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.

1996 International Law Update, Volume 2, Number 8 (August).

ARBITRATION

Third Circuit finds that license for manufacture and distribution of candy in U.S. is bound by arbitration and forum selection clauses in contract with Italian company, but refuses to enforce clauses against non-signatories

This is a sweet story with a bitter end.  In 1989, Dayhoff Australia Pty, Ltd and Sperlari S.p.A. entered into a License Agreement granting Dayhoff an exclusive license to make and sell Frutteto candy in the U.S.  Dayhoff Australia then assigned its rights and obligations to Dayhoff California (Dayhoff).  The agreement provides for Italian law to govern its interpretation, and for the arbitration of any disputes in Italy. 

In 1990, Dayhoff and Sperlari signed an agreement for the distribution of Frutteto candy in the U.S.  This contract provides that Italian law applies and that the Court of Cremona has exclusive jurisdiction.  In 1992, Sperlari assigned its rights under both agreements to Heinz Dolciaria.  In 1992, Dayhoff and Heinz Dolciaria concluded a bulk candy distribution agreement, to be governed by Pennsylvania law.

In 1993, Hershey Holding Company acquired Heinz Dolciaria and Heinz terminated the agreements with Dayhoff.  After Hershey announced to Dayhoff's customers that it would soon begin selling candies in the U.S., Dayhoff's sales declined dramatically.  Dayhoff sued Heinz, alleging breach of contract, interference with contract, fraud, and other claims.  The district court dismissed Dayhoff's claims relating to the 1989 and 1990 contracts based on the arbitration and forum selection clauses, and later granted Heinz' motion for summary judgment on all remaining claims.  Dayhoff appealed.

The U.S. Court of Appeals for the Third Circuit affirms in part and reverses in part.  It finds that the arbitration and forum selection clauses of the 1989 and 1990 agreements are binding on Dayhoff.

Dayhoff claims that the arbitration and forum selection clauses in the 1989 and 1990 agreements are ineffective and do not apply to all parties, relying on Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503 (3rd Cir. 1994), which the U.S. Supreme Court affirmed in First Options of Chicago, Inc. v. Kaplan, 115 S.Ct. 1920 (1995).  In Kaplan, the Third Circuit held that the Kaplans could not be compelled to arbitrate claims made pursuant to various contracts because they had not individually signed the specific contract containing the arbitration clause, although they had signed related contracts.  The Court rejected any test for determining whether a party had to arbitrate other than a determination of what the contract's terms provided.

The Third Circuit agrees with Dayhoff that, based on Kaplan, only the parties to the agreements can enforce the arbitration clause in the 1989 agreement and the forum selection clause in the 1990 agreement.  "[W]e recognize that Dayhoff did agree to the arbitration and forum selection clauses, whereas in Kaplan the Kaplans had not agreed to any arbitration or forum selection clause.  However, we find [Heinz's] position unacceptable, in that under it Hershey (as well as other non-signatories to the agreement) has the option to accept or reject arbitration and forum selection clauses, while Dayhoff ... is compelled to accede to Hershey's wishes.  The very fact that Hershey would have such a choice belies the existence of an agreement that purportedly lies at the bases of [Heinz's] argument.  For this reason, we will reverse the decision of the district court to dismiss all of Dayhoff claims related to the 1989 and 1990 Frutteto agreements against non-signatories to those agreements, except for ... the successor to Heinz Dolciaria." [1296-7]

The above holding applies, however, only to Dayhoff's claims against Heinz because the clauses do not apply to non-signatories.  As complicated as it is for Dayhoff to litigate its claims under three different sets of rules, it is the result of Dayhoff's own bargaining.

Citation: Dayhoff Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3rd Cir. 1996).

CHILD ABDUCTION

German Constitutional Court rejects arguments by maternal abductor that lower German court's order to return child from Germany to U.S. pursuant to Hague Child Abduction Convention would violate German Basic Law

G. was a child of dual U.S. and German citizenship living with its parents in North Carolina.  In November 1993, however, the mother took G. (then nine months old) to Germany.  The father then petitioned the local German court (Amtsgericht) to order the child returned to him pursuant to the Hague Convention on the Civil Aspects of International Child Abduction [19 I.L.M. 1501 (1980), T.I.A.S. No. 11670 (1980)].  After a hearing, the court ruled against the father's petition.  On appeal, the Oberlandesgericht Hamm reversed the Amtsgericht in January 1995 and ordered that G. be taken back to the United States.

G. and her mother than applied to the German Constitutional Court, contending that returning G. would contravene their rights under the German Basic Law or Constitution.  They invoked rights related to personality development, to marriage, family and motherhood as well as the right of a German citizen not to be extradited.  Applicants also complained that assigning them the burden of proof by "clear and convincing evidence" pursuant to Article 13(1)(b) of the Convention violated their constitutional right to a fair hearing.

The case was assigned to three Judges in the first chamber of the Second Senate of the Constitutional Court.  Worried that the Court might constitutionally invalidate provisions of the Convention as applied to Germany, the Permanent Bureau of the Hague Conference on Private International Law, for the first time in its forty-year history, filed a memorandum with the Court supporting the father's position.  It cited cases upholding Convention standards from Argentina, Australia, Canada, France, Germany, Hungary, New Zealand, the United Kingdom, and the United States. [see e.g. Friedrich v. Friedrich, 1996 ILU 41 (April)].  The Bureau also noted that the U.N. Convention on the Rights of the Child guarantees, under normal conditions, the child's right to keep up an ongoing personal relationship with both of its parents.

The Constitutional Court refused to hear applicants' constitutional challenges to the Convention because they had no likelihood of success.  "Insofar as the constitutional complaints only 'request re-examination' of the constitutionality of the [Hague Convention], no violation of basic rights through this Convention is being claimed.  Moreover, the complainants are not challenging the purpose of the Convention to protect the parental rights of the other parent and prevent child abductions." [534] 

The Court also rejects applicants' argument that ordering G.'s return would amount to the unlawful extradition of a German national.  "Returning a child to a custodial parent on the basis of legal family relationships is neither an extradition as such, nor its equivalent. It does not involve the element of transferring a person to the 'sovereign power' of another state upon the latter's request, which is the hallmark of an extradition." [id] In the Court's view, the general circumstances plus a 1994 American court favorable to applicants does not suggest that ordering the child's return to the U.S. would place an unreasonable burden upon the child or severely affect its wellbeing.

Citation: G. and G. vs. Decision of the OLG Hamm of January 18, 1995, 35 I.L.M. 533-34 (1996). [Editors Note: the instructive Memorandum of the Permanent Bureau is set forth at 35 I.L.M. 535-49].

EXTRADITION

Italian Supreme Court declines to extradite murder suspect to Miami because death penalty may be imposed; considers part of Criminal Procedure Code and U.S-Italy extradition treaty unconstitutional

In 1993, Italian-born Pietro Venezia allegedly killed a tax collector in Florida who had frozen his bank account.  Venezia fled to Italy, and the United States sought his extradition.  The Italian Ministry of Justice granted the extradition request on December 14, 1995.  However, the Italian Supreme Court held on June 27, 1996, that Venezia could not be extradited under the circumstances of this case.

This case concerns a key aspect of the U.S.-Italian extradition treaty, that suspects will be extradited only if U.S. prosecutors agree not to seek the death penalty.  In this case, U.S. prosecutors had agreed not to seek the death penalty.  The Italian Supreme Court explains that in Italy, where there is no death penalty, the Constitution does not permit that a citizen be subjected to a criminal proceeding where the crime is punishable by death, even though that penalty will not necessarily be imposed or the prosecution has given guarantees that it would not be imposed (paragraph 2.2 of the opinion).  In this case, the Italian Supreme Court found that the extradition treaty did not offer sufficient guarantees that a defendant would not be executed.

The Italian Supreme Court also notes that the guarantees given by the requesting country depend on the power of the government entity giving those guarantees.  In the case of the U.S.-Italian extradition treaty, an effective protection is lacking because the U.S. federal government is not bound to particular forms or types of guarantees which, in any case, will be limited by the autonomy of the States.  Furthermore, in the Italian constitutional system, the right to life requires an absolute guarantee that the extraditee will not be subjected to the death penalty.  The term "sufficient guarantees" as used in the Code of Criminal Procedure (Article 698) is therefore constitutionally deficient.

Therefore, the Court declares unconstitutional:

Article 698 of the Code of Criminal Procedure [procedural guarantees for extradition for crimes punishable by death], and

Article IX of the extradition treaty [refusal to extradite unless there are guarantees that death penalty will not be imposed].

That does not mean that Venezia will go scot-free.  The Court notes that Criminal Code imposes alternative obligations in case an accused cannot be extradited.  Upon request by the Ministry of Justice, Venezia may be punishable according to Italian laws.

Citation:  Opinion of the Italian Supreme Court in the case of Pietro Venezia, Sentence No. 223-1996 (June 27, 1996).  An English translation of the case is available from the U.S. Department of Justice, Office of International Affairs, Phone: (202) 514-5392, FAX: (202) 514-0080.

FORUM NON CONVENIENS

Second Circuit affirms denial of forum non conveniens motion by New York defendant in dispute with Myanmar corporation regarding Myanmar business interests

Miriam Marshall Segal is a former officer and director of two companies (jointly Peregrine) based in Myanmar (formerly Burma).  Segal is a New York resident who over a 20-year period has owned several companies that do business in Myanmar.  In 1990, MMAFFCL, one of her Hong Kong companies, entered into a joint venture called MAFCO with the Myanmar Ministry of Livestock Breeding and Fisheries (Ministry) to catch and export fish from Myanmar's coastal waters.  Under the agreement, MMAFFL and the Ministry each held 50% of MAFCO and the transfer of the interests was restricted.  Segal's holding company, MMAI, held her interest.

In 1994, Peregrine entered into a share acquisition agreement with MMAI, to buy MMAFFCL.  Segal received 10% ownership in Peregrine, and became a corporate officer.  The agreement barred Segal from using confidential information acquired on the job, and authorized Peregrine to terminate Segal "for cause."

A year later, Peregrine decided that Segal had been scheming to create losses for MAFCO.  These would devalue the company so that a major Japanese company could acquire it cheaply.  Segal's supposed plot came to light when her New York secretary accidentally faxed a memorandum on the matter to Peregrine instead of to the Japanese company in Hong Kong.  After Peregrine fired Segal, she allegedly began a campaign of disruption.  She would tell MAFCO employees that she was still in charge, and that Myanmar government officials would prosecute anybody who entered MAFCO facilities.

Peregrine sued Segal in New York federal court for breach of contract, breach of fiduciary duties and "tortious interference with prospective economic advantage," asking for damages and an injunction.  The district court denied Segal's motion to dismiss on forum non conveniens (FNC) grounds and permanently enjoined her from interfering with Peregrine's business interests in Myanmar.

Segal appealed.  The U.S. Court of Appeals for the Second Circuit, however, upholds the denial of Segal's FNC motion.  Especially since Segal resided in the chosen forum, the Court starts with a presumption in favor of Peregrine's choice.

In this case, the district court had specifically considered three private interest factors.  As to (1) the "relative ease of access to sources of proof" and (2) "the cost of obtaining attendance of willing witnesses," the district court explained that the principal witnesses would be Peregrine personnel, some of whom, including Segal's former secretary, live in New York.  For Peregrine personnel residing in Asia, Peregrine promised to cover all travel expenses.  Even though transoceanic travel is required for some witnesses, the Court notes, witnesses would have to do some travelling regardless of where the trial took place.

The district court had also found that the memoranda faxed by Segal from New York to Hong Kong were key documents.  These documents as well as the witnesses to authenticate them (Segal and her secretary) are located in New York.

On the issue of the enforceability of judgments, the lower court had held that Segal's "significant ties to New York" and her "lack of contacts with Hong Kong" meant that a New York judgment would be "more meaningful" than a Hong Kong judgment.  The U.S. Court of Appeals agrees, because Segal has significant ties to New York, and lacks contacts with Hong Kong.

Finally, the Second Circuit finds no abuse of discretion in the lower court's evaluation of the public interest factors.  "First, there were no 'administrative difficulties stemming from court congestion,' ... because the court can accommodate this case on its docket. Second, although Hong Kong has a 'local interest [protecting its corporations from wrongdoing and] in having localized controversies decided at home,' ... New York has a countervailing 'strong interest in this litigation' since Segal lives here and critical events took place here. This means that the third factor, 'imposing jury duty upon the people of a community which has no relation to the litigation,' ... is not implicated.  Consideration of the fourth factor - 'the appropriateness of holding the trial in a forum that is at home with the applicable law, rather than having a court untangle problems in conflict of laws, and in law foreign to itself,' ... - may be a bit more elaborate.  But even if this case raises complicated choice of law questions and requires the exclusive application of foreign law ..., 'it is well-established that the need to apply foreign law is not alone sufficient to dismiss under the doctrine of forum non conveniens.'" [5513]

Citation: Peregrine Myanmar Ltd. v. Miriam Marshall Segal, No. 96-7030 (2nd Cir. June 28, 1996).

IMMIGRATION

On appeal from denial of asylum requested by ethnic Albanians, Sixth Circuit takes extrarecord judicial notice of changed political conditions in former Yugoslavia

Anton Ivezaj and his wife Ljena (the Ivezajs) were citizens of former Yugoslavia who are ethnic Albanians and Roman Catholics.  They had been living in the republic of Montenegro which is still part of the remaining Yugoslav federation.  The Serbs have harshly persecuted Muslim Albanians in the Kosovo region of Serbia but mistreatment in Montenegro appears to have been less severe.  Until they left for the United States in 1987, the Ivezajs lived on a farm in the mountains and appear not to have suffered any persecution.  They later asked for asylum in the U.S. which the Immigration Judge denied.  The Board of Immigration Appeals (BIA) affirmed, and this appeal ensued.

The appendices of the Ivezajs briefs contained information about the political situation in former Yugoslavia.  That material was not part of the record on appeal, and the government pointed out that under 8 U.S.C. 1105a(a)(4) the asylum petition "shall be determined solely upon the administrative record upon which deportation is based ..." 

Finding it supported by substantial evidence, the U.S. Court of Appeals for the Sixth Circuit affirms the final order of the BIA denying withholding of deportation and asylum.

As to the extrarecord information, however, the Court finds that § 1105a(a)(4) does not bar the taking of judicial notice of changed conditions in a foreign country.  Federal Rule of Evidence 201 allows a federal appellate court to take judicial notice of adjudicative facts "not subject to reasonable dispute" at any stage of its proceedings.

The Sixth Circuit has often taken judicial notice of changed political circumstances in immigration cases. It has done so, for example, regarding the persecution of ethnic Albanians in Kosovo and regarding the widespread effects of the Iran-Iraq war.  Therefore, the Court rejects the government's argument that the Court should ignore those parts of appellants' brief that detail the Serbian persecution of Albanians.

Citation: Ivezaj v. Immigration and Naturalization Service, 84 F.3d 215 (6th Cir. 1996).

JUDGMENTS

Applying Kansas law on enforcement of foreign country judgments, Tenth Circuit holds that claim preclusion based on prior Australian judgment barred federal court action arising out of same transactions

N.J. Phillips, Pty., Ltd. (NJP) is an Australian maker of veterinary equipment.  Since 1989, it had an exclusive distribution contract with Felton & Co. (Felton), another Australian company as to the U.S. and Canadian markets.  Felton then created Phillips USA (PUSA) to sell NJP products in the U.S.  PUSA was an New York corporation with its principal place of business in Kansas.  It in turn entered into an arrangement with Allflex USA, Inc. (Allflex) to handle NJP products on a commission basis.  After NJP had raised its prices twice in one year, however, PUSA terminated its contract with Allflex as of May, 1991.  Allflex then succeeded in persuading NJP to make it the distributor of NJP products in the U.S. and Canada.

In December 1991, PUSA and Felton sued NJP in an Australian federal court, alleging breach of contract and misleading trade practices.  In May 1992, the Australian court held that NJP had breached the NJP-Felton contract by making Allflex its U.S. and Canadian distributor.  Its appellate court later affirmed.  In June 1992, PUSA sued Allflex in a case that, after a removal and transfer, ended up in Kansas federal court.  PUSA later added NJP as defendant and charged tortious inference with contract and a conspiracy between NJP and Allflex to eliminate PUSA from the U.S. market.  NJP then moved for summary judgment on the grounds of res judicata or claim preclusion.  It argued that PUSA either did raise or could have raised its present claims in the Australian litigation.  After allowing limited discovery on these issues, the district court granted NJP's motion.  PUSA took an appeal.

The U.S. Court of Appeals for the Tenth Circuit affirms.  The Court first notes that, under the Erie doctrine, federal courts ordinarily apply state law as to the recognition and enforcement of foreign country judgments.  Kansas courts have not passed on the question of enforcing Australian judgments nor has its legislature enacted the Uniform Foreign Money Judgments Recognition Act.  Nevertheless, the Court concludes that, based on comity, the Kansas courts would recognize a valid Australian judgment.  In addition, Kansas courts generally apply the specific version of claim preclusion applicable in the foreign forum.  In the absence of proof of Australian law in this area, however, [see F. R. Civ. P. 44.1] the Court assumes it is similar to the law of Kansas. 

PUSA argued that there is no identity of cause of action here since there was no tortious interference claim before the Australian court.  The Tenth Circuit disagrees, concluding that Kansas would approve the federal "transactional" approach.  In both the Australian action and this action, plaintiff sought damages related to the end of NJP's relationship with PUSA and the later development of a distributorship agreement between NJP and Allflex.  Central to both actions is NJP's entry into a distributorship with Allflex.  Thus the facts that PUSA pleaded in Australia were essentially the same as those involved in the instant case.  Whether the Australian court would have entertained the tortious inference claim is speculative because PUSA could have, but never did, raised it there.

Citation: Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354 (10th Cir. 1996).

JURISDICTION

Second Circuit finds that, although marine insurance contract containing both maritime and non-maritime obligations did not sustain admiralty jurisdiction, diversity jurisdiction existed

Armenia Coffee Corporation (Armenia) imports coffee to the United States.  One of Armenia's suppliers was a Mexican company, Cafetalera Zardain Hermanos, S.A. (Zardain) that stored the coffee with a Mexican warehousing authority, Almacenadora Somex S.A. (Somex).  Upon delivery of the coffee to the warehouses, Somex issued warehouse receipts or "Certificates of deposit" (Certificates) to Zardain which stated the amount of coffee deposited.  Zardain transferred the Certificates to Armenia for a partial payment of the purchase price, and Armenia paid the remainder upon delivery to Laredo, Texas.

The Insurance Company of North America (INA) insured Armenia against physical loss or damage to the coffee in the U.S. and specified foreign locations under an "all risks" marine open cargo policy.  The policy contained a separate warehouse-risk provision that applied to the warehouses where the coffee was stored.  Neither the policy nor the warehouse storage provision contained exclusions for losses resulting from conversion, theft, or disappearance.

In September 1990, Mexican authorities jailed the principals of Zardain for foreign currency fraud, and Armenia decided that 11,998 bags of its coffee had disappeared from the Mexican warehouses.  Armenia submitted an insurance claim for $1,750,000 that INA denied.  INA then filed a declaratory judgment action in New York federal court for non-coverage under the district court's admiralty jurisdiction, alleging that there was not enough evidence that the coffee had actually vanished. The district court awarded Armenia $1,640,382 and INA appealed. The U.S. Court of Appeals for the Second Circuit affirms.

As for subject matter jurisdiction, the Court first notes that INA's open cargo marine policy contains maritime and non-maritime obligations.  Such a marine insurance contract will generally not sustain admiralty jurisdiction in the Second Circuit.  There are, however, two exceptions.  First, a claim under a maritime portion of a mixed policy will sustain admiralty jurisdiction where the court can separately enforce the maritime obligations without prejudice to the other claims.  Secondly, where the non-maritime elements of the policy are merely "incidental" to an otherwise maritime contract, admiralty jurisdiction will encompass the entire contract.

Here, however, the exceptions do not apply.  In seeking to deny coverage for the allegedly missing coffee, the Court points out, INA is raising a non-maritime obligation under the policy.  The stored coffee had no connection to maritime commerce because it was to move overland.  Further, this non-maritime obligation is not "incidental" to the policy as a whole because it required a separate premium and separate declarations.  Therefore, INA's claims do not support the Court's admiralty jurisdiction. 

There is diversity of citizenship jurisdiction, however, because Armenia is a New York citizen and INA is a citizen of Pennsylvania.  Thus, New York substantive law rather than federal maritime law governs INA's claims.

With respect to the evidentiary weight given to the Certificates under Mexican law, the Court declares that INA has misread the district court's opinion.  That court had emphasized that it was not relying on Mexican law to determine the weight of the Certificates.  The prima facie case rested, as a matter of New York law, on all the evidence before it, including evidence that (1) the coffee was bought in the ordinary course of business, and (2) the fact that the Certificates were valid on their face and authorized by the Mexican authorities.  Therefore, there is no merit in INA's argument that the lower court accepted as a matter of Mexican law that the Certificates alone constituted a prima facie showing that the coffee existed.

Citation: In Re: Balfour MacLaine Int'l Ltd., 85 F.3d 68 (2nd Cir. 1996).

In jurisdictional challenge by Singapore company, Eighth Circuit affirms dismissal for insufficient "minimum contacts" where foreign company's contacts with Minnesota were letters and faxes sent to Minnesota, and contract concluded in Singapore that was governed by Minnesota law

Digi-Tel Holdings, Inc. (Digi-Tel) brought this federal action for breach of contract and fraud against Proteq Telecommunications (PTE), Ltd. (Proteq), a Singapore company.  In 1992, Proteq signed a contract with Major Computer Inc. (Major), a Minnesota corporation, for the sale of 240,000 cellular phones to Major in Singapore.  All meetings took place in Singapore, during which Major obtained a few samples.  A few weeks later, Major contracted to sell the same cellular phones to Digi-Tel.

Proteq never delivered the cellular phones to Major, however, and Major could not fulfill its agreement with Digi-Tel.  Digi-Tel sued Major, and Major's secured creditor foreclosed on Major's assets.  Proteq's parent company later met with Digi-tel in Minnesota to resolve the dispute and offered $100,000 as well as a different cellular phone model.  Digi-Tel acquired Major's interest in the Proteq/Major agreement and sued Proteq in federal court as a third-party beneficiary.  Digi-Tel served Proteq under the Minnesota long-arm statute [Minn.Stat. § 303.13]. The district court found insufficient minimum contacts and dismissed the case for lack of personal jurisdiction.

The U.S Court of Appeals for the Eighth Circuit affirms.  In deciding whether the plaintiff has made a prima facie showing of jurisdiction over the defendant, the court normally considers (1) whether the facts presented satisfy the forum state's long-arm statute and (2) whether the exercise of personal jurisdiction would violate due process.  Here, the district court found that due process would be violated, and did not reach the issue of the long-arm statute.

Due process mandates that an American court exercise jurisdiction over a foreign defendant only if the defendant has enough "minimum contacts" with the forum state, so that summoning the defendant to the American forum would not offend traditional notions of fair play and substantial justice.  In analyzing the basic principles of due process, the Eighth Circuit applies a five-factor test in analyzing the constitutional requirements, considering: (1) the nature and the quality of the contacts with the forum state, (2) the quantity of contacts with the forum, (3) the relation of the cause of action to these contacts, (4) the interest of the forum state in providing a forum for its residents, and (5) the convenience of the parties.

Here, Digi-Tel established certain contacts of Proteq with the forum, such as Proteq's letters and phone calls to Minnesota, and the contract's choice-of-law provision specifying Minnesota as the forum.  Although letters and faxes may be used to support the exercise of personal jurisdiction, they do not themselves establish jurisdiction.  Similarly, a court may consider a contract's choice-of-law provision for jurisdictional purposes, but, in itself, it is insufficient to confer jurisdiction.  Therefore, the Court agrees that these contacts do not create a "substantial connection" to Minnesota.

The Court also rejects Digi-tel's argument that the court should impute the acts of Proteq's parent company to Proteq.  In determining whether "minimum contacts" exist, a court may take into account contacts with the forum state that are made on behalf of the defendant by another.  Digi-Tel failed to show, however, that the activities of the parent company were directed by, or were primarily for the benefit of, Proteq. As for the sample cellular phone, it was a different model developed by another subsidiary. As for the settlement discussions, the Court is reluctant to consider unsuccessful settlement discussions as "contacts" for jurisdictional purposes.  Giving jurisdictional significance to such activities may work against public policy by discouraging the settlement of claims.

Citation: Digi-Tel Holdings, Inc. v. Proteq Telecommunications (PTE), Ltd., No. 95-2853 (8th Cir., July 11, 1996).

PRIVATE INTERNATIONAL

LAW

Italy has enacted Law No. 218 that comprehensively updates Italian system of private international law as to jurisdiction, choice of law, obtaining evidence and serving documents

The Republic of Italy has issued Law No. 218 of May 31, 1995 that substantially reforms and updates the Italian system of private international law.  The new Law is comprehensive since it covers (1) the jurisdiction of Italian courts; (2) choice of law in the fields of natural and legal persons, family relations and adoption, the protection of minors and the incapacitated, succession, rights in rem, gifts and contractual obligations; (3) the recognition and enforcement of foreign judgments and other public acts, (4) the taking of evidence for use in foreign courts and (5) the service of documents from foreign authorities.  The parts dealing with topics (1) and (2) took effect on September 1, 1995 whereas the provisions relating to topics (3)-(5) [Articles 64-71] will go into force on October 1, 1996.  Under Article 2, the new law is not to affect the application of any international conventions to which Italy belongs.

As to legal persons, Article 25 abrogates several provisions of the Civil Code.  The new general rule under subdivision 1 is that the law of the state of incorporation shall govern companies, associations, foundations and any other similar bodies.  "Nevertheless, Italian law shall apply if the head-office is in Italy as well as if the principal operation of the bodies is situated in Italy."  Subdivision 2 provides that the applicable law controls the following specific aspects of each entity: its legal nature, its trade or corporate name, its incorporation, transformation and dissolution, its legal capacity, the establishment, powers and "operational modalities" of its organs, agency matters, ways of acquiring or losing membership status in the entity as well as the rights and obligations arising therefrom, liability for duties undertaken by the entity and the consequences resulting from breach either of law or of the articles of incorporation.

In the section on obligations, Article 57 provides that the Rome Convention of 1980 is to govern contractual obligations "without prejudice to any other international conventions, where applicable."  On tortious liability, Article 62-1 has a territorial bent.  It provides: "Tortious (ex-contractu) liability shall be governed by the law of the State in which the damage occurred.  Nonetheless, the person suffering damage may request the application of the law of the State in which the event causing the damage took place." 

Article 63 on product liability also allows a plaintiff room for choice.  "Product liability shall be governed, depending on the choice of the person suffering damage, either by the law of the State in which the manufacturer is domiciled or has his head-office, or by the law of the State in which the product was purchased, unless the manufacturer proves that the product was marketed in that State without his consent."

The main subjects of international judicial assistance are addressed by Articles 64-71.  Article 64 sets forth seven fairly standard conditions for the recognition and enforcement of foreign judgments, e.g. jurisdiction, proper service, finality and the public policy defense.

Neither Article 69 on taking evidence nor Article 71 on service of foreign documents specifically allude to the Hague Evidence or Service Conventions, to both of which the U.S. is a party.  Since Article 2 above makes Law No. 218 generally subject to conventions, however, these two provisions arguably will apply most fully as between Italy and those 150+ countries which are not parties to the above two Hague conventions.

Citation: Italy: Law Reforming the Italian System of Private International Law, 35 I.L.M. 765-82 (1996). [Editors Note: see also the helpful Introductory Note by Professor Andrea Giardina of the University of Rome's Law Department at 35 I.L.M. 760-63].

TAXATION

Third Circuit holds that accrual basis taxpayers may not defer interest deductions owed to a related foreign payee until the year the interest is paid

In the following case, the Third Circuit addresses the question of whether a U.S. taxpayer operating on the accrual basis may deduct interest owed to a related foreign payee (RFP) when accrued rather than when paid.

Tate & Lyle, Inc. (TSI) is the parent company of several corporations who are the taxpayers in this case, including Refined Sugars, Inc. (RSI).  Tate & Lyle plc (PLC) is a United Kingdom Corporation which indirectly owns TLI and RSI.  TSI and PLC are members of the same controlled group of corporations as defined in I.R.C. § 267(f).

PLC made interest-bearing loans to TLI and RSI, the tax consequence of which was interest expense to the taxpayers and interest income to PLC.  The taxpayer and PLC report income and deductions with the accrual method of accounting.  On its U.S. income tax returns, the taxpayer deducted interest expense owed to PLC by TLI and RSI in the year it accrued.  The taxpayer did not pay the interest to PLC until the year following the year of accrual.  The interest income received by PLC was U.S.-sourced income not effectively connected with a trade or business in the U.S.  Under I.R.C. § 881(a)(1), such income is subject to U.S. tax at a rate of 30%  The U.S.-UK Income Tax Convention [31 U.S.T. 5668], exempted the interest income received by PLC from U.S. tax.

The Internal Revenue Service (IRS) disallowed the taxpayer's deduction for interest expense, and the taxpayer challenged the IRS determination in the U.S. Tax Court.  The Tax Court held that the accrued interest was not includable in PLC's income because of the tax treaty exemption rather than as a result of PLC's method of accounting.  Thus, Treasury Regulation § 1.267(a)-3 was invalid because it did not apply the matching principle of I.R.C. § 267(a)(2).  And even if the Treasury Regulation were proper, the retroactive application of the regulation violated the Due Process Clause of the Fifth Amendment.  The IRS appealed.

The U.S Court of Appeals for the Third Circuit reverses.  It holds that the Tax Court mistakenly held that the Treasury Regulation was an improper exercise of the powers delegated to the Secretary under I.R.C. § 267(a)(3).

Under the regulation, where a tax treaty exempts the RFP from taxation on the interest received from U.S. sources not effectively connected with a U.S. trade or business, a taxpayer who owes interest to an RFP may not deduct that interest until the taxpayer actually pays it.

Applying a Chevron test, the Court finds that the regulation is not clearly contrary to Section 267(a)(3).  Also, the Court holds that retroactive application of the regulation to the taxpayer does not violate due process.

Citation: Tate & Lyle, Inc. v. Commissioner of Internal Revenue, 87 F.3d 99 (3rd Cir. 1996).

Florida Supreme Court codifies federal standards of forum non conveniens.  Florida doctrine traditionally barred an FNC dismissal where one or more parties were incorporated, or had their principal place of business, or did substantial business, in that state.  This apparently led a number of out-of-state and alien corporations to bring suit in the Florida courts to, in effect, achieve immunity from FNC dismissals.  To remedy this situation, the Florida Supreme Court has issued a new rule (Rule 1.061) that codifies federal FNC principles.  Though the actual case that led to the Rule involved New Hampshire and Delaware companies, the Court apparently intends the new rule to apply also to parties from abroad.  Citation: Kinney System, Inc. v. Continental Ins. Co., 21 F.L.W. S43, 674 So.2d 86 (Fla.Sup.Ct. 1996).

Internet Websites aid research on MERCOSUR and Argentina.  To obtain more information about MERCOSUR, the Common Market of the South covering Argentina, Brazil, Paraguay, and Uruguay, the website [http: //www.ar./eindex.htm] provides background information, reasons to trade and invest in the region, economic indicators, and news on U.S. direct investment in South America.  As for Argentina, the websites [http://www.mecon.ar/ invest/invest.htm] and [http://www.invertir.com] provide information on investment opportunities, legal and economic policies, business culture, as well as important addresses.  Citation: Argentina Trade & Investment News, Vol. 3, No. 3, May/June 1996.

WTO announces suspension of global Maritime Transportation negotiations:  The World Trade Organization has declared that the parties have postponed the negotiations for an agreement on global maritime transport services.  The 42 WTO members taking part in the negotiations agreed on June 28 to resume in the year 2000 on the basis of existing or improved offers at the time of the further round of comprehensive negotiations on trade in services.  Until then, the governments have agreed not to apply any measures affecting trade in maritime transport services in a manner that would improve their negotiating position and leverage, except in response to measures applied by other countries.  Citation: WTO Press Release, 1 July 1996; European Union New press release, No. 38/96, July 1, 1996.

U.S. and Israel sign Counter-Terrorism Cooperation Accord:  The U.S. and Israel have signed a Counter-Terrorism Cooperation Accord in which the two nations agree to jointly respond to, and investigate, international terrorist acts.  Both countries will exchange information, and establish a Joint Counterrorism Group (JCG) as a forum for regular consultations.  The U.S. Department of State published the Accord, along with the statements of President Clinton, Israeli Prime Minister Peres, and a joint statement of both countries. Citation: U.S. Department of State Dispatch, Vol. 7, Number 19, May 6, 1996.

Russian Federation accedes to Statute of Council of Europe.  In January 1996, the Parliamentary Assembly of the Council issued Opinion No. 193.  It rule favorably on Russia's request for Council membership and pointed out that the Federation was continuing to carry out political, legal and economic reforms and to progress towards an effective legal system and a general regard for the rule of law.  In light of Opinion No. 193 and of Russia's intention to sign the European Convention on Human Rights and Fundamental Freedoms, the Committee of Ministers adopted Resolution (96).  It invited Russia to become a member and set its financial contributions to the Council.  Russia is to have 18 representatives in the Parliamentary Assembly.  The Federation thereupon acceded to the Statute of the Council of Europe on February 28, 1996. Citation: Russia Joins Council of Europe, 35 I.L.M. 808 (1996).