose of achieving uniformity of rules governing claims arising from international air transportation ... We have no doubt that subjecting international air carriers to strict liability for purely mental distress would be controversial for most signatory countries." [Id. at 551-52, quoted at para. 111]. The Supreme Court later followed Floyd in El Al Israel Airlines v. Tseng, 525 U.S. 155 (1999), where it ruled against a female passenger who had claimed psychic injury from an intrusive body search by airlines personnel.

Looking at developments in science since 1929, the lead House of Lords opinion concedes that, “if the brain could be shown to have been injured and the other conditions for compensation under article 17 are satisfied, it would not be right to refuse compensation under the article on the ground only that in 1929 an injury of that kind would not have been capable of being demonstrated. Whether or not there is such an injury will always depend on the evidence. But the fact remains that a bodily injury is conceptually distinct from any injury which affects the mind.” [para. 125]

“I would, [agree] ... that compensation may be awarded to a passenger under article 17 for the physical manifestations of a mental injury. A peptic ulcer disorder involves the tissues of the body, and it is not difficult to see that it is a kind of bodily injury. The requirement of a causal link to the accident will be satisfied if it can be shown, as Mr. King seeks to do, that the disorder was caused by a mental illness which was itself caused by the accident. Thus, while there is no general right to recover damages under article 17 for mental injury sustained by a passenger, damages for the physical manifestations of a mental injury will be recoverable. I would hold that the Lord Ordinary was right to allow Mr. King a proof of his averments about the peptic ulcer disease.” [para. 129]

“I have considered whether an opportunity should be given in Miss M's case to re‑open the question whether her depressive illness was linked to changes in her brain cell structures and could be said on this ground to have amounted to a physical injury. But I have come to the conclusion, in view of the way her case was expressly argued both in the Court of Appeal and in this House and because I do not think that even with the benefit of such evidence it could be shown that she has suffered a ‘bodily injury,’ that this would not be appropriate. I would dismiss her appeal.” [para. 130]

Citation: King v. Bristow Helicopters Ltd., 2002 WL 45487 (HL), [2002] 2 W.L.R. 578 (House of Lords, February 28, 2002).

COPYRIGHT

Canadian Supreme Court, citing U.S. cases, holds that complete transfer of plaintiff’s original designs from paper to canvas did not constitute copying or reproduction of original under Canadian copyright law

Claude Theberge is a Canadian painter with a well‑established international reputation who agreed to assign to a publisher the right to publish reproductions, cards and other stationery products representing some of his works. The Galerie d'Art du Petit Champlain Inc., Galerie d'Art Yves Laroche Inc., Editions Multi‑Graph Ltee, Galerie d'Art and Laroche, Denis Inc. later bought cards, photolithographs and posters of some of the artist's works from the publisher. They would then move the images to canvas by lifting the ink that was used in printing a paper poster and moving it onto a canvas surface. Since this process leaves the poster blank, it does not increase the total number of reproductions.

Theberge applied for an injunction, accounting, and damages against the galleries in the Quebec Superior Court. He also had the court issue a writ of seizure before judgment which included all of the canvas‑backed reproductions embodying his works. He claimed to have a deemed right of ownership in those items under the Copyright Act. Section 38(1) of the Act provided that the owner of the copyright in a work may recover possession of all infringing copies of that work. The Act defines an “infringing” work as “any copy, including any colourable copy, made or dealt with in contravention of this Act.”

The galleries moved to quash the seizure. The Quebec Superior Court concluded that transferring an authorized paper reproduction onto canvas did not amount to infringement under the Act and ordered that the seizure be quashed. The Court of Appeal, on the other hand, ruled that there had been infringement, upholding the seizure with respect to the canvas‑backed reproductions. On further appeal, the Supreme Court allows the appeal in a 4 to 3 vote.

The Canadian Copyright Act grants an artist both “economic” and “moral” rights to his work. The underlying theory of economic rights basically looks upon artistic and literary works as articles of commerce. An artist can assign these rights, leaving him or her a statutory right to claim only those rights he or she has reserved.

Moral rights, on the other hand, are not assignable; they look upon the oeuvre as a projection of the artist’s personality, with a dignity worthy of legal protection. A party violates the integrity of the work only by altering it in such a manner as to prejudice the artist’s honor or reputation. Moral rights, as limited by the Act, continue to restrict what buyers can do with a work. The Courts should not read economic rights so broadly that they occupy the same sphere as moral rights, thus neutralizing the statutory strictures on the latter. The majority spurns plaintiff’s attempt to claim a moral right in the guise of an economic right.

The majority notes how important it is to keep in mind the historical scope of the concept of “reproduction” under the Copyright Act. It has typically been considered as the act of producing additional or new copies of the work in any material form. While the Act recognizes that technologies do exist to reproduce expression in new ways, the facts here do not involve the important evolution of legal concepts in the field of copyright. This is a case of literal physical, mechanical transfer in which no multiplication takes place.

Several U.S. rulings on comparable copyright issues are cited to support the majority’s view. In C. M. Paula Co. v. Logan, 355 F.Supp. 189 (N.D. Tex. 1973), for example, the plaintiff based its claim of infringement on the defendant’s transfer of various copyrighted designs from Paula Company greeting cards and note pads to ceramic plaques which defendant produced and sold. Since each plaque or decal required transfer of the image from one Paula print, however, the U. S. Court held that this activity did not amount to copying or reproducing the copyrighted work. To make one hundred ceramic plaques would require buying one hundred prints from plaintiff. The process is analogous to framing or laminating a copyrighted picture.

The separate structures in the Canadian Act to cover economic rights and moral rights show that the drafters intended to make a clear distinction between them. In terms of remedies, Parliament intended to classify modification without reproduction under the provisions dealing with moral rights rather than economic rights. Otherwise, an artist who objected to a “modification” of an authorized reproduction could evade the important requirement of having to show prejudice to honor or reputation in order to establish an infringement of moral rights.

Since moral rights are involved here, the Act did not authorize plaintiff to have defendants’ copies seized before judgment. A fuller trial record may or may not show whether there’s been a breach of economic or moral rights. In any event, the present interlocutory record fails to justify the pre-judgment seizure.

In the dissenters’ view, defendants did unlawfully copy plaintiff’s works in a material form in violation of the Act. A plaintiff in a case like this does not have to show that defendants’ processes increased the total number of copies of the work. The Act protects the right to reproduce a “substantial part” of the work. This brings in not only the quantitative, but also the qualitative aspect.

Fixation of the work in a particular medium is essential to turning out the original work. Fixation of the work in a new medium is, therefore, the basic element of the act of “reproduc[ing] ... in any material form whatever” which differs from that which already existed. This constitutes plagiarism and copyright infringement. The plaintiff’s license to defendants clearly contemplated granting them authority only to make specified paper reproductions.

Citation: Theberge v. Galerie d’Art du Petit Champlain, Inc., 2002 Can. Sup. Ct. LEXIS 36; 2002 S.C.C. 34 (Sup. Ct. Can. March 28).

EXTRADITION

In case involving Italian request that U.S. extradite two U.S. citizens for international drug violations, Eleventh Circuit reverses denial of habeas corpus petitions because government’s use of petitioners’ confidential disclosures to DEA over petitioners’ objections rendered extradition hearing fundamentally unfair

Italian authorities in Padua caught Theresa Bailey, a U.S. citizen, in 1997, with 3.2 kilograms of cocaine in her possession. Bailey owned up to police that she had been a drug courier for Mirta Rosa Valenzuela and Frederick Kirk Repper, both U.S. citizens. The following year, a judge in Padua issued warrants for Valenzuela and Repper. Italy later requested the extradition of both men based on the Extradition Treaty Between the Government of United States of America and the Government of the Republic of Italy (October 13, 1983, 35 U.S.T. 3023). Pursuant to the extradition request, a U.S. magistrate judge had both men arrested in 1999 in Palm Beach, Florida.

In the meantime, Valenzuela and Repper had met with agents of the Drug Enforcement Administration (DEA), Dan Bruce and Ed Duffy, and supplied information about their role in international drug smuggling. In fact, they became paid informants for the DEA and received guarantees that the U.S. would protect their confidentiality. In 1998, the DEA cut off the informant relationship because the two men had allegedly gotten in touch with members of the drug smuggling ring and were no longer cooperating.

At the probable cause hearing before a magistrate judge, the U.S. Attorney tried to introduce the affidavit of DEA Agent Bruce under seal, containing incriminating statements by Valenzuela and Repper. The magistrate judge refused to admit the document because it “had not come to the court through proper Italian channels required by treaty” and later threw out the extradition request. The U.S. Attorney filed a second complaint seeking the arrest of Valenzuela and Repper, this time with the Bruce Affidavit provided through the proper Italian channels. On May 10, 2000, the magistrate judge decided that the Bruce Affidavit was admissible and certified the extraditability of Valenzuela and Repper. The magistrate judge noted that the two men had received transactional immunity in the U.S., but ruled that such immunity did not protect them from prosecution in Italy or from use of their statements by Italian officials. The district court later denied their petition for a writ of habeas corpus. Valenzuela and Repper appealed.

The U.S. Court of Appeals for the Eleventh Circuit concludes that the magistrate judge had erred in admitting into evidence the statements that Valenzuela and Repper had made under guarantees of confidentiality. Because this affidavit was indispensable to the required finding of probable cause, the Court reverses and directs that the writ of habeas corpus issue.

First, the Court notes that the DEA agents never promised petitioners immunity from Italian prosecution. The agents granted transactional and use immunity, but only for criminal proceedings in the U.S.

Second, the U.S. Supreme Court has held that the Self-Incrimination Clause (the Fifth Amendment) does not apply extra-territorially. See United States v. Balsys, 524 U.S. 666, 672, 118 S.Ct. 2218, 2222 (1998) (see 1998 International Law Update 81). Therefore, even if Valenzuela’s and Repper’s statements in the Bruce Affidavit were “compulsory,” the Clause would not bar their use in an extradition hearing.

Third, the Court finds that the U. S.-Italian investigation was not so jointly and cooperatively conducted so as to allow Valenzuela and Repper to use the dicta in Balsys that may allow individuals to claim that the foreign prosecution is virtually a U.S. prosecution.

Valenzuela and Repper also argued that the U.S. Attorney’s use of the Bruce Affidavit to establish probable cause breached the DEA agents’ promise to protect their confidentiality. Such breach allegedly rendered the extradition hearing fundamentally unfair and denied them due process of law.

“In this case, petitioners were aware that they had committed crimes in Italy for which they could be prosecuted. They conditioned their cooperation with the DEA, in part, on the agents’ promise of confidentiality. They no doubt would have refused to provide the agents with the inculpatory information regarding the drug transactions if the agents had told them that the information they provided, along with their identities, might be disclosed to the Italian authorities and might result in their extradition to Italy for trial.”

“In this case, the Government not only ignored the agents’ promise – by revealing identity and the information they provided to the Italian authorities – but it went one step further: it used the fruits of the breach by presenting the information to the magistrate judge, all to the petitioners’ detriment. To affirm the district court’s judgment would be to countenance the Government’s conduct. ...”

“The magistrate judge explicitly concluded that without the Bruce Affidavit, the evidence presented was insufficient to sustain the extradition of Valenzuela and Repper under the Treaty and 18 U.S.C. Section 3184. Having concluded that this evidence was admitted contrary to the petitioners’ due process right to a fundamentally fair hearing, we have no choice but to reverse the district court’s judgment and to direct the court to grant petitioners’ application for a writ of habeas corpus.” [Slip op. 17-18]

Citation: Valenzuela v. United States, 2002 WL 452860 (11th Cir. March 25, 2002).

SERVICE OF PROCESS

In copyright suit against Costa Rican company, Ninth Circuit rules that, under circumstances, plaintiff’s court-authorized use of e-mail service of process to reach evasive defendant was proper under Fed. R. Civ. P. 4(f) and under due process standards

Las Vegas hotel and casino operator Rio Properties, Inc. ("RIO") [plaintiff] sued Rio International Interlink ("RII") [defendant], a foreign Internet business entity, asserting various statutory and common law trademark infringement claims. Plaintiff owns the elegant RIO All Suite Casino Resort in Las Vegas. Plaintiff’s gambling empire also includes the Rio Race & Sports Book where customers can wager on professional sports. To secure legal protection for its rights in the name “RIO,” plaintiff registered many trademarks with the U.S. Patent and Trademark Office. It also registered its Internet domain name, www.playrio.com. This website tells prospective customers about its hotel and enables them to make reservations.

Defendant RII is a Costa Rican entity that takes part in an Internet sports gambling operation. It does business variously as Rio International Sportsbook, Rio Online Sportsbook, or Rio International Sports. Defendant’s customers can wager on sporting events either online or by using a 1-800 telephone number.

In 1998, plaintiff found out about defendant’s existence when it noticed an ad in the Football Betting Guide ‘98 Preview. The Nevada edition of the Daily Racing Form bore an ad wherein defendant invited customers to visit defendant’s website, www.riosports.com.

Plaintiff fired off a cease-and-desist letter involving the website. Without responding, defendant promptly disabled the objectionable website. Defendant then put into operation the URL http://www.betrio.com, where it hosted an identical sports gambling operation. Upset, plaintiff sued defendant claiming various trademark infringements and trying to enjoin defendant from the continued use of the name “RIO.” When plaintiff tried to serve defendant with process in the U.S., it sent the complaint and summons to defendant’s international courier, IEC. Though ostensibly not authorized to accept service on defendant’s behalf, IEC did agree to send the summons and complaint to defendant’s Costa Rican courier.

Los Angeles attorney John Carpenter telephoned plaintiff to find out what the suit was about. (Defendant had presumably gotten the process papers from IEC and had consulted Carpenter). Plaintiff promised to send Carpenter a complete copy of the complaint. The latter, however, courteously refused to accept service on defendant’s behalf.

Plaintiff’s attempts to perfect U.S. service having failed, it scoured international databases to find an address in Costa Rica. The only thing that turned up was the e-mail address: email@betrio.com. Explaining the circumstances to the court, plaintiff obtained leave of court to serve defendant through this address.

After being served by email, defendant unsuccessfully moved to dismiss for insufficient service of process and lack of personal jurisdiction. Next it filed an answer denying plaintiff’s allegations and pleading twenty-two affirmative defenses. When defendant repeatedly failed to provide legitimate discovery sought by plaintiff, the court entered a default judgment in plaintiff’s favor and ordered defendant to pay over $96,622 in costs and attorneys’ fees. Defendant appealed all of these rulings. The U.S. Court of Appeals for the Ninth Circuit affirms.

On the issue of service by email, Judge Trott first sets forth much of the text of Fed. R. Civ. P. 4(f): “Service Upon Individuals in a Foreign Country. Unless otherwise provided by federal law, service upon an individual from whom a waiver has not been obtained and filed ... may be effected in a place not within any judicial district of the United States: (1) by any internationally agreed means reasonably calculated to give notice, such as those means authorized by the Hague Convention ...; or (2) if there is no internationally agreed means of service or the applicable international agreement allows other means of service, provided that service is reasonably calculated to give notice: (A) in the manner prescribed by the law of the foreign country for service in that country in an action in any of its courts of general jurisdiction; or (B) as directed by the foreign authority in response to a letter rogatory or a letter of request; or (C).... (3) by other means not prohibited by international agreement as may be directed by the court.

Judge Trott first rejects defendant’s contention that Rule 4(f) sets up a hierarchy of methods of service abroad in which a plaintiff has to exhaust the feasibility of the earlier listed methods of service. “By all indications, court‑directed service under Rule 4(f)(3) is as favored as service available under Rule 4(f)(1) or Rule 4(f)(2). [Cite] Indeed, Rule 4(f)(3) is one of three separately numbered subsections in Rule 4(f), and each subsection is separated from the one previous merely by the simple conjunction ‘or.’ Rule 4(f)(3) is not subsumed within or in any way dominated by Rule 4(f)'s other subsections; it stands independently, on equal footing.”

“Moreover, no language in Rules 4(f)(1) or 4(f)(2) indicates their primacy, and certainly Rule 4(f)(3) includes no qualifiers or limitations which indicate its availability only after attempting service of process by other means. ... Thus, examining the language and structure of Rule 4(f) and the accompanying advisory committee notes, we are left with the inevitable conclusion that service of process under Rule 4(f)(3) is neither a ‘last resort’ nor ‘extraordinary relief.’ [Cite] It is merely one means among several which enables service of process on an international defendant.” [1015]

The circumstances of this case required the court’s intervention. “Thus, when RIO presented the district court with its inability to serve an elusive international defendant, striving to evade service of process, the district court properly exercised its discretionary powers to craft alternate means of service. We expressly agree with the district court's handling of this case and its use of Rule 4(f)(3) to ensure the smooth functioning of our courts of law.” [1016]

Even if the lower court had properly read and applied Rule 4(f), Judge Trott points out that the method chosen must comply with due process. In other words, it must be reasonably calculated to give the defendant notice of the pendency of the suit against it and a chance to present factual and legal defenses to plaintiff’s claims.

“Finally, we turn to the district court's order authorizing service of process on RII by email at email@betrio.com. We acknowledge that we tread upon untrodden ground. The parties cite no authority condoning service of process over the Internet or via email, and our own investigation has unearthed no decisions by the United States Courts of Appeals dealing with service of process by email and only one case anywhere in the federal courts. Despite this dearth of authority, however, we do not labor long in reaching our decision. Considering the facts presented by this case, we conclude not only that service of process by email was proper ‑‑ that is, reasonably calculated to apprise RII of the pendency of the action and afford it an opportunity to respond ‑‑ but in this case, it was the method of service most likely to reach RII.” [1017]

“Although communication via email and over the Internet is comparatively new, such communication has been zealously embraced within the business community. RII particularly has embraced the modern e‑business model and profited immensely from it. In fact, RII structured its business such that it could be contacted only via its email address. RII listed no easily discoverable street address in the United States or in Costa Rica. Rather, on its website and print media, RII designated its email address as its preferred contact information.”

“Despite our endorsement of service of process by email in this case, we are cognizant of its limitations. In most instances, there is no way to confirm receipt of an email message. Limited use of electronic signatures could present problems in complying with the verification requirements of Rule 4(a) and Rule 11, and system compatibility problems may lead to controversies over whether an exhibit or attachment was actually received. Imprecise imaging technology may even make appending exhibits and attachments impossible in some circumstances. We note, however, that, except for the provisions recently introduced into Rule 5(b), email service is not available absent a Rule 4(f)(3) court decree. Accordingly, we leave it to the discretion of the district court to balance the limitations of email service against its benefits in any particular case.” [1017-1018]

Citation: Rio Properties, Inc. v. Rio International Interlink, 284 F.3d 1007 (9th Cir. 2002).

SOVEREIGN IMMUNITY

In dispute between British company BP and Chinese company over alleged violation of intellectual property rights, Eighth Circuit reverses dismissal based on FSIA because alleged disclosure of trade secrets in U.S. may qualify as “commercial activity” under FSIA exception

BP Chemicals Ltd. (BP) alleged that Jiangsu Sopo Corporation (Sopo), a government-owned Chinese company, copied trade secret designs in violation of the Lanham Act, international law for the protection of intellectual property, the Missouri Uniform Trade Secrets Act (MUTSA) (which is based on the Uniform Trade Secrets Act), and Missouri common law. According to BP, Sopo obtained and then wrongfully disclosed trade secrets to American engineering firms. These trade secrets relate to BP’s proprietary techniques for manufacturing acetic acid through a process called “methanol carbonylation.” Acetic acid is a chemical used in making paints, plastics, resins, and other chemical products. All of BP’s vendors have a duty to maintain the secrecy of BP’s proprietary manufacturing process.

BP discovered the alleged violations in the mid-1990s when Chinese parties requested assistance from a BP vendor for the construction of an acetic acid plant in China. The product specifications mirrored BP’s trade secrets and some replicated typographical errors in original BP documents.

BP brought an action against Sopo for alleged violations of intellectual property law. An investigation traced the disclosures to Sopo and another government-owned Chinese entity. The U.S. district court dismissed the action for lack of subject matter jurisdiction because Sopo is owned by the Chinese Government and is thus immune under the Foreign Sovereign Immunities Act of 1976 (FSIA) [Pub.L. No. 94-585, 90 Stat. 2891]. BP appealed.

The U.S. Court of Appeals for the Eighth Circuit reverses and remands for further proceedings. Under the FSIA, a foreign government or its entity may be sued in U.S. court if the claim is “based upon” a commercial activity carried out in the U.S. The Court first turns to the “based upon” requirement. The legal basis of BP’s claim, MUTSA, recognizes both theft and improper disclosure as misappropriation. BP alleged that Sopo improperly disclosed the trade secrets.

The Court sides with BP on this issue. “We believe BP’s disclosure-type MUTSA claim is ‘based upon’ Sopo’s commercial activity carried on the United States. The claim requires BP to prove Sopo disclosed BP’s trade secrets to others without consent, while having reason to know the trade secrets were acquired under circumstances giving rise to a duty to maintain their secrecy. See Mo. Stat. Section 417.453(2)(b)(c). In the course of proving that claim, BP says it will demonstrate Sopo disclosed trade secrets to American vendors in the United States while procuring equipment to fabricate the [acetic acid] plant.

BP’s MUTSA claim satisfies the required nexus with the United States because the claim is linked to Sopo’s procurement activities in the United States. Therefore, we have little difficulty concluding that an element of BP’s claim is based upon events transpiring in the United States – Sopo’s disclosures to American vendors.” [Slip op. 14-15]

Sopo does not dispute that its activities were “commercial,” only that the activities lacked substantial contact with the U.S. “Sopo’s attempts (through its agent ...) to contact American vendors to produce goods needed to build the [acetic acid] plant were obviously ‘commercial’ in character. Prior cases suggest that a foreign state’s contract to buy equipment from an American manufacturer constitutes a ‘commercial activity’ within the meaning of the statutory exception. (Cits.). These authorities readily confirm that Sopo’s recruitment of American vendors to manufacture products for its [acetic acid] plant was ‘commercial activity.’ We likewise believe Sopo’s efforts to obtain the fruits of American engineering know-how constitute ‘substantial contact’ with the United States.” [Slip op. 21-22]

Finally, the Court notes that a foreign state may surrender its immunity by activities committed by its agent. As for the trade secret infringement claim, BP alleged that Sopo had hired an American agent to procure materials from American vendors. Here, the agent’s contacts with American firms were regular and important. In fact, BP presented evidence that, without the materials obtained through its U.S. agent, Sopo would not have been able to copy the trade secret designs. Thus, the Court can impute the contacts to Sopo as constituting defendant’s substantial contact with the U.S.

Citation: BP Chemicals Ltd. v. Jiangsu Sopo Corporation (Group) Ltd., 285 F.3d 677 (8th Cir. 2002).

WAR CRIMES

Based on law of nations, International Court of Justice rules that Congolese Minister of Foreign Affairs was immune from criminal prosecution for war crimes and crimes against humanity in Belgian courts

In April 2000, a Belgian investigating judge issued an “international arrest warrant in absentia” against Mr. Abdulaye Yerodia, the Minister for Foreign Affairs in office of the Democratic Republic of the Congo (“the Congo”).

It charged Mr. Yerodia as having been a perpetrator or co‑perpetrator of offenses constituting grave breaches of the Geneva Conventions of 1949 and of the Additional Protocols thereto, and with crimes against humanity. Interpol circulated the arrest warrant internationally.

The extraterritorial crimes with which Mr. Yerodia was charged were punishable in Belgium under the Law of 16 June 1993 “concerning the Punishment of Grave Breaches of the International Geneva Conventions of 12 August 1949 [6 U.S.T 3114, 3217, 3316, 3516] and of Protocols I and II of 8 June 1977 Additional Thereto,” as amended by the Law of 19 February 1999 “concerning the Punishment of Serious Violations of International Humanitarian Law” (the “Belgian Law”). Five months later, the Congo began proceedings in the International Court of Justice to challenge the issuance and circulation of that warrant. Soon afterwards, the Minister left his post.

The pleadings alleged that Belgium (under the general rubric of “universal jurisdiction”) was improperly trying to extend its authority to the territory of another sovereign state, that it had violated the principle of the sovereign equality among all Members of the United Nations set forth in Article 2, para. 1 of the Charter, and finally that it had infringed the diplomatic immunity of a Minister of a foreign state recognized in Article 41 of the Vienna Convention of 18 April 1961 on Diplomatic Relations, 23 U.S.T. 3227, T.I.A.S. 7502, 500 U.N.T.S. 95.

Since the Congo devoted its arguments solely to the immunity issue, the ICJ takes up that question. None of the conventions dealing with immunities specifically addresses those that Ministers for Foreign Affairs may enjoy, hence the Court has to decide the question as a matter of customary international law.

The law of nations accords immunities to Ministers of Foreign Affairs not for their personal benefit but to advance the effective performance of their official functions. After analyzing the functions of this office, the Court concludes that, while in office, a Minister for Foreign Affairs enjoys full immunity from criminal jurisdiction and inviolability against any attempt by a foreign nation to exercise power over the Minister that would hinder him in the performance of his or her duties.

The Court also finds no basis to distinguish between acts done in an “official capacity” and those allegedly done in a “private capacity” or, for that matter, between actions taken before, and those taken during, the Minister’s tenure of office. The mere risk of foreign arrest could deter the Minister from traveling internationally when required to do so to carry out his official functions.

The Court rejects Belgium’s contention that there is an exception to the immunity for war crimes or crimes against humanity. State practice, national legislation and higher national court rulings fail to support the existence of the exception claimed by Belgium. Likewise, neither the Nuremberg nor the Tokyo Charters of 1945 nor those setting up international criminal tribunals for the former Yugoslavia and for Rwanda recognize any such exception in regard to prosecution in the national courts. The rulings of these tribunals also fail to buttress such an exception. Nor will the Statute of the International Criminal Court [Ed.-- to be set up in 2003] recognize it.

The Court stresses that the lack of an exception does not imply an impunity from prosecution, much less exoneration from all heinous crimes. For example, the courts of his or her own country may put a Minister to trial. Or country A may waive its Minister’s immunity, thus allowing trial in country B. Finally, if an international criminal court does have jurisdiction, a Minister may be subject to criminal proceedings in that tribunal.

Finally, the Court concludes that the issuance of the Belgian warrant breached that nation’s obligation toward the Congo by failing to respect that Minister’s immunity from criminal prosecution under international law. Belgium admits that it was trying to establish a legal basis either for the Minister’s arrest in Belgium or for his arrest elsewhere and extradition to Belgium for trial.

By 15 votes to 1, the Court sees no merit in the objections of the Kingdom of Belgium with respect to jurisdiction, mootness and admissibility. By 13 votes to 3, the Court “[f]inds that the issue against Mr. Abdulaye Yerodia Ndombasi of the arrest warrant of 11 April 2000, and its international circulation, constituted violations of a legal obligation of the Kingdom of Belgium towards the Democratic Republic of the Congo, in that they failed to respect the immunity from criminal jurisdiction and the inviolability which the incumbent Minister for Foreign Affairs of the Democratic Republic of the Congo enjoyed under international law.”

As to remedy, the Court, by 10 votes to 6, “[f]inds that the Kingdom of Belgium must, by means of its own choosing, cancel the arrest warrant of 11 April 2000 and so inform the authorities to whom that warrant was circulated.”

Citation: International Court of Justice (ICJ), Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v. Belgium); Press Release 2002/04bis, 14 February 2002.

German court declines to move Al Qaida trial from Frankfurt to Stuttgart. The district court of Frankfurt/Main and other judicial authorities requested the German High Court (Bundesgerichtshof, BGH) to consider a change of venue for the prosecution of suspected Al Qaida members held in Germany based on public safety concerns. The district court suggested instead to hold the proceedings in Stuttgart where particularly safe facilities are available. The district court referred to Section 15 of the Criminal Procedure Code (StPO), which dates from the 19th century. Section 15 provides that if the court is impeded in exercising its duties, or there is a risk to public safety, the court of the next higher instance shall transfer the matter to a court of the same level in a different judicial district. The BGH (3rd Criminal Chamber) rejects the request. Considering how mobile modern society has become, it is questionable whether a change of venue would reduce the danger to the public of such a prosecution. In any case, the BGH is to intervene in such a matter only if the authorities in charge are unable to address the risks of the prosecution. That is not the case here. The Frankfurt courts are able to take steps to ensure the safety of the proceedings, for example by conducting them in an especially secured area. Citation: Bundesgerichtshof (BGH), Beschluss vom 4. April 2002 - 2 Ars 17/02, Press release of Bundesgerichtshof Nr. 34/2002.

International Criminal Court Statute becomes effective. On July 1, 2002, the July 1998 Rome Statute of the International Criminal Court (ICC) will become effective since the necessary 60 ratifications have been received. On April 11, 2002, the 60th ratification of the Rome Statute was deposited with the United Nations, along with several others. The Court will prosecute perpetrators of the most serious crimes, including genocide, crimes against humanity, and war crimes. U.S. President Bill Clinton had signed the treaty, but the U.S. has not yet ratified it because of a stated concern for frivolous or politically motivated prosecutions of U. S. citizens. The first conference of the States Parties will be held in September, and the Court, to be based in The Hague, is expected to begin work in 2003. The Court will consist of 18 international judges elected for a nine-year term. The Court will not be part of the United Nations system but will instead be accountable to the ratifying countries. Citation: United Nations press release of April 11, 2002, available at www.un.org; CNN News Report of April 11, 2002, available at www.cnn.com.

Russia’s new land code in effect. On October 30, 2001, the new Land Code of the Russian Federation became law. It focuses on urban land and is expected to stimulate the real estate market by providing a legal basis for transferring urban land, facilitating transfer of state-owned urban land to private parties, and granting foreigners almost the same rights in real estate transactions. In particular, the land code gives building owners the opportunity to purchase the land on which their buildings stand from the State or Municipality. Also investors may acquire land provided that they have obtained the necessary approvals. For future private sales of buildings or structures, the law requires that those be sold together with the land upon which they are built although the property titles for the land and the building remain separate. This essentially grants a right of first refusal for the land to owners or future purchasers. The Land Code provides a formula for calculating the sales price at which existing building owners may purchase the underlying land. This price depends on the size of the lot, the land tax rate, the use of the building, and several other factors. This applies both to Russian and foreign parties. The end result tends to be a relatively low purchase price, which should encourage private ownership. Future legislation will deal with agricultural land. On March 19, 2002. the Russian Government submitted a draft law called: “The Law on Agricultural Land Turnover” to the Duma (Parliament) on March 19, 2002. Citation: Report of U.S. Commercial Service Moscow, distributed by BISNIS Service of U.S. Department of Commerce, Phone: (202) 482-2022; website: “www.bisnis.doc.gov”.

Federal court once again deprives Demjanjuk of U.S. citizenship. A federal district court in Ohio has once again stripped John Demjanjuk, 81, of his U.S. citizenship. The U. S. initially charged Demjanjuk with being the notorious “Ivan the Terrible” at the Treblinka concentration camp during World War II. In 1981, a federal court, finding that Demjanjuk had become a naturalized citizen by concealing his collaboration with Nazi forces, revoked his citizenship. The U.S. extradited him to Israel in 1986, where he was tried and sentenced to death. The Israeli Supreme Court, however, reversed the conviction in 1993 because of newly discovered evidence from the Soviet Union indicating that someone else may have been Ivan the Terrible. A Special Master appointed by the Sixth Circuit found recklessness on part of the prosecution during the 1981 U.S. proceedings, and in 1998 the district court vacated the original de-naturalization order. In 1999, the Office of Special Investigations (OSI) of the U.S. Department of Justice filed a complaint based on new evidence showing, for example, that Demjanjuk was a guard at three other concentration camps, which led to the current district court decision to once again strip him of his U.S. citizenship. Citation: United States v. Demjanjuk, 2002 WL 544622, No. 99-CV-1193 (N.D. Ohio, 2002).