2014 International Law Update, Volume 20, Number 3 (July – August - September)

2014 International Law Update, Volume 20, Number 3 (July – August - September)

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

ATTORNEY FEES

After a 32-year legal battle over expropriation in Iran, D.C. Circuit instructs the district court to grant plaintiff McKesson $29,516 in attorney’s fees. In applying the Treaty of Amity between Iran and United States, the court determines that Iranian law applies to the action

After the Islamic Revolution of 1979, McKesson Corporation (McKesson), an American health information technology company, filed suit in 1982 in the District of Columbia federal District Court after the Iranian government expropriated McKesson’s share in an Iranian dairy company.

McKesson had partnered with Iranian investors to create the dairy in Iran in the 1960s, but the company and its personnel fled Iran during the Revolution. McKesson accused Iran of expropriating its interests in the dairy and sued for damages. After a 32-year legal battle, including at least half a dozen appearances in the D.C. Circuit, Iran challenged the jurisdiction of U.S. courts to hear the case over McKesson’s share in the dairy. McKesson sought to recoup attorney’s fees spent during the decades-long pursuit. Finally, in May 2013, McKesson secured a judgment and was awarded over $29 million in damages, plus interest, caused by the seizure, along with $13.4 million in attorney’s fees. The key issue now is whether the District Court properly calculated the $13.4 million in attorney’s fees awarded to McKesson under Iranian law.

Iran challenged the attorney’s fees on multiple fronts, from the court’s jurisdiction to award them at all, to the reasonableness of rates charged by the law firms involved. The firms sought fees for work done in the case from 2000 to 2012; pre-2000 attorney fees were the subject of a separate order.

According to expert testimony, Iranian law did allow for recovery of attorney fees and costs. Under the Treaty of Amity—the treaty between Iran and the United States that McKesson brought its claim under—the losing party can be made responsible for attorney’s fees.

McKesson argued that the court should use the law firms’ standard rates to calculate fees, while Iran argued that the standards used in the Laffey Matrix should apply. Based on independent law firm billing surveys, the District Court ruled that both firms involved charged reasonable rates. The court then granted McKesson’s request to use the firms’ 2012 billing rates to calculate fees for work done between 2000 and 2012 as an enhancement to compensate for delays in being paid over the past decade. However, the court also found that Iran raised legitimate concerns about how efficiently McKesson’s attorneys managed the case and also about the use of vague descriptions for certain time entries in billing records.

The District Court held that it had authority to award reasonable attorney’s fees under international law or, alternatively, Iranian law, and considered three fee petitions from McKesson. Despite having decided that Iranian law controls, the District Court assessed the reasonableness of McKesson’s attorney-fee award using United States case law. Iran contended that an official tariff applied to McKesson’s fee petitions under Article 3 of Iran’s 2006 regulation on attorney’s fees and Article 518 of Iran’s Civil Procedure Act of 2000 (Act). Iran calculated that the tariff only yielded a mere $29,516 in fees for McKesson. Iran now appeals the District Court’s fee awards of attorney’s fees.

The U.S. Court of Appeals for the District of Columbia Circuit vacates the $13 million attorney’s fee award and remands. The Court reasons that the burden of proof was on McKesson to show that the tariff did not apply, which it failed to do. The D.C. Circuit further held that discretion only exists where the tariff does not apply and, in McKesson’s case, the tariff did. For these reasons, the D.C. Circuit vacates and remands with the instruction to grant McKesson $29,516 in attorney’s fees.

Specifically, this appeal turns on whether Article 518 of the Act is applicable in this case. The Court construes Article 518’s plain language to provide that “decided by the court” applies only in instances where the amount of attorney’s fees is not fixed in the law or official tariff. Article 518 provides a general rule that courts must enforce an official tariff or other amount fixed by law when awarding attorney’s fees.

Over the course of the litigation, McKesson had filed five separate petitions for attorney’s fees accrued during five distinct time periods. On November 30, 2000, the District Court ruled on the first petition. McKesson Corp. v. Islamic Republic of Iran, No. 82-00220 (D.D.C. Nov. 30, 2000). It concluded that “in determining whether a prevailing party is entitled to fees and expenses, a court looks to the substantive law on which the successful claim is based.” At the time, however, the court had not yet determined what substantive law provided McKesson with a cause of action. The District Court held that it had authority to award reasonable fees under international law or, alternatively, under Iranian law, thereby granting McKesson $2.95 million in fees and expenses for legal work performed through July 2000.

On March 27, 2013, the district court ruled on McKesson’s subsequent three petitions, covering the legal work completed from August 2000 to June 2012. It also noted that the court had determined in 2012 that Iranian law recognizes McKesson’s cause of action and held that the issue of whether attorney’s fees may be awarded to McKesson is governed by Iranian law. Despite having acknowledged that Iranian law governed, however, the District Court proceeded to assess the reasonableness of McKesson’s request by referring exclusively to United States case law and federal fee-shifting statutes. It held that a fee award of just over $10 million was reasonable under this precedent. Id. at 45. The District Court subsequently granted McKesson’s fifth fee request—$434,385 for fees incurred for work completed between July 2012 and April 2013 for the same reasons given for the second through fourth requests.

Although courts generally review an attorney’s fees award for abuse of discretion, the district court must apply the correct legal standard and underlying substantive law. Here, the parties stipulated that, under both Articles 515 and 519 of the Act, McKesson is entitled to receive some measure of attorney’s fees. Furthermore, Article 515 authorizes the prevailing party to “demand compensation for damages resulting from the court proceeding.” Article 519 defines damages to include “legal fees and other costs which are directly or indirectly related to the court proceeding and have been necessary to prove or defend the case.”

According to Iran’s calculation, that tariff yields a fee award of $29,516. McKesson does not dispute that calculation nor does it dispute that the tariff would apply if this action had been brought in an Iranian court. However, it was brought in a United States court. McKesson contends this is pertinent because Iran presented no evidence that the tariff applies in this type of case, i.e., a case tried in courts by non-Iranian counsel outside of Iran. Since this case is not one in which damages are fixed in the law by official tariff, McKesson argues that the amount of attorney’s fees is to be decided at the court’s discretion.

As the party seeking attorney’s fees under foreign law, McKesson bears the burden of establishing the substance of foreign law. In re Avantel, S.A., 343 F.3d 311, 321-22 (5th Cir. 2003) (party seeking to apply Mexican privilege law “had the burden of proving its substance to a reasonable certainty such that the district court could apply it to the documents at issue”).

McKesson must demonstrate that the general rule (that an official tariff controls) does not apply here. The court rejected McKesson’s attempt to shift the burden by requiring Iran to show that the general rule does apply and the exception does not. Moreover, McKesson’s argument invoked Iranian law to argue that the court has discretion to award attorney’s fees yet neither addressed how the court should exercise such discretion nor did it cite one instance of Iranian precedent. Instead, as stated above, McKesson relied solely on U.S. precedent awarding attorney’s fees under federal fee-shifting statutes. In other words, McKesson used Iranian law to determine fees that would be more generous than the default American Rule. Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242, 252-53 (2010) (each litigant pays its own attorney’s fees unless statute or contract provides otherwise). However, McKesson runs from Iranian law where it is less generous than U.S. law—i.e., where the applicable tariff yields a smaller award than might have been granted if McKesson had brought its action under a U.S. fee-shifting statute. McKesson attempts to construe Iranian law solely to its advantage.

“The parties disagree on the calculation of fees. The dispute therefore turns on the applicability vel non of Article 518 of the Act, which provides:’ In the instances where the amount of expenses and damages are [sic] not fixed in the law or official tariff, the amount of such expenses and damages shall be decided by the court.’ Iran contends that an ‘official tariff’ applies here—Article 3 of Iran’s 2006 regulation on attorney’s fees. By Iran’s calculation, that tariff yields a fee award of $29,516. McKesson does not dispute that calculation nor does it dispute that the tariff would apply if this action had been brought by Iranian counsel in an Iranian court. It was brought in an American court, however. McKesson contends this makes all the difference because Iran ‘presented absolutely no evidence below that the tariff applies in this type of case, i.e., a case tried in courts outside of Iran by non-Iranian counsel.’ … Because this case is therefore not one in which damages are ‘fixed in the law or official tariff,’ McKesson contends, the amount of attorney’s fees is to be decided ‘by the court’—i.e., in the court’s discretion.”

“We read Article 518’s plain language to provide that ‘decided by the court’ applies only ‘[i]n the instances where the amount of [attorney’s fees is] not fixed in the law or official tariff.’ That is, Article 518 provides a general rule that courts must use an official tariff or other amount fixed by law in awarding attorney’s fees. The court has discretion only when the tariff (or other fixed amount) does not apply. As the party seeking attorney’s fees under foreign law, McKesson bears the burden of establishing the substance of foreign law. … It is therefore up to McKesson to show that the general rule (that an official tariff controls) does not apply here. We reject McKesson’s attempt to shift the burden by requiring Iran to show that the general rule does apply and the exception does not. Although McKesson criticizes Iran’s expert on Iranian law for not supplying authority for the proposition that the tariff applies in actions pursued outside Iranian courts, neither does McKesson’s expert offer any authority supporting the notion that it does not apply in such cases.” (footnote omitted) [Slip op. 3]

The Court ultimately holds that the official tariff does apply. Accordingly, the Court vacates the District Court’s fee award and instructs the District Court to grant McKesson $29,516 in attorney’s fees on remand.

Citation: McKesson Corp. v. Islamic Republic of Iran, No. 01-7041 consolidated with 13-7070, 13-7121 (DC Cir. June 3, 2014).

FORUM NON CONVENIENS

Eleventh Circuit reverses dismissal based on forum non conveniens for abuse of discretion; District Court should have addressed the underlying contract’s forum selection clause before dismissing for forum non conveniens

GDG Acquisitions, LLC (“GDG”) signed a contract with the Government of Belize (“Government”) to lease telecommunications equipment to the Government. This contract was part of Belize’s attempt to reduce the costs of office telephone services. The Master Lease Agreement, negotiated by Government Minister Ralph Fonseca and Glenn Godfrey of International Telecommunications, Ltd. (“Intelco”) was financed through the International Bank of Miami. According to the Master Lease, the Government waived its sovereign immunity and defense of forum non conveniens, and consented to the jurisdiction of U.S. courts.

The Government stopped making payments on the lease in 2008. In 2012, Intelco assigned all of its assets to GDG, including the Master Lease with Belize. Shortly thereafter, GDG filed the present lawsuit in the U.S. District Court for the Southern District of Florida. GDG claims that the Government has not made any lease payments since 2008, but continues to possess and use the telecommunications equipment while owing approximately $14 million.

The Government moved to dismiss the complaint based on (1) foreign sovereign immunity granted by the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Section 1602; (2) forum non conveniens; and (3) international comity.

The District Court did not reach the merits of the case, but instead dismissed based on forum non conveniens and international comity. GDG appeals.

The U.S. Court of Appeals for the Eleventh Circuit finds that the District Court abused its discretion by dismissing based on forum non conveniens without first evaluating the forum selection clause in the contract. Further, the Court vacates the District Court’s dismissal on the alternative ground of international comity. “Retrospective” international comity does not apply without a judgment from a foreign tribunal or parallel foreign proceedings.

The District Court should have first considered the forum selection clause of the Master Lease, pursuant to Atl. Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 134 S.Ct. 568 (2013). The Court explains.

“To obtain dismissal for forum non conveniens, ‘[t]he moving party must demonstrate that (1) an adequate alternative forum is available, (2) the public and private factors weigh in favor of dismissal, and (3) the plaintiff can reinstate his suit in the alternative forum without undue inconvenience or prejudice.’ Leon v. Millon Air, Inc., 251 F.3d 1305, 1310-11 (11th Cir. 2001). Just last year, the Supreme Court in Atlantic Marine explained that an enforceable forum-selection clause carries near-determinative weight in this analysis:”

“When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation. A court accordingly must deem the private-interest factors to weigh entirely in favor of the preselected forum. . . .”

“As a consequence, a district court may consider arguments about public-interest factors only. Because those factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.”

“Thus, a district court now must consider an enforceable forum-selection clause in the forum non conveniens analysis. A binding forum-selection clause requires the court to find that the forum non conveniens private factors entirely favor the selected forum.” [Slip Op. 4]

Here, the District Court should have addressed the significance of the forum selection clause first. On remand, the District Court should determine whether the Master Lease’s forum selection clause binds the Government.

The Court then reviews the dismissal based on international comity.

“Most frequently, international comity is applied retrospectively, when courts consider whether to respect the judgment of a foreign tribunal or to defer to parallel foreign proceedings. See [Ungaro-Benages v. Dresdner Bank AG, 379 F.3d 1227, 1238 (11th Cir. 2004)]. For retrospective international comity, courts consider whether the foreign court was competent, whether the foreign judgment was fraudulent, and whether that judgment violated American public policy notions of decency and justice.”

“Far more rarely, courts have applied international comity prospectively, without a conflicting past or present foreign proceeding. … In such cases, ‘domestic courts consider whether to dismiss or stay a domestic action based on the interests of our government, the foreign government and the international community in resolving the dispute in a foreign forum.’ …’Applied prospectively, federal courts evaluate several factors, ‘namely, (1) ‘the strength of the United States’ interest in using a foreign forum,’ (2) ‘the strength of the foreign governments’ interests,’ and (3) ‘the adequacy of the alternative forum.’ …”

“Only once has this Court ever sustained the dismissal of a lawsuit based on a prospective application of international comity. In Ungaro-Benages, a plaintiff claimed that two German banks stole her family’s ownership interest in a manufacturing company as part of the Nazi program of ‘Aryanization.’ … The district court granted summary judgment based in part on the doctrine of international comity, and a panel of this Court affirmed. … President Clinton had reached an agreement with the German government to achieve a ‘legal peace’ by establishing a private foundation — funded by voluntary contributions from the German government and German companies — to hear claims brought by victims of the Nazi regime. … This Court ‘decide[d] to abstain based on the strength of our government’s interests in using the Foundation, the strength of the German government’s interests, and the adequacy of the Foundation as an alternative forum.’ … We noted that ‘the President has the constitutional authority to settle the international claims of American citizens, even if the claimants would prefer litigation in American courts,’ id., and ‘that American and German governments have entered into extensive negotiations over this subject and those negotiations affect thousands of other victims of the Nazi regime,’ …” […]

“In this case, we think the district court abused its discretion in its application of the three Ungaro-Benages factors that bear on prospective international comity. Notably, in Ungaro-Benages, all three factors favored dismissal. First, ‘[t]he United States government ha[d] consistently supported the Foundation as the exclusive forum’ after the ‘President entered into negotiations with the German government and determined that the interests of American citizens, on the whole, would be best served by establishing the Foundation Agreement’ because it ‘creat[ed] a comprehensive compensatory scheme.’ … Second, ‘the German government ha[d] a significant interest in having the Foundation be the exclusive forum for these claims in its efforts to achieve lasting legal peace with the international community.’ … Third, the Foundation was an adequate forum. …”

“Unlike in Ungaro-Benages, here the United States does not have a significant interest in the foreign adjudication of this matter. The district court recognized that ‘the United States does have a general interest in seeing that a party’s contractual obligations are honored.’ We agree. In this case, ‘the United States has a strong interest in ensuring the enforceability of valid debts under the principles of contract law, and in particular, the continuing enforceability of foreign debts owed to United States lenders.’ … The Master Lease Agreement was negotiated and signed in the United States. Intelco completed its performance by presenting the telephone equipment for acceptance in Florida. GDG, one of the parties to the litigation, is an American entity. Litigation in a federal forum advances the United States ‘interest in enforcing agreements formed and performed on American soil in disputes involving an American party. Tellingly, in Ungaro-Benages the United States submitted a Statement of Interest that represented that it was’ in the foreign policy interests of the United States for the case to be dismissed.’ … No statement of foreign policy interest from the United States appears in the current record, and we can discern no such interest favoring the foreign adjudication of this matter. Thus, the first Ungaro-Benages factor weighs against dismissal.”

“As for the second factor, the district court abused its discretion in determining that the Government of Belize possesses a strong interest in litigation abroad, strong enough to outweigh the interest of the United States. To the contrary, the Government of Belize lacks a sufficiently strong interest in foreign adjudication. This dispute resembles so many other garden-variety commercial contract actions: GDG sues for breach of an equipment lease contract, but the Government claims it is not bound by the agreement. The record contains no indication that Belize has established an exclusive method of adjudicating this type of contract dispute that would be undermined by prosecution in federal court. In Ungaro-Benages, an American suit would have undermined the German Foundation’s uniform system for paying Nazi-era claims to thousands of victims. … Here, in sharp contrast, GDG’s suit does not affect a collective solution to widespread harms. Its federal claims conflict with no foreign system or proceedings.”

“… In this case, American law applies. The contract unambiguously provided that rights and obligations related to the lease ‘shall be determined exclusively in accordance with the governing laws of the State of Florida, irrespective of conflicts of laws principles.’ It may be true that adjudication in federal court could require some application of Belizean law in determining whether Fonseca acted with the authority to bind the Government to the Master Lease Agreement. But federal courts regularly interpret and apply foreign law without offending international interests. See Fed. R. Civ. P. 44.1. And the bulk of the law to be applied to the interpretation of the contract in this case plainly is American. In short, we think the district court abused its discretion in determining that Belize’s preference for ‘seeing that its national laws are properly interpreted’ is the type of strong interest that warrants prospective international comity dismissal.”

“To date, we have reserved prospective international comity abstention for rare (indeed often calamitous) cases in which powerful diplomatic interests of the United States and foreign sovereigns aligned in supporting dismissal. We decline to transform prospective international comity into a forum-selection tool for sovereign litigants to wield in common breach of contract actions. Because neither the United States nor Belize has a strong interest in adjudication of this matter abroad, the district court erred in applying international comity prospectively.” [Slip Op. 5-8]

Therefore, the Court vacates the forum non conveniens dismissal and remands for the district court to determine the effect of the forum selection clause.

Citation: GDG Acquisitions, LLC v. Government of Belize, 749 F.3d 1024 (11th Cir. 2014).

FOREIGN CORRUPT PRACTICES ACT

Eleventh Circuit defines “instrumentality” under the FCPA and provides a list of factors that may be relevant to deciding the issue; affirms the district court’s jury instruction that state-owned or state-controlled companies that provide services to the public may meet the definition of “instrumentality”

Terra Telecommunications Corp. (Terra), a Florida company that purchased phone time from foreign vendors and resold the minutes to customers in the United States, contracted in 2001 with Telecommunications D’Haiti, S.A.M. (Teleco) to buy minutes from Teleco directly.

Mr. Joel Esquenazi, Terra’s majority owner, served as President and Chief Executive Officer. Mr. Carlos Rodriguez, the company’s minority owner, served as Executive Vice President of Operations. James Dickey served as Terra’s general counsel and Antonio Perez as the company’s comptroller.

The relationship of Teleco to the Haitian government was at issue in this case and the government presented evidence of Teleco’s ties to Haiti. Among other witnesses testifying on Teleco’s ownership by Haiti, an expert witness, Luis Gary Lissade, testified regarding Teleco’s history. As per Mr. Lissade’s testimony at Teleco’s formation in 1968, the Haitian government gave the company a monopoly on telecommunication service; a significant tax advantage and the government appointed two members of the board of directors while the President appointed the Director General. In the early 1970s, the National Bank of Haiti gained 97 percent ownership of Teleco. From that time forward, the Haitian President appointed all of Teleco’s board members. When the National Bank of Haiti split into two separate entities, one of which was the Banque de la Republique d`Haiti (BRH), BRH retained ownership of Teleco. In Mr. Lissade’s expert opinion, for the years relevant to this case, Teleco belonged “totally to the state” and “was considered . . . a public entity.” He explained that the anti-corruption law of 2008 cited Teleco as “public administration” and required its agents to declare all assets to avoid secret bribes. Ultimately, Haiti privatized Teleco between 2009 and 2010.

At the time Terra contracted with Teleco, Teleco’s Director General was Patrick Joseph (appointed by then-President Jean-Bertrand Aristide), and the Director of International Relations was Robert Antoine.

By October 2001, Terra owed Teleco over $400,000. At the request of Mr. Esquenazi, Mr. Perez met with Mr. Antoine to negotiate an amortization deal or, alternatively, to offer a side payment. Mr. Antoine rejected the idea of amortization but agreed to a side payment to ease Terra’s debt. The deal, according to Mr. Perez, was that Mr. Antoine would shave minutes from Terra’s bills to Teleco in exchange for receiving from Terra fifty percent of what the company saved. Mr. Antoine suggested that Terra disguise the payments by making them to sham companies. In November 2001, Terra began funneling personal payments to Mr. Antoine using the following subterfuge. Mr. Dickey, on Terra’s behalf, drafted a “consulting agreement” between Terra and a company Mr. Antoine had suggested called J.D. Locator. J.D. Locator, an otherwise insolvent company, was owned by Mr. Antoine’s friend Juan Diaz. During the course of the next several months, Messrs. Rodriguez and Esquenazi authorized payments to J.D. Locator via “check requests,” forms Terra used to write checks without invoices. Mr. Diaz retained ten percent of the funds Terra paid J.D. Locator and disbursed the remainder, usually either to Mr. Antoine or his business associate Mr. Fourcand. While Mr. Antoine remained at Teleco, Terra paid him and his associates approximately $822,000. And, during that time, Terra’s bills were reduced by over $2 million.

In 2003, Mr. Antoine was replaced by Jean Rene Duperval. Mr. Esquenazi helped Mr. Duperval to form a shell company, Telecom Consulting Service Corporation (TCSC), through which Esquenazi ultimately would make side payments to Mr. Duperval. TCSC’s president was Marguerite Grandison, Mr. Duperval’s sister. Ms. Grandison executed a “commission agreement” with Terra, which Mr. Esquenazi signed. On November 20, Mr. Rodriguez authorized the first transfer, $15,000, to TCSC. Over the next five months, although Terra received no invoices to reflect money owed TSCS, Terra made six additional transfers to TCSC totaling $60,000. Ms. Grandison then disbursed money from TCSC’s account to Mr. Duperval and his associates.

In December 2009, a grand jury indicted Messrs. Esquenazi and Rodriguez on 21 counts, involving conspiracy, violation of Foreign Corrupt Practices Act, and money-laundering. Messrs. Esquenazi and Rodriguez appeal.

The U.S. Court of Appeals for the Eleventh Circuit affirms the grand jury convictions and sentences imposed. The key issue here is whether a state-owned entity is an instrumentality of a foreign government under the FCPA.

“The FCPA prohibits ‘any domestic concern’ from ‘mak[ing] use of the mails or any means . . . of interstate commerce corruptly in furtherance of ‘a bribe to’ any foreign official,’ ‘or to ‘any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official,’ for the purpose of ‘influencing any act or decision of such foreign official . . . in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.’ 15 U.S.C. §§ 78dd-2(a)(1), (3). A ‘foreign official’ is ‘any officer or employee of a foreign government or any department, agency, or instrumentality thereof.’ Id. § 78dd-2(h)(2)(A) (emphasis added). The central question before us, and the principal source of disagreement between the parties, is what ‘instrumentality’ means (and whether Teleco qualifies as one).” [Slip op. 4]

“The FCPA does not define the term ‘instrumentality,’ and this Court has not either. For that matter, we know of no other court of appeals who has. The definition matters in this case, in light of the challenges to the district court’s jury instructions on ‘instrumentality’; to the sufficiency of the evidence that Teleco qualified as an instrumentality of the Haitian government; and to Mr. Esquenazi’s contention that the statute is unconstitutionally vague. Before we address these challenges, however, we must define ‘instrumentality’ for purposes of the FCPA.” [Slip op. 4]

“We begin, as we always do when construing statutory text, with the plain meaning of the word at issue. … According to Black’s Law Dictionary, an instrumentality is ‘[a] means or agency through which a function of another entity is accomplished, such as a branch of a governing body.’ ... Webster’s Third New International Dictionary says the word means ‘something that serves as an intermediary or agent through which one or more functions of a controlling force are carried out: a part, organ, or subsidiary branch esp. of a governing body.’ … These dictionary definitions foreclose Mr. Rodriguez’s contention that only an actual part of the government would qualify as an instrumentality — that contention is too cramped and would impede the ‘wide net over foreign bribery’ Congress sought to cast in enacting the FCPA. United States v. Kay, 359 F.3d 738, 749 (5th Cir. 2004). Beyond that argument, the parties do not quibble over the phrasing of these definitions, and they agree an instrumentality must perform a government function at the government’s behest. The parties also agree, however, and we have noted in other cases interpreting similar provisions, that the dictionary definitions get us only part of the way there. See Edison v. Douberly, 604 F.3d 1307, 1309 (11th Cir. 2010) (recognizing the Second Circuit’s conclusion that ‘instrumentality’ is ‘a word susceptible of more than one meaning’ (citing Green v. New York, 465 F.3d 65, 79 (2d Cir. 2006)). Thus, we turn to other tools to decide what ‘instrumentality’ means in the FCPA.” [Slip op. 4-5]

Before defining the “instrumentality” the court analyzes different sources.

“To interpret ‘instrumentality’ as used in the Americans with Disabilities Act, we relied upon what the Supreme Court has called the ‘common sense cannon of noscitur a sociis,’ United States v. Williams, 553 U.S. 285, 294, 128 S. Ct. 1830, 1839 (2008) — that is,’ ‘a word is known by the company it keeps.’’…. In the FCPA, the company ‘instrumentality’ keeps is ‘agency’ and ‘department,’ entities through which the government performs its functions and that are controlled by the government. We therefore glean from that context that an entity must be under the control or dominion of the government to qualify as an ‘instrumentality’ within the FCPA’s meaning. And we can also surmise from the other words in the series along with ‘instrumentality’ that an instrumentality must be doing the business of the government. What the defendants and the government disagree about, however, is what functions count as the government’s business.” [Slip op. 5]

“To answer that question, we examine the broader statutory context in which the word is used. … In this respect, we find one other provision of the FCPA and Congress’s relatively recent amendment of the statute particularly illustrative. First, the so-called “grease payment” provision establishes an ‘exception’ to FCPA liability for ‘any facilitating or expediting payment to a foreign official . . . the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official.’ 15 U.S.C. § 78dd-2(b). ‘Routine governmental action’ is defined as ‘an action . . . ordinarily and commonly performed by a foreign official in,’ among other things, ‘providing phone service.’ Id. § 78dd-2(h)(4)(A). If an entity involved in providing phone service could never be a foreign official so as to fall under the FCPA’s substantive prohibition, there would be no need to provide an express exclusion for payments to such an entity. In other words, if we read ‘instrumentality,’ as the defendants urge, to categorically exclude government-controlled entities that provide telephone service, like Teleco, then we would render meaningless a portion of the definition of ‘routine governmental action’ in section 78dd-2(b). ‘It is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word.’ Regions Hosp. v. Shalala, 522 U.S. 448, 467, 118 S. Ct. 909, 920 (1998) (citation omitted).Thus, that a government-controlled entity provides a commercial service does not automatically mean it is not an instrumentality. In fact, the statute expressly contemplates that in some instances it would.” [Slip op. 5-6]

“Next, we turn to Congress’s 1998 amendment of the FCPA, enacted to ensure the United States was in compliance with its treaty obligations. That year, the United States ratified the Organization for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), Dec. 17, 1997, S. Treaty Doc. No. 105-43, 37 I.L.M. 1 (ratified Dec. 8, 1998, entered into force Feb. 15, 1999). See International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366, 112 Stat. 3302 (implementing changes to the FCPA pursuant to the United States’ obligations under the OECD Convention). In joining the OECD Convention, the United States agreed to ‘take such measures as may be necessary to establish that it is a criminal offence under [United States] law for any person intentionally to offer, promise or give . . . directly or through intermediaries, to a foreign public official . . . in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business.’ OECD Convention art. 1.1 (emphasis added). ‘Foreign public official’ is defined to include ‘any person exercising a public function for a foreign country, including for a . . . public enterprise.’ Id. art. 1.4(a). The commentaries to the OECD Convention explain that: ‘A public enterprise’ is any enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence.” Id. art. 1.4, cmt. 14. The commentary further explains: ‘An official of a public enterprise shall be deemed to perform a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.” Id. art. 1.4, cmt. 15. In addition to this, the OECD Convention also requires signatories make it a crime to pay bribes to agents of any’ public international organisation.’ Id. art. 1.4(a).” [Slip op. 6]

“To implement the Convention’s mandates, Congress amended the FCPA in 1998. See Pub. L. No. 105-366, 112 Stat. 3302. The only change to the definition of ‘foreign official’ in the FCPA that Congress thought necessary was the addition of ‘public international organization.’ 15 U.S.C. 78dd-2(h)(2)(A). This seems to demonstrate that Congress considered its preexisting definition already to cover a ‘foreign public official’ of an ‘enterprise . . . over which a government . . . exercise[s] a dominant influence’ that performs a ‘public function’ because it does not ‘operate[] on a normal commercial basis . . . substantially equivalent to that of . . . private enterprise[s]’ in the relevant market ‘without preferential subsidies or other privileges.’ OECD Convention art. 1.4(a) & cmt. 14, 15.Although we generally are wary of relying too much on later legislative developments to decide a prior Congress’ legislative intent, the circumstances in this case cause us less concern in that regard. This is not an instance in which Congress merely discussed previously enacted legislation and possible changes to it. Rather, Congress did make a change to the FCPA, and it did so specifically to ensure that the FCPA fulfilled the promise the United States made to other nations when it joined the Convention. The FCPA after those amendments is a different law, and we may consider Congress’s intent in passing those amendments as strongly suggestive of the meaning of ‘instrumentality’ as it exists today.” [Slip op. 6]

“We are not alone in finding instruction from the obligations the United States undertook in the OECD Convention and Congress’s resulting amendment of the FCPA made in order to comply with those obligations. The Fifth Circuit, in United States v. Kay [359 F.3d 738 (5th Cir. 2004)], concluded that, when Congress amended the FCPA to comply with the duties the United States assumed under the OECD Convention and left intact the FCPA’s language outlawing bribery for the purpose of ‘obtaining or retaining business,’ the preexisting language should be construed to cover the Convention’s mandate that signatories prohibit bribery’ ‘to obtain or retain business or other improper advantage in the conduct of international business.’’ 359 F.3d at 754 (quoting OECD Convention art. 1.1) … ‘Indeed, given the United States’s ratification and implementation of the Convention without any reservation, understandings or alterations specifically pertaining to its scope,’ the Fifth Circuit concluded the defendants’ narrow construction of the FCPA ‘would likely create a conflict with our international treaty obligations, with which we presume Congress meant to fully comply.’ Id. at 755 n.68.” [Slip op. 6-7]

“Indeed, since the beginning of the republic, the Supreme Court has explained that construing federal statutes in such a way to ensure the United States is in compliance with the international obligations it voluntarily has undertaken is of paramount importance. ‘If the United States is to be able to gain the benefits of international accords and have a role as a trusted partner in multilateral endeavors, its courts should be most cautious before interpreting its domestic legislation in such manner as to violate international agreements.’ Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 539, 115 S. Ct. 2322, 2329 (1995); see also Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804) (‘an act of Congress ought never to be construed to violate the law of nations if any other possible construction remains’). We are thus constrained to interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.”[Slip op. 7]

“Based upon this reading, we must also reject the invitation from Messrs. Esquenazi and Rodriguez to limit the term only to entities that perform traditional, core government functions. Nothing in the statute imposes this limitation. And were we to limit ‘instrumentality’ in the FCPA in that way, we would put the United States out of compliance with its international obligations. See OECD Convention art. 1.4, cmt. 12 (designating as a ‘public function’’ any activity in the public interest, delegated by a foreign country’ …” [Slip op. 7]

“The Supreme Court has cautioned that ‘the concept of a ‘usual’ or a ‘proper’ governmental function changes over time and varies from nation to nation.” First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 634 n.27, 103 S. Ct. 2591, 2603 n.27 (1983). That principle guides our construction of the term ‘instrumentality.’ Specifically, to decide in a given case whether a foreign entity to which a domestic concern makes a payment is an instrumentality of that foreign government, we ought to look to whether that foreign government considers the entity to be performing a governmental function. And the most objective way to make that decision is to examine the foreign sovereign’s actions, namely, whether it treats the function the foreign entity performs as its own. Presumably, governments that mutually agree to quell bribes flowing between nations intend to prevent distortion of the business they conduct on behalf of their people. We ought to respect a foreign sovereign’s definition of what that business is. Thus, for the United States government to hold up its end of the bargain under the OECD Convention, we ought to follow the lead of the foreign government itself in terms of which functions it treats as its own.” [Slip op. 7-8]

“Although we believe Teleco would qualify as a Haitian instrumentality under almost any definition we could craft, we are mindful of the needs of both corporations and the government for ex ante direction about what an instrumentality is. With this guidance, we define instrumentality as follows. An ‘instrumentality’ under section 78dd-2(h)(2)(A) of the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. Because we only have this case before us, we do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.”[Slip op. 8]

“To decide if the government ‘controls’ an entity, courts and juries should look to the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed. We do not cut these factors from whole cloth. Rather, they are informed by the commentary to the OECD Convention the United States ratified. See OECD Convention, art. 1.4, cmt.14 (stating that an entity is ‘deemed’ to be under governmental control ‘inter alia, when the government or governments hold the majority of the enterprise’s subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise’s administrative or managerial body or supervisory board’). They are also consistent with the approach the Supreme Court has taken to decide if an entity is an agent or instrumentality of the government in analogous contexts. See Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 394, 397-99, 115 S. Ct. 961, 972-74 (1995) (concluding Amtrak was an ‘agency or instrumentality of the United States’ because, among other things, it was created by federal statute and a majority of its directors were to be appointed by the President); Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536, 539, 66 S. Ct. 729, 730 (1946) (‘[Because Reconstruction Finance Corporation’s (RFC)] Directors are appointed by the President and affirmed by the Senate; its activities are all aimed at accomplishing a public purpose; all of its money comes from the Government; its profits, if any, go to the Government; [and] its losses the Government must bear[, t]hat the Congress chose to call it a corporation does not alter its characteristics so as to make it something other than what it actually is, an agency selected by Government to accomplish purely governmental purposes.’); Reconstruction Fin. Corp. v. J.G. Menihan Corp., 312 U.S. 81, 83, 61 S. Ct. 485, 486 (1941) (concluding RFC was a ‘corporate agency of the government’ because the United States was the ‘sole stockholder’ and the entity was ‘managed by a board of directors appointed by the President,’ even though ‘its transactions [were] akin to those of private enterprises’ and nothing in its organic statute indicated it was an instrumentality of the government).” [Slip op. 8]

“We then turn to the second element relevant to deciding if an entity is an instrumentality of a foreign government under the FCPA — deciding if the entity performs a function the government treats as its own. Courts and juries should examine whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function. Just as with the factors indicating control, we draw these in part from the OECD Convention. See OECD Convention art. 1.4, cmt. 15 (‘[A] public enterprise shall be deemed to perform a public function, ‘if it does not ‘operate [] on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.’); see also id. art. 1.4, cmt. 12 (“Public function’ includes any activity in the public interest, delegated by a foreign country . . . .’). And we draw them from Supreme Court cases discussing what entities properly can be considered carrying out governmental functions. See Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass’n, 531 U.S. 288, 295-97, 121 S. Ct. 924, 930-31 (2001) (describing situations in which the Court has held ‘seemingly private behavior may be fairly treated as that of the State itself,’ recognizing that decision as ‘a matter of normative judgment [whose] criteria lack rigid simplicity,’ and including among the relevant factors whether ‘the State provides significant encouragement, either overt or covert’ and if the entity ‘serve[s a] public purpose [such as] providing community recreation’ …).” [Slip op. 8-9]

The Court then examines Messrs. Esquenazi and Rodriguez’ assertion that the district court erred when instructing the jury with respect to whether Telco was an instrumentality of the Haitian government. As per district court’s instruction to the jury:

“An instrumentality of a foreign government is a means or agency through which a function of the foreign government is accomplished. State-owned or state-controlled companies that provide services to the public may meet this definition.” [Slip op. 9]

“To decide whether Telecommunications D’Haiti or Teleco is an instrumentality of the government of Haiti, you may consider factors including, but not limited to:

One, whether it provides services to the citizens and inhabitants of Haiti.

Two, whether its key officers and directors are government officials or are appointed by government officials.

Three, the extent of Haiti’s ownership of Teleco, including whether the Haitian government owns a majority of Teleco’s shares or provides financial support such as subsidies, special tax treatment, loans or revenue from government mandated fees.

Four, Teleco’s obligations and privileges under Haitian law, including whether Teleco exercises exclusive or controlling power to administer its designated functions.

And five, whether Teleco is widely perceived and understood to be performing official or governmental functions.” [Slip op. 10]

“Both Mr. Esquenazi and Mr. Rodriguez contend these instructions caused the jury to convict them based only on the fact that Teleco was a government-owned entity that performed a service, without any determination that the service it performed was a governmental function. We cannot agree. Read in context, the district court’s instructions make plain that provision of a service by a government-owned or controlled entity is not by itself sufficient. The district court explained only that an entity that provides a public service “may” meet the definition of ‘instrumentality,’ thus indicating that providing a service is not categorically excluded from ‘a function of the foreign government.’ But the sentence just before explained with no equivocation that only ‘a means or agency [that performs] a function of the foreign government’ would qualify as an instrumentality. Although, read in isolation, the portions of the instruction addressing the provision of services could sweep too broadly, when constrained by the actual definition of ‘instrumentality’ the district court gave and the other guiding factors the district court outlined, we find no error in these instructions. Indeed, they substantially cover the factors we previously outlined. The instructions, we conclude, neither misstated the law nor prejudicially misled the jury regarding the definition of ‘instrumentality.’ …” [Slip op. 10]

“[…] Messrs. Esquenazi and Rodriguez also argue the evidence was insufficient to demonstrate that Teleco was an instrumentality of the Haitian government. We review the sufficiency of the evidence de novo, “‘viewing the evidence and taking all reasonable inferences in favor of the jury’s verdict.’ … In light of our construction of the term, we have little difficulty concluding sufficient evidence supported the jury’s necessary finding that Teleco was a Haitian instrumentality.” [Slip op. 10]

“From Teleco’s creation, Haiti granted the company a monopoly over telecommunications service and gave it various tax advantages. Beginning in early 1970s, and through the years Messrs. Esquenazi and Rodriguez were involved, Haiti’s national bank owned 97 percent of Teleco. The company’s Director General was chosen by the Haitian President with the consent of the Haitian Prime Minister and the ministers of public works and economic finance. And the Haitian President appointed all of Teleco’s board members. The government’s expert testified that Teleco belonged ‘totally to the state’ and ‘was considered . . . a public entity.’ Although the expert also testified that ‘[t]here was no specific law that . . . decided that at the beginning that Teleco is a public entity,’ he maintained that ‘government, officials, everyone consider[ed] Teleco as a public administration.’ Construed in the light most favorable to the jury’s verdict, that evidence was sufficient to show Teleco was controlled by the Haitian government and performed a function Haiti treated as its own, namely, nationalized telecommunication services.” [Slip op. 10-11]

“Mr. Esquenazi alone challenges the FCPA as unconstitutionally vague as applied to him. Mr. Esquenazi’s only contention, however, is that the statute would be vague if we interpreted “instrumentality” to include state-owned enterprises that do not perform a governmental function. But we have not. Our definition of ‘instrumentality’ requires that the entity perform a function the government treats as its own. Although we recognize there may be entities near the definitional line for ‘instrumentality’ that may raise a vagueness concern, non-speech vagueness challenges are only cognizable as applied. See United States v. Mazurie, 419 U.S. 544, 550, 95 S. Ct. 710, 714 (1975) (‘[V]agueness challenges to statutes which do not involve First Amendment freedoms must be examined in the light of the facts of the case at hand.’). Because the entity to which Mr. Esquenazi funneled bribes was overwhelmingly majority-owned by the state, had no fisc independent of the state, had a state-sanctioned monopoly for its activities, and was controlled by a board filled exclusively with government-appointed individuals, the FCPA is not vague as applied to his conduct. See Parker v. Levy, 417 U.S. 733, 756, 94 S. Ct. 2547, 2562 (1974) (‘One to whose conduct a statute clearly applies may not successfully challenge it for vagueness.’).” [Slip op. 11]

Messrs. Esquenazi and Rodriguez also directed their challenges at the knowledge element of the FCPA in the district court’s jury instructions.

“In its instructions, the district court told the jury that knowledge was an essential element of each FCPA charge, and that, to convict on the FCPA charges, the jury had to find each bribe payment was ‘made to any person while knowing that all or a portion of such money or thing of value will be offered, given or promised directly or indirectly to any foreign official.’ The district court explained that ‘knowing’ meant actual knowledge or a firm belief of the existence of a particular circumstance or result. Messrs. Esquenazi and Rodriguez contend this instruction was erroneous because it misled the jury to believe it could convict if either knew their intermediary (namely, Grandison at TCSC) would make a payment to a person who just ‘happened’ to be a foreign official without their prior knowledge. In other words, they argue, the instruction failed to make clear that they must have known the recipient of the bribe payment would be a foreign official.” [Slip op. 11-12]

“We conclude there was no error here, plain or otherwise. The court’s instructions, read in their entirety, make clear the jury had to find Messrs. Esquenazi and Rodriguez knew or believed the bribes would ultimately reach the hands of a foreign official. The court listed as one of the essential elements of the FCPA charges ‘that the payment or gift was to a foreign official or to any person while the defendant knew that all or a portion of the payment or gift would be offered, given or promised, directly or indirectly to a foreign official.’ This statement, as well as the court’s definition of ‘knowing,’ directly tracked the FCPA’s language. See 15 U.S.C. § 78dd-2(a)(3), (h)(3)(A). The instruction was a correct legal statement, was clearly delivered, and nothing in its language was misleading to the jury.” [Slip op. 12]

The Court affirms the convictions and sentences.

Citation: United States v. Esquenazi et al., 752 F.3d 912 (11^th Cir. 2014).

FREEDOM OF INFORMATION ACT (FOIA)

Second Circuit reviews FOIA request for information related to targeted killings of U.S. citizens by drones; officials made public statements that resulted in a waiver of a FOIA exemption that would have otherwise protected part of a Memorandum

The following case concerns an information request based on the Freedom of Information Act (FOIA), asking for documents about the death of the U.S. citizens Anwar al-Awlaki, Samir Khan and Abdulrahman al-Awlaki (son of Anwar) in 2011. In particular, the Plaintiffs sought documents prepared by the Department of Justice (DOJ) Office of Legal Counsel (OLC) about the lawfulness of the drone strikes. The Plaintiffs do not challenge the lawfulness of the drone strikes.

The case requires the Second Circuit to address the conflicting issues of public access to Government records and the Executive’s attempts to maintain secrecy about national security.

It all began with partially unsuccessful FOIA requests: First, in June 2010, two New York Times reporters, Charlie Savage and Scott Shane (jointly “N.Y. Times”) submitted separate requests for OLC memos regarding the legality of targeting U.S. citizens abroad. The OLC refused to provide the requested information.

“With respect to the portion of his request that pertained to DOD, OLC initially submitted a so-called ‘no number, no list’ response instead of submitting the usual Vaughn index, numbering and identifying by title and description documents that are being withheld and specifying the FOIA exemptions asserted. A no number, no list response acknowledges the existence of documents responsive to the request, but neither numbers nor identifies them by title or description. OLC said that the requested documents pertaining to DOD were being withheld pursuant to FOIA exemptions 1, 3, and 5.” [Slip op. 4]

“As to documents pertaining to agencies other than DOD, OLC submitted a so-called ‘Glomar response.’ This type of response neither confirms nor denies the existence of documents responsive to the request. See Wilner v. National Security Agency, 592 F.3d 60, 68 (2d Cir. 2009). OLC stated that the Glomar response was given ‘because the very fact of the existence or nonexistence of such documents is itself classified, protected from disclosure by statute, and privileged’ under 5 U.S.C. § 552(b)(1), (3), (5). CIA confirmed that it requested DOJ to submit a Glomar response on its behalf.” [Slip op. 4]

“OLC also denied Savage’s request. Declining to submit either a Vaughn index or even a no number, no list response, OLC submitted a Glomar response, stating that, pursuant to Exemptions 1, 3, and 5, it was neither confirming nor denying the existence of documents described in the request. Unlike its letter denying the Shane request, OLC’s response to the Savage request did not identify any responsive documents relating to DOD.” [Slip op. 4] (footnotes omitted)

Second, in October 2011, the American Civil Liberties Union Foundation (ACLU) submitted FOIA requests to the DOJ, the Department of Defense (DOD), and the Central Intelligence Agency (CIA) on the subject of targeted killings of U.S. citizens, and the killings of al-Awlaki, his son, and Khan.

DOJ and CIA initially submitted Glomar responses, refusing to confirm or deny the existence of responsive documents. DOD initially stated that it could not respond within the statutory time period because of the complexity of the request. The Government agencies modified their responses slightly during the course of the litigation.

The N.Y. Times and the ACLU filed separate lawsuits in 2011 and 2012, respectively, which were eventually consolidated.

In January 2013, the U.S. District Court for the Southern District of New York dismissed the consolidated FOIA lawsuits upon motions for summary judgment. The N.Y. Times and the ACLU appealed.

The U.S. Court of Appeals for the Second Circuit affirms in part, reverses in part, and remands.

While FOIA requires the Government to disclose information, there are exemptions:

“Exemption 1 exempts records that are ‘(A) specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy and (B) are in fact properly classified pursuant to such Executive order.’ 5 U.S.C. § 552(b)(1) (2013). Executive Order 13526 allows an agency to withhold information that (1) ‘pertains to’ one of the categories of information specified in the Executive order, including ‘intelligence activities (including covert action),’’ intelligence sources or methods,’ or ‘foreign relations or foreign activities of the United States’ and (2) if ‘unauthorized disclosure of the information could reasonably be expected to cause identifiable and describable damage to the national security.’ Executive Order No. 13526 § 1.1(a)(3)-(4), 1.4(c)-(d), 75 Fed. Reg. 708, 709 (Dec. 29, 2009).” [Slip op. 3]

“Exemption 3 exempts records that are ‘specifically exempted from disclosure by [another] statute’ if the relevant statute either ‘requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue’ or ‘establishes particular criteria for withholding or refers to particular types of matters to be withheld.’ 5 U.S.C. § 552(b)(3)(A)(i), (ii) (2013). Two such statutes are potentially relevant here. The Central Intelligence Agency Act of 1949, as amended, provides that the Director of National Intelligence ‘shall be responsible for protecting intelligence sources or methods,’ and exempts CIA from ‘any other law which require[s] the publication or disclosure of the organization, functions, names, official titles, salaries, or numbers of personnel employed by the Agency.’ 50 U.S.C. § 3507 (2013). The National Security Act of 1947, 50 U.S.C. § 3024-1(i)(1) (2013), exempts from disclosure ‘intelligence sources and methods.’” [Slip op. 3]

“Exemption 5 exempts ‘inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.’ 5 U.S.C. § 552(b)(5) (2013). Exemption 5 encompasses traditional common law privileges against disclosure, including the attorney-client and deliberative process privileges. See National Council of La Raza v. Dep’t of Justice, 411 F.3d 350, 356 (2d Cir. 2005).” [Slip op. 3]

The Court then focuses on the OLC-DOD Memorandum, which the U.S. Department of Defense marked “classified” because it contains confidential legal advice regarding a potential military operation in a foreign country. OLC withheld the Memorandum based on Exemption 5 “because it is protected by the deliberative process and attorney-client privileges.” DOD withheld the Memorandum based on Exemptions 1 and 5 “because the content of the document contains information about military operations, intelligence sources and methods, foreign government information, foreign relations, and foreign activities.”

The Court agrees with the District Court’s conclusions that the OLC-DOD Memorandum was properly classified and that no waiver of any operational details in that document had occurred. As to the Memorandum’s legal analysis, a waiver of Exemptions 1 and 5 has occurred. The Court notes that voluntary disclosures of all or part of a document may waive an otherwise valid FOIA exemption.

The Court then analyzes the lost exemptions 5 and 1.

“Exemption 5’ ‘properly construed, calls for disclosure of all opinions and interpretations which embody the agency’s effective law and policy, and the withholding of all papers which reflect the agency’s group thinking in the process of working out its policy and determining what its law shall be.’’ …” [Slip op. 11]

“In considering waiver of the legal analysis in the OLC-DOD Memorandum, we note initially the numerous statements of senior Government officials discussing the lawfulness of targeted killing of suspected terrorists, which the District Court characterized as ‘an extensive public relations campaign to convince the public that [the Administration’s] conclusions [about the lawfulness of the killing of al-Awlaki] are correct.’ … In a March 25, 2010, speech at the annual meeting of the American Society of International Law in Washington, D.C., then-Legal Adviser of the State Department Harold Hongju Koh said, ‘U.S. targeting practices, including lethal operations conducted with the use of unmanned aerial vehicles, comply with all applicable law, including the laws of war.’ … In a February 22, 2012, speech at the Yale Law School, Jeh Johnson, then-General Counsel of DOD, ‘summarize[d] . . . some of the basic legal principles that form the basis for the U.S. military’s counterterrorism efforts against Al Qaeda and its associated forces,’ … and referring explicitly to ‘targeted killing,’ said, ‘In an armed conflict, lethal force against known, individual members of the enemy is a long-standing and long-legal practice,’ …” […] [Slip op. 11]

“In an April 30, 2012, speech at the Wilson Center in Washington D.C., John O. Brennan, then-Assistant to the President for Homeland Security and Counterterrorism, said, ‘Yes, in full accordance with the law, and in order to prevent terrorist attacks on the United States and to save American lives, the United States Government conducts drone strikes against specific al-Qaida terrorists, sometimes using remotely piloted aircraft, often referred to publicly as drones.’ … On Feb. 7, 2013, Brennan, testifying on his nomination to be director of CIA, said, ‘The Office of Legal Counsel advice establishes the legal boundaries within which we can operate.’ ….” [Slip op. 11]

“Even if these statements assuring the public of the lawfulness of targeted killings are not themselves sufficiently detailed to establish waiver of the secrecy of the legal analysis in the OLC-DOD Memorandum, they establish the context in which the most revealing document, disclosed after the District Court’s decision, should be evaluated. That document is the DOJ White Paper, officially released on Feb. 4, 2013. … Before considering the relevance of the DOJ White Paper to the Government’s claim to continued secrecy and privilege of the legal analysis in the OLC-DOD Memorandum, we describe that Memorandum, which we have examined in camera, in some detail.” [Slip op. 12]

“The OLC-DOD Memorandum is a 41-page classified document, dated July 16, 2010, captioned:” [Slip op. 12]

“MEMORANDUM FOR THE ATTORNEY GENERAL … It was prepared on the letterhead of OLC and signed by David J. Barron, Acting Assistant Attorney General.” [Slip op. 12]

 “The OLC-DOD Memorandum has several parts. After two introductory paragraphs, Part I(A) reports [redacted]. Parts I(B) and I(C) describe [redacted]. Part II(A) considers [redacted]. Part II(B) explains [redacted]. Part III(A) explains [redacted], and Part III(B) explains [redacted]. Part IV explains [redacted]. Part V explains [redacted]. Part VI explains [redacted].” [Slip op. 13]

“The 16-page, single-spaced DOJ White Paper [redacted] in its analysis of the lawfulness of targeted killings. [redacted] The DOJ White Paper explains why targeted killings do not violate 18 U.S.C. §§ 1119 or 2441, or the Fourth and Fifth Amendments to the Constitution, and includes an analysis of why section 1119 encompasses the public authority justification. ….” [Slip op. 13]

“After senior Government officials have assured the public that targeted killings are ‘lawful’ and that OLC advice ‘establishes the legal boundaries within which we can operate,’ and the Government makes public a detailed analysis [redacted], waiver of secrecy and privilege as to the legal analysis in the Memorandum has occurred.” […] [Slip op. 13]

“In resisting disclosure of the OLC-DOD Memorandum, the Government contends that making public the legal reasoning in the document will inhibit agencies throughout the Government from seeking OLC’s legal advice. The argument proves too much. If this contention were upheld, waiver of privileges protecting legal advice could never occur. In [National Council of La Raza v. Dep’t of Justice, 411 F.3d 350, 356 (2d Cir. 2005)], we explained that ‘[l]ike the deliberative process privilege, the attorney-client privilege may not be invoked to protect a document adopted as, or incorporated by reference into, an agency’s policy.’ 411 F.3d at 360. Here, the Government has done so by publicly asserting that OLC advice ‘establishes the legal boundaries within which we can operate’; it ‘cannot invoke that relied-upon authority and then shield it from public view.’ … Agencies seeking OLC legal advice are surely sophisticated enough to know that in these circumstances attorney/client and deliberative process privileges can be waived and the advice publicly disclosed. We need not fear that OLC will lack for clients.” [Slip op. 13]

“The Government also argues that because the OLC-DOD Memorandum refers to earlier OLC documents that remain classified, those assessing the legal reasoning in the OLC-DOD Memorandum might find the reasoning deficient without an opportunity to see the previous documents. However, the reasoning in the OLC-DOD Memorandum is rather elaborate, and readers should have no difficulty assessing the reasoning on its own terms. Moreover, the Government had no similar concern when it released the DOJ White Paper, the reasoning of which cannot be properly assessed, on the Government’s argument, without seeing the OLC-DOD Memorandum. Finally, the Government always has the option of disclosing redacted versions of previous OLC advice.” [Slip op. 13-14]

“The loss of protection for the legal analysis in the OLC-DOD Memorandum does not mean, however, that the entire document must be disclosed. FOIA provides that ‘[a]ny reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection.’ 5 U.S.C. § 552b. The Government’s waiver applies only to the portions of the OLC-DOD Memorandum that explain legal reasoning. These are Parts II, III, IV, V, and VI of the document, and only these portions will be disclosed. Even within those portions of the document, there are matters that the Government contends should remain secret for reasons set forth in the Government’s classified ex parte submission, which we have reviewed in camera.” [Slip op. 14]

“One of those reasons concerns [redacted] the Government persuasively argues warrants continued secrecy. [redacted] We will redact all references to that [redacted].” […][Slip op. 14] (footnotes omitted)

As for exemption 1, the Court reasons:

“Much of the above discussion concerning loss of Exemption 5 is applicable to loss of Exemption 1. As the District of Columbia Circuit has noted, ‘Ultimately, an agency’s justification for invoking a FOIA exemption is sufficient if it appears ‘logical’ or ‘plausible.’’ …” […] [Slip op. 14]

“We recognize that in some circumstances the very fact that legal analysis was given concerning a planned operation would risk disclosure of the likelihood of that operation, but that is not the situation here where drone strikes and targeted killings have been publicly acknowledged at the highest levels of the Government. We also recognize that in some circumstances legal analysis could be so intertwined with facts entitled to protection that disclosure of the analysis would disclose such facts. Aware of that possibility, we have redacted, as explained above, the entire section of the OLC-DOD Memorandum that includes any mention of intelligence gathering activities. [redacted]” [Slip op. 15]

“The three-part test for ‘official’ disclosure, relevant to Exemption 1, which the District Court took from [Wilson v. CIA, 586 F.3d 171 (2d Cir. 2009)], has been sufficiently satisfied. [redacted] is’ ‘as specific as the information previously released’’ [redacted], it ‘`match[es] the information previously disclosed,’’ and was ‘`made public through an official and documented disclosure.’’ Dist. Ct. Op., 915 F.3d at 536 … In reaching this conclusion, we do not understand the ‘matching’ aspect of the Wilson test to require absolute identity. Indeed, such a requirement would make little sense. A FOIA requester would have little need for undisclosed information if it had to match precisely information previously disclosed.” [Slip op. 15]

“With the redactions and public disclosures discussed above, it is no longer either ‘logical’ or ‘plausible’ to maintain that disclosure of the legal analysis in the OLC-DOD Memorandum risks disclosing any aspect of ‘military plans, intelligence activities, sources and methods, and foreign relations.’ The release of the DOJ White Paper, discussing why the targeted killing of al-Awlaki would not violate several statutes, makes this clear. [redacted] in the OLC-DOD Memorandum adds nothing to the risk. Whatever protection the legal analysis might once have had has been lost by virtue of public statements of public officials at the highest levels and official disclosure of the DOJ White Paper.” [Slip op. 12] (footnotes omitted) [Slip op. 15]

The Court concludes that:

(1) a redacted version of the OLC-DOD Memorandum must be disclosed, (2) a redacted version of the classified Vaughn index submitted by OLC must be disclosed, (3) the Glomar and “no number, no list” responses are insufficiently justified, (4) DOD and CIA must submit Vaughn indices to the District Court for in camera inspection and determination of appropriate disclosure and appropriate redaction, and (5) the Office of Information Policy (“OIP”) search was sufficient.

NOTE: A second appeal involving this matter is currently pending in the Second Circuit. See The New York Times Company v. United States Department of Justice, Nos. 14-4432-cv(L), 14-4764(Con) (2d. Cir).

Citation: The New York Times Company v. United States Department of Justice, Nos. 13-422(L), 13-445(Con.) (2d Cir. April 21, 2014).

JURISDICTION

In an enforcement of arbitration award proceedings between two foreign corporations (Dutch and Turkish), Second Circuit reviews whether the activities of defendant company’s affiliates are so substantial as to render it “at home” in New York; to subject a company to all purpose general jurisdiction in that state where defendant corporation’s contacts fall short of those required to render it “at home” would deny it due process

Sonera Holding B.V. is a Dutch holding company that negotiated to purchase shares of Çukurova Holding A.S. (Cukurova) in Turkcell Holding A.S (Turkcell Holding), a Turkish joint stock company that owns a controlling stake in Turkey’s largest mobile phone operator.

The negotiations failed and in 2005, pursuant to a letter agreement, the parties began arbitration before an arbitration tribunal in Geneva, Switzerland. After protracted proceedings, in 2011, the tribunal found that the parties concluded a share purchase agreement, and ordered Cukurova to pay Sonera $932 million in damages for its failure to deliver the shares. Sonera filed applications for enforcement in jurisdictions across the world, including the Southern District of New York.

As a holding company with its registered office in Istanbul, Turkey, Cukurova holds investments in other companies and has no operations and owns no property in New York (or in any other location in the United States). Nonetheless, Sonera asserted that Cukurova is subject to general jurisdiction in New York based on its own actions and the actions of its affiliates. Sonera based its assertion of general jurisdiction on (1) unsuccessful negotiation by Cukurova or one of its affiliates, occurred outside the United States, to sell an interest in Show TV, a Turkish television broadcaster, to two New York-based private equity funds; (2) Cukurova’s sale of American Depository Shares (ADS) in Turkcell to an underwriter in London, which subsequently offered the ADS for sale on the New York Stock Exchange; (3) the agreement of Cukurova’s Turkish affiliate Digiturk to provide digital television content to a U.S.-based company; (4) the use of a New York office by two Turkish companies, Baytur Isaat Taahhut A.S. (Baytur), and Equipment and Parts Export, Inc. (EPE), affiliated with Cukurova; and (5) statements on EPE’s website describing itself as having been founded in New York City and as Cukurova’s gateway to the Americas.

Cukurova contended that the New York court lacked personal jurisdiction over it. The court rejected Cukurova’s contention and held that it had personal jurisdiction over Cukurova based primarily on the New York contacts of several companies with which Cukurova is affiliated. Cukurova appeals.

The U.S. Court of Appeals for the Second Circuit reverses the district court’s judgment denying Cukurova’s motion to dismiss for lack of personal jurisdiction, vacates the subsequent judgments of the district court, remands the case to the district court, and directs the court to dismiss the action for lack of personal jurisdiction. The key issue here is whether the activities of company’s affiliates are so substantial as to render it “at home” in New York.

“Personal jurisdiction over a foreign defendant in a federal-question case requires a two-step inquiry. Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 168 (2d Cir. 2013). First, we determine whether the defendant is subject to jurisdiction under the law of the forum state—here, New York. Second, we consider whether the exercise of personal jurisdiction over the defendant comports with the Due Process Clause of the United States Constitution. Id.” [Slip op. 3]

“Sonera asserts that Cukurova is subject to general jurisdiction in New York pursuant to N.Y. C.P.L.R. 301, which confers jurisdiction where a company’ has engaged in such a continuous and systematic course of ‘doing business’ [in New York] that a finding of its ‘presence’ [in New York] is warranted.’ LandoilRes. Corp. v. Alexander & Alexander Servs., 77 N.Y.2d 28, 33 (1990) (citations omitted). In Wiwa v. Royal Dutch Petroleum Co., we reasoned that the continuous course of ‘doing business’ in New York ‘do[es] not necessarily need to be conducted by the foreign corporation itself.’ 226 F.3d 88, 95 (2d. Cir. 2000). Rather, we interpreted New York law to include an agency theory of jurisdiction that subjects a corporation to general jurisdiction when it relies on a New York representative entity to render services on its behalf ‘that go beyond mere solicitation and are sufficiently important to the foreign entity that the corporation itself would perform equivalent services if no agents were available.’ Id.” [Slip op. 3]

Sonera argued that even if Cukurova’s own contacts with New York are insufficient for general jurisdiction, the contacts of Digiturk, Baytur, and EPE must be imputed to Cukurova. These combined contacts with New York render Cukurova subject to the general jurisdiction of New York. Cukurova, however, argued that New York law does not permit personal jurisdiction on these facts and that even if it did, the agency theory of personal jurisdiction is incompatible with due process.

“In the area of personal jurisdiction, ‘[t]he canonical opinion . . . remains International Shoe, in which [the Supreme Court] held that a State may authorize its courts to exercise personal jurisdiction over an out-of-state defendant if the defendant has ‘certain minimum contacts with [the State] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2853 (2011) … (quoting Int’l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945)).”[Slip op. 3]

“There are two types of personal jurisdiction: specific and general. Specific or conduct-linked jurisdiction, which Sonera does not assert, ‘depends on an affiliation[n] between the forum and the underlying controversy, principally, activity or an occurrence that takes place in the forum state and is therefore subject to the State’s regulation.’ … By contrast, general jurisdiction exists only when a corporation’s contacts with a state are ‘so’ continuous and systematic’ as to render [it] essentially at home in the forum State.’ … A court with general jurisdiction over a corporation may adjudicate all claims against that corporation—even those entirely unrelated to the defendant’s contacts with the state.” [Slip op. 3-4]

“The natural result of general jurisdiction’s ‘at home’ requirement is that ‘only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there.’ …. ‘A corporation that operates in many places can scarcely be deemed at home in all of them.’ …. The paradigm forum for general jurisdiction over an individual is the individual’s domicile, his home. For a corporation, it is an equivalent place, with the place of incorporation and the principal place of business being the paradigm bases. ‘Those affiliations have the virtue of being unique—that is, each ordinarily indicates only one place—as well as easily ascertainable.’ …” [Slip op. 4]

“[Daimler v. Baumann, 134 S.Ct. 746 (2014)] expressed doubts as to the usefulness of an agency analysis, like that espoused in Wiwa, that focuses on a forum-state affiliate’s importance to the defendant rather than on whether the affiliate is so dominated by the defendant as to be its alter ego. “[T]he inquiry into importance stacks the deck, for it will always yield a pro-jurisdiction answer: Anything a corporation does through [its affiliate] is presumably something that the corporation would do ‘by other means’ if the [affiliate] did not exist.” Id. at 759. (internal quotation marks omitted).” [Slip op. 4]

“For our purposes, we need not consider whether the agency principles announced in Wiwa survive in light of Daimler. Even assuming that all of Digiturk’s, Baytur’s, and EPE’s contacts should be imputed to Cukurova, the company’s contacts with New York do not come close to making it ‘at home’ there.” […] [Slip op. 4]

“Cukurova is organized under the laws of the Republic of Turkey, with operations, properties, and assets predominantly located in Turkey. New York is neither Cukurova’s place of incorporation nor its primary place of business. Even assuming Digiturk’s, Baytur’s, and EPE’s New York contacts should be imputed to Cukurova, they do not shift the company’s primary place of business (or place of incorporation) away from Turkey. And although Daimler and Goodyear ‘d[o] not hold that a corporation may be subject to general jurisdiction only in a forum where it is incorporated or has its principal place of business,’ Daimler, 134 S. Ct. at 760, those cases make clear that even a company’s ‘engage[ment] in a substantial, continuous, and systematic course of business’ is alone insufficient to render it at home in a forum, Id. at 761. Cukurova’s contacts fall short of those required to render it at home in New York. To subject it to all-purpose general jurisdiction in that state would deny it due process.” [Slip op. 4]

Sonera argued that the court should still affirm the District Court’s decision because Cukurova expressly consented to the forum’s jurisdiction by entering into the March 2005 agreement (the Letter Agreement). The Letter Agreement specifies that any disputes arising out of it are to be settled by arbitration under the rules of the International Chamber of Commerce in Geneva, Switzerland, and that any award of the tribunal shall be final and binding on the parties. As relevant here, Article 5.4(e) of the Letter Agreement further provides as follows:

Any award of the arbitral tribunal may be enforced by judgment or otherwise in any court having jurisdiction over the award or over the person or the assets of the owing Party or Parties. Applications may be made to such court for judicial recognition of the award and/or an order for enforcement, as the case may be.

“Sonera reads this provision as an implicit agreement to waive any defense based on lack of personal jurisdiction and to consent to the jurisdiction of any court in any country in the world with subject matter jurisdiction over enforcement actions brought pursuant to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards—including, under 9 U.S.C. § 203, the United States District Court for the Southern District of New York.” [Slip op. 5]

“We do not read the provision so broadly. Article 5.4(e) appears to be a standard entry-of-judgment clause designed to clarify that, following any arbitration award, a court of the arbitral venue or in any jurisdiction in which the parties ‘persons or assets are located would have jurisdiction to enter judgment on that award. Article 5.4(e) does not speak to personal jurisdiction, and we decline to interpret the provision as Cukurova’s consent to personal jurisdiction in New York.” [Slip op. 5]

The court remands the case to the district court, and directs the court to dismiss the action for lack of personal jurisdiction.

Citation: Sonera Holding B. V. v. Cukurova Holding A.S., 750 F.3d 221(2nd Cir. 2014).