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 11 (November)

CHILD ABDUCTION

In case involving international child abduction, Second Circuit affirms dismissal of father’s claims in deference to collateral estoppel effect of state court proceedings

In 1997, Gad Grieve and his wife, Elisheva Tamerin, both residing in Israel, were granted a divorce and joint custody of their two-year-old child. In 1999, Grieve took the child with him to England for one month, and then to New York. Grieve asserted that he meant the trip to be a temporary vacation, but Tamerin claimed that Grieve intended to resettle there. In 2000, Tamerin obtained temporary custody of the child from the New York Supreme Court of Kings County. Though the ruling gave Grieve visitation rights, he appealed the court’s ruling to the Appellate Division.

Acting pro se, Grieve next filed a separate action in a federal court for the Eastern District of New York. He asked for custody of the child and a stay of the state court proceedings based upon the International Child Abduction Remedies Act (ICARA) [42 U.S.C. Section 11601] and the Hague Convention on the Civil Aspects of International Child Abduction [October 25, 1980, T.I.A.S. No. 11,670, 1343 U.N.T.S. 89]. The court dismissed the proceeding on Younger abstention grounds but Grieve did not appeal the dismissal.

Again acting pro se, he filed an action in the Southern District of New York, seeking almost the same relief he had sought in his earlier claim. The district court entered judgment against Grieve’s ICARA-based claim, and dismissed the claim on its merits. The court held that the statute did not apply where the non-custodial parent neither removed the child from his place of residence nor retained him illegally in a foreign jurisdiction. Thereafter, the court also dismissed Grieve’s other claims and awarded Tamerin permanent custody of the child.

On Grieve’s appeal, the U.S. Court of Appeals for the Second Circuit affirms. The Court notes that Grieve’s claim implicates a paramount federal interest in foreign relations and in the enforcement of U.S. treaty obligations. The court therefore considers abstention. The requirements for a federal court to abstain from exercising jurisdiction on the basis of Younger are tripartite: (1) there must be an ongoing state proceeding, (2) an important state interest must be implicated; and (3) the plaintiff must have an avenue open for review of constitutional claims in the state court. While New York State has a genuine interest in the outcome of a child custody dispute adjudicated within its courts, the state’s resolution of a custody battle does not implicate an important state interest in the outcome of a child custody matter. This is particularly problematic in the context of the Hague Convention because it divests the state of jurisdiction over these custody matters until the merits of the Convention have been resolved. Therefore, the interest of the State of New York did not raise the necessary comity issues that require Younger abstention.

Although the lower court had issued an erroneous ruling, the Second Circuit affirms. The Southern District had issued a final judgment on the merits of Grieve’s claim, thus constituting an actual adjudication. This decision was no longer subject to further review: once a party had raised the ICARA claim in state court litigation, the federal and state cases became substantially the same. Therefore, the court was bound to abstain under Younger and Grieve was collaterally estopped from raising the issue further.

The goal of the collateral estoppel doctrine is to bar the multiple adjudication of the same factual issue(s). Here, (1) the proceedings are identical, (2) the issue in the preceding litigation was actually decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits. Therefore, an outlet had existed by which Grieve could have challenged the Southern District Court’s adverse ruling. His choice to eschew an appeal crystallized the Southern District’s decision as final and conclusive along with the identical Eastern District claim.

Citation: Grieve v. Tamerin, No. 00-9271 (2d Cir. October 17, 2001).

INSURANCE

In death and injury actions, Supreme Court of Canada holds that, despite Ontario statute barring pecuniary recovery for motor vehicle negligence in Canada and United States, concurrence of two forms of negligence as equal causes of injuries triggered coverage by both auto negligence and work site insurance policies

Insurer No. 1 insured Roy’s Electric (a.k.a. 539938 Ontario Limited), the defendant contractor under an automobile policy. For the purposes of a building project involving a laying of cable, defendant also held a commercial general liability policy (CGL) from insurer No. 2. (There was an additional excess coverage or “umbrella” policy from insurer No. 3 designed to cover any shortfall under the first two policies.) The CGL Policy excluded coverage for bodily injury or property damage arising out of the ownership, use or operation of an automobile, and for bodily injury or property damage with respect to which an automobile policy was “in effect.”

On December 5, 1994, adverse weather conditions suddenly arose at the work site so Douglas Zub, a defendant’s shareholder and employee, did a rapid clean up so as to leave the site early. He stowed a sign and its shaft inside the truck but left the steel base plate lying unsecured on the tow bar of a compressor connected to the rear of the truck. As Mr. Zub was driving along the highway, the plate flew off the bar into an oncoming school bus, killing one child and seriously injuring three others.

The representatives of the deceased and injured children filed civil damage suits in the Ontario courts against Roy’s Electric as contractor and Zub as owner and driver of the truck. The suits alleged that the contractor-defendant through its employee had been careless at the work site as well as in operating the truck on the highway.

The Insurance Act, R.S.O. 1990, c. I.8, s. 267.1 barred the plaintiffs from claiming pecuniary loss in relation to negligent operation of the vehicle. It provides in pertinent part that “[d]espite any other Act and subject to subsections (2) and (6), the owner of an automobile, the occupants of an automobile and any person present at the incident are not liable in a proceeding in Ontario for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of the automobile in Canada, the United States of America or any other country designated in the Statutory Accident Benefits Schedule.” The plaintiffs can, however, claim against the contractor for pecuniary loss caused by the negligence of its employees at the work site, this being an action distinct from that of motor vehicle negligence.

On plaintiffs’ motion to determine insurance coverage, the motions judge found that there were two concurrent causes of the accident: (1) the negligent clean‑up of the work site and (2) the careless operation of the vehicle. He also concluded that the CGL policy covered pecuniary and non‑pecuniary losses that were not auto‑related, while policy No. 1 covered non‑pecuniary losses that were auto‑related. Thus, all three policies provided coverage. Insurer No. 2 sought review of the decision of the Ontario Court of Appeal affirming the ruling. The Supreme Court of Canada granted review but dismisses the appeal.

In the Court’s view, the motions judge properly found that there were two concurrent causes, neither being dominant, where the accident would not have occurred but for both causes. “The cause of the accident was not solely the ‘use or operation’ of the automobile. The work site negligence cannot be characterized as being part of the loading of the automobile. Nor was the use of the automobile the ‘proximate cause’ of the accident. His conclusion in respect of causation is reasonable and supported by the law and by the agreed statement of fact, and should not be interfered with.” [para. 40] In the absence of express exclusion of coverage where the use of a vehicle was involved in part, the second of CGL insurer was liable in respect of the aspects of the loss which its policy did not expressly rule out. The loss which was not recoverable under the automobile policy was not one for which the policy could be found to be in effect.

“It is a given that there is a motor vehicle policy ‘in effect.’ This does not automatically mean that there is no coverage under the CGL policy. The extent to which the motor vehicle policy is ‘in effect’ must be determined within the context of the Insurance Act and in accordance with the principle that exclusion clauses are to be given a narrow interpretation.”

“As found by the courts below, the Insurance Act allows plaintiffs to exercise an unfettered right to sue defendant owners, drivers and persons present at the scene of an accident for negligence other than that excluded by s. 267.1. Therefore, where both auto‑related negligence and non‑auto‑related negligence of the same person contributed to the same bodily injury, there must be a percentage apportionment of fault to each type of negligence, just as there would be an apportionment if the injury were caused by two different people.”

“In these circumstances, the automobile policy cannot be said to be ‘in effect’ with respect to pecuniary or non‑pecuniary loss attributable to non‑auto‑related negligence. Thus, clause (e)(2) does not totally exclude coverage under the CGL policy. Rather, only that portion of the loss that is attributable to auto‑related negligence is excluded by clause (e)(2).” [paras. 64-66]

Citation: Darken v. 539938 Ontario Ltd., 2001 A.C.W.S.J. 232078; 108 A.C.W.S. (3d) 893 (Can. Sup. Ct. October 19).

JURISDICTION (PERSONAL)

Third Circuit affirms order against German company as guarantor based on contacts with Pennsylvania that developed out of agreement for subsidiary to manufacture diesel engines in Germany

The facts of the case involved General Electric Company (hereinafter GE) and a German corporation, Deutz AG, acting as a guarantor for its subsidiary. GE, a New York corporation entered into a manufacturing contract with a German Corporation, Motoren-Werke Mannheim AG, whose obligations were guaranteed by its parent company Deutz. The contract involved the design and manufacture of high power diesel engines for locomotives. In 1997, and in the face of manufacturing difficulties, the plaintiffs filed a suit alleging breach of contract. The District court initially held that the contact between the plaintiff and defendants was sufficient to support a finding of specific jurisdiction for purposes of invoking an arbitration provision.

While the case was pending in the District Court, Deutz sought arbitration before a panel of the International Arbitration Association (IAA) in London. Before the arbitral panel decided, in April 2000, Deutz petitioned the High Court in London to enjoin GE from further proceedings in the Pennsylvania District Court. The High Court denied the injunction. The Pennsylvania District Court then enjoined Deutz from resorting to the High Court in the future.

Deutz appeals the orders of the District Court. While this case was pending before the U.S. Court of Appeals for the Third Circuit, the arbitral panel held that GE and Deutz had not agreed to arbitrate their disputes.

The U.S. Court of Appeals for the Third Circuit affirms in part and reverses in part. The Court holds that the behavior of the German guarantor and its officials amounts to purposeful direction of business activity toward GE and rejects the argument that litigation of the case in Pennsylvania would unfairly burden the defendant.

“Unquestionably, it is less convenient for a German corporation to litigate in Pennsylvania, but [the defendant] had actively overseen the performance of the contract in that state for five years with no apparent difficulties in communication or travel. Given that the contract was performed primarily in Pennsylvania, General Electric has an obvious interest in conducting this litigation there. Deutz, [defendant] moreover, has failed to present any persuasive reason why the matter should not proceed in that forum.” [Slip op. 12]. The Court thus concludes that the defendant’s Pennsylvania activities supported a finding of specific jurisdiction there.

The defendant also argued that the arbitration provisions of the original contract bound itself and GE. In particular, the court notes that the defendant did not initial every page of the agreement between the two companies, specifically the portion of the agreement dealing with arbitration. GE and Motoren-Werke had initialed all pages; Deutz had not. The arbitration procedures described in the agreement describe what GE and Motoren-Werke would do in such a case, but Deutz is not mentioned. When GE argued that Deutz did not intend to be bound by the arbitration clause, Deutz countered by arguing that the arbitration provisions were intended to be part of its commitment. The District Court found that the arbitration clause was ambiguous and submitted the matter to a jury, as permitted by the Federal Arbitration Act [see 9 U.S.C. Section 4]. The jury concluded that GE and Deutz had not agreed to arbitrate their disputes.

The District Court’s resolution on the issue of arbitrability was proper. Deutz notes that federal policy favors arbitration to resolve international commercial disputes. Also, federal law applies to the interpretation of arbitration agreements. Whether a particular dispute can be arbitrated and what law applies are equally matters of federal law. There is a limited exception to this rule where the question is whether the controversy is arbitrable. The U.S. Supreme Court has held in a precedent case that in such a case the presumption of arbitrability is reversed. The international nature of this case does not affect  the application of these principles.

Finally, the Court considers comity as a particularly important factor in international proceedings. “The federal Courts of Appeals have not established a uniform rule for determining when injunctions on foreign litigation are justified. Two standards, it appears, have developed. Courts following the ‘liberal’ or ‘lax’ standard will issue an injunction where policy in the enjoining forum is frustrated, the foreign proceeding would be vexatious or would threaten a domestic court’s in rem or quasi in rem jurisdiction or other equitable considerations, and finally, where allowing the foreign proceedings to continue would result in delay. The Courts of Appeals for the Fifth, Seventh, and Ninth Circuits generally apply this standard. [Cit.]”

“By contrast, the Second, Sixth and District of Columbia Circuits use a more restrictive approach, rarely permitting injunctions against foreign proceedings. [Cit.] These courts approve enjoining foreign parallel proceedings only to protect jurisdiction or an important public policy. Vexatiousness and inconvenience to the parties carry far less weight. Our Court is among those that resort to the more restrictive standard.” [Slip op. 37-39]

Turning to the particulars of this case, the Court finds no basis for enjoining the proceedings in the English courts. This is not an aggravated case that calls for extraordinary intervention. Moreover, there was no serious threat to an important public policy simply because an essential fact finding happened to have been made by a jury rather than by a judge. The Court therefore orders that the injunction be reversed. In all other respects the orders of the district court are affirmed.

Citation: General Electric Co. v. Deutz AG, No. 00-2387 (3rd Cir. October 31, 2001).

JURISDICTION (PERSONAL)

In action based on breach of fiduciary duty and fraud, Sixth Circuit upholds  Tennessee District Court’s exercise of personal jurisdiction over Belgian national residing in Florida

John and Lea Neal brought an action in tort alleging fraud and breach of fiduciary duty against Sjef Janssen, a Belgian citizen. Plaintiffs had contracted with defendant to sell a thoroughbred racehorse boarded in the Netherlands. The plaintiffs met personally with the defendant in Florida, where he maintained a house, to discuss the sale. The parties agreed that the defendant would look to sell the horse at a price of $500,000 and would later take a 10% commission on the sales price.

In January 1998, defendant sent the plaintiff’s son a third party’s offer to buy the horse for $310,000. The plaintiffs, however, turned it down. The defendant, later agreed to forego the commission since he had been unable to sell the horse at the agreed price. The plaintiffs agreed and completed the sale. Soon after, plaintiffs found out that the defendant had actually sold the horse for $480,000. Plaintiffs then sued the defendant for breach of fiduciary duty and fraud in a Tennessee federal court. The district court denied the defendant’s motion to dismiss for lack of personal jurisdiction. The jury found for the plaintiffs and the defendant appealed, alleging that the Tennessee court had improperly exercised personal jurisdiction over him.

The U.S. Court of Appeals for the Sixth Circuit affirms. The Court articulates the general rule on the exercise of personal jurisdiction over a non-resident defendant. “Plaintiffs seek to establish jurisdiction over defendant under the Tennessee long-arm statute, which Tennessee construes to extend to the limits of due process. Tennessee allows a court to exercise jurisdiction ‘if a tortious act is committed outside the state and the resulting injury is sustained within the state, the tortious act and injury are inseparable, and jurisdiction lies in Tennessee¼’  Accordingly, even a single act by defendant directed toward Tennessee that gives rise to a cause of action can support a finding of minimum contacts sufficient to exercise personal jurisdiction without offending due process.” [Slip op. 5-6]

The Court states the three criteria for determining whether in personam jurisdiction comports with due process: (1) The defendant must have personally availed himself of the privilege of acting in the forum state or causing consequences in that state, (2) the cause of action must have arisen from defendant’s activities there, and (3) the acts of the defendant or consequences caused by defendant must have a substantial enough connection with the forum to make the exercise of jurisdiction over the defendant reasonable. The Court notes the fact that the defendant is not a U.S. citizen. Due process as applied to non-citizen may incorporate principles of international law. See Restatement (Third) of Foreign Relations Section 403 cmt. a, 421 cmt. a & Reporter’s Notes 1,2. In this case, however, the parties did not raise this issue.

The Court held that the defendant’s sending of fraudulent information by phone to Tennessee had foreseeable consequences and was enough to constitute “purposeful availment.”  Similarly, the court held that the misrepresentations constituted the cause of action itself, thus satisfying the second prong of the court’s test.

Finally, the Court notes that the defendant engaged in substantial business communication with the plaintiffs that lasted over an extended period of time and subsequently defrauded the plaintiffs for his own profit. The Court holds that these facts are sufficient to make it reasonable for Tennessee to exercise personal jurisdiction over the defendant.

The Court notes its concern that the defendant is not a U.S. party who is made part of a U.S. action. In this case, however, the defendant appears well traveled throughout the world, including the U.S. where he once owned a house. The defendant offered no defense; not because of any hardship, but simply because he had no valid defense to the merits. Therefore, the Court rejects the defendant’s challenges to jurisdiction.

Citation: Neal v. Janssen, No. 00-6122 (6th Cir. October 23, 2001).

JURISDICTION (SUBJECT MATTER)

Fifth Circuit rules that in rem action brought by an Ambassador in representative capacity does not constitute an action “against” Ambassador so that federal court lacks jurisdiction

In 1992, a Boeing 727-200 aircraft, registered in the Cayman Islands and owned by Rifaat Al Assad (father of the president of Layale Enterprises, S.A.) of Syria was transported to Jordan where it underwent repairs and service. The estimated cost of repairs was more than $2,000,000. After these estimates were made, Al Assad gifted the aircraft to Jordan.

Jordan then conveyed the aircraft to Prince Talal bin Mohammed and Princess Ghida Talal, both members of Jordan’s royal family and diplomats assigned to the U.S. In the months before obtaining the registration the alleged owners entered into an operating agreement with “Arab Wings” and later into a lease agreement with HMS Aviation. According to the lease agreement the alleged owners agreed to provide the aircraft to HMS which in turn agreed to take care of all repairs and enhancements of the aircraft. Pursuant to the agreement, HMS brought the aircraft to the U.S. for servicing. In 1996 Jordan issued the alleged owners a temporary registration for the aircraft.

While in the United States, Layale Enterprises sued in Texas state court, claiming ownership of the aircraft. HMS Aviation removed the case to federal court based on federal question jurisdiction. The state court ruled that HMS Aviation was not subject to its personal jurisdiction, but that the court did have in rem jurisdiction over the aircraft. HMS filed an interlocutory appeal contesting such jurisdiction.

While the interlocutory appeal was pending, the government of Jordan intervened to assert foreign sovereign immunity as a absolute jurisdictional bar. According to Jordan, the aircraft is operated by Jordan’s wholly-owned instrumentality, Arab Wings. Jordan then removed the case to federal court, and concurrently filed a motion to dismiss. In early 1999, the district court remanded sua sponte to state court because it lacked original jurisdiction for such an action “against” a foreign state, noting that Layale’s petition did not name Jordan as a party and therefore the action was not “against” a sovereign.

The district court eventually dismissed this case for lack of subject matter jurisdiction, based on its conclusions that neither the Declaratory Judgment Act, nor any other federal statute such as 28 Sections 1251, 1330, 1351, or the Foreign Sovereign Immunities Act (FSIA), provided federal subject matter jurisdiction.

The U.S. Court of Appeals for the Third Circuit affirms. The Court first assesses why Jordan’s argument for subject matter jurisdiction fails. Jordan first claims that 28 U.S.C. Section 1251 confers jurisdiction for the purposes of this case. The Court, however, points out that the relevant section addresses only the Supreme Court’s original jurisdiction. The language does not confer jurisdiction on a federal district court.

Jordan also cites Section 1351, stating that: “The district courts shall have original jurisdiction, exclusive of the courts of the States, of all civil action and proceedings against ¼ members of a mission.” The Court finds that the language of the statute contemplates a case involving an ambassador in his individual, not in his representative, capacity.

Finally, Jordan further asserts that “the FSIA, as well as the federal common law of foreign relations, present the court with cognizable federal questions for which subject matter jurisdiction is conferred by 28 U.S.C. Section 1331 for cases or controversies arising under the laws of the United States.” [Slip op. 25]

The Court holds, however, that Jordan did not raise the issue in district court, thus precluding it from doing so at this juncture. The Court thus declines to address the matter and affirms the dismissal of the action.

Citation: In Re B-727 Aircraft Serial No. 21010, Hashemite Kingdom of Jordan v. Layale Enterprises, S.A., No. 00-11018 (5th Cir. October 31, 2001).

PRODUCT SAFETY

U.S. Highway Safety Authority to implement reporting requirements for foreign product safety recalls

The Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) has solidified requirements concerning the responsibilities of automobile manufacturers to advise the NHTSA of foreign safety recalls or campaigns in instances where the automobile or equipment part subject to the recall or campaign is one that is either the same or substantially similar to an automobile or equipment part for sale or in circulation within the borders of the United States of America.

The rules will implement the obligations of the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act of November 1, 2000 (Pub. L. 106-414). TREAD mandates that a manufacturer notify the NHTSA of all findings and determinations within a window of 5 working days from the date the manufacturer decides that a foreign country is about to issue a safety recall or other safety campaign on a motor vehicle or motor vehicle equipment part that is substantially similar or identical to one offered for sale in the United States. If a foreign government has handed the determination to the manufacturer, the auto maker must report it within 5 working days to the NHTSA.

Notifications must take the form not only of advising the NHTSA of the institution of a safety recall or other safety measure in a foreign country, but also must definitively address the issue of whether the vehicle or vehicle equipment is substantially similar to one offered for sale in the U.S. Merely advising the NHTSA of a safety recall on a car in Malaysia that is not sold in the U.S. is inadequate, as the non-identical car might remain substantially similar to one offered for sale on the American market.

The NHTSA has decided, for the purposes of interpreting TREAD, that “other safety measures” differs from a “safety recall” in that (1) the manufacturer might not necessarily make any admission or expression that a safety problem existed, and (2) the “other safety campaign” would not necessarily involve the provision of a remedy. This encompasses extended warranties, or warnings to owners or dealers about a possible problem that may or may not relate to safety. The NHTSA reserves a broad interpretation and definition of a ‘safety campaign’, identifying it as any action in which the manufacturer communicates to owners, lessees, or dealers the conditions under which a vehicle or equipment item should be operated, repaired, or replaced, where the communication relates to safety.

Where a manufacturer has conducted an identical recall in the U.S. and abroad, the manufacturer need not report the recall to the NHTSA if it has previously filed a report which covers the same safety defect in substantially similar products offered for sale or in use in the U.S., as long as (1) the manufacturer’s remedy in the foreign recall is identical to that awarded in the U.S. recall, and (2) the scope of the foreign recall is not broader than the U.S. recall.

Citation: 66 Federal Register 51907 (October 11, 2001).

SOVEREIGN IMMUNITY

In “slip and fall” action based on incident in building owned by Malaysian government, Second Circuit upholds dismissal of case against Malaysia for lack of subject matter jurisdiction under FSIA

The plaintiff, a U.S. citizen, was working as a security guard at a building owned by the government of Malaysia. One evening, the plaintiff slipped and fell, injuring himself. He sued in a New York federal court alleging that the Malaysian government had caused his injuries by and through its recklessness in maintaining the building.

The Malaysian government claimed immunity from suit under the Foreign Sovereign Immunities Act (hereinafter FSIA) [28 U.S.C. Sections 1330, 1602-1611]. The district court dismissed the complaint citing lack of subject matter jurisdiction under FSIA. The Court of Appeals later affirmed on the grounds that the plaintiff had failed to allege facts and/or to come forward with facts sufficient to deprive defendant of immunity under the FSIA’s non-discretionary torts exception.

Initially, plaintiff argued that the non-discretionary torts exception to the FSIA precludes the Malaysian government from claiming immunity. The Malaysian government countered that it retained immunity because it had bought the building to serve as a foreign mission. These acts, the defendant claimed, were entirely discretionary and in order to defeat the immunity, the plaintiff had to allege and prove non-discretionary conduct on the part of the Malaysian government. The plaintiff failed to do so.

The U.S. Court of Appeals for the Second Circuit affirms on the grounds that the plaintiff failed to either allege facts, or meet his burden of coming forward with evidence. The Court also held that because of the absence of manifest injustice, the plaintiff is precluded from raising jurisdictional basis under the FSIA.

Under Sections 1604 and 1605 of the FSIA, foreign states are held to be immune from jurisdiction of United States courts unless the state exercised non discretionary functions. In pertinent part, 28 U.S.C. Section 1605 holds that a foreign state can be held responsible in cases:

“(5)¼.in which money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state or of any official ir employee of that foreign state while acting within the scope of his office or employment¼”

The Court points out, however, that the FSIA exception exists only if “(i) the plaintiff claims some injury caused by the tortious act or omission of a foreign state; and (ii) this act or omission was ‘non-discretionary.’” [Slip op. 15].

The Court held that there was no evidence that the Malaysian government had actual or constructive notice of the condition leading to the plaintiff’s injury. Furthermore, there is no proof that the Malaysian government had engaged in negligent hiring or supervision with regard to the building’s maintenance or renovation. Plaintiff’s argument that Malaysia failed to maintain the premises in a reasonably safe condition cannot be understood to be a tortious act or omission on the part of the Malaysian government.

In conclusion, the court writes that “[b]ecause we conclude that Robinson’s claim is not for a ‘tortious act or omission’ caused by the Malaysian government, a jurisdictional prerequisite, we affirm the district court’s dismissal on that basis. We do not reach the question of whether the alleged conduct of the Malaysian government was ‘discretionary’ for the purposes of the FSIA.” [Slip op. 39].

Citation: Robinson v. Malaysia, No. 00-7730 (2d Cir. October 11, 2001).

TAXATION

In civil RICO tax case brought by Canada against U.S. tobacco companies, Second Circuit finds that common law “revenue rule,” under which courts of one sovereign will decline to enforce final tax judgments or unadjudicated tax claims of other sovereigns, barred Canada’s RICO claims

In 1991, Canada doubled its cigarette tax. As a result of the “sin-tax” increase, the sales of RJR-Macdonald (RJR Mac), a Canadian tobacco company, and the American cigarette companies R.J. Reynolds Tobacco Holdings, Inc. (Holdings), Northern Brands International, Inc. (NBI), and several others decreased dramatically. To get around the new tax, these companies together orchestrated an effort to export cigarettes from Canada to Foreign Trade Zones (FTZs) in upstate New York. Once inside these FTZs, the companies sold the cigarettes to smugglers, including residents of the St. Regis/Akwesasne Indian Reservation, on the New York-Canadian border. After smuggling the cigarettes into Canada, the companies knowingly sold them on the black market.

The scheme grew in complexity and scope in 1992 with the Canadian government’s institution of an additional $8 (Canadian) tax on each carton of cigarettes. To surmount this obstacle, the defendants shipped raw Canadian tobacco to RJ Reynolds Tobacco Company PR (RJR PR) in Puerto Rico. RJR PR processed the tobacco into Canadian-style cigarettes, like those made by RJR Mac in Canada. These cigarettes then reached the Reservation through the FTZs, and smuggled into Canada for illicit sale. Canada alleged that the companies cheated it out of a significant amount of tax revenue, and required spending major sums for law enforcement measures.

Plaintiff filed suit in the Northern District of New York to recover treble damages under RICO. To establish a RICO claim, one must show that (1) a violation of the RICO statute took place; (2) that there was injury to plaintiff’s business or property; and (3) that the RICO violation caused the resultant injury. The district court, however, dismissed Canada’s claims on the grounds that the common law “revenue rule” barred an American suit to enforce the tax laws of another sovereign.

The Canadian Government appealed but the U.S. Court of Appeals for the Second Circuit affirms. The District Court found that Canada does indeed qualify as a “person” for the purposes of eligibility to bring a RICO action. But this is not enough.

“In the absence of specific treaty provisions, no matter how conscious and deliberate the tax evasion, there are no judicial or administrative remedies available to the defrauded state or province outside its territorial jurisdiction.” See United States v. Harden [1963] S.C.R. 366, 371 Can. The purpose of the revenue rule is to prevent foreign sovereigns from asserting their sovereignty within the borders of other sovereign nations.

Second, “by international law, every sovereign state has no sovereignty beyond its own frontiers. The courts of other countries will not allow it to go beyond the bounds. They will not enforce any of its laws which purport to exercise sovereignty beyond the limits of its authority.” See Attorney General of New Zealand v. Ortiz [1984] A.C. 1 [H.L.]. If the United States were bound to accept and enforce Canadian tax laws within its borders, that would include the judicial enforcement of any taxes that might so elevate the price of American goods in Canada as to handicap the economy of the pertinent American industry.

Finally, the Second Circuit ruled that extraterritorial tax enforcement directly implicates relations between the US and sovereign nations. Such matters therefore lie in “forbidden waters” for the judicial branch, and are more appropriately addressed by the political branches of the government.

The dissenting judge contends that the revenue rule does not apply in this case. As for the argument that U.S. courts should not give extraterritorial effect to foreign laws, the dissenter notes that Canada is effectively enforcing RICO, a U.S. law. This concern for extra-territoriality has no meaning when the enforcement concerns damages or penalties of a domestic nature.

“As a court, we have no obligation to further Canada’s sovereign interests. But we do have an obligation to further America’s sovereign interests. That is, we are bound to entertain suits brought under federal statutes, and to award the damages that such statutes establish. In enacting RICO and its civil enforcement provision, Congress chose to create this action. It follows that, by enacting RICO, our government has determined that this suit advances our own interests, and any collateral effect furthering the governmental interests of a foreign sovereign is, therefore, necessarily incidental.” [Slip op. 96]

The dissenter also rejects any foreign policy or separation of powers concerns that the majority may have because Congress intended to create such a cause of action. “An analogy to the enforcement of foreign judgments is apt. Generally speaking, foreign judgments are not directly enforceable in United States courts because of foreign policy and separation of powers concerns. ... But, the moment treaties or laws are enacted that provide for the enforcement of certain foreign judgments, the situation changes. United States courts can thereafter enforce these judgments and must do so regardless of whether our foreign policy favors or disfavors the specific judgment before the court.”

“Similarly, though foreign tax laws cannot be enforced directly, when American law renders an activity – including the violations of foreign tax laws – an American tort or crime, the issues of whether our foreign policy favors or disfavors the particular form of taxation involved or the choice of items to be taxed must disappear. As the Supreme Court has explained, the purpose of civil RICO is ‘not merely to compensate victims but to turn them into prosecutors ...’ To reject the application of civil RICO to the case at hand is to hamper this congressional objective.” [Slip op. 97-98]

Finally, the dissenter concedes the difficulties which U.S. courts might have in interpreting foreign laws, but the increasingly global economy often requires the interpretation of foreign laws. Moreover, Second Circuit precedent has recognized foreign tax-related judgments.

Citation: The Attorney General of Canada v. R.J. Reynolds Tobacco Holdings, Inc., No. 00-7972 (2d Cir. October 12, 2001).

WORLD TRADE ORGANIZATION

WTO Appellate Body agrees with its Panel that U.S. sea turtle protection regime now complies with Articles XI and XX of GATT 1994

The World Trade Organization (WTO) Appellate Body decided on October 22, 2001, that the United States Sea Turtle Conservation Law fully complies with Dispute Settlement Body (DSB) recommendations. The law sets forth certain actions that countries wishing to engage in trade of shrimp and shrimp products with the United States must undertake, and seeks to protect the endangered Sea Turtle population worldwide.

Several Indian Ocean and Southeast Asian countries had challenged the “shrimp-turtle law” (see Section 609 of Public Law 101-162, requiring Turtle Excluder Devices for shrimp harvesting) on the grounds that the U.S. was applying the law in an injurious and discriminatory manner. The WTO organ ordered the U.S. to carry out the law in conformity with its duties under Articles XI and XX of the GATT 1994. The U.S. suggested a training program to educate the challenging nations how better to comply with the shrimp-turtle law. The goal was to help them remain eligible to sell their shrimp products to the US. This education program included aid from the US regarding certain technological methods of shrimping that would drastically cut down on the number of sea turtles caught by accident.

Malaysia again approached the DSB, however, alleging that the U.S. had not complied with WTO recommendations because it had not lifted the import prohibition on shrimp products caught in a manner inconsistent with the shrimp-turtle law. Malaysia therefore felt unable to trade shrimp products in an unrestricted, unprejudiced manner with the U.S. The WTO panel decided in favor of the U.S. measure. Malaysia appealed, and the Appellate Body again finds that the U.S. measure complies with all WTO recommendations and rules, and squares with the obligations of the U.S. under the GATT 1994.

Citation: United States - Import Prohibition of Certain Shrimp and Shrimp Products, Recourse to article 21.5 by Malaysia (WT/DS58/RW) (October 22, 2001); the written submissions of the U.S. Trade Representative are available on the USTR website “www.ustr.gov/enforcement/briefs.”

WORLD TRADE ORGANIZATION

WTO Appellate Body rules in favor of U.S. in challenge to Mexican antidumping duties on high fructose corn syrup

On October 22, 2001, the World Trade Organization (WTO) Appellate Body affirmed a Panel decision finding Mexico’s application of antidumping duties on U.S. imports of high fructose corn syrup (HFCS) inconsistent with WTO trading rules. HFCS sweetens soft drinks and other food products.

Mexico had imposed Anti-Dumping duties because it feared harm to its domestic sugar industry. According to the WTO Anti-Dumping Agreement, a member may impose antidumping duties only where it has proven both the dumping action and an injury to the domestic industry (or a threat thereof).

The U.S. asserted that the method by which the Mexican authority SECOFI concluded that U.S. imports constituted a threat of injury to the Mexican sugar market was flawed. The WTO Panel agreed, and so does the Appellate Body, finding that Mexico did not properly establish grounds for speculation of a future influx of U.S. products into the Mexican market. Additionally, Mexico had not properly considered the probable impact of U.S. imports on the Mexican sugar industry.

In particular, the Appellate Body: (1) Finds that the Panel correctly declined to address certain issues, such as the question of consultations between the U.S. and Mexico prior to the WTO proceedings; (2) Upholds the Panel’s finding in Paragraph 6.23 of the Panel Report that SECOFI’s conclusion that there existed a significant likelihood of increased imports was inconsistent with Mexico’s obligations under Article 3.7(i) of the Anti-Dumping Agreement; (3) Upholds the Panel’s finding, in paragraph 6.36 of the Panel Report, that SECOFI’s conclusion regarding the likely impact of dumped imports of HFCS from the U.S. on the domestic was inconsistent with Mexico’s obligation under Articles 3.1, 3.4 and 3.7 of the Anti-Dumping Agreement; (4) Finds that the Panel satisfied its duty, under Article 12.7 of the Dispute Settlement Understanding (DSU), to set out a “basic rationale behind [its] findings” with respect to Articles 3.1 and 3.4 of the Anti-Dumping Agreement; and (5) Finds that the Panel did not act inconsistently with the standard of review set out in Article 17.6(ii) of the Anti-Dumping Agreement.

Citation: Mexico - Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, Recourse to Article 21.5 of the DSU by the United States (AB-2001-5, WT/DS132/AB/RW) (22 October 2001); U.S. Trade Representative press release 01-86 (October 22, 2001).

U.S. Treasury relaxes Yugoslavia sanctions. The U.S. Department of the Treasury, Foreign Assets Control Office, has amended the regulations regarding sanctions on Yugoslavia (Serbia and Montenegro), pursuant to Executive Order 13192 of January 17, 2001 (see 31 C.F.R. Parts 586 and 587). The amendments lift certain economic sanctions but maintain restrictions imposed on supporters of former President Slobodan Milosevic and others whom the International Criminal Tribunal for the former Yugoslavia has indicted. In particular, the amendments release blocked funds and permit the rescheduling of Yugoslav foreign debt. Citation: 66 Federal Register 50506 (October 3, 2001).

EU eases ban on arms export to Yugoslavia. The Council of the European Union has adopted Common Position 2001/719/CFSP and has repealed a related Regulation to change its currently effective sanctions on Yugoslavia. On September 10, 2001, the United Nations Security Council terminated its ban on arms exports to Yugoslavia. The EU Council’s Common Position implements this change to authorize it to allow arms exports to Yugoslavia, the former Yugoslav Republic of Macedonia, and Croatia on a case-by-case basis. Citation: 2001 O.J. of the European Communities (L 268) 49, October 9, 2001 & (L 289) 5, November 6, 2001.

Commission of EU approves AOL/Time Warner merger. The Commission of the European Communities has issued a Decision approving the merger of America Online, Inc. (AOL) with Time Warner, Inc. On June 19, 2000, the Commission had begun an investigation as to whether that merger would adversely affect the EU market, and finally concluded that the merger complies with EU competition law subject to certain conditions. The conditions include a gradual separation of media giant Bertelsmann from AOL, and compliance monitoring by independent experts. Citation: 2001 O.J. of the European Communities (L 268) 28, October 9, 2001.

Treaties of Mutual Legal Assistance in Criminal Matters involve U.S. Mutual Legal Assistance in Criminal Matters Treaties (MLATs) are a relatively recent and valuable development. These bilateral agreements seek to improve the effectiveness of international judicial assistance and to regularize and facilitate criminal law enforcement procedures in all the member states. Each country designates a Central Authority, generally the two Justice Departments or Ministries, for direct communication. The treaties deal with the power to summon witnesses, to compel the production of documents and other real evidence, to issue search warrants, and to serve process in the territory of each party. Generally, the remedies offered by the treaties are only available to the prosecutors. The defense must usually proceed with the less cost-effective methods of obtaining evidence in criminal matters under the internal laws of the host country such as by Letters Rogatory. The United States has MLATs currently in force with the following nineteen nations: Argentina, Bahamas, Canada, Hungary, Italy, Jamaica, (South)Korea, Mexico, Morocco, Netherlands, Panama, Philippines, Spain, Switzerland, Thailand, Turkey, United Kingdom (Cayman Islands, later extended to cover Anguilla, the British Virgin Islands, Montserrat and the Turks and Caicos Islands), United Kingdom, and Uruguay. Fifteen more MLATs have been signed but have not yet entered into force (either because the U.S. is awaiting U.S. Senate advice and consent, the foreign country's approval, or both). Citation: U.S. State Department (online) Circular, October 2001. [See also www.state.gov]

EU expands export bans to Afghanistan and specifies the affected entities. The European Union (EU) has issued Regulations Nos. 1996/2001 and 2062/2001, amending the already existing EU prohibition of Regulation No. 467/2001 of exports of certain goods and services to Afghanistan. The Regulations add certain organizations and individuals whose funds must be frozen to include Al Qaida, Usama bin Ladin, and The Afghan Export Bank. Citation: 2001 O.J. of the European Communities (L 271) 21, October 12, 2001 & (L 277) 25, October 20, 2001 & & (L 289) 36, November 6, 2001 & (L 295) 16, November 13, 2001.

Common Customs Tariff re-issued by EU. The European Union has re-issued the substance of its Common Customs Tariff. The re-issue includes the general rules for interpreting the Combined Nomenclature, general rules concerning duties, and the schedule of customs duties for all products, such as dairy products, meats, mineral oils, pharmaceutical products, and electrical machinery. The Tariff Annexes concern specific issues, such as favorable tariff treatment for beneficial products, non-proprietary names for pharmaceutical substances, and quotas. Citation: Commission Regulation (EC) No 2263/2000 ... amending Annex I ... on the tariff and statistical nomenclature and on the Common Customs Tariff, 2001 O.J. of the European Communities (L 279) 1, October 23, 2001.

U.S. continues special measures regarding Colombian drug traffickers. President Bush has signed an extension of Executive Order 12978, originally signed into effect by President Clinton in 1995. Executive Order 12978 declares a national emergency for the purpose of dealing with the “unusual and extraordinary threat” posed to the economy, foreign policy, and national security of the United States by the current and persistent actions of drug cartels and narcotics traffickers located in Colombia. Citing the “unparalleled violence, corruption, and harm” caused in the U.S. and abroad by the actions of Colombian drug lords, the extension of the Executive Order lets the national emergency continue for one additional year, until October 21, 2002.  Citation: 66 Federal Register 53073 (October 19, 2001), Notice of October 16, 2001: Continuation of Emergency with Respect to Significant Narcotics Traffickers Centered in Colombia.

President Bush signs anti-terrorism legislation. On October 26, 2001, President Bush signed the USA Patriot Act (H.R. 3162) into law. The law had passed the House of Representatives by a vote of 357-66, and the Senate by 98-1. The legislative history of this law is skimpy because it passed Congress after only a short debate and without consideration in the Senate Judiciary Committee. Thus, there is no conference report explaining its provisions. The law contains provisions that (1) expand the definition of terrorism for immigration purposes, (2) provide for mandatory detention of foreigners when the Attorney General suspects them of terrorist activity, (3) grant unreviewable authority to the Secretary of State to designate “terrorist” groups, (4) enhance security along the Northern border of the U.S., and (5) grant the Department of State and the Immigration and Naturalization Service access to FBI Criminal History Records. Citation: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, Pub.L. 107-56, 115 Stat. 272 (H.R. 3162).

Japan and EU take measures in response to terrorist attacks on U.S. on September 11, 2001. Japan and the European Union (EU) have taken various measures in response to the terrorist attacks on the World Trade Center and the Pentagon in the U.S. As for Japan, the Japanese Diet passed a Anti-Terrorism Special Measures Law on October 29, 2001. It amends the Self-Defense Forces Law and the Maritime Safety Agency Law, permitting Japan to actively participate in international efforts to combat terrorism. For example, it permits Japanese forces to cooperate with the U.S. and to provide support, assist in search rescue activities for foreign forces, and provide relief to affected people. Secondly, on October 26, 2001, Japan discontinued its May 1998 sanctions imposed on India and Pakistan in response to their nuclear tests. The sanctions had included the suspension of aid grants to India and Pakistan for new projects (except emergency and humanitarian aid) as well as grant assistance to grassroots projects, the suspension of Yen-loans to India and Pakistan for new projects, and thorough examination of multinational development bank loans to India and Pakistan. Thirdly, Japan has granted refugee assistance to Pakistan upon request of the U.N. High Commissioner for Refugees, including tents and blankets, as well as approximately $120 million for refugee relief efforts through UN and other humanitarian relief organizations. Fourth, Japan has taken emergency measures to assist Pakistan and Afghan refugees in Pakistan, such as about $40 million in bilateral refugee assistance, and official debt rescheduling. Fifth, Japan is also granting emergency aid of approximately $2 million to Tajikistan because of the Afghan refugees. Finally, pursuant to UN Security Council Resolutions 1267 and 1333, Japan has frozen the assets of 165 groups and individuals who may have links to terrorist activities. On October 12 and 26, 2001, Japan expanded the freeze to a total of 50 additional groups. – As for the EU, the Commission has issued a Report outlining EU action in response to the terrorist attacks. The EU measures include (1) the reduction of interest rates by 0.5% through the European Central Bank (ECB) to stabilize the market, (2) the freezing of assets of individuals and organizations that support terrorism. Finally, in addition, the EU is providing EURO 310 million for relief to Afghan refugees and related emergency assistance. Citation: Information on Japanese measures is available on website of Ministry of Foreign Affairs of Japan at www.mofa.go.jp; Information on EU measures is contained in Report from Commission, Overview of EU action in response to events of 11 September and assessment of their likely economic impact, COM(2001) 611 final (Brussels, October 17, 2001).