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

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

2002 International Law Update, Volume 8, Number 2 (February)

ANTI-SUIT INJUNCTIONS

House of Lords rules that, rather than risk inconsistent results from having some parties litigate similar issues in New York federal court and some litigate in England, it would decline to enforce contract clauses designating U.K. as having exclusive jurisdiction over contract-related disputes

A Mr. Donohue is involved in litigation in New York and has asked the English courts to enjoin five companies in the Armco group from further prosecution of their civil action. The New York plaintiffs consist of Armco Inc, which is the parent company of the Armco group, a U.S. conglomerate along with four companies known as AFSC, AFSIL, APL and NNIC. These five are potential defendants in the English courts and named appellants before the House of Lords. In addition to Donohue, there are a number of potential co‑claimants (PCCs), all of them defendants in the New York proceedings: Mr. Rossi and his Ohio company known as ITRS; Mr. Stinson and his Ohio company known as IROS; Wingfield Ltd., a Jersey company, and another Jersey company known as CISHL.

The British National Insurance Group (BNIG) used to be part of the Armco group but stopped writing new policies in 1984 leaving Armco to deal with claims under existing policies. Long time Armco executives, Messrs. Rossi and Stinson, both U. S. citizens and residents, handled the negotiations for Armco. The prospective buyers were Messrs. Donohue and Atkins (who have since settled out of court). The latter were senior Armco executives, both of them being U.K. citizens who lived in Singapore and England respectively.

AFSIL and AFSEL had owned the shares of BNIG. To carry out a sale of the business, Armco sold its shares in BNIG to newly-incorporated CISHL. Various corporations in the group then injected over $42 million in cash and shares into CISHL. In September 1991, AFSIL and AFSEL transferred all of their assets in BNIG into CISHL. On the same date, a Jersey company named Wingfield acquired all of the CISHL shares under a sale and purchase agreement. BNIG then renamed itself the North Atlantic Insurance Group (NAG). The leading company in this group was the North Atlantic Insurance Company, Ltd. (NAIC).

In 1997, NAIC went into provisional liquidation with other group companies which filed winding-up petitions before the English High Court. Mr. Atkins had quit the NAG in 1995 but made several important statements to Armco lawyers during 1998 on which Armco heavily relies to support their case. On August 5, 1998, the five Armco appellants filed suit in New York federal court against NAIC, Messrs. Donohue and Atkins, all of the six PCCs, i.e., Messrs. Rossi and Stinson and their respective companies, Wingfield and CISHL, and NPV Ltd. (a Nevis company). The complaint alleged “an international fraud of immense proportions.”

As the Lords’ lead opinion summarizes the complex Armco side’s case: “[t]hey contend that a secret agreement (recorded in writing) was made between Messrs. Donohue, Atkins, Rossi and Stinson in New York in April 1991. Pursuant to this agreement Armco would be fraudulently induced to inject an extra‑large sum into the BNIG and the four would then buy the BNIG, thus enriched, through Wingfield, a Jersey company which they (or some of them) owned. Since Messrs. Rossi and Stinson were Armco executives negotiating on behalf of their employer, their conduct was a flagrant breach of the duty they owed to their employer. The plan was implemented. Much of the money injected into the group has, it is alleged, been siphoned off by the four for their own ends.” [para. 9] Other alleged skulduggery involved setting up various debt-collection arrangements with NPV to generate exorbitant fees for themselves. To the same end, they were depleting various corporate trust funds. The New York proceedings also included invocations of the Federal Racketeer Influenced and Corrupt Organizations Act [18 U.S.C. Section 1962(c)] (RICO), which allows a successful plaintiff to recover punitive damages.

On March 8, 1999, Donohue applied for an anti-suit injunction and for joinder of the PCCs as claimants in the English court. The English court of first instance denied Donohue’s request to join the American PCCs and declined to grant him an injunction against the New York proceedings in July 1999. Importantly, the first instance judge concluded that many of the New York disputes fell outside the EJCs. He also ruled that the EJCs in the three agreements did not bind Armco.

The English Court of Appeal, however, enjoined Armco Inc., AFSC and AFSIL from litigating against any of the claimants, i.e., Messrs. Donohue, Rossi and Stinson, IROS, ITRS, Wingfield and CISHL, in any court other than those of England and Wales about any dispute stemming from the 1991 management buy-out involving the BNIG.

The House of Lords granted review and allows the appeal. It notes initially that there were two key but uncontested matters. First, on the Armco side, the only parties to these agreements were Armco, AFSIL, AFSEL and AFSC. The Donohue side included CISHL, Wingfield, Donohue and Atkins. Secondly, each of the agreements expressly stipulated (1) that English law governed each contract (CHOL clauses) and (2) that the English courts had exclusive jurisdiction (EJC clauses). The latter clauses generally read as follows: “the parties hereby irrevocably submit themselves to the exclusive jurisdiction of the English Courts to settle any dispute which may arise out of or in connection with this Agreement.” Each agreement also provided for service on a named agent of the sellers’ solicitors in England.

The Lords first distinguish between two groups of PCCs. As to the first, the Lords declare: “... if the court should consider it desirable to do so there is no jurisdictional objection to the grant of leave to add CISHL and Wingfield as claimants in Mr Donohue's action and to give leave (if it were needed) to CISHL and Wingfield to serve AFSIL and Armco, Inc. (as the successor to AFSEL) out of the jurisdiction. The basis of their claim is in principle the same as that of Mr Donohue, but since they seek to be added to existing proceedings they must persuade the court that it is desirable to add them.” [para. 17]

The matter is different, however, for four of the PCCs. Messrs. Rossi and Stinson and their companies were not parties to the agreements nor do they qualify to serve outside the jurisdiction. As a result, none could bring an independent proceeding against any Armco company in England without their consent. In response, they contended that they had a substantial cause of action that would entitle them to obtain an injunction. The Lords of Appeal disagree.

In the lead opinion, the Lords of Appeal itemize the principles of English law that control the grant or denial of an injunction against foreign litigation. “(1) The jurisdiction is to be exercised when the ends of justice require it. (2) Where the court decides to grant an injunction restraining proceedings in a foreign court, its order is directed not against the foreign court but against the parties so proceeding or threatening to proceed. (3) An injunction will only be issued restraining a party who is amenable to the jurisdiction of the court, against whom an injunction will be an effective remedy. (4) Since such an order indirectly affects the foreign court, the jurisdiction is one which must be exercised with caution.” [para. 19]

The New York judge was correct, in the Lords’ view, when he stressed that his suit involved U.S. plaintiffs, mostly U.S. or non-English defendants, and an alleged fraudulent scheme that was hatched in New York. Moreover, the domiciles of the Armco companies are Ohio, Delaware, Wisconsin and Singapore. Rossi and Stinson have no links to England. As a result, England is not the natural forum for this case and the New York proceedings are neither vexatious nor oppressive. Nor does the amenability of Armco, AFSC and AFSIL under the EJCs to English jurisdiction enable these PCCs to bring an English claim they could not otherwise have filed. “It would be wrong in principle to allow these PCCs to use Mr Donohue's action as a Trojan horse in which to enter the proceedings when they could have shown no possible ground for doing so in their own right.” [para. 21]

The next question is whether the court should grant Mr. Donohue his injunction. “If contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English court will ordinarily exercise its discretion (whether by granting a stay of proceedings in England, or by restraining the prosecution of proceedings in the non‑contractual forum abroad, or by such other procedural order as is appropriate in the circumstances) to secure compliance with the contractual bargain, unless the party suing in the non‑contractual forum (the burden being on him) can show strong reasons for suing in that forum. ... Where the dispute is between two contracting parties, A and B, and A sues B in a non‑contractual forum, and A's claims fall within the scope of the exclusive jurisdiction clause in their contract, and the interests of other parties are not involved, effect will in all probability be given to the clause. [Cites] A similar approach has been followed by courts in the United States, Canada, Australia and New Zealand.” [paras. 24-25]

The Lords then analyze the factors favoring injunctive relief for Mr. Donohue. “[He] has as against the first three Armco appellants a strong prima facie right not to be the subject elsewhere than in England of claims by those companies falling within the scope of the [EJC] clause. Some of the claims made against him by those companies in New York do fall within the clause. ... Much more significant, from Mr Donohue's viewpoint, are the RICO claims made against him. They could not be pursued against him in England. They could, if established in New York, lead to the award of swingeing [punitive] damages against him. On agreement of the exclusive jurisdiction clause he could reasonably have felt confident that no RICO claim arising out of or in connection with the agreements could be pursued against him and it would represent an obvious injustice if he were now to be exposed to those claims.” [para. 29]

“There is, as always,” the Lords continue, “another side to the coin. All five Armco appellants have a clear prima facie right to pursue against Messrs. Rossi, and Stinson and their respective companies any claim they choose in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York. It must further be noted that APL and NNIC have a clear prima facie right to pursue against Mr Donohue, Wingfield and CISHL also any claim they choose in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York. Similarly, the first three Armco appellants have a clear prima facie right to pursue against Mr Donohue, Wingfield and CISHL any claim not covered by the exclusive jurisdiction clauses in any convenient forum where they can found jurisdiction. They have successfully founded jurisdiction in New York.” [paras. 30, 31 & 32]

The Lords then weighs the possibility of litigation going ahead both in New York and in London. “The crucial question is whether, on the fact of this case, the Armco companies can show strong reasons why the court should displace Mr Donohue's clear prima facie entitlement. If strong reasons are to be found, ... they must lie in the prospect, if an injunction is granted, of litigation between the Armco companies on one side and Mr Donohue and the PCCs on the other continuing partly in England and partly in New York. What weight should be given to that consideration in the circumstances of this case?” [para. 33]

“I am driven to conclude that great weight should be given to it. ... A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice. In my opinion, and subject to an important qualification, the ends of justice would be best served by a single composite trial in the only forum in which a single composite trial can be procured, which is New York, and accordingly I find strong reasons for not giving effect to the exclusive jurisdiction clause in favour of Mr Donohue. In New York proceedings Mr Donohue will be entitled to claim that the sale and purchase agreement is governed by English law. ...”

“The qualification is that he should be protected against liability under the RICO claims made against him because of the obvious injustice to him which such liability would in the circumstances involve. [The Court then accepts the following undertaking by Armco:] ‘The Armco companies ... confirm that they undertake not to enforce against Mr Donohue, Wingfield or CISHL any multiple or punitive damages awarded in the New York proceedings whether awarded pursuant to the RICO statute or common law.’” [paras. 34, 36 & 39]

Citation: Donohue v. Armco et al., 2001 WL 1479758, [2002] 1 All E.R. (Comm) 97, [2001] U.K.H.L. 64 (House of Lords, December 13, 2001).

COMMUNICATIONS PRIVACY

EU has issued guidelines for including special contract clauses to allow transfer of personal data to third countries while minimizing danger to personal privacy

The European Union (EU) restricts the transfer of personal data for privacy reasons. To this effect, the EU Directive 95/46/EC has laid down special legal requirements to regulate the free movement of such data while protecting the personal data of individuals (see 1995 O.J. of the European Communities (L 281) 31, November 23, 1995).

The Directive allows the transfer of personal data to third countries only if it complies with EU privacy requirements. Under Article 26(2), Member States may authorize, subject to certain safeguards, a transfer or set of transfers of personal data to third countries that do not provide safeguards in the way the EU does. In such cases, the inclusion of specific contract clauses may ensure adequate data protection.

Based on Directive 95/46/EC, the competent authorities of the EU Member States can prohibit or suspend data flows to third countries to protect the personal data of individuals in three different situations. The data protection requirements in the data importer’s country must be inadequate, or the data importer must have violated a protective contract clause or other risks may exist that someone will make improper use of the data (see Article 4).

To provide further guidance and to allow data transfers to third countries, the EU has now issued Decision 2002/16/EC, effective as of April 3, 2002. It outlines certain standard contract clauses that parties should include when agreeing to transfer such data to parties in third countries. The Decision considers that the standard contractual clauses set out in its Annex amount to “adequate safeguards” of the privacy and fundamental rights and freedoms of individuals as required by Article 26(2) of the Directive (see Article 1).

In the first situation, for example, the contract has to provide for certain internal safeguards such as imposing liability for proliferation of data, and granting the “data subjects” legal status as “third party beneficiaries.” The latter type of clause will enable third parties to enforce contractual provisions between the data exporter and data importer (see sample Clauses 3 & 6 in Annex).

The law of the Member State in which the data exporter is established should govern the transfer agreement, thus making it more likely that third parties can enforce the contract. If authorized by national law, associations or other organizations may represent the individuals whose data is in jeopardy. See Paragraph 18 of Preamble; model Clause 9 in Annex.

Citation: 2002 O.J. of the European Communities (L 6) 52, October 1, 2002.

HAGUE CONVENTION (SERVICE OF PROCESS)

In misappropriation suit against French company, Seventh Circuit holds that plaintiff not entitled to tolling provisions of Indiana law because defendant was at all times amenable to international service of process pursuant to Hague Service Convention

Research Systems Corporation (RSC) is in the advertising research business and markets a product dubbed “ARS Persuasion,” a system for testing the success of TV commercials. The French advertising research company, IPSOS Publicit, a subsidiary of IPSOS S.A. (collectively IPSOS), got in touch with RSC about the possibility of forming a joint venture to market a testing system in France. IPSOS was already selling a testing system in France called Pre*Vision but hoped to come up with a new system that might interest Procter and Gamble (P&G).

IPSOS and RSC started negotiations in the Fall of 1990. RSC’s initial set of agreements, however, did not satisfy IPSOS. In early 1991, IPSOS and two other European companies with which RSC had had discussions, Research Services Limited (RSL) of the U. K. and the Sample Institute of Germany, worked up a joint proposal to RSC that would involve the licensing of ARS Persuasion in Europe. RSC turned down the offer in the summer of that year.

A few months later, IPSOS and Sample had modified its Pre*Vision product to make it compatible with the RSL and Sample products that P&G used in the U.K. and Germany.

RSC soon found out about this operation but not until December 1996 did it sue IPSOS in an Indiana state court for misappropriation of trade secrets and breach of contract. IPSOS removed the case to federal court the following month. It next moved for partial summary judgment in March 1998, contending that the statute of limitations had run out on the state misappropriation claims. In February 1999, the district court granted RSC’s motion to add two new parties along with claims of constructive fraud, false advertising and misappropriation under the federal Lanham Act.

A few days before the April 2000 trial date, on March 31, the district court gave summary judgment to IPSOS on RSC's Indiana Uniform Trade Secrets Act (UTSA) claim on the ground that the statute of limitations had run. RSC does not deny that it got wind of the alleged misappropriation in October 1991 but did not get around to filing its claim until 1996. The UTSA generally lays down a three‑year limitations period for misappropriation claims.

The jury came in with a verdict in favor of IPSOS on all the other claims and RSC noted its appeal. The U. S. Court of Appeals for the Seventh Circuit affirms.

The Court first points to the tolling provisions of Indiana law on which plaintiff relies. An across-the-board statute provides for tolling during "[t]he time during which the defendant is a nonresident of the state [and does not] maintain in Indiana an agent for service of process or other person who, under the laws of Indiana, may be served with process as agent for the defendant."

According to the record, the Court notes, IPSOS has never been a resident of Indiana nor has it maintained an agent or anyone else for service of process there.

This would seem to solve the problem and prove the lower court incorrect. The purpose of a tolling provision, however, is to safeguard the right of a plaintiff to sue and to prevent a defendant from overthrowing a claim by absenting himself from the court’s jurisdiction. It preserves [the] plaintiff's claim until such time as service on the defendant becomes feasible. “The Court of Appeals of Indiana has held, ... that the Indiana tolling provision does not apply ‘where the party claiming the benefit of the period of limitations was subject to the jurisdiction of a court in [the] state.’ Haton v. Haton, 672 N.E.2d 962, 965 (Ind.Ct.App.1996).”

“Based on Haton, the district court held that RSC's claim was time‑barred because the UTSA limitations period was not tolled because RSC could have served IPSOS under Indiana's long arm statute when it discovered the misappropriation. RSC urges this court to reject the holding of the Court of Appeals of Indiana in Haton, at least as it applies to defendants residing in foreign countries, because of the added burden involved in serving parties abroad.” [Slip op. 8]

In effect, the Indiana courts have decided that there is no tolling under this statute merely because defendant is a nonresident or is otherwise absent from the state. The crucial factor is whether the defendant is amenable to extraterritorial service of process by statutorily authorized methods. Under Indiana’s long-arm statute applicable in this diversity case, plaintiff could have served IPSOS out of state by registered or certified mail.

RSC responds that the rule in Haton should not apply in this case because defendant is not only out of the state but out of the country, thus inflicting a heavier service burden on plaintiffs. The Court, however, concludes that the Indiana Supreme Court would not see it that way on these facts.

“Indiana law makes no distinction between defendants based in the United States and those based in foreign countries. The manner of service is the same: by simple certified mail, [Cits.] a method permitted by Article 10(a) of the Hague Convention, so long as the foreign country does not object. See Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Feb. 10, 1969, 20 U.S.T. 361, 658 U.N.T.S. 163. France has not objected. See id., Article 21 & n. 7. That IPSOS could be served only in France does not render it unamenable to service, and the tolling statute should not apply.” [Slip op. 10]

Citation: Research Systems Corp. v. IPSOS Publicite, 2002 WL 22106 (7th Cir. Jan. 9).

PRODUCT SAFETY

EU issues comprehensive consumer product safety Directive, imposing general protective requirements on all products

The European Union (EU) has issued a general product safety directive, Directive 2001/95/EC which entered into force on January 15, 2002. It completely overhauls the EU’s current product safety requirements laid down in prior Directive 92/59/EC. The new Directive imposes general safety standards for all products placed on the market. To avoid conflicts with specific safety requirements already embedded in other EU laws, it applies only in the absence of other more specific safety requirements (see Article 1). The Directive does not directly cover services, but it does apply to products supplied, or made available, to consumers in the course of providing services (see Article 2).

The Directive defines a “safe product” as “any product which, under normal or reasonably foreseeable conditions of use including duration and, where applicable, putting into service, installation and maintenance requirements, does not present any risk or only the minimum risks compatible with the product’s use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons...” (See Article 2(b)). The feasibility of making a product technically “safer” than product X, or the availability of safer alternatives to product X, does not necessarily mean that product X is “dangerous.”

A product is presumed “safe” in two situations. The first is when it conforms to voluntary national standards transposed from EU standards. The second circumstance includes when it complies (1) with national standards where the product is marketed, (2) with Commission recommendations, (3) with sectoral product safety codes, (4) with state of the art technology, or (5) with reasonable consumer expectations about safety (see Article 3).

Producers have to provide consumers with necessary safety information, including labelling, and particular product packaging. They also must collect safety information on their products and keep a register of complaints received (see Article 5).

The Member States must keep an eye out for potentially dangerous products, and investigate product injuries. In some instances, they must have dangerous products taken off the market (see Chapter IV). The EU Member States will cooperate and share information in these matters through the RAPEX information procedure (see Chapter V and Annex II). The previous Directive 92/59/EC will expire on January 15, 2004.

Citation: Directive 2001/95/EC ... of 3 December 2001 on general product safety, 2002 O.J of European Communities (L 11) 4, 15 January 2001.

PUBLIC HEALTH

Fifth Chamber of European Court of Justice dismisses appeal by Monsanto Europe from Court of First Instance’s adverse ruling on classification of Monsanto’s new drug, Somatech, which enhances milk production from dairy cows

In June 1990, the EC Council adopted Regulation (EEC) No. 2377/90 which lay down a Community procedure under which the Commission is to set the maximum residue limits (MRL) of veterinary medicinal products in foodstuffs of animal origin. Article 1 defines the MRL as “the maximum concentration of residue resulting from the use of a veterinary medicinal product which may be accepted by the Community to be legally permitted or recognised as acceptable ‘in or on a food.’”

The Regulation calls for drawing up four annexes that classify veterinary medicinal products (VMPs). These categories of pharmacologically active substances (PASs) include: Annex I, those as to which the Commission may approve an MRL after assessing the risks which that substance poses for human health; Annex II is a class of substances not subject to an MRL; Annex III deals with substances as to which an MRL cannot be determined but which may receive a provisional MRL during the time period needed to finish the appropriate scientific studies; and finally, Annex IV comprises substances as to which an MRL is inappropriate because they risk consumer health no matter how small the quantity used.

A party wishing to market a new PAS to be used in VMPs for administration to food-producing animals in one or more Member States which have not approved the use of the product before, must first apply to the Commission. The Commission is promptly to submit the application to the Committee for VMPs (CVMP). Basing its draft on the CVMP’s observations, the draft then goes to the Regulatory Committee (RC) for an opinion. The Commission or the Council will then adopt the respective measures with due regard to the RC’ s observations. Article 34 of Regulation No. 2309/93 provides that the refusal of a Community marketing approval bars the use of the VMP throughout the Community market.

Council Decision 90/218/EEC, as amended in 1994, created a moratorium on the sale of recombinant bovine somatotrophin (BST), a growth hormone. Member States were to ban the use of BST on local dairy cows until the last day of 1999.

The Monsanto company, a Delaware corporation, has invented a VMP called Somatech based on sometribove, a BST that increases the milk yield of dairy cows. In 1987, Monsanto Europe SA/NV, a wholly-owned subsidiary of the U.S. Company asked the French authorities to obtain an opinion on sometribove from the CVMP It came out in January 1993 and dealt with the propriety of inclusion of this substance under Annex II to the 1990 Regulation.

Among other things, the CVMP’s opinion declared: “[t]he Committee considers that it is not necessary for the protection of public health to establish MRLs for sometribove, the active ingredient in the product, and it therefore recommends that sometribove should be included in the list of substances not subject to maximum residue limits in Annex II...” The Commission, however, in accordance with Article 175 of the EC Treaty [now Article 232 EC], did not refer the issue to the Regulatory Committee and rejected Monsanto Europe’s application on January 14, 1997 in Decision C(97) 148 final.

Monsanto then sought to annul the Decision before the Court of First Instance (CFI). France also intervened. Noting that it had annulled a similar Commission decision rejecting BST in 1996 which was not appealed [Case T‑ 120/96, Lilly Industries v Commission [1998] ECR II‑2571], the Court asked the parties for comments on the res judicata effects of that judgment but did not receive any observations within the time allowed. The CFI found that it was common ground between the parties that it should annul the instant decision for the same reasons it had annulled the prior decision and did so.

On appeal to the European Court of Justice, that Court, sitting as a Fifth Chamber, sets aside the CFI’s judgment of April 1999, and dismisses the application for annulment of Decision C(97) 148 final on the inclusion of BST in Annex II of Regulation No. 2377/90.

As to Monsanto’s contention that the proceedings have become nugatory, the ECJ declares: “It must be held in that regard that the mere act of preparing a draft regulation including BST in Annex II to Regulation No 2377/90 cannot, as such, be interpreted as acceptance of the contested judgment. In any event, Monsanto Company has not in any way shown how the submission of that draft meant that the French Government and the Commission had ceased to have any interest in the legal outcome of the case. The objection that the proceedings have become nugatory must therefore be rejected.” [paras. 31 & 32]

Monsanto also maintained that the appeal is inadmissible because the prior ruling was res judicata. The ECJ, however, disagrees. “In that regard, it should be noted, first, that, by referring as it did in paragraph 64 of the contested judgment to the grounds of the Lilly judgment, the Court of First Instance necessarily integrated those grounds into the contested judgment. It follows that the appeal challenging those grounds is indeed directed against the contested judgment and not against the Lilly judgment. Second, the objection of res judicata presupposes that the action alleged to be inadmissible and the action culminating in the decision having the force of res judicata are between the same parties, have the same subject‑matter and are based on the same cause of action, which is not the position as regards the present appeal and the Lilly case.” [paras. 35-37]

The Commission then claimed that the CFI had committed a legal error when it distinguished between the Commission’s duty to include a substance in Annex II and its right to decline to issue a marketing authorization for a VMP pursuant to other rules.

The ECJ agrees with the Commission. “It should be borne in mind in that regard that, as is apparent from the fifth and sixth recitals in the preamble thereto, Regulation No 2377/90 is intended to establish a procedure for fixing MRLs at Community level, with a view to preventing the fixing of different MRLs by the Member States from hindering the free movement of foodstuffs and veterinary medicinal products.” [para. 75]

“It follows from those various provisions that the procedures for establishing MRLs and issuing marketing authorisations are inherently linked, inasmuch as a marketing authorisation will not be issued in respect of a veterinary medicinal product for administration to food‑producing animals unless an MRL has been established, and, by the same token, an MRL will not be established for a new pharmacologically active substance unless that substance is intended to be placed on the market.” [para. 80]

“Since Monsanto Europe had formally called upon the Commission to adopt a decision concerning the request for the establishment of an MRL for sometribove, the Commission was right, in refusing that request, to take account of Decision 90/218, as amended by Decision 94/936, inasmuch as the effect of that decision was that the condition laid down in the second indent of Article 6(1) of Regulation No 2377/90 had not been fulfilled. It follows that the Court of First Instance committed an error of law in paragraph 92 of the Lilly judgment, the grounds of which must be regarded as being reproduced in full in the contested judgment, in holding that the Commission was not legally entitled to base the decision refusing to establish an MRL on the existence of the moratorium on BST.”[paras. 84 & 85]

Monsanto also contended that the Commission had violated the principles of Legal Certainty and of Protection of Legitimate Expectations. By deciding not to send the matter to the Regulatory Committee, moreover, it chose the most restrictive measure, thus breaching the principle of Proportionality. Finally, it had been guilty of Abuse of Power by failing to rely on a wholly scientific assessment of the product. The ECJ, however, is not convinced.

“[I]t should be borne in mind that, ... one of the conditions for procuring the establishment of an MRL had not been fulfilled in the present case. [In the present case, at the time when the decision at issue was adopted, the ban on issuing a marketing authorisation with a view to the marketing or administration of BST to dairy cows resulted from Decision 90/218, as amended by Decision 94/936.] That being so, the Commission was entitled to defer consideration of the request or even to refuse it.”

“Such a decision may be adopted by the Commission pursuant to the principle of sound administration and the duty of care, after the interests of all the parties concerned have been weighed, namely, on the one hand, the interest of the institution in not having to follow a highly burdensome decision‑making procedure involving reference to the Regulatory Committee, where the marketing authorisation cannot yet be issued and should not be issued in the short term, and, on the other hand, the legitimate interest of an undertaking in not having to delay the implementation of its marketing plans in the expectation that a moratorium on the marketing of the product in question may soon be lifted.[paras. 83, 91-92]

Citation: France v. Monsanto Company, EU Case C-248/99, Celex No. 699J0248 [Court of Justice (Fifth Chamber) January 8, 2002].

SOVEREIGN IMMUNITY

In litigation over alleged financial scam inflicted by various Nigerian parties on U.S. parties, Sixth Circuit finds that illegal acts can constitute “commercial activity” under FSIA exception, and expressly refuses to graft “legally significant acts” test onto FSIA requirement of “direct effect” on U.S.

Henry Keller is a sales representative for a Michigan-based manufacturer of prefabricated mobile hospital and medical centers. A Nigerian individual identifying himself as Prince Arthur Ossai contacted Keller to request exclusive distribution rights for the medical facilities in Nigeria. Funds for the deal would come from $25 million on deposit with the Central Bank of Nigeria (CBN) as the result of an overfunded previous government contract. Approximately $9 million were supposed to go to the Prince as a “commission,” and Keller was to receive a “licensing fee”of more than $7 million.

Before Keller could receive the money, he had to pay certain transaction fees totaling almost $30,000. Keller became aware of a scam when he went to London to pick up the money and no CBN representative showed up.

Keller sued CBN and several Nigerian citizens in Ohio district court, alleging RICO claims, fraud allegations, and other claims. The district court entered a default judgment against four of the defendants. The remaining defendants denied any knowledge that Keller was dealing with impostors. Keller, however, was able to document his contacts with defendants and verified the telephone and fax numbers as CBN numbers.

The defendants moved to dismiss on sovereign immunity grounds. Denying the motion as to RICO claims, the district court ruled that they fell within the “commercial activity” exception of the Foreign Sovereign Immunity Act (FSIA). The four defendants appealed. The U.S. Court of Appeals for the Sixth Circuit agrees that the commercial activity exception applied to defendants. On the other hand, it vacates the district court’s denial of defendants’ motion to dismiss the civil RICO claims and remands for further proceedings.

As for the FSIA “commercial activity” exception, the defendants argued that, first, the obvious illegality of the deal precludes a finding that this deal is “commercial activity.” In other cases involving suspect “commercial activity,” the courts have held such activity sufficient for jurisdiction. For example, in Adler v. Federal Republic of Nigeria, 219 F.3d 869 (9th Cir. 2000), the Ninth Circuit held that an illegal “investment opportunity” contract with Nigerian government officials was in fact “commercial activity.” In Southway v. Central Bank of Nigeria, 198 F.3d 1210 (10th Cir. 1999), the Tenth Circuit found that an illegal scheme by the Central Bank of Nigeria to receive funds from an “over-invoiced” contract could be the basis for a finding of “commercial activity.” In the present case, the conduct at issue involved licenses to sell medical equipment. Private parties generally carry on this type of activity and it is not a “market regulator” function. Therefore, the district court correctly concluded that this was “commercial activity” despite any alleged fraud and bribery.

Second, the defendants claimed that only Ossai (who is not a party in this appeal) entered into the contract with Keller and his actions did not bind the other defendants. The Court disagrees. The defendants’ activities were all in furtherance of the contract, including the sending of confirmations and other communications to Keller. Everything suggests that Keller’s continuing negotiations with other defendants constituted “commercial activity” under the FSIA.

Third, the defendants asserted that the “commercial activity” exception does not apply because the alleged acts failed to have a “direct effect” on the U.S. See 28 U.S.C. Section 1605(a)(2). This statutory language requires that a “legally significant act” occur in the U.S. for the “commercial activity” exception to apply, such as a tort or a non-payment on a contract. The Ninth and Tenth Circuits have adopted “legally significant acts” tests, but the Fifth Circuit has rejected it. The Sixth Circuit, too, refuses to adopt that gloss on the statutory language because it finds the addition of unexpressed requirements to the FSIA unnecessary.

“In this case, defendants agreed to pay but failed to transmit the promised funds to an account in a Cleveland bank. Other courts have found a direct effect when a defendant agrees to pay funds to an account in the United States and then fails to do so. For example, the Court of Appeals for the Fifth Circuit held that the Bank of China’s failure to remit funds to a domestic seller’s designated bank account in the United States caused a direct effect ... [Cit.]. Similarly, the Court of Appeals for the Second Circuit has held that defendant’s default on a letter of credit for which plaintiff had designated payment to its bank account in New York was a direct effect, whether analyzed under the ‘legally significant acts’ test or not. [Cits.] The district court in the instant case correctly concluded, in accord with the other circuits, that defendant’s failure to pay promised funds to a Cleveland account constituted a direct effect in the United States. We affirm the district court’s holding that the commercial activity exception applies to these defendants.” [Slip op. 15-16]

As for the RICO claims, the defendants argued that they are immune under FSIA. Under RICO, a plaintiff must show that defendants engaged in a “pattern of racketeering activity” (see 18 U.S.C. Section 1962(b)-(d)). Here, the relevant “racketeering activity” is “any act which is indictable” under several enumerated federal statutes, including those covering mail and wire fraud. The defendants claim that they are immune from criminal indictment under the FSIA, which provides that “subject to existing international agreements ... a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 and 1607 ...” The Court of Appeals holds that Congress would have to create an explicit exception to the FSIA’s general immunity in order to establish criminal jurisdiction over foreign sovereigns.

“The FSIA states that a ‘foreign state shall be immune from the jurisdiction of the courts of the United States,’ and does not limit this grant of immunity to civil cases. 28 U.S.C. Section 1604. The statute provides that jurisdiction over a foreign sovereign will exist only if there is a relevant international agreement or an exception listed in 28 U.S.C. Section 1605-1607. Plaintiff has not cited an international agreement regarding criminal jurisdiction over RICO claims or predicate offenses, and the FSIA does not provide an exception for criminal jurisdiction. As the Supreme Court has explained, ‘the subject-matter jurisdiction of the lower federal courts is determined by Congress ‘in the exact degrees and character which to Congress may seem proper for the public good.’‘ [Cits.] We conclude that the FSIA grants immunity to foreign sovereigns from criminal prosecution, absent an international agreement stating otherwise.” [Slip op. 21-22]

The general rule is that a sovereign cannot be indicted. Even though the plaintiff has not raised this exact issue, the Sixth Circuit has noted that “although a foreign sovereign is not indictable, and therefore not amenable to civil RICO claims, the same conclusions may not follow for individuals who commit criminal acts; such unlawfulness may indicate that they were acting without the authority of the sovereign. [Cits.]” [Slip op. 24]

Citation: Keller v. Central Bank of Nigeria, No. 00-3369 (January 16, 2002).

WTO Dispute Settlement Body adopts report on U.S. “Foreign Sales Corporations” and in Havana Club case. At its meeting on January 29, 2002, the Dispute Settlement Body (DSB) of the World Trade Organization (WTO) adopted the Appellate Body Report on the dispute regarding U.S. tax treatment of “Foreign Sales Corporations” (FSC) (WT/DS108/AB), the Recourse to Article 21.5 of the Dispute Settlement Understanding (DSU), and the Panel Report in this matter. This dispute centered on the favorable U.S. tax treatment of FSCs which the WTO found to constitute a subsidy to U.S. companies under the WTO Agreement on Subsidies and Countervailing Measures. FSCs have been described as tax shelters for sales that U.S. companies make abroad. – The U.S. Trade Representative has stated that it would aggressively challenge the $4 billion amount of trade sanctions claimed by the EU based on the FSC dispute. – At its meeting on February 1, 2002, the DSB adopted the Appellate Body and related reports in the matter “United States - Section 211 Omnibus Appropriations Act of 1998" (WT/DS176/AB) which involved the trademark for the Havana Club rum from Cuba. Citation: United States - Tax Treatment for “Foreign Sales Corporations” (WT/DS108/25) (4 February 2002); U.S. Trade Representative press releases 2002-5 (January 14, 2002) & 2002-16 (February 8, 2002); The Washington Post, page E1, January 15, 2002; United States - Section 211 Omnibus Appropriations Act of 1998 (WT/DS/176/AB/R) (January 2, 2002); WTO reports are available on WTO website “www.wto.org.”

Over U.S. objections, British court releases terrorism suspect on bail. On February 12, 2002, a British court released twenty-seven-year-old Lotfi Raissi on $15,000 bail over U.S. contentions that there is evidence that Raissi had trained Hani Hanjour, the pilot who flew American Airlines Flight 77 into the Pentagon on September 11, 2001. After six court hearings, the judge concluded that it was unlikely that the U.S. would lodge terrorism charges against Raissi “in the near future.” The U.K. had been holding Raissi on relatively lesser offenses such as making false statements on his application for an American pilot’s license and failing to reveal he had a 1993 conviction for larceny. The U. S. urged that the British should continue to hold Raissi in custody because of the high probability that he would leave the U.K. to avoid being tried for terrorism in an American court. In the U.K. court’s view, however, “the links that are supposed to connect Mr. Raissi to others within the terrorist organization can no longer be substantiated.” According to the U.S. Justice Department, Raissi and Hanjour went to the same Arizona flight school (as substantiated by videotape) and Raissi kept in regular touch with Hanjour and other September 11 pilots by telephone. Since the license charges are still pending, British police will retain Raissi’s passport and he is not to ask for international travel documents. Citation: The Washington Post Foreign Service, Wednesday, February 13, 2002, page A17 (Bylines of T. R. Reid and Adi Bloom).

Multilateral “Open Skies” Treaty enters into force. The Open Skies Treaty entered into force on January 1, 2002. Its goal is to promote transparency and cooperation in air traffic among its twenty-six parties. It was first signed on March 24, 1992, in Helsinki, Finland. The U.S. ratified it in 1993, but it could not enter into force until Belarus and the Russian Federation ratified it early last year. The leading parties to the treaty include Canada, Germany, the United Kingdom, the U.S., and Russia. Citation: U.S. Department of State press statement of January 9, 2002.

U.S. imposes $75 million in tariffs on Ukraine for its continuing copyright violations. Because of ongoing copyright infractions in the form of illegal manufacture of CDs, CD-ROMs, and DVDs that is going on in the Ukraine, the U.S. has imposed $75 million in tariffs on imported Ukrainian products. See 2001 International Law Update 127. The U.S. Trade Representative (USTR) stated that despite the U.S.-Ukraine Joint Action Plan to Combat Optical Media Piracy in the Ukraine of June 2000, the Ukrainian Government has failed to stamp out that piracy. The U.S. designated the Ukraine a priority foreign country under the provisions of Special 301 in March, 2001, and, five months later, it lost its beneficiary status under the Generalized System of Preferences (GSP). The USTR website published a list of the products covered by the increased duties, such as metals and footwear in December, 2001. Citation: U.S. Trade Representative press release 2002-10 (January 23, 2002).

France’s highest court affirms farmer’s sentence for ransacking McDonald’s site. On February 6, 2002, the French Cour de Cassation in Paris upheld a 1999 three-month jail sentence against Jose Bove and others for damaging the site of a planned site for a McDonalds in Millau, in the south of France. An ardent antiglobalist and local sheep farmer, Bove claimed justification because he was acting “out of a position of necessity.” By this he apparently meant that his actions had been “legal and necessary” to respond to punitive U. S. taxes on Roquefort cheese and other European farm goods. According to his attorney, Bove intends to take the matter before the European Court of Human Rights in Strasbourg. Bove is also contesting a separate six-month jail term imposed in December 2001 for cutting down some genetically modified rice plants during a raid the previous year on a research center. Citation: The New York Times, February 7, 2002, Section A, page 8, Col. 1 (byline Suzanne Daley); 2002 Cable News Network LP, an AOL Time Warner Company.

EU upgrades standards for international maritime safety. The EU has amended its requirements for ship inspection at its ports and for international maritime safety in general. The new requirements came out in the form of Directive 2001/105/EC. It amended Directive 94/57/EC which deals with common rules and standards for ship inspection and survey organizations and with the relevant activities of maritime administration. The amendments include the necessary changes based on international maritime conventions that subsequently entered into force, and the International Safety Management (ISM) Code. Citation: 2002 O.J. of the European Communities (L 19) 9, 22 January 2002.

U.S. President signs Executive Order to combat trafficking in persons. On February 13, 2002, President Bush signed an Executive Order that set up a President’s Interagency Task Force to Monitor and Combat Trafficking in Persons. The Task Force will work to improve coordination among the key agencies concerned with suppressing this “terrible scourge” and to step up U.S. efforts to put traffickers in human beings behind bars, to protect victims and to prevent trafficking in the future. Task Force members include: the Secretary of State, the Attorney General, the Secretary of Labor, the Secretary of Health and Human Services, the Director of the Central Intelligence Agency, the Administrator of the United States Agency for International Development, and the Director of the Office of Management and Budget. The Trafficking Victims Protection Act of 2000 (TVPA) mandated the establishment of this Task Force. It is estimated that this infamous trafficking involves over 700,000 persons, especially women and children, throughout the world. Their captors take away fundamental human rights, subject victims to threats and violence and force these “modern-day slaves” to toil under unspeakable conditions in brothels, sweatshops, homes and fields. The sponsors of the TVPA, Senator Sam Brownback and Congressman Christopher Smith, also joined executive branch officials at the first meeting of the Task Force. Citation: Statement by Richard Boucher, Spokesman, U. S. Department of State, February 14, 2002; for all press statements, see http://www.state.gov.

Improved Russian Labor Code entered into force. On December 30, 2001, the President of the Russian Federation, Vladimir V. Putin, signed into law the new Labor Code. It entered into force on February 1, 2002, and significantly changes employment relations. These alterations affect not only employers operating in the Russian Federation, but also those employing foreign workers to work in the Russian Federation. In particular, the changes include: (1) the requirement that labor laws apply also to foreign nationals working in the Russian Federation and to locations of foreign companies; (2) the need to sign employment agreements within three days of the employee’s first day on the job; (3) detailed safety and health requirements; and (4) personal data protections. Citation: Information “The New Russian Federation Labor Code ...” (January 24, 2002), distributed by BISNIS, U.S. Department of Commerce, website: www.bisnis.doc.gov.

Japan sets up agency for international cooperation against terrorism. On December 12, 2001, the Japanese Ministry of Foreign Affairs (MOFA) established the “International Counter-Terrorism Cooperation Division” to manage Japan’s cooperation in international counter-terrorism efforts. The tasks include counter-terrorism policy planning, and cooperation under G8 and other international arrangements. The Division currently has a staff of five and is part of the Policy Coordination Division of the Foreign Policy Board. The Division for the Prevention of Terrorism of the Consular and Migration Affairs Department previously had handled these matters. This division will remain in charge of (1) protecting the lives, well-being and property of Japanese citizens from terrorism abroad, as well as (2) enforcing the International Convention for the Suppression of Terrorist Bombings and the International Convention for the Suppression of the Financing of Terrorism. Citation: Ministry of Foreign Affairs of Japan press release of January 16, 2002; press release is available on Ministry’s website www.mofa.go.jp.

Germany enacts vigorous Anti-Terrorism Law. On December 20, 2001, Germany passed several new laws to strengthen anti-terrorism measures. The Federal Council (Bundesrat) approved the so-called “Second Terrorism Package” only days after the Federal Parliament (Bundestag) did. They include, for example, expanded possibilities for exchanging information among government security departments, blocking the entry of terrorists, strengthening border controls, and investigating German residents suspected of terrorist ties. Also, Germany is introducing “sky marshals” on airplane flights. The laws entered into force on January 1, 2002. Citation: Gesetz zur Bekaempfung des internationalen Terrorismus (Terrorismusbekaempfungsgesetz), 2002 Bundesgesetzblatt, Teil I, Number 3, 11. Januar 2002; The Week in Germany, published by the German Information Center, New York, December 19, 2001.

U.S. and Hungary sign improved trade agreement. On January 30, 2002, the U.S. and Hungary signed a comprehensive trade agreement with which Hungary will reduce or suspend U.S. tariffs on $180 worth of U.S. products annually, beginning in April 2002. The U.S. products relieved of burdensome tariffs include turbines, automotive parts, computers, office machine parts, chemicals, as well as various agricultural products. Citation: U.S. Trade Representative press release 2002-13 (January 31, 2002).