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.

2000 International Law Update, Volume 6, Number 1 (January).

CHOICE OF LAW

In complex litigation over Texas company's provision of telephone services to Mexican customers, Fifth Circuit, using Texas choice-of-law doctrines based on Restatement of Conflicts, applies internal law of Texas to contract and tort issues

Telmex, the Mexican telephone company, had a monopoly on Mexican telephone services until 1996. During 1993 and 1994, Access Telecom, Inc. (ATI), a Texas corporation, was also providing telephone services to Mexican customers. The customer would first call ATI in Texas which then would connect the call to the intended destination. Telmex supplied phone service only within Mexico while ATI afforded it in the U.S. and to the new destination.

The Mexican leg of each call came through toll-free numbers that MCI had leased from Telmex and made available to ATI. ATI's services generally lessened the cost of international telephone calls to and from Mexico.

ATI also provided "call-back" service where the customer called ATI. ATI did not answer these calls but instead used a kind of "caller-ID" to call the customer back and then connect the call to the desired number. [Editors' Note: "call back" telephone services are still common in Latin American countries because of the high cost of telephone services charged by the provider companies].

In 1993, the Mexican Secretary of Communications and Transportation (SCT) requested MCI to stop supplying "call-back services." Shortly thereafter, Telmex demanded a list of MCI's customers that provided these services. MCI eventually stopped affording telephone services to ATI, and AT&T refused to offer services alternative to ATI. As a result of the Mexican crack down, ATI, along with approximately 80 similar companies, soon collapsed.

Two years later, MCI obtained an arbitration award of $1.2 million from ATI covering ATI's unpaid phone bill. A few weeks later, ATI sued MCI, Telmex, and SBC, a related company, in Texas state court for tortious interference and contracts claims. Upon removal, the Texas federal court dismissed the claims against Telmex for lack of personal jurisdiction. The district court also denied ATI's motion for partial summary judgment that would uphold the lawfulness of its activities, and granted the motion of MCI and SBC for summary judgment on all of ATI's claims.

ATI appealed the rulings adverse to it. The U.S. Court of Appeals for the Fifth Circuit reverses and remands. [See also JURISDICTION (PERSONAL) below.]

A threshold aspect of this case is how to characterize ATI's business. The Court classifies ATI as an "exporter of U.S. phone services" who incidentally and indirectly resold Mexican telecommunication services. MCI was the reseller under a contract with Telmex.

As between Texas and Mexico, the Court then had to decide (1) which law governs ATI's tort claim; (2) which law governs the validity of the contracts and prospective business relations that form the basis of the tortious interference claims; and (3) whether, if applicable, Mexican law invalidates the contracts for other reasons.

The Court first notes that Texas uses the "most significant relationship" test of the Restatement (Second) of Conflict of Laws, Section 145 as to choice of law in torts. Section 145 focuses on the following factors: (1) the place where the injury occurred, (2) the place where the conduct causing the injury occurred, (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties, and (4) the place where the relationship between the parties, if any, is centered. Under these criteria, the Court rules, it would be reasonable to apply Texas tort law in this case.

As for contract choice of law, the Court notes that the contracts at issue include ATI's contracts with its Mexican customers, ATI's contracts with MCI, and ATI's prospective contracts with AT&T. Considering the conflicts with Mexican authorities, there is also the question of whether these contracts were valid under the internal law that governed the contract.

Here, the contracts with Mexican customers had choice-of-law provisions that made Texas law applicable and specified Texas as the place of contract formation. Texas ordinarily enforces choice-of-law provisions if the chosen forum has a substantial relationship with the parties and the transaction. See Restatement (Second) of Conflict of Laws, Section 187.

Following Section 187, however, Texas courts will not honor a choice-of-law provision if another jurisdiction has a materially greater interest than the chosen state and if application of the chosen law would contravene that jurisdiction's fundamental policy. In the Court's analysis, Texas law determines the validity of the contracts and of the prospective contracts at issue.

"Mexico would not have a fundamental policy contravened by the application of Texas law in this case. The export of U.S. telecommunication services and even the resale of Mexican services does not contravene Mexico's legitimate monopoly over its domestic lines. Telmex can charge whatever it likes for incoming and outgoing calls on its lines. The resale of the Mexican leg either directly by MCI or indirectly by ATI is only profitable if Telmex allows it to be. If Telmex sets a monopoly price for its initial service, Telmex recoups all potential monopoly revenues from that fee. ... [...] Texas, on the other hand, would have a fundamental policy contravened by the choice of Mexican law (assuming Mexican law is different on the question on contract validity), namely the ability of Texas companies to make valid export contracts in Texas for the sale of U.S. services. [Slip op. 17-18]

Under Texas law, a contract made with a view toward violating the laws of another country is illegal. Texas courts will not enforce it even if it does not otherwise offend either the laws of the forum or of the place where the parties made their contract.

In applying the rule to this case, the Court declares: "There are at least two reasons to defer to foreign law ... even if that law would not be chosen to govern the contract. First, a contract legal in the U.S. and illegal in Mexico may place parties in a dilemma. They can either perform the contract and face Mexican liability (Mexico, after all, may have personal jurisdiction over the parties). On the other hand, the parties can breach the contract, but then face U.S. liability for contract damages. ... [...] A second, but more important, reason to defer to foreign law even if it does not apply to the contract is the mentioned principle of comity, which suggests that the U.S. should respect Mexican law on a kind of 'golden rule' basis." [Slip op. 22-23]

In this case, however, there is no "dilemma." These facts do not serve as a defense to a claim of tortiously interfering with such contracts because the alleged tortfeasor does not have to choose between violating foreign law or suffering U.S. liability.

"... Mexican law at the time was sufficiently unclear and capable of multiple interpretations as to what was or was not legal. Such difficulty in interpreting foreign law makes it unreasonable to conclude [that] any contract was entered with a view to violate foreign law. ... While the content of foreign law is a legal question, the question of ATI's intention is not, and there is sufficient evidence to permit a jury to conclude ATI was acting with the view that their services were legal; as such, summary judgment against ATI on the tortious interference claims would be improper unless ATI's activities were illegal under U.S. law or subject to another defence [sic] ..." [Slip op. 27-28]

Citation: Access Telecom, Inc. v. MCI Telecommunication Corp., No. 98-50881 (5th Cir. December 1, 1999).

ENVIRONMENTAL LAW

First Circuit holds that shipment of vitrified nuclear waste on U.K. vessel sailing from France to Japan through United States' Exclusive Economic Zone in Caribbean was not "major federal action" so as to require U.S. to file Environmental Impact Statement under NEPA

On February 3, 1998, the Pacific Swan, a British-flag freighter, passed through the Mona Passage between the Islands of Puerto Rico and Hispaniola bound for Japan via the Panama Canal. Because it carried a cargo of high-level, vitrified nuclear waste, Mayaguezanos por la Salud y el Ambiente (MSA) and other environmental organizations along with fishermen groups were afraid of an accident or maritime disaster. Several groups filed suit against the United States and others to enjoin the vessel's passage until the U.S. had filed an Environmental Impact Statement (EIS) under the National Environmental Policy Act (NEPA).

The voyage in question forms part of a regular pattern of circumferential trade in fissionable material. The U.S. sends uranium to Japan to fuel its nuclear reactors. When the fuel is spent, Japan ships the material to COGE­MA for recycling at its plant in La Hague in France. This process turns out a substantial portion of fissionable material reusable as fuel plus high-level waste containing trace amounts of uranium and plutonium.

The French company vitrifies the waste and puts it in casks that meet safe transport criteria laid down by the International Atomic Energy Agency (IAEA). The vitrification process changes the waste into a solid glass form which is claimed to be very insoluble in water, resistant to heat, and extremely stable. In sending the fuel and waste back to Japan, the parties use specially-designed private ships that meet the safety standards of the International Maritime Organization (IMO). The private shippers have a choice of three routes back to Japan: the Cape of Good Hope, Cape Horn, or the Panama Canal.

The parties filed cross-motions for summary judgment. The District Court denied injunctive relief and dismissed the complaint. MSA and others noted an appeal. The U. S. Court of Appeals for the First Circuit affirms.

The U.S. has two links to this trade. In the first place, the U.S. had originally supplied the uranium to Japan pursuant to a 1988 agreement to cooperate on the peaceful uses of atomic energy [see 1988 WL 582501, at 3]. Secondly, the transport of the waste through the Mona Passage means that the ship sailed through non-territorial waters in which the U.S. has an interest.

On appeal, MSA first argued that the transport of this waste involved a "major federal action" under NEPA because the U.S. has a significant role in transporting the waste under various international agreements and customary international law. In reply, the U.S. contended that the fact that private parties, not the U.S., are the primary ones who handle the shipping deprived the voyage of any federal character.

This Court approves the Fourth Circuit's reading of NEPA as involving whether federal approval was a prerequisite to the private parties' activity and whether a federal agency had some type of authority over the outcome. MSA basically contended that the U.S. has impliedly consented to the shipments under the U.S.--EURATOM Agreement as well as acted under the 1954 Atomic Energy Act (AEA) and the Nuclear Non-Proliferation Act (NNPA) of 1978. It also argued that the U.S. had the power to stop shipments like this from transiting the waters of its Exclusive Economic Zone (EEZ); its failure to do so amounted to an implicit grant of authority.

The Court disagrees with plaintiffs. It explains that the AEA and the NNPA require the U.S. to ship nuclear materials abroad only pursuant to international agreements containing adequate safeguards and effective controls. The 1988 Agreement with Japan exercised this authority.

When the irradiated material leaves Japan for France, the U.S.-EURATOM Agreement of 1996 applies. France and the U.K. are parties thereto along with thirteen other European nations. This agreement also demands the taking of "safeguards" against the misuse of nuclear materials for other than peaceful purposes.

Once one of the parties has determined the materials to be no longer usable for nuclear activity or to have become "practically irrecoverable," the Agreement ceased to apply. Here, the appropriate authority, which was not the United States, made that determination. For the same reason, the IAEA also terminated its safeguards as to this shipment. As a result, no "major federal action" was involved

The second string to MSA's bow was that there was federal action when the U.S. allowed the Pacific Swan to make use of the Mona Passage. The Court preliminarily notes that there is at least a fifteen-mile-wide channel of international waters in the straits between Puerto Rico and Hispaniola. Moreover, even as to U.S. territorial waters, customary international law recognizes a foreign vessel's right of innocent passage.

Though the Pacific Swan indisputably did not pass through U.S. territorial waters, it presumably did transit its EEZ. The limited EEZ interests of coastal states largely center on the development of natural resources, the availability of scientific research and preventing oceanic pollution

For example, there may be clear evidence that a foreign vessel has discharged material that pollutes the EEZ or that may damage the coastline or other national resources. In such a case, the coastal state may stop the vessel, investigate its papers and otherwise conduct a relevant physical inspection of the ship. In serious cases, the coastal state may file proceedings to detain the vessel.

Foreign ships do not need U.S. permission to pass through its EEZ. Moreover, no violation of U.S. economic interests has taken place here. Although the U.S. has chosen to forego regulating shipments of nuclear waste through its EEZ, the Court sees it as far from clear that it would have the power to regulate under the facts of this case.

"Under these circumstances, there is no major federal action. Where this country's multilateral relationships are involved there is a particularly heavy burden on Mayaguezanos to demonstrate a ‘major federal action' for NEPA purposes, and thus to involve the courts. It has not come close. That is not to say that Mayaguezanos's concerns about the safety of the shipments are frivolous, a matter that we do not judge, only that such concerns should be presented elsewhere. The grant of summary judgment for defendants is affirmed." [Slip op. 7-8]

Citation: Mayaguezanos por la Salud y el Ambiente v. United States, No. 99-1412 (1st Cir. December 20, 1999).

FORUM NON CONVENIENS

English Court of Appeal rules that English court is not forum conveniens for libel suit against Dow Jones & Co. brought by U.S. residents where, inter alia, less than one percent of Barron Magazine's sales takes place in United Kingdom

Dow Jones & Co., a New York corporation, publishes a weekly financial journal known as "Barrons Magazine." The vast majority of its coverage and advertising relates to the U.S. Of the 294,346 issues sold, about 4/10 of 1% of the sales take place in the United Kingdom.

Chadha & Osicom Technologies Inc. (COT) is an electronics company doing business in California. Mr. Chadha has a U.S. domicile and residence. He founded the U.S. corporation in 1981 and has been its CEO since that time. The company had a British subsidiary called (since April 1997) Osicom U.K., Ltd. Though it still exists in Cardiff, Mr. Chadha had arranged for its sale and it no longer has any links with either of the U.S. plaintiffs.

On August 25, 1997, Barrons published a defamatory article alleging that COT and its CEO had taken part in fraudulent conduct. The latter two sued Dow Jones in the English courts. The Master then gave them leave under RSC, Ord. 11, r.4(2) to serve process abroad.

Upon review, the judge of the High Court of Justice saw the issue as whether he should stay the proceedings on grounds that some court in the United States would have jurisdiction over the case and would thus be the forum conveniens. Finding an overwhelming case for trial in the United States, he set aside the Master's order.

In the Court of Appeal, plaintiffs argued that the publication of the libel in the U.K. constituted a distinct tort there and that only extreme circumstances could justify the refusal to allow litigation in its courts. Defendant contended, on the contrary, that any damage to plaintiffs' reputations in the U.K. was de minimis, depriving its courts of being the forum conveniens. The Court dismisses the appeal.

It first notes that plaintiffs have the burden of showing good reasons why the English courts should allow service of a writ calling for the appearance of a foreign defendant before an English court. In deciding this question, the court has to take into account the nature of the controversy, the legal and practical issues involved, along with such questions as local knowledge, the availability of witnesses and their evidence and overall expense. The basic search is for the jurisdiction in which the parties may best try the case in their own interests and for the ends of justice.

In the appellate Court's view, the judge below had taken all the relevant circumstances of the case into consideration. On the sound assumption that an "English tort" had occurred, he evaluated the circumstances pertinent to the forum conveniens doctrine. These included the personal status of the corporate plaintiff and its connections with the U.K., the business status of the individual plaintiff and his connections with the U.K., the status of the defendants, the extent of publication, the nature of the publication, the meanings that plaintiffs attached to the article and the juridical advantages and disadvantages in having an English tribunal hear the case as opposed to leaving plaintiffs to judicially vindicate their reputations in the United States.

The Court also pointed out that plaintiffs clearly had reputations worthy of vindication in the United States. On the other hand, the evidence that they had a similar reputation in England in August 1997 is vague and imprecise. For instance, this libel took place merely four months after plaintiffs had changed the name of their English subsidiary to include the word "Osicom."

Finally, there is no evidence in the record that any customer has canceled an order with the company or its subsidiary because of the Barron's article. In fact, plaintiffs' affidavits declared that the U.K. subsidiary is continuing to grow.

Citation: Chadha & Osicom Technologies Inc. v. Dow Jones & Co. Inc., [1999] I.L.Pr. 829, [1999] E.M.L.R. 724 (Ct. App. (Civil) 1999).

HUMAN RIGHTS

Citing jurisprudence of European Human Rights Court and international agreements, Inter-American Court of Human Rights finds that Guatemala has violated several articles of Inter-American Convention by failing to prosecute local police for murders of "street children"

On December 3, 1999, the Inter-American Court of Human Rights published a decision that Guatemalan police had a part in the killing of four youngsters and another young man, all of whom were living in the streets of Guatemala City. Guatemala is one of 20 countries that recognize the jurisdiction of this Court. The Court found that Guatemala had failed to protect the victims' rights and to provide them justice under international law. [Editors' Note: this is the first case before that Court involving the rights of minors.]

On September 15, 1994, two Guatemalan human rights organizations, the "Centro por la Justicia y el Derecho Internacional" (CEJIL) and the "Casa Alianza" notified the Inter-American Commission on Human Rights about the violations of human rights directed against young people living in the streets of Guatemala ("ninos de la calle"). The complaint alleged the governmental abduction, torture and murder of the above-mentioned young people of whom three were minors. It also claimed that the government failed adequately to look into these events, and to make civil remedies available to the victims' families. [Editors' Note: As reported in the Washington Post, see Citation below, an estimated 40 million children live in the streets of Latin America. According to human rights activists, some Governments occasionally condone or even promote killing sprees against street people.]

Residents had found the mutilated bodies of the four victims on the outskirts of Guatemala City in 1990. Several witnesses had implicated two Guatemalan police officers. The criminal investigation resulted in a prosecution but the lower courts dismissed it for lack of convincing evidence. The Criminal Branch of the Guatemalan Supreme Court of Justice (Camara Penal de la Corte Suprema de Justicia de Guatemala) ultimately affirmed the dismissal on procedural grounds and for lack of evidence.

The case finally came before the Inter-American Commission on Human Rights for an investigation. On January 30, 1997, the Commission filed a complaint with the Court under the Convention alleging that Guatemala had violated several provisions. These included Article 1 (respect for rights), Article 4 (right to life), Article 5 (right to personal integrity), Article 7 (right to personal liberty), Article 8 (judicial guarantees), Article 19 (childrens' rights), and Article 25 (judicial protection).

The Human Rights Court holds that Guatemala had violated the Convention. Six judges of the Court write an opinion that builds on the jurisprudence of other international tribunals and agreements, including interpretations of the European Convention for the Protection of Human Rights and Fundamental Freedoms of 1950 [312 U.N.T.S. 221] (ECHR) plus the International Covenant on Civil and Political Rights of 1966 [999 U.N.T.S. 171] (ICCPR). In its opinion, the Court describes in detail the supporting documentary evidence and testimony. For example, the mother of Henry Giovanni Contreras, one of the victims, testified that Henry lived mostly in the streets of Guatemala City. He was consuming drugs and alcohol, having been arrested several times. His mother finally found out that police officers had taken him away. Though his corpse later turned up, administrative obstacles stymied her efforts to claim the body. Moreover, she received an anonymous threatening letter.

Bruce Harris, the Regional Director of Casa Alianza, recounted the hazards of investigating the murders. Even though the photographs of the dead bodies showed clear signs of torture, the Guatemalan authorities did not take serious action. Furthermore, one day someone riddled the Alianza's building with bullets. Finally, three Alianza co-workers later had to flee Guatemala under threats of harm. Harris testified that the organization had 392 pending cases of offenses committed against street children. Although 50 or about 13% were homicides, less than five percent of the total ever got into the local courts.

Here, Guatemala did not directly contest either the allegations or the evidence before the Human Rights court. Based on the evidence presented by the witnesses, the Court finds that Guatemala has in fact violated Articles 4, 5, 7, 8, 19, and 25.

As for Article 4 (right to life), the Court cites the U.N. Committee on Human Rights (a creation of the ICCPR, above) as declaring that the State must prevent and punish killings by government forces. The Court also notes that the European Court of Human Rights has recognized a presumption that the government must be accountable for the abuse that a person suffers while in government custody. See ECHR Article 5 (Right to Liberty and Security)

In applying Article 7 on the right to liberty and personal safety, the Court again refers to the jurisprudence of the European Human Rights Court. That Court has emphasized that a government's failure to publish a person's arrest completely ignores these rights.

Moreover, the Court finds Article 19 on the special rights of children applicable here. It further notes that there is a very comprehensive corpus juris for the international protection of children that exemplifies the scope of this Article.

In addition, the Court applies the Inter-American Convention to Prevent and Punish Torture of December 9, 1985 [25 I.L.M. 519 (1986)]. It concludes that Guatemala has violated Articles 1 (governments must prevent and punish torture), 6 (governments must establish effective measures against torture), and 8 (investigations of torture are mandatory). Guatemala had not addressed these issues in its final pleadings.

Two judges delivered a concurring opinion, noting that the right to life can already be considered jus cogens. With this opinion, as well as another one issued in 1999, the Court has held that courts must interpret an international protective agreement according to the development of society. This evolutionary interpretation has decisively advanced the cause of international human rights. In the interpretation of human rights law, it is very difficult to separate juridical considerations from moral considerations. It is therefore within a system of higher values, the Concurring judges argue, that we search for the meaning and destiny of each human being. It is now up to Guatemala to investigate the murders and to punish those responsible for the miscarriages of justice.

Citation: Corte Interamericana de Derechos Humanos [Inter-American Court of Human Rights, Costa Rica], Caso Villagran Morales y Otros, Sentencia de 19 de noviembre 1999. [The decision is available in Spanish from the press department of the Court, E-mail: infocidh@sol.racsa.co.cr. See also Washington Post (December 5, 1999), page A-42.]

JURISDICTION (PERSONAL)

In complex litigation over Texas company's provision of U.S. telephone services to Mexican customers, Fifth Circuit rejects plaintiff's claim of personal jurisdiction over Mexican phone monopoly based on general jurisdiction and Clayton Act theories but upholds specific jurisdiction because claims arose out of defendant's business with Texas companies

[For the preliminary facts, see CHOICE OF LAW, above].

Another issue on appeal was whether the trial court, without a hearing, had erred in dismissing ATI's complaint against Telmex for lack of personal jurisdiction.

The Court of Appeals preliminarily notes that, in the absence of a federal jurisdictional statute, a Texas federal court has no greater personal jurisdiction over nonresidents than the courts of the state in which it sits. Here, the Texas long-arm statute reaches out to the limits of the federal Due Process Clause. Thus plaintiff must show that each defendant has purposely maintained minimum contacts with the state and that the exercise of personal jurisdiction comports with fair play and substantial justice.

Responding to Telmex's arguments, the Court examines the issues of general and specific personal jurisdiction as well as ATI's alternative claim that the Clayton Act authorizes the court to exercise personal jurisdiction over Telmex.

The Court first rejects ATI's claim of general jurisdiction over Telmex despite quite a few contacts of various kinds between Telmex and Texas. "Telmex has virtually no contacts which constitute doing business in Texas. Primarily, Telmex interconnects its Mexican lines with American lines, enabling long distance communication. The money U.S. companies pay Telmex is for service on the Mexican leg of the call; the money the U.S. carriers receive is for the U.S. leg of a call. As such, Mexican and U.S. telecommunications companies do business with each other in these situations, but neither is doing business in the other country for jurisdictional purposes." [Slip op. 18]

Telmex did arrange with American carriers to accept phone signals from Texas, thus requiring that its telecommunications lines cross into, and terminate, in Texas. This may be the most persuasive argument for general jurisdiction but it is not enough to sway the Court.

"The termination of Telmex's telephone lines in Texas allows for continuous and systematic transfer of calls. However, despite the apparent force of the argument that such a contact demonstrates a presence in Texas for business purposes, we are bound by Applewhite v. Metro Aviation, Inc., 875 F.2d 49 (5th Cir. 1989) in which such interconnections, even though crossing the border into a forum, were held insufficient to confer general jurisdiction under the Due Process Clause." [Slip op. 19]

The Court also spurns plaintiff's Clayton Act theory of jurisdiction. Under 15 U.S.C. Section 22, a court applies Due Process standards to the defendant's contacts with the entire United States.

"However, while there may be some additional evidence of Telmex doing business with the U.S., there is no evidence qualitatively difference on the subject of doing business in the U.S. for what we deem to be a relevant time period from 1990 to 1996. Thus, Clayton Act personal jurisdiction over the antitrust claims is also unavailable." [Slip op. 20]

The final string to ATI's jurisdictional bow was "specific jurisdiction." It argued that it existed here because Telmex had purposefully directed its activities to residents of Texas such as ATI and over eighty other resellers. In the Court's view, ATI finally hits the bulls eye since these are the specific activities out of which plaintiff's claim arises.

"While Telmex did not conduct much business in Texas, it conducted a high volume of business with Texas and Texas corporations. It was this business with which Telmex was concerned when Telmex allegedly canceled ATI's numbers. ..."

"[Moreover], Telmex's lines ran right up and into Texas for the express purpose of serving Texas residents with Mexican phone service, a service [from] which it received millions of dollars a month in revenue. The allegation that Telmex shut down these lines in order to harm a Texas business whose services were legal in Mexico suffices to confer personal jurisdiction over Telmex for the injuries suffered in Texas." [id.]

Citation: Access Telecom, Inc. v. MCI Telecommunication Corp., No. 98-50881 (5th Cir. December 1, 1999).

JURISDICTION (SUBJECT MATTER)

In case of first impression, New York district court holds that federal courts should now consider Hong Kong as part of "foreign state," i.e., China and therefore its citizens may invoke alienage jurisdiction under 28 U.S.C. Section 1332(a)(2)

In Matimak Trading Co. v. Khalily, 118 F.3d 76 (2d Cir. 1997), cert. denied, 522 U.S. 1091 (1998), the Second Circuit held that Hong Kong, while a British dependent territory, was not itself a "foreign state" for purposes of 28 U.S.C. Section 1332(a)(2) [U.S. District Courts have original jurisdiction over civil actions between "citizens of a State and citizens or subjects of a foreign state."]

The plaintiff in this case, Favour Mind Ltd., is a Hong Kong corporation. The defendant, Robert Czwartacky, is a citizen of South Carolina who operates two New York corporations. Czwartacky allegedly breached a sales agreement between the parties. Favour Mind brought suit, basing jurisdiction on 28 U.S.C. Section 1332(a)(2) and alleging that it had shipped garments to Czwartacky's companies on several occasions but never received any payments.

Czwartacky moved to dismiss pursuant to Matimak because Favour Mind, as a Hong Kong corporation, is not a "citizen or subject of a foreign state" under Section 1332(a)(2) and therefore cannot maintain an action in federal court. The U.S. District Court for the Southern District of New York denies the motion.

The court expressly limits the holding in Matimak to the period during which Hong Kong was a British territory. The Second Circuit had "expressed no view" as to the status of Hong Kong corporations "following Great Britain's transfer of sovereignty" to the People's Republic of China on July 1, 1997.

The Second Circuit had established the doctrine of "de facto" recognition of foreign states for purposes of Section 1332(a)(2) in Murarka v. Bachrack Bros., Inc., 215 F.2d 547 (2d Cir. 1954). In that case, the Court recognized India as a "foreign state" prior to the U.S.' formal recognition of India because the U.S. had already taken significant steps towards such recognition. In Matimak, the Court refused to recognize Hong Kong as ration may assert alienage jurisdiction in federal court after Hong Kong's reversion to China.

In this case, both the U.S. Department of State and the Hong Kong Special Administrative Region (SAR) filed amicus curiae briefs arguing that Favour Mind is a citizen of the "foreign state" of China. Also, the Basic Law" of Hong Kong established a regime of "one country/two systems." This allows Hong Kong to retain its separate commercial and legal institutions though becoming part of China.

Most importantly, a diplomatic note from the Chinese Government declared that: "Hong Kong is an inalienable part of the People's Republic of China. The Hong Kong SAR is a local administrative region of the People's Republic of China, which shall enjoy a high degree of autonomy. Companies established in the Hong Kong SAR in accordance with its laws and decrees therefore enjoy the nationality of the People's Republic of China." [9/9/99 Diplomatic Note from Embassy of People's Republic of China to Department of State, No. CE 118/99.]

Finally, the district court notes that the principles underlying alienage jurisdiction support the finding that Hong Kong is part of a "foreign state." China considers the treatment of its citizens, including Hong Kong companies, a very important matter. To deny that Hong Kong corporations are citizens of China would frustrate the interests of every concerned government – the U.S., China and the Hong Kong SAR. It would also antagonize recognized foreign powers -- the harm that alienage jurisdiction was mainly designed to prevent.

Citation: Favour Mind Ltd. v. Pacific Shores, Inc., 98 Civ. 7038 (SAS) (S.D.N.Y. December 7, 1999).

TRADEMARKS

In reference from Belgian court hearing trademark injunction suit by General Motors, European Court of Justice interprets "Benelux reputation" element of EC Trademarks Directive as harmonized into Benelux law to require only that owner seeking to enjoin third party use of "Chevy" mark show that mark had reputation over substantial portion of Benelux territory or within substantial sector of Benelux Member State

The goal of EC Directive 89/104 was to harmonize the laws of the Member States on registered trade marks as well as the Uniform Benelux Trade Mark Law (UBTML). Article 5(2) of the Directive allowed a mark owner the right to stop the trade use of any sign that was the same as, or resembled, the mark as to products or services that were dissimilar to those for which the owner had registered the mark. To invoke Article 5(2), the owner has to show (1) that its mark has a reputation in the Member State concerned and (2) that, without due cause, its use by a third party takes unfair advantage of, or is damaging to, the mark's distinctive character or repute. Article 13(A)1(c) of the UBTML transposed Article 5(2) of the Directive into Benelux law.

General Motors, Inc., a U.S. corporation, owned the Benelux trade mark, "Chevy". It had registered the mark for various types of products and mainly uses it in the marketing of its vans and similar vehicles. A Belgian company, Yplon, S.A., was also the proprietor of the Benelux trade mark, "Chevy," which it made use of in its trade in detergents and other cleaning products.

In December 1995, GM sued in a Belgian commercial court, asking it to enjoin Yplon from continuing to use the sign "Chevy" to refer to its detergents and cleaning products. GM contended that this usage was detrimental to the reputation of its mark. Yplon defended, however, by claiming that GM had failed to allege facts that would show that its mark had achieved a "Benelux reputation" as the Directive requires. It reads the Directive as demanding that a reputation exist at least throughout one of the Benelux countries.

Under Treaty Article 234 [formerly 177], the national court sought a preliminary ruling from the European Court of Justice on the requirements for the acquisition of a reputation within Article 5(2). In particular, it asked whether a Benelux trade mark had to establish a reputation throughout the Benelux countries.

Though there are linguistic differences between the multiple official versions of Article 5(2), the Court notes, the Article clearly demands a certain "knowledge threshold." As a practical matter, a misuse can only damage a mark where the general public already has some awareness of that mark.

Whether Article 5(2) refers to the public at large or a more specialized sector, turns upon the nature of the specific products or services at issue. The ECJ cannot express the size of the sector in a percentage. It depends on such relevant circumstances as the mark's market share, the intensity, geographical extent and the duration of its use and the funds invested in its promotion.

The ECJ advises that EC law treats the Benelux territory the same way as the geographical territory of a single Member State. Under Article 5(2), it is thus enough to show that a Benelux trade mark has a reputation in a substantial part of the Netherlands, Belgium and Luxembourg collectively. This segment could also consist of a substantial part of one of these countries.

Citation: General Motors Corporation v. Yplon, S.A., (Case C‑375/97) [1999], 3 C.M.L.R. 427 (Eur. Ct. Just. 1999).

WAR CRIMES

After longest trial in its history, Hague War Crimes Tribunal has convicted and sentenced five Bosnian Croats for their role in killing 100 Bosnian Muslim civilians in April 1993

On January 14, 2000, the International Criminal Tribunal for the Former Yugoslavia in The Hague convicted and sentenced five Bosnian Croats for crimes against humanity. The convictions were for taking part in the massacre of 100 Muslim civilians, including 33 women and children, on April 16, 1993 in the Bosnian village of Ahmici in central Bosnia.

Judge Antonio Cassese handed down the guilty verdicts. At the sentencing, he declared that Ahmici "must be added to the long list of previously unknown hamlets and towns that recall abhorrent misdeeds and make all of us shudder with horror and shame."

After a fifteen-month trial, the Tribunal gave the heaviest sentence of twenty-five years to Vladimir Santic, the leader of a Bosnian Croat militia in an area dubbed the Jokers. Drago Jusipovic, one of Santic's lieutenants, received a sentence of fifteen years. The killings were allegedly carried out under their general supervision.

The Tribunal also found that the Kupreskic brothers, Zoran and Mirjan, and their cousin Vlatko Kupreskic took part in the killings by machine-gunning victims and by burning houses and mosques on the day in question. The Tribunal sentenced Zoran to ten years in prison and Mirjan to eight. Vlatko received a six-year sentence.

The Tribunal acquitted and released Dragan Papic for lack of evidence. During its longest trial so far, the Tribunal heard 158 witnesses and wrote a judgment 340 pages in length. Counsel for the convicted defendants declared that they intended to appeal.

Citation: International Criminal Tribunal for the Former Yugoslavia, Kupreskic & Others Case, Trial Chamber II - Judges Cassese (Presiding), May and Mumba. [The judgment, along with related information such as transcripts and a press release, is available on the Tribunal's website at www.un.org/icty.] The Washington Post, January 15, 2000, Section A, page 19 under byline of Mr. Charles Trueheart.

WORLD TRADE ORGANIZATION

In dispute between European Communities and United States over latter's enforcement of 1974 U.S. Trade Act, WTO Panel rules that application of Act may lead to WTO violations in theory but that in practice U.S. can impose trade sanctions that do conform to WTO rules

On December 22, 1999, a Dispute Settlement Panel of the World Trade Organization (WTO) issued its Report regarding Sections 301-310 of the U.S. Trade Act of 1974 (Title III, Chapter 1). The European Communities (EC) had brought this complaint in November 1999, alleging that the time frames in these Sections do not allow the U.S. to wait until the WTO Dispute Settlement Body (DSB) has adopted findings before the U.S. makes its determinations and suspends trade concessions.

These provisions provide that the U.S. Trade Representative (USTR) may take specified actions if she determines that a foreign nation is denying the rights of the U.S. under any trade agreement or depriving the U.S. of benefits due under any trade agreement. The USTR must generally make these determinations either (a) within 30 days after conclusion of the dispute settlement procedure, or (b) within 18 months of the investigation's start. [see Section 301].

In its complaint, the EC alleged that: "By imposing specific, strict time limits within which unilateral determinations must be made and trade sanctions must be taken, Sections 306 [Monitoring of foreign compliance] and 305 [Implementation of actions] of the Trade Act of 1974 do not allow the United States to comply with the rules of the DSU [Dispute Settlement Understanding] in situations where a prior multilateral ruling under the DSU on the conformity of the implementing measures has not yet been adopted by the DSB. Where measures have been taken to implement DSB recommendations, the DSU rules require either agreement between the parties to the dispute or a multilateral finding on non-conformity under Article 21.5 DSU before any determination of non-conformity can be made, let alone any measures of retaliation can be announced or implemented."

The EC view is that Article 23 of the DSU bars unilateral action. Hence, WTO Members must await the DSB's adoption of a Panel or Appellate Body report (or an arbitration decision under Article 22 of the DSU) before the U.S. decides whether a nation is denying the U.S. its rights or benefits.

In particular, the EC claimed that the 18-month deadline in Section 304 for determining whether a party was denying U.S. agreement rights does not allow enough time for WTO proceedings. Hence, Section 301 proceedings clash with Article 23 of the WTO's DSU.

Furthermore, the EC questioned the time frames for taking action under Sections 305 and 306 when another Member has failed to carry out adverse DSB rulings and recommendations. According to the EC, the Act requires the U.S. to make determinations and take action before WTO panels can confirm the findings under the DSU. A broader question was the WTO-compliance of national legislation that empowers national authorities to act either consistently or inconsistently with WTO trading rules.

In its 351-page Report (not counting the annexes), the Panel analyzes the consistency of Sections 301-310 of the Act with the DSU. In Section VIII, the Panel Report reaches the following conclusions:

(a) Section 304(a)(2)(A) [Determinations by U.S. Trade Representative required 30 days after dispute settlement procedure or 18 months after start of investigation] is not inconsistent with Article 23.2(a) of the DSU.

(b) Section 306(b) [Monitoring of foreign compliance, further action by U.S. Trade Representative] is compatible with DSU Article 23.2(a) or (c).

(c) Section 305(a) [Implementation of actions under Section 301] does not clash with Article 23.2(c) of the DSU.

(d) Section 306(b) is consistent with Articles I, II, III, and XI of GATT 1994.

The Panel notes that it based its conclusions on the U.S. administrative actions articulated in the Statement of Administrative Action (SAA) approved by the U.S. Congress at the time it implemented the Uruguay Round agreements, as well as on statements before the Panel. These statements show that the 1974 Act does not prevent the U.S. from adapting to WTO dispute settlement procedures.

[Editors' Note: Brazil, Canada, Colombia, Costa Rica, Cuba, Dominica, the Dominican Republic, Ecuador, Hong Kong, India, Israel, Jamaica, Japan, Korea, St. Lucia, and Thailand appeared as third parties in the dispute. Interestingly, both the EC and the U.S., in their respective press releases, have declared their satisfaction with the Panel rulings.]

Citation: United States - Sections 301-310 of the Trade Act of 1974 (WT/DS152/R) (22 December 1999). [Panel Report is available on WTO website: www.wto.org; in U.S. Trade Representative press release 99-102 (December 22, 1999); and in European Union press release No. 86/99 (December 23, 1999)].

After more than four Centuries, formerly Portuguese-controlled Macao reverts to China. On December 20, 1999, China resumed control over Macao. Portugal had maintained a base in Macao since 1553. After China and Portugal established diplomatic relations in 1979, both governments began to negotiate the status of Macao. In April 1987, the parties signed a Sino-Portuguese Declaration. The Declaration consists of several documents, including Basic Policies Regarding Macao and Arrangements for the Transitional Period. The Basic Law of the Macao Special Administrative Region (MSAR) by the National People's Congress will set down the basic Chinese policies toward Macao and these will remain unchanged for 50 years. China will allow local institutions to continue functioning under the "one country, two systems" principle that China has already agreed to apply in Hong Kong. Macao will remain a free port and a separate customs territory. Citation: Newsletter of the People's Republic of China No. 99-24, December 13, 1999. [Additional information on Macao issue from Chinese perspective is available through website of Chinese Embassy in Washington D.C., at www.china-embassy.org.]

U.S. to deport former Nazi concentration camp guard. The U.S. Court of Appeals for the Seventh Circuit has affirmed an order directing the deportation to Croatia of Anton Tittjung, a retired stone worker living in Kewaunee, Wisconsin. The Office of Special Investigations (OSI) of the Department of Justice uncovered evidence in captured Nazi documents of Tittjung's showing membership in the Nazi SS and his service as a concentration camp guard. The Immigration and Naturalization Service (INS) ordered Tittjung's deportation pursuant to the Holtzman Amendment [8 U.S.C. Section 1227(a)(4)(D)]. This provision demands the deportation of aliens who aided or otherwise took part in the Nazi persecution of persons because of race, religion, national origin, or political opinion. — According to the Department of Justice, OSI investigations of persons involved in Nazi atrocities have resulted in 63 persons losing their U.S. citizenship and in the removal of 49 from the U.S. Citation: Tittjung v. Reno, No. 98-3407 (7th Cir., December 2, 1999); U.S. Department of Justice press release (December 3, 1999).

German district court finds that use of competitor's name in "meta tags" of website violates service mark. A German district court in Hamburg, Germany, has held that a person may be liable for the use of a competitor's name in the webpage "meta tags" as a service mark infringement under the German Trademark Law (MarkenG). "Meta tags" are search terms embedded in a webpage so that Internet users can locate the webpage by key word search. In this case, an antique dealer used the name of a reputable competitor, "Galerie d'Histoire," as one of the embedded search terms in his webpage. The competitor "Galerie d'Histoire" did not maintain a website of its own. Thus, Internet users looking for "Galerie d'Histoire" may have come upon defendant's website and assumed that the dealerships are related. It is thus irrelevant that a party hides the meta tag in the webpage. Citation: Landgericht Hamburg, Urteil vom 13. September 1999, 315 O 258/99 – Meta-Tags. [Decision is available in German on website: www.netlaw.de.]

U.S. and China agree on damages for NATO bombing of Chinese Embassy in Belgrade. On December 16, 1999, the U.S. and China agreed on $28 million in damages payable to China for the mistaken bombing of the Chinese Embassy in Belgrade by U.S.-led NATO forces. At the same time, China agreed to pay $2.87 million in damages to the U.S. for mob damage to the U.S. diplomatic facilities in China during the resulting demonstrations. Citation: U.S. Department of State press statement (December 16, 1999).

Ukrainian statute allows foreign companies to extract local mineral resources. In September 1999, the Ukranian Parliament passed a law on "Production Sharing Agreements" (PSAs) that went into force on October 14, 1999. This law will especially benefit foreign investors interested in the extraction of oil and gas resources. Under the law, a PSA will regulate the relationship between the parties regarding the prospecting for, and extraction of, mineral resources. This includes the separation, transport, processing, storage, use, and sale of the products. The state parties to a PSA are the Ukranian Cabinet of Ministers and the relevant local authorities of the region where the PSA is performed. The law benefits foreign investors by allowing the repatriation of profits and as well as certain tax exemptions. Citation: Ukrainian Parliament passes PSA Legislation, BISNIS Bulletin (U.S. Department of Commerce), January 2000. [Additional information is on Ukraine pages of BISNIS online service at: www.bisnis.doc.gov.]