Transnational Litigation and Dispute Resolution Outline
Prof. Schroeder
2 Essay Questions & 1 Other Question
I. Jurisdiction: when we talk about jurisdiction, we are really talking about power; a) power
over the person - power is granted by the constitution, statutes (i.e. long-arm statutes and antitrust/RICO federal laws = gives you treble damages and attorney’s fees!), etc.; raises questions
of fairness, due process (set a boundary on how far the courts can reach - - they don’t give
jurisdiction, they only restrict it), scope of the power; b) power over the subject matter – power
granted by the constitution (Article III), statutes, common law
A. Jurisdiction to Prescribe: the power of the sovereign to review and declare
statutes, etc. of a state/sovereign and declare them invalid/unenforceable; the
sovereign has the power to regulate conduct outside of its borders; it is a
fundamental question that the courts have to grapple with; Do we have subject
matter and personal jurisdiction? Does the sovereign have the right to reach out
beyond its boundaries to regulate the conduct of others; aka extraterritorial
jurisdiction;
U.S. v. Aluminum Co. of America (p. 39): In the opinion of the majority (Learned Hand)
the legality of vertical integration under the Sherman Act turns on (1) the purpose or
intent with which it was conceived, or (2) the power it creates and the attendant
purpose or intent. For U.S. law to apply outside the U.S. (that is, for a safe
assumption that Congress meant the law to be so applied), requires intent to have an
effect on the U.S. AND an actual effect (especially in the areas of anti-trust,
securities, labor, and other interstate & foreign commerce fields = TEST (the test
here shifts the burden of proof re: actual effect to the D). First, it runs afoul of the
Sherman Act if it was a calculated scheme to gain control over an appreciable segment of
the market and to restrain or suppress competition, rather than an expansion to meet
legitimate business needs. Second, a vertically integrated enterprise, like other
aggregations of business units (United States v. Aluminum Co. of America, 2 Cir., 148
F.2d 416), will constitute monopoly which, though unexercised, violates the Sherman Act
provided a power to exclude competition is coupled with a purpose or intent to do so.
Size is itself an earmark of monopoly power for size carries with it an opportunity for
abuse. And the act that the power created by size was utilized in the past to crush or
prevent competition is potent evidence that the requisite purpose or intent attends the
presence of monopoly power. Likewise bearing on the question whether monopoly power
is created by the vertical integration, is the nature of the market to be served (United
States v. Aluminum Co. of America, supra, 148 F.2d at page 430), and the leverage on
the market which the particular vertical integration creates or makes possible.
Patent: A grant by the federal government to an inventor of the right to exclude others from
making, using, or selling his or her invention. There are three kinds of patents in the United
States: a utility patent on the functional aspects of products and processes; a design patent on the
ornamental design of useful objects; and a plant patent on a new variety of a living plant. Patents
do not protect ideas, only structures and methods that apply technological concepts. Each type of
patent confers the right to exclude others from a precisely defined scope of technology, industrial
design, or plant variety. In return for the right to exclude, an inventor must fully disclose the
details of the invention to the public so that others can understand it and use it to further develop
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the technology. Once the patent expires, the public is entitled to make and use the invention and
is entitled to a full and complete disclosure of how to do so.
United States v. Imperial Chemical Industries (p. 42): U.S. court says that U.K. company
cannot assign, grant, use it’s nylon patents in such a way that benefits U.K. firms and not
U.S. firms because it’s patents were gained via conspiracy and in knowing disregard of
U.S. law (esp. Sherman Anti-Trust Act); in short: U.S gets jurisdiction over ICI
because they have business interests here; U.S. says that DuPont used its patents
inappropriately
British Nylon Spinners v. Imperial Chemical Industries, Ltd. I (p. 46): Just a hearing on
the validity of the injunction imposed above. U.K, court says that since both parties
are U.K. firms and not subject to U.S. law, that court’s order is extraterritorial
reaching and cannot be given effect. Therefore, the injunction against ICI would remain
in place until the higher U.K. Court had its say.
British Nylon Spinners v. Imperial Chemical Industries, Ltd. II (p. 49): U.K. court says
that since these are not the same parties that were before the U.S. court, that court’s
findings of a conspiracy and the evidence that goes along with it are inadmissible.
Furthermore, Skadden’s testimony shows that finding in favor of the P’s here would not
be repugnant to the U.S./comity because these are both U.K. parties, regarding U.K.
patents, made and executed in the U.K. So, the D is directed to carry out its business as it
did before the U.S. judgment was issued - - it must perform on it’s contract with P.
Notes: the greater significance of this line of cases is that the U.S. judgment may
have exceeded its jurisdiction and violated international law and therefore should
be disregarded; the jurisdiction of the U.S. Federal Courts under the Anti-Trust
laws is a penal jurisdiction
American Banana Co. v. United Fruit Co. (ref. P. 54): whatever form it takes,
U.S. penal jurisdiction cannot be exercised beyond the limits set to criminal
prosecutions by international law - - that it can’t be exercised against nonAmericans with regard to acts done outside the U.S. (1909) - - no longer good
law
Recent American decisions have invoked the concept of locus delicti (jurisdiction
covers/relates to the place where crime committed; the place of wrong is the state
where the last event necessary to make an actor liable for an alleged tort takes
place); so it is now interpreted that anything which ‘affects’ or ‘concerns’
American trade is deemed to have been done inside the U.S. (this was
reflected in Judge Ryan’s opinion in U.S. v. ICI). This has not been accepted
everywhere in the U.S. and has been rejected internationally as too allencompassing.
§ 402. BASES OF JURISDICTION TO PRESCRIBE
Subject to §403, a state has jurisdiction to prescribe law with respect to:
(1) (a) conduct that, wholly or in substantial part, takes place within its territory;
(b) the status of persons, or interests in things, present within its territory;
(c) conduct outside its territory that has or is intended to have substantial effect within its
territory;
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(2) the activities, interests, status, or relations of its nationals outside as well as within its
territory; and
(3) certain conduct outside its territory by persons not its nationals that is directed against the
security of the state or against a limited class of other state interests.
§ 403. LIMITATIONS ON JURISDICTION TO PRESCRIBE
(1) Even when one of the bases for jurisdiction under §402 is present, a state may not exercise
jurisdiction to prescribe law with respect to a person or activity having connections with
another state when the exercise of such jurisdiction is unreasonable.
(2) Whether exercise of jurisdiction over a person or activity is unreasonable is determined by
evaluating all relevant factors, including, where appropriate:
(a) Degree of conflict with foreign law or policy
(b) Nationality of the parties
(c) Relative importance of the alleged violation of conduct here compared to that abroad
(d) Availability of a remedy abroad and the pendency of litigation there
(e) Existence of intent or harm or affect American commerce and its foreseeability
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(f) Possible effect upon foreign relations if the court exercises jurisdiction and grants
relief
(g) If relief is granted, whether a party will be placed in the position of being forced to
perform an act illegal in either country or be under conflicting requirements by both
countries
(h) Whether the court can make its order effective
(i) Whether an order for relief would be acceptable in this country if made by the foreign
nation under similar circumstances - - created/appears in Timberlane
(j) Whether a treaty with the affected nations has addressed the issue - - created/appears
in Timberlane
(3) When it would not be unreasonable for each of two states to exercise jurisdiction over a
person or activity, but the prescriptions by the two states are in conflict, each state has an
obligation to evaluate its own as well as the other state's interest in exercising jurisdiction,
in light of all the relevant factors, including those set out in Subsection (2); a state should
defer to the other state if that state's interest is clearly greater.
Note: the restatement is given a lot of weight and consulted internationally
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Leasco Data Processing Equipment Corp v. Maxwell (p. 60): the test to exert jurisdiction
here is that 10 SEC Act is much too inconclusive to lead us to believe that Congress
meant to impose rules governing conduct throughout the world in every instance where
an American company bought or sold a security. When no fraud has been practiced in
this country and the purchase or sale has not been made here, we would be hard
pressed to find justification for going beyond Schoenbaum (p. 65).
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Timberlane Lumber Co. v. Bank of America, N.T. & S.A. (p. 69): new three part test to
determine if U.S. jurisdiction can be extended to reach non-American parties/American
parties acting internationally: 1) there must be some effect – actual or intended- on
American foreign commerce before the federal courts may legitimately exercise
subject matter jurisdiction under those statutes; 2) a greater showing of burden or
restraint may be necessary to demonstrate that the effect is sufficiently large to
present a cognizable injury to the P’s and, therefore, a civil violation of the antitrust laws; 3) there is the additional question which is unique to the international
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setting of whether the interests of, and links to, the U.S. – including the magnitude
of the effect on American foreign commerce – are sufficiently strong, vis-à-vis those
of other nations, to justify an assertion of extraterritorial authority. (Notes:
interesting balancing analysis: effect, cognizable effect, comity analysis; American
Banana Case - I’m not responsible your honor, the gov’t made me do it; not accepted by
the judge; on remand, the court found that Timberlane’s complaint satisfies the first part
of the test but fails the last two, which was later reversed. However, the court of appeals,
citing comity and fairness, declined to exercise jurisdiction and dismissed. Uses §403
considerations
Mannington Mills, Inc. v. Congoleum Corp (p. 78): US court does have jurisdiction. US
court has jurisdiction when practices of US citizen abroad has substantial effect on US
foreign commerce under Sherman Act (See Antitrust section) However, as a substantive
defense, the act of state doctrine asserts that there is judicial abstention from inquiry
into validity of act of foreign government. However, the court holds that simply
ministerial acts such as the issue of patents are distinct from discretionary acts such as
expropriation,and does not constitute act of state upon which US courts cannot adjudge.
Congoleum also makes foreign compulsion defense. Foreign compulsion shields parties
from antitrust liability when the parties carried out in obedience to mandate of foreign
government. Where governmental action rises no higher than mere approval, compulsion
defense will not be recognized. It is neccessary that foreign law must have coerced
defendant into violating US antitrust law. Defense is not available if defendant could
have legally refused to accede to foreign power’s wishes. (Notes: export business; D lied
to get patents in 19 other countries) judge here cites Timberlane & uses §403
considerations; this case illustrate that when limitations on US judicial jurisdiction
do not apply, limits on legislative jurisdiction may. Thus, once act of state, FSIA,
and foreign compulsion are declined, the court may still decline adjucation through
a flexible comity analysis
The above line of cases leaves us with 3 standards to assert jurisdiction: they are similar and
together give you something to work with.
1. 2nd Circuit
2. 9th Circuit
3. Restatement 403
European Economic Community (aka European Union): 6 European countries (Belgium, France,
Italy, Luxembourg, the Netherlands, and West Germany (now Germany)) came together
pursuant to the Treaty of Rome to form the EEC; the basic thrust of the venture was to impose
restrictions on trade among the member states, and to implement a common economic
policy (including a common external tariff) vis-à-vis the outside world; number of countries
in the community increased to 9, 10, 12, and now consists of the following; * = of 5/1/04









Austria (EUR)
Belgium (EUR)
Denmark
Finland (EUR)
France (EUR)
Germany (EUR)
Greece (EUR)
Ireland (EUR)
Italy (EUR)
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Slovakia*
Slovenia*
Cyprus (Greek part)*
The Czech Republic*
Estonia*
Hungary*
Latvia*
Lithuania*
Malta*
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Netherlands (EUR)
Sweden
Spain (EUR)
Portugal (EUR)
United Kingdom of Great Britain
and Northern Ireland
Luxembourg (EUR)
Poland*
Summer ‘05
EEC’s Test for Jurisdiction: Article 85 of the EEC Treaty applies to “restrictive practices
which may affect trade between Member States even if the undertakings and associations that are
parties to the restrictive practices are established or have their headquarters outside the
Community, and even if the restrictive practices in question also affect markets outside the
EEC.”
The Wood Pulp Case (p. 97): The Wood Pulp decision is the Court's most recent
statement on the reach of the Community's jurisdiction in competition law. A number of
Finnish, Swedish, American and Canadian wood pulp producers established outside the
EC created a price cartel, eventually charging their customers based within the EC. On 19
December 1984, the Commission issued a Decision establishing several infringements of
Article 85 of the Treaty by the said agreements and concerted practices and imposing
fines. Not less than two-thirds of the total shipment and 60% of the consumption of wood
pulp in the Community had been affected by the alleged restrictive practices. D’s had two
main arguments, one based on Community law, the other on international law; claimed it
would be contrary to international law to regulate conduct restricting competition adopted
outside the territory of the Community merely by reason of the "economic repercussions"
produced within the EC, breach of comity, and other stuff. The Court upheld the
territorial scope of Article 85 of the Treaty as construed by the Commission. Article 85
prohibits all agreements or concerted practices between undertakings "which may affect
trade between Member States and which have as their object or effect the
prevention, restriction, or distortion of competition within the common market...";
the Court starts by stating the fact that as the producers involved in the case are the main
source of supply of wood pulp they would constitute the principal actors of competition
within the Community so the judgment against them should stand. The application of
Article 85 depends not on the place where the agreement at issue is concluded but
solely on the place where the agreement is implemented.The Court leaves open the
question whether or not a rule of non-interference actually exists in public international
law. Nor did the Court see any contradictory duties deriving from differences between
Community law and American law. Finally the Court quickly rejected the argument from
international comity calling for prior disclosure to the states affected. The Court
established that as the Community's jurisdiction does not contravene international
law comity can’t be said to have been violated.
In summary/Analysis: After considering these arguments the Court held that the
decision at issue is covered by Article 85 of the EEC Treaty and does not infringe
public international law or the Free Trade Agreement. On the merits of
competition law the Court assigned the case to a Chamber of the Court. The Wood
Pulp decision is one of the rare examples of the "state" practice exercised by the
Community and its relevant organs pertaining to general public international law.
a) The EEC under Public International Law: The justification for such
application can be, and has been provided in this case by the Advocate
General, in that the Community exercises certain aspects of territorial and
personal sovereignty, as it is endowed with powers transferred to it by the
Member States. The scope of these "constitutional" powers of the
Community limits the range of application of international law. This
boundary may coincide with the limits of the restricted legal personality of
international organizations under public international law.
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b) The Community's Jurisdiction over Foreign Enterprises: According
to Wood Pulp the mere selling of products at coordinated prices to
customers situated in the Community is deemed a sufficient link to found
the Community's jurisdiction without any reference to subsidiaries or other
agents actually under the territorial jurisdiction of the Community. That
appears to be the effects doctrine, as was pointed out by the Advocate
General M. Darmon.
British Airways Board v. Laker Airways, Ltd. (p. 109): the United States against (among
others) the British Airways Board and British Caledonian Airways Ltd. (P’s), in which
the liquidator of Laker (D) alleged a conspiracy among a number of major airlines to
force Laker out of the market for transatlantic flights by predatory low pricing, there
developed a battle of anti-suit injunctions between the courts of this country (the U.K.)
and those of the District of Columbia, where Laker's anti-trust proceedings were brought.
but the matter was laid to rest by the decision of the House of Lords here. The court held
it was the judgment of Judge Wilkey in the District of Columbia Court of Appeals which
was significant. His judgment was most influential in the United States, but there has
nevertheless developed a division of opinion among the Circuits as to the circumstances
in which an anti- suit injunction may be granted. One approach, embodying what Dr.
Collins calls "the stricter standard," is applied by the Second Circuit, the Sixth Circuit
and the District of Columbia Circuit. This is derived from Judge Wilkey's judgment in the
Laker case. It requires that the court should have regard to comity, and should only grant
an anti-suit injunction to protect its own jurisdiction or to prevent evasion of its public
policies. The other approach, embodying what has been called a laxer standard, is applied
in the Fifth, Seventh and Ninth Circuits. On this approach, an anti- suit injunction will be
granted if the foreign proceedings are vexatious, unconscionable, oppressive or will
otherwise cause inequitable hardship. In deciding whether to grant an injunction, the
court will take into account the effect on a foreign sovereign's jurisdiction as one factor
relevant to the grant of relief but will require evidence that comity is likely to be
impaired. The second is the better test and P’s here have not establish
unconscionability or the infringement of an equitable right and therefore are not
entitled to an injunction from an English court.
When the Supreme Court granted review of the Hartford case, much of the argument on the
international aspect of the case focuses on the relative importance under Timberlane of conduct
– clearly in England, versus effect – largely in the U.S. Since both lower courts had accepted
that there was a conflict between the U.S. and English law, not much argument focused on
defining the conflict. In the Supreme Court, however it was precisely the existence or nonexistence of conflict that divided the majority and the dissent.
Hartford Fire Insurance Co. v. California (p. 131): Nineteen States and many private
plaintiffs filed complaints alleging that the defendants -- domestic primary insurers, trade
associations, and a reinsurance broker, along with London-based as well as domestic reinsurers -- violated Section 1 of the Sherman Act, 15 U.S.C. Section 1, by engaging in
various conspiracies aimed at forcing certain other primary insurers to change the terms
of their standard domestic commercial general liability insurance policies. After the
actions were consolidated for litigation, the district court granted the defendants' motion
to dismiss, holding that the conduct alleged fell within the grant of antitrust immunity
contained in Section 2(b) of the McCarran-Ferguson Act, 15 U.S.C. Section 1012(b), and
that none of the conduct amounted to a "boycott" within the meaning of the Section 3(b),
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15 U.S.C. Section 1013(b), exemption to that grant of immunity. The court of appeals
reversed. Held: The plaintiffs sufficiently alleged "boycotts," as used in the
McCarran-Ferguson Act, Section 3(b). Furthermore, international comity does not
counsel against exercising Sherman Act jurisdiction over the conduct of the
London-based defendants. The Court, speaking through Justice Antonin Scalia, held
that a boycott exists when, in order to coerce a target into certain terms on one
transaction, parties refuse to engage in other, unrelated transactions with the target. On
most counts, the plaintiffs' allegations, construed favorably, described boycotts. Justice
David H. Souter wrote for the Court on jurisdiction over foreign conduct, holding that it
was appropriate in this case because there is no true conflict between domestic and
foreign law. That is, because the London re-insurers can comply with both British
law and the Sherman Act so no conflict exists, comity argument is mute, D’s must
abide by Sherman Anti-Trust Act.
B. Personal Jurisdiction: refers to whether the Ct has jurisdiction to decide cases
between the particular parties, or concerning the property, before it. (i.e. Does Ct
X have jurisdiction over D, who is a citizen of State X, but who is temporarily out
of the state?)
Judicial Jurisdiction in the International Context: In theory, standards for jurisdiction of
courts in the U.S. do not allow for discretion. A court either has jurisdiction or it doesn’t. In
contrast, under the English system (except where EEC conventions apply), exercise of
jurisdiction over non-resident parties is always subject to leave of court in the interests of justice,
even if the conditions set out in the Rules of the Supreme Court have been met.
1) While the law – both as to substance and as to procedure – may vary between
two states, the differences are much smaller between any state in the U.S. and
any foreign country. Most notably, every state in the U.S. and (with minor
exceptions) no state outside the U.S., offers trial by jury in civil litigation.
2) Courts in the U.S., by and large, offer a wider range of remedies, and
substantially greater damages for most types of claims, than are available in
any other country. In addition, it’s not uncommon in the U.S., and very rare
elsewhere, for courts to award damages trebling the amount of actual injury,
or to award exemplary or punitive damages
3) Numerous causes of action based on public law, such as causes under the antitrust laws, the securities laws, and more recently so called ‘civil RICO’, will
be heard in the U.S. or not all
4) The practice of retaining counsel on a contingent fee basis, which is common
in the U.S. not only in tort actions but also in private anti-trust actions and a
variety of commercial claims, in not accepted in most other countries. On the
contrary, in many countries, including the U.K. and countries whose legal
system follows the U.K. model, the losing party is required to pay some or all
of the prevailing party’s costs, including attorney’s fees.
Actor forum rei sequitur – the P follows the forum of the D; in the U.S. came to mean that the D
could be sued in the state of his/her domicile, or in whatever state he/she could be personally
served with process, even if the presence in that state was only temporary.
Pennoyer v. Neff (ref. p. 147): P sues D for unpaid legal fees and attaches his property.
Rules: 1) A state has exclusive jurisdiction over people and property within its
borders; 2) No state can exercise jurisdiction over people or property in other
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states; 3) Judgments in personam without personal service of process shall not be
upheld; 4)Judgments in rem with only constructive service may be upheld; 5) The
“Full Faith and Credit” clause of the Constitution only applies “when the court
rendering the judgment had jurisdiction of the parties and of the subject-matter”.
Pennoyer introduces three basic concepts that are still important today:
1) Power – jurisdiction is power, and the power of states or other jurisdictions (federal
courts) to make you do what you might otherwise not do; plus limits to that power
imposed by the Constitution itself.
2) Consent – If you consent to jurisdiction, these black and white rules go out the
window.
3) Notice – the “concealed” strand of Pennoyer. This will eventually become a
constitutional requirement. At the time of Pennoyer, we have sort of a duality of
notice. For in personam jurisdiction, you need personal service of process within the
state. For in rem or quasi in rem actions, you can be served by publication.
Three Kinds of Jurisdiction over the Parties (Pennoyer)
1) In Personam: gives the Ct the power to issue a judgment against her
personally. Thus all of the person’s assets may be seized to satisfy the
judgment, and the judgment can be sued upon in other states as well. Can be
imposed if: a) the person is subpoenaed within the territory; b) voluntarily
appears in court; or c) is a resident of the territory. (Alimony litigation falls
here as it is a personal judgment.)
2) In Rem: gives the Ct power to adjudicate a claim made about a piece of
property or about a status. A quiet title action; a dispute over the property
itself; status of a marriage also satisfied this jurisdiction (can be ex parte).
3) Quasi in Rem: here the action is begun by seizing property owned by the D
via attachment, or a debt owed via garnishment, within the forum state. The
thing seized is a merely a pretext for the court to decide the case without
having jurisdiction over the D’s person. Any judgment affects only the
property seized, and the judgment cannot be sued upon in any other court. The
dispute is not about the property itself, the property is merely a pretext to issue
a claim. This however, limits personal jurisdiction to the value of the seized
property. (The in forum property/debt is necessary and sufficient to assert
jurisdiction.)
Redefining Constitutional Power
Full Faith and Credit Clause: Article IV of the Constitution requires each state to
recognize a valid judgment entered in another state.
Substantive Due Process: The Ct must have the power to act, either upon given
property, or on a given person so as to subject her to personal liability. The 14th
Amendment imposes this requirement. Specific jurisdiction is jurisdiction over a specific
claim in question, though not necessarily other claims.
Procedural Due Process: The Ct must have given the D adequate notice of the
action against her, and an opportunity to be heard. These, taken together, are
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requirements of procedural due process, also imposed bye the 14th Amendment.
Pennoyer gets confusing if you try to apply it to corporations. Corporations don’t have physical
reality, so they can’t be “present” to receive process in a fundamental sense. They also can’t (in
the conventional sense) “consent” to a court’s power.
International Shoe Co. v. Washington (p. 148): introduced our modern concept of
personal jurisdiction, which involves a decision based on “minimum contacts”,
“reasonableness” and “traditional notions of substantive justice and fair play”;
replaced the concept of physical power as the basic test of due process in personal
actions; Today = jurisdiction is based on liability-creating activity in, or having
effect in, the forum state
Minimum Contracts Requirement: if the jurisdiction in the case is in personam or
quasi in rem, the court may not exercise that jurisdiction unless D has “minimum
contacts” with the forum state, which means that the D has to have taken actions that
were purposefully directed towards the forum state. (i.e. D sold goods in the state, or
incorporated in the state, or visited the state, or bought property in the state, etc.) Without
such contacts, exercise of jurisdiction would violate the 14th Amendments due process
clause. Methods of obtaining jurisdiction include: consent to be sued in, driving a car
through, committing a tortuous act in, conducting business in, and being married or living
while married in, the forum state.
a) Unreasonable exercise: even if D has the requisite “minimum
contacts” with the forum state, the court will not exercise jurisdiction if
considerations of “fair play and substantial justice” would require
making D defend in the forum state so unreasonable as to constitute a due
process violation. But in most cases, if D has the required minimum
contact with the forum state, it will not be unreasonable for the case to be
tried there.
Perhaps the most important case in this series from a commercial standpoint did not reach the
Supreme Court at all, but has frequently been cited with approval by the S.C. and many other
courts in the U.S.:
Gray v. American Radiator & Standard Sanitary Corp (ref. p. 149): the S.C. of Illinios
applies the effects doctrine to judicial jurisdiction, so that the provision in the state’s
long-arm statute concerning “commission of a tortuous act within this state’ was
held to reach an Ohio manufacturer of a safety valve inserted in Pennsylvania against
the valve maker was fair in the sense of Int’l Shoe, and that the ‘purposeful activity’ test
of Hanson v. Deckla was satisfied, since the valve maker had not shown that the use
of its product in Illinois was an isolated instance.
Absorbing In Rem Jurisdiction
There were two issues that were not discussed in Shoe:
1. How does the ruling apply to jurisdiction over individual people?
2. What impact does the ruling have on the Pennoyer concept of in rem jurisdiction
(and quasi in rem jurisdiction)?
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Specific Jurisdiction: we have minimum contacts and fair play. It is essential that the act
arise directly out of or in some relation to the forum in order to be sufficient for personal
jurisdiction
Long-Arm Statutes: there are situations where jurisdiction is constricted further than the outer
bounds set by the Constitution; they are statutes, which permits the Ct of a state to obtain
jurisdiction over person not physically present within the state at the time of service; these
statutes establish a subset of the scope of personal jurisdiction that the Constitution allows. The
long-arm statute offers a threshold test. You always look at it first, because it is no wider than
the constitutional limit of the state’s authority. If a long-arm statute partially busts out of Due
Process, you may need to go to the next level to make sure that the statute itself is constitutional.
W.W. Volkswagon Corp. v. Woodson (p. 149): Functioned to limit long-arm statute juris.
Rule: State can impose personal jurisdiction only if there was an intentional
activity/purposeful direction of the activity by the D within the boundaries of the
state.
Helicopteros Nacionales de Columbia S.A. v. Hall (p. 151): For specific jurisdiction, we
have minimum contacts and fair play. Rule: For products liability/stream of
commerce cases, we need continuous and systematic contacts on top of that. Here,
co. doing sporadic business does not meet continuous and systematic standard so, no
specific or general jurisdiction by the state. a bottle for personal jurisdiction; power of
jurisdiction comes from the state (statutory)
Dissent: Justice Brennan sees D’s activity as sufficient to assert jurisdiction; “a
court’s specific jurisdiction should be applicable whenever the cause of action
arises out of or relates to the contacts between the D and the forum…It is
eminently fair and reasonable, in my view, to subject a D to suit in a forum with
which it has significant contacts directly related to the underlying cause of action”
(here hiring & training the pilot who crashed the plane). His position is similar to
Judge Friendly’s treatment in Leasco of representations, offers, and agreements –
some in the U.K. and some in the U.S. – as ‘interrelated actions’
Notes: This case shows the advantage to P’s of bringing suit in the U.S.,
and the reason why D’s resist so strongly. Thus, though Helicopteros is
not technically a case like Leasco or Laker, in which determination of
the forum determines the availability of a remedy, in practical effect it
is almost the same. The defining principle that emerges from this case
is the careful attention to the difference between specific and general
jurisdiction.
Kulko v. Superior Court (ref. p. 156): After separation, father in NY allows his children
to move to CA to live with mother. Mother then tries to sue for custody, child support,
and divorce in CA. Rule: Must be reasonable even with minimum contacts to assert
jursidiction.
Asahi Metal Industry Co. v. Superior Court (p. 160): Asahi is the case that makes the five
factor test law. In World-Wide, it’s only dicta. On an exam, know and go through all
five prongs. However, the big three are the first three, where the defendant’s burden is
primary. Rule: Total disagreement among judges as to whether knowledge that
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products will go to the forum state is enough to establish minimum contacts.
However, controversy must “arise out of” the intentional activity.
1) Burden on the D: burdens on corporate defendants tend
to be diluted as compared to burdens on individual defendants
2) The State’s Interest: what interests does the forum have in
having that litigation in that state as far as protecting its citizens
and corporations
3) The P’s Interest: everyone would prefer to sue in their own
forum
4) Interstate Efficiency Interest: is this forum better, more
efficient, more expedient, or cheaper than any other forum
(rarely determinative)
5) Interstate Policy Interest: this would be a stretch.
(Note: #’s 1-3 are the most important.)
What Asahi Stands for:
1) Minimum contacts are still necessary, but may not in a close case be sufficient to support
assertion of jurisdiction of courts over a non-resident D, if doing so would be
unreasonable
2) In appraising the reasonableness of asserting jurisdiction, cases involving a D based in a
foreign country are different from cases involving a D based in another state of the U.S.
3) In assessing the reasonableness of an assertion of jurisdiction, the factors apparently
downgraded in WW Volkswagon in the famous ‘Even if..’ passage – inconvenience to the
D, interest of the forum state in having its law applied, and convenience of the forum in
terms of location of witnesses and evidence – are indeed relevant, though no one is
decisive
4) For the principal manufacturer of a product alleged to have caused harm – such as a car –
there is no doubt that introducing the product into a marker subjects the manufacturer to
judicial jurisdiction in the forum. As to component makers, the Court remains sharply
divided over the level of ‘purposeful availment’ to come within the stream of commerce
of the U.S. (or the concerned state). Probably engaging in advertisement, expressly
complying with U.S. safety, health, or labeling requirements, as well as a high ration of
U.S. directed output to total output are relevant, but again no one factor is decisive.
All of this is a move towards judicial discretion in determining whether jurisdiction can be
asserted = a move towards the U.K. system (spec. Order 11 – outlined on p. 175; in Order 11
cases the burden is on the P seeking to persuade the court to exercise its discretionary
power and allow the case to be tried elsewhere; in forum non conveniens cases, the burden
I s on the D.)
Indemnification: a sum of money paid in compensation for loss or injury [syn: damages, amends,
indemnity, restitution, redress]; an act of compensation for actual loss or damage or for trouble
and annoyance; security against hurt, loss, or damage; exemption from incurred penalties or
liabilities
Deutsch v. West Coast Machinery Co. (p. 176) & The West Coast Machinery Case in
Japan (p. 182): In 1968, Jerry Deutsch, a employee of the Boeing Company in WA State,
mangled his hand ina large mechanical press. Boeing has bought the press from West
Coast Machinery Co. (a Washington corporation), which has bought it from Marubenie
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America (a NY subsidiary corporation), which had bought it from the manufacturer
Kansai Iron Works (a Japanese corporation in Osaka). Deutsch sued West Coast and
Marubeni America in a state court of WA, alleging a defective press and requesting
$275K by service in Japan, Marubeni America impleaded Kanai, which attacked
jurisdiction power on the ground that Kansai had transacted business in WA by building
the press to Boeing’s extensive specifications, by sending to WA its engineers to test and
inspect the press and to oversee repairs, and by sending replacement parts to WA;
moreover, the court found the exercise of jurisdiction not to be unreasonable in view of
Kansai’s other extensive business in the U.S., the burden on Marubeni America, and the
location of evidence. The trial court awarded Marubeni America a judgment against
Kansai for $86K. Kansai then sued Marubeni America in the Osaka D.C. to declare nonliability for indemnification. Finding jurisdiction, the Japanese court followed precedent
to reject the defense that this proceeding was a prohibited ‘double action’, so construing
the word ‘court’ in the Code’s prohibition to mean that the prior action has to be pending
in a Japanese court. Later, while there was still time to appeal the U.S. judgment, the
court ruled that Marubeni had no right to indemnity under Japanese contract or tort law.
Next, Marubeni sued Kansai on its WA judgment in that same Japanese court. That court
rejected that claim, denying recognition on the ground that the WA judgment was
inconsistent with a Japanese judgment (it’s own prior judgment) and hence was contrary
to the public policy of Japan. In the U.S. view, the Japanese court should probably have
given res judicata (“the thing has been decided”; doctrine by which “a final judgment by
a court of competent jurisdiction is conclusive upon the parties in any subsequent
litigation involving the same cause of action) effect to the WA judgment, which was
valid and final under WA law. By any view, this ten year battle of lawsuits is not a pretty
picture.
Castree v. E.R. Squibb & Sons, Ltd. (p. 183): Ms. Castree was injured on the job in the
U.K. due to a defective machine purchased in the U.K. but manufactured in Germany. 3rd
party manufacturer seeks to remove to Germany via Order 11. Court decides that the
tortuous conduct (putting the defective machine into the stream of commerce rather than
simply manufacturing the machine) happened in the U.K. and should be tried there. Rule:
Looking at the substance of the matter without regard to any technical
consideration, the question is: Where was the wrongful act, from which the damage
flows, in fact done?” The answer provides the proper location for the ensuing
litigation.
Doing Business at the Margin - Landoil Resources Corp. v. Alexander & Alexander Services, Inc. (p. 186): The power of
New York courts to subject a foreign corporation to personal jurisdiction because it is
"doing business" in the state derives from case law. Courts continue to exercise the power
by virtue of Civil Practice Law and Rules § 301. In this sense of the term, "a foreign
corporation is amenable to suit in New York courts if it is 'engaged in a continuous
and systematic course of "doing business" here as to warrant a finding of its
"presence" in this jurisdiction'. The test for 'doing business' is a 'simple [and]
pragmatic one,' which varies in its application depending on the particular facts of
each case. The court must be able to say from the facts that the corporation is
‘present’ in the State ‘not occasionally or casually, but with a fair measure of
permanence and continuity’." Test was not found to be met in this case. To determine
whether a defendant "does business" in New York, courts have focused on the following
factors: "the existence of an office in New York; the solicitation of business in the state;
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the presence of bank accounts and other property in the state; and the presence of
employees of the foreign defendant in the state." Hoffritz for Cutlery, Inc. v. Amajac,
Ltd., 763 F.2d 55, 58 (2d Cir.1985).
Notes: When a party is injured by a product manufactured abroad but sold in the U.S. and there
is no other plausible D, jurisdiction over the foreign manufacturer will be sustained. As ‘longarm’ or activity-based jurisdiction expands its reach, courts seem less favorable to general
jurisdiction when the claim is not directly linked to the forum.
Suing a Multinational Enterprise: the traditional view in all countries where corporations were
common has been that shareholders are not liable beyond the capital they have contributed or
promised to contribute. Accordingly, the presence of a corporation in a forum cannot be
attributed to a shareholder, even when there is only a single shareholder, the corporate parent.
However, where transnational integration of economic activity is shown and harm is credibly
alleged in the forum state, they have held that they would not let the forms of corporate
organization stand in the way of adjudication of the question of substantive liability.
Delagi v. Volkswagen AG of Wolfsburg (p. 200): Generally, the simple presence of a
corporation in New York "does not create jurisdiction over a related, but
independently managed, foreign corporation." However, New York law provides
that where an out of state parent corporation exerts complete or nearly complete
control over its New York subsidiary, the subsidiary is a mere department of the
parent, and the parent will be deemed to be present in New York for the purposes of
jurisdiction. The first factor, common ownership, is the essential one, without which
jurisdiction cannot exist. New York courts may exercise personal jurisdiction over a
foreign corporation that is "engaged in such a continuous and systematic course of `doing
business' in New York as to warrant a finding of its `presence' in [the state].
Bulova Watch Co., Inc. v. K. Hattori & Co., Ltd (p. 203): A parent corporation may be
sued in New York when the relationship between the foreign parent and the local
subsidiary validly suggests the existence of an agency relationship or the parent controls
the subsidiary so completely that the subsidiary may be said to be simply a
department of the parent. These tests require a fact-specific inquiry into the realities
of the actual relationship between the parent and subsidiary. While the plaintiff bears the
ultimate burden of establishing jurisdiction over the defendant by a preponderance of
evidence, until discovery takes place, a plaintiff is required only to make a prima facie
showing by pleadings and affidavits that jurisdiction exists. Since World-Wide
Volkswagen, some courts have attributed the contacts of a domestic parent or subsidiary
to the corporation's alien counterpart to establish personal jurisdiction over the alien
defendant. The parent- subsidiary relationship is not in itself, however, enough to
establish personal jurisdiction. Jurisdiction over a foreign parent has been founded
on two theories. The foreign parent has been found to do business through its
subsidiary where the relationship between the parent and the subsidiary gives rise
to a valid inference of an agency relationship. Secondly, jurisdiction over the foreign
parent has been sustained where control of the subsidiary is so complete that the
subsidiary is, in practical effect, merely a department of the parent.
Volkswagenwerk Aktiengesellschaft v. Schlunk (p. 210): it has been recognized in
international law that, absent a clear and express statement to the contrary, the
procedural rules of the forum State govern the implementation of the treaty in that
State. Under some circumstances, the service requirements and impact of the Hague
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Convention may be avoided. For example, if the foreign corporation has an agent in
the United States, then the problem with obtaining service under the Hague
Convention can be avoided pursuant to service under FED. R. CIV. P. 4(e). See
Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 698-708, 108 S. Ct. 2104,
100 L. Ed. 2d 722 (1988) (finding the Hague Convention inapplicable in suit in which
foreign corporation served by service on domestic agent); this Court recognized that a
foreign entity may be served through a lawful domestic agent, and that "the Due Process
Clause does not require an official transmittal of documents abroad every time there is
[domestic] service on a foreign national."
Omni Capital International v. Rudolf Wolff & Co., Ltd (p. 213): holding the federal
court lacked personal jurisdiction over two British parties because they were
beyond the reach of Louisiana’s long-arm statute; Confronted with an opportunity to
craft a general long-arm rule for the federal courts, the Supreme Court in Omni Capital
declined to do so; Before a court can exercise personal jurisdiction over a defendant,
there must be a basis for the defendant's amenability to service of summons. Unless
otherwise provided by federal law, federal courts must follow the methods prescribed by
the state in which the court is located to determine whether a defendant is amenable to
service. Thus, a federal district court must look either to a federal statute or to the
long-arm statute of the state in which it sits. This rule also applies to service upon
corporations. In the absence of a federal statute, Rule 4(e) required a federal court to
look to the long-arm statute of its forum state to determine who would be amenable to
service issued by the court; Omni Capital suggested and inspired some of the changes
made to Rule 4 in 1993.
Quasi in Rem - Shafer v. Heitner (p. 226): P seeks to use property located in the forum state belonging to
the D as the basis of asserting jurisdiction, even though the claim itself is unrelated to the
property. Rule: made clear that the standard of ‘fair play and substantial justice’ set
out in Int’l Shoe applies to all types of assertions of jurisdiction to adjudicate,
whether based on presence, activity, effects, or property in the forum state.
Property-Based Litigation Devices in Other States - Germany = an action may be brought against a person not domiciled in the country before the
court in whose district assets of the D are situated. The D may be an individual or a corporation,
or other judicial entity; the property may be tangible or intangible, and it need not be related to
the claim on which the action is based; the property is not seized at the outset but may be
attached by the court at any time; the judgment is not limited to the value of the property on
which jurisdiction is based; even a basket of fruit, a suitcase, or an undergarment left
behind in a hotel can support a substantial action - - YIKES!!
Switzerland = it is possible to attach and secure bank deposits (as well as other assets) of nonresidents for use in collection of debts and enforcement of judgments but the P must first
demonstrate a prima facie case that a debt is due and unpaid, that the assets to be attached belong
to the debtor, and that the debtor is not domiciled in Switzerland; debt does not have to be related
to the property attached; if property is attached to litigation, the litigation does not have to be
going on in Switzerland; the creditor must show that the debt has a ‘sufficient link’ with
Switzerland or is based on a judgment entitled to recognition or confession of debt though.
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England = judicial attachment of foreign assets can only be obtained if some basis for
jurisdiction of the English courts exists, whether under Order 11 or otherwise; this principle
became known as the “Mareva Injunction” after the decision below.
Mareva Compania S.A. v. International Bulk Carriers S.A. (p. 244): The longstanding
rule in the English courts had been that a plaintiff could not obtain a preliminary
injunction freezing the assets of a defendant pending trial. The theory was that an
injunction could be entered only to enforce a legal or equitable right, and until there was
an actual court judgment, the plaintiff had no right. This rule still applies in the U.S.
under a Supreme Court’s decision in 1999. The rule was first modified in England for
cases involving fraud. The exception was then expanded to include cases where there was
a risk that the defendant might remove assets from the jurisdiction that would otherwise
be available to satisfy a judgment. In Mareva a case involving a charter party, the
plaintiff made a prima facie showing that the foreign defendant owed it money and that
there was a risk that the defendant would dispose of its assets in England and Wales so
that any judgment would be uncollectable. The English Court of Appeal held that an
interim injunction could be entered to prevent this from happening prior to the trial
of the substantive civil claim. The U.K. (as well as Canadian and Australian) courts
have since expanded the scope of this prejudgment interim remedy. First, it has been
expanded to include defendants that are domestic as well as foreign, so long as there
is a real risk that the defendant might remove assets from the jurisdiction. Second, it
has been expanded to encompass an injunction against dissipating assets within the
jurisdiction. The test is now broadly framed as whether “there is a danger of [the
defendant’s] absconding, or a danger of the assets being removed out of the
jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that
there is a danger that the plaintiff, if it obtains a judgment, will not be able to have it
satisfied.” The plaintiff must also show that it has a good, arguable cause of action
against the defendant. As in the U.S., the court will consider all of the factors and
determine whether the interests of justice will be served by entering the injunction. An
interim freezing injunction is granted in support of and pending judgment in the
substantive civil case. That case can either be in the U.K. (or other Commonwealth
country) or in another jurisdiction such as the U.S. If there is no actual or imminent
case in the U.K., the court has no jurisdiction to enter a freezing injunction unless
there is a case in a foreign jurisdiction. A freezing (or Mareva) injunction is
considered to be an order “in personam,” so that it applies not merely to the
defendant’s assets but directly against the defendant itself. This means that a
preliminary injunction restraining the defendant from disposing of or dissipating its
assets may apply not only in England, but also outside of the country, and therefore
worldwide
Parallel Litigation - A suing B in state X while B sues A in state Y: insurance companies are typically P is such
actions; alternatively, A may seek a court order in state X enjoining B from initiating or pursuing
its action against A in state Y (see Laker case); one way out of such clashes would be an
effective doctrine of:
Lis Pendens: under such a doctrine, a court in state Y before which a controversy is
brought that is already being litigated in state X between the same (or related) parties
would decline to hear the case and let the court in state X proceed to judgment. By
declining to hear the case, the court in stat Y would eliminate the risk of inconsistent
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judgments. Further, the assumption would be that the judgment rendered in state X would
be entitled to recognition in state Y, though that result is not always inevitable.
Proposed rules to address this area: 1) prohibit all anti-suit injunctions – especially where
the court considering said motion is unable to provide suitable forum themselves; 2)
prohibit anti-suit injunctions directed to litigation in other states; and 3) establish specific
conditions to be established b y the applicant for an anti-suit injunction
General Jurisdiction: continuous and systematic contacts, but is there also parallel fair play
standard in general jurisdiction
Jurisdiction over Individuals: state of general jurisdiction is wherever that person is domiciled.
1) Presence: Jurisdiction may be exercised over an individual by virtue of his
presence within the forum state. That is, even if the individual is an out-of-state
resident who comes into the forum state only briefly, personal jurisdiction over
him may be gotten as long as service was made on him while he was in the
forum state (aka “Tag Jurisdiction”)
Burnham v. Superior Court: Husband visiting kids while in CA on business one
time is served with divorce papers there. CA can constitutionally assert
personal jurisdiction over D based on his presence in the state at the time of
service, even though the presence was brief, and even though D had virtually
no other contacts with the state.
2) Domicile: Jurisdiction may be exercised over a person who is domiciled within
the forum state on the day the action is instituted, even if the person in
temporarily absent from the state. A person is considered to be domiciled in
the place where he has his current dwelling place, if he has the intention to
remain in that place for an indefinite period of time. (Can be determined via
driver’s license, voter registration, bank accounts, etc.) We are born with the
domicile of our parents and does not change until the person moves and intend
to remain in the new location indefinitely. Wives are no longer assumed to
have the same domicile as their husbands.
3) Residence: any place of abode that is more than temporary. Some states allow
jurisdiction to be exercised on the basis of D’s residence in the forum state,
even though he is absent from the state. A person may have several residences
simultaneously.
4) Consent: Jurisdiction over a party can be exercised by virtue of her consent,
even if she has no contacts whatsoever with the forum state.
Carnival Cruise Lines, Inc. v. Shute (p.324): The Shute’s went on a cruise. On
the ticket, there was a forum selection clause that said any litigation related to the
cruise must be tried in Florida. The ultimate question is one of “fundamental
fairness”. Rule: We won’t allow the cruise line to select a forum with the
purpose of discouraging legitimate lawsuits. Basically, forum selection
clauses are good law.
a) Implied Consent: how the modern supreme Ct deals with the advent
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of modern travel (i.e. cars) without upsetting the Pennoyer Doctrine; if
X drives into a state, they are consenting to be sued there should they
cause damage; not the same as consent as it is a legal fiction
Hess v. Pawloski (p. 148) – An out-of-state defendant gets into an accident. In
order for the person who got hit in Massachusetts to sue, they must serve the
person that hit them personally in Massachusetts. So, Massachusetts passes a
statute that says that when you drive on Massachusetts roads, you implicitly
consent to Massachusetts jurisdiction. This case would be decided the same
way today.
Jurisdiction over Corporations: this may be the state of incorporation or the state where they
have their headquarters. Generally, a state is much more limited in its ability to exercise
jurisdiction over a foreign corporation when it is not incorporated in the forum state.
1) Minimum Contacts: the forum state may exercise personal jurisdiction over the
corporation only if the corporation has minimum contacts with the forum state “such
that the maintenance of the suit does not offend traditional notions of fair play and
substantial justice”.
2) Dealings with Residents of Forum State: usually, a corporation will be found to
have the requisite minimum contacts with the forum state only if the corporation has
somehow voluntarily sought to do business in, or with the residents of, the forum
state.
3) Purposeful Availment: D will be found to have minimum contacts with the forum
state only if D has purposely availed itself of the chance to do business in the forum
state.
4) Use of Agents: sometimes an out-of-state company does not itself conduct activities
within the forum state, but uses another company as its agent in the state. Even
though all business within the state is done by the agent, the principal, foreign corp.
can be sued there, if the agent does a significant amount of business on the corp’s
behalf.
5) Claims Unrelated to In-State Activities: where the cause of action does not arise
from the company’s in-state activities, greater contact between D and the forum state
are required. The in-state activities in this situation must be “systematic and
continuous”.
6) Products Liability: the requirement of minimum contacts with the forum state has a
special bite in products liability cases:
a. Effort to market in the forum state: the mere fact that a product
manufactured or sold by D outside of the forum state finds its way into the
forum state can causes injury does not mean there is enough contact to subject
D to personal jurisdiction there. Instead, D can be sued in the forum state only
if it made some effort to market in the forum state, either directly or
indirectly.
b. Knowledge of in-state sales enough: but if the out-of-state manufacturer
makes or sells a product that it knows will be eventually sold in the forum
state, this fact by itself is probably enough to establish minimum contacts.
However, if this is the only contact that exists, it may nonetheless be
unreasonable to make D defend there, and thus violate due process
7) Unreasonableness: even where minimum contacts exist, it will be a violation
of due process for the court to hear a case against a non-resident where it would
be unreasonable for the suit to be heard. The more burdensome it is to the D to
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have to litigate the case in the forum state, and the lesser the contacts (although
minimum) with the forum state, the more likely it is that jurisdiction will not be
imposed.
8) Suits Based on Contractual Relationships: the requisite minimum contacts
are more likely to be found where one party to a K is a resident of the
forum state. But the fact that one party to a K is a resident does not by
itself automatically mean that the other has minimum contacts. The existence of
a K is just one factor to look at.
a. Contractual Relationship Involving the State: where the K itself
somehow ties the parties’ business activities into the forum state, this
will be an important factor tending to show the existence of minimum
contacts.
b. Choice of Law Clause: where there is a K, the fact that the K contains
a choice of law clause requiring use of the forum state’s law will also
be a factor (thought not a dispositive one) tending toward a finding of
minimum contacts.
c. Reasonable Anticipation of D: in suits relating to a K, the minimum
contacts issue always boils down to this: could the D have reasonably
anticipated being required to litigate in the forum state? The fact that
the other party was a resident of the forum state, the fact that a stream
of payments went into the forum state, and the fact that the forum
state’s law was to be used in the K, are all non-dispositive, but
important, factors tending towards the conclusion that the out-of-stater
had minimum contacts with the forum state.
Federal Jurisdiction over the Parties
To determine whether a federal court has personal jurisdiction over the D, you must check three
things:
1) Territory for Service: did service take place w/in the appropriate territory
a. General Rule: in both diversity actions and federal question actions, service of
process may be made only 1) within the territorial limits of the state in which
the District Court sits; or 2) anywhere else permitted by the state law of the
state where the District Court sits. FCRP 4(k)(1)(A)
b. 100-Mile Bulge: this special provision allows for out of state service
sometime, even if local law does not permit it (FCRP 4(k)(1)(B) When is
applies, it allows service anywhere (even across a state boundary) within a
100 mile radius of the federal courthouse where suit is pending. This
provision applies only where out-of-staters will be brought in as additional
parties to an already pending action (only applies to 3rd party D’s and socalled indispensable parties.)
c. Nationwide Service of Process: congress has provided for nationwide service
of process in several kinds of cases. Suits against federal officials and
agencies, and suits based on statutory interpleader, are examples of this.
d. Foreign D not Servable in any State: FCRP 4(k)(2) allows federal question
suit to be brought against any person or organization who cannot be sued in
any state court, almost always b/c they are a foreigner.
e. Gaps Possible: A D who is not located in the state where the D.C. sits may not
be served if he does not fall w/in one of the four special cases described
above, even if he has the constitutionally-required minimum contacts within
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the forum. This is true whether the case is based on diversity or federal
question.
2) Manner of Service: was service carried out in the correct manner
a. Individual FCRP 4(e)
i. Personal: by serving him/her personally
ii. Substitute: by handing the summons and complaint to a person of
“suitable age and discretion” residing at D’s residence
iii. Agent: by serving an agent appointed or designated by law to receive
process.
iv. Local State Law: by serving D in the manner provided by either 1) the
law of the state where the DC sits, if that state has such a provision, or
2) the law of the state where the person is being served.
b. Corporation FCRP 4(h)(1)
i. May be made by leaving the papers with an officer, a managing or
general agent, or any other agent authorized by appointment or by law
to receive process for the corp.
ii. Local State Law: service on a corporation may also be made in the
manner provided by the local law of 1) the state where the action is
pending, or 2) the state where the service is made.
c. Waiver of Service: FCRP 4(d)
i. allows P to in effect serve the summons and complaint by mail,
provided that the D cooperates. P mails to D a “request for waiver of
service”; if D agrees, no actual in-person service is needed
3) Amenability: was the D amenable to the federal suit
a. Federal Question: most courts hold that D is amenable to suit in their court if
jurisdiction could constitutionally be exercised over him in the state court of
the state where the federal court is sitting, even if the state court itself would
not (b/c of limited long-arm) have jurisdiction.
i. Foreign D’s: if the D is a foreign corp. or resident, most federal
courts will exercise jurisdiction over the D only if that D has
minimum contacts with the state where the federal court sits, not
merely minimum contacts with the U.S. as whole.
1. Narrow Exception: if a foreign D could not be sued in any
state, he may be sued on a federal question claim in any federal
judicial district, assuming that he has minimum contacts with
the U.S. as a whole. FCRP 4(k)(2)
b. Diversity: the federal courts exercise only the jurisdiction that is allowed by
the statutory law of the state in which they sit. So, if the state statutory law
does not go to the limits of due process, the federal court will follow suit.
Defenses to Claims of Jurisdiction:
Direct Attack: D makes a special appearance in the action with the express purpose of making a
jurisdictional objection where, by doing so, D has not consented to the exercise of jurisdiction.
(Safest way to defend but it is a bigger hassle.)
1) Appeal: If D loses on the jurisdictional objection, they are not precluded from
defending on the merits; if the D loses on the merits of the case, there is no
chance to win based on jurisdiction.
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2) Federal Substitute for Special Appearance: The federal courts (and the many state
courts with rules patterned after them) have abolished the special appearance. Instead,
D makes a motion to dismiss for lack of jurisdiction over the parties; making this
motion does not subject D to the jurisdiction that he/she is protesting. FRCP 12(b)(2)
a. Waiver: the right to make a motion to dismiss for lack of personal jurisdiction
is waived in the federal system if: 1) D makes a motion raising any of the
defenses listed in Rule 12, and the personal jurisdiction defense is not
included, or 2) D neither makes a Rule 12 motion nor raises the defense in his
answer.
Collateral Attack: a valid judgment entered in one jurisdiction may generally be enforced in
another (i.e. D’s home state).(Riskier way to defend but far easier, at least in the beginning)
1) On Default Judgment: If D defaults (i.e. does not respond/show up) in an action
in State 1, she may collaterally attack the default judgment when P seeks to
enforce it in State 2 and is most commonly done via jurisdictional (personal or
subject matter) objection. However, if the D loses on the jurisdictional
objection, he also loses the right to appeal the case on its merits.
Defenses to All Claims of Relief Can be Made by Motions of: FRCP 12(b)
1) Lack of subject matter jurisdiction
2) Lack of personal jurisdiction
3) Improper venue
4) Insufficiency of process
5) Insufficiency of service
6) Failure to state a claim upon which relief can be granted
7) Failure to join a party under Rule 19
(Note: these must be done before pleadings)
C. Article III Courts
SUBJECT MATTER JURISDICTION OF THE FEDERAL COURTS - Article III
A. General Principles: Not every court can hear every kind of case. Some are courts of general
jurisdiction, which can hear basically any kind of case except if a statute or legal precedent says
they can’t. Some are courts of limited jurisdiction, so called because the statutes that set them up
say exactly what kind of cases they are limited to.
On the other hand, federal courts are limited by the Constitution. It’s up to Congress to decide
just how narrow to make the jurisdiction of federal courts, but it can’t be any wider than what
the Constitution says. The two main kinds of controversies where a federal court has
jurisdiction are:
1) those that are about federal “stuff” like the Constitution or federal laws,
2) cases that are between citizens of different states (diversity) and involve
$75,000.01 or more up for grabs.
(Note: Most things that the federal government creates causes of action for can be heard in state
courts, and we call this concurrent jurisdiction.)
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You must have both of them. For a federal court to have the power to enter a binding
judgment, it needs personal and subject matter jurisdiction as they come from different parts
of the Constitution. Subject matter jurisdiction comes from Article III, while personal
jurisdiction stems from Due Process in the Fourteenth Amendment. Compare FCRP 12(b)(1)
(subject matter jurisdiction) to FCRP 12(b)(2) (personal jurisdiction).
Three Tiers of Federal Subject Matter Jurisdiction:
1)
The Constitutional Tier: Article III provides jurisdiction for the federal
courts. This Article enumerates all the things that the federal courts may (not
must) have jurisdiction over. That is, just because the Constitution allows the
federal courts to have jurisdiction over certain things it doesn’t mean that
Congress must allow federal courts to have jurisdiction over all of those things.
2)
The Statutory Tier: For example, 28 U.S.C. § 1331 gives the federal courts
jurisdiction over “federal questions”. The general idea is that Congress can
proscribe some subset of the federal court jurisdiction that the Constitution
provides.
3)
The Decisional Tier: i.e. Mottley, which interprets the constitutional and
statutory language.
Louisville & Nashville Railroad v. Mottley (p. 697): Did the federal district court have
subject matter jurisdiction over the case? A suit arises under the Constitution and laws
of the United States only if the original statement of the plaintiff’s cause of action shows
that it is based on the Constitution or federal statutes. Rule: a federal court can’t have
jurisdiction just because the defendant might use a federal law or the Constitution to
defend himself.
B. Burden: the party seeking to invoke the jurisdiction of a federal court must make an
affirmative showing that the case is within the court’s subject matter jurisdiction.
C. Dismissal At Any Time: no matter when a deficiency in the subject matter jurisdiction of a
federal court is noticed, the suit must be dropped and dismissed for lack of jurisdiction. FRCP
12(h)(3)
Federal question jurisdiction: 28 USC § 1331
The Constituion gives the federal courts authority to hear federal question cases. More precisely,
under 28 USC § 1331, the federal courts have jurisdiction over “all civil action arising under the
Constitution, laws, or treaties of the U.S.”
1) Federal Claim: generally speaking, the reason there is a federal question is that
federal law is the source of the P’s claim.
a. Interpretation of federal law: it is not enough that P is asserting a state-created
claim which requires interpretation of federal law.
b. Claim based on the merits: if P’s claim merely arises under federal law, it
qualifies for federal question jurisdiction even if the claim is invalid on the
merits. (If that were the case, it would have to be dismissed for failure to state
a claim upon which relief may be granted FRCP 16(b)(6), not for lack of
subject matter jurisdiction.)
c. Well-pleaded Complaint rule: In short, this means that the P’s claim, not the
D’s response, must include the federal question and cannot be raised after the
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D raises it. If the complaint does not meet these requirements, there is no
federal question. Done so we can tell, from the outset, whether or not we have
jurisdiction and save time/$.
Diversity jurisdiction: 28 USC § 1332
A. General Principles: The Constitution gives the federal courts jurisdiction over
“controversies…between the citizens of different states…between a state and a citizen of
another…between a state, or the citizens thereof, and foreign states, citizens, or subjects” This is
the grant of diversity jurisdiction.
1) Date for determining: the existence of diversity is determined as of the
commencement of the action. If diversity existed between the parties on that date, it is
not defeated because one of the parties later moved to the opponent’s home state.
2) Domicile: citizenship is controlled by domicile, not residence.
3) Complete diversity: is required! No P can be a citizen of the same state as any D.
Mas v. Perry (p. 219): Rule: Complete diversity of the parties is required in order for
diversity jurisdiction to exist, meaning that no party on one side may be a citizen of
the same state as any party on the other side. Notice that §1332(a) tells us that an alien
who has been admitted as a permanent resident is considered a citizen of the state where
they are domiciled.
4) Pleading not dispositive: the court looks beyond the pleadings and arranges the
parties according to their real interests in the litigation in order to determine if
diversity exists
a. Nominal parties are ignored
B. Diversity involving corporations: a corporation is deemed a citizen of any state where it is
incorporated and of the state where it has its principal place/headquarters/the heart of its
operations of business. So, for diversity to exist, no adversary of the corp. may be a citizen of the
state in which the corp. has so established itself.
1) Principal place of business: courts have taken two different views about where this is
a. Home office: the corporate headquarters/nerve center aka the “brain test”
b. Bulk of activity: where the corp. carries on it main production or service
activities; aka the “muscle test” (this is the commonly used standard)
C. Exceptions to the Diversity Statute: because it is believed that states have a greater expertise
in matters of “local concern”
1) Probate
2) Domestic relations claims
a. Federal courts may not issue divorce, child custody, or alimony decrees
but can hear tort actions that arise within such domestic relations.
D. Arguments for and against Diversity Jurisdiction: almost abolished in 1978
Pro:
1) Out-of –staters get gypped
2) Diversity cases keep federal judges up to date on state statutory and common law
3) Relieves state caseload
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4) Rules and procedure are kept uniform everywhere
Con:
1) No empirical evidence that state courts are unfair to out-of-staters
2) State courts lost the opportunity to upgrade and reform state law
3) State boundaries are meaningless in today’s global village
4) Relieves federal caseload
(Note: State judges are elected and are more likely to be held accountable for inconsistencies/
biases; federal judges are nominated for life and don’t have to answer to anyone.)
Supplemental jurisdiction: 28 USC § 1367
A. General Principles: Here we are trying to take things that wouldn’t ordinarily be in federal
court for lack of subject matter jurisdiction and see if we can find a basis for getting them in if
they are related to the/a federal claim. It is at the judiciary’s discretion to use rather than the P’s
right to invoke; must only be used in the interest of judicial economy, convenience, fairness to
the litigants, and in deference to the concurrent jurisdiction of another.
B. How it is Applied Today (under 28 USC §1367):
a. Federal question cases: where the original claim comes within the court’s
federal question jurisdiction, the court is allowed to hear any closely related
state-law claims
b. Diversity cases: there is also supplemental jurisdiction in many cases where the
core claim is based solely on diversity. But there are some important exclusions
to the parties’ right to add additional claims and parties to them
Supplemental Jurisdiction applies in:
i.
Compulsory counterclaims FCRP Rule 13(a)
ii.
FCRP Rule 13(h) joinder of additional parties to compulsory
counterclaims
iii.
FCRP Rule 13(g) cross-claims (i.e. claims by one D against another
iv.
FCRP Rule 14 impleader of 3rd party Ds, for claims by and against 3rd
party Ps, and claims by 3rd party Ds, but not claims by the original P
against 3rd party Ds.
Supplemental Jurisdiction does not apply in:
i.
Claims made by a P against a 3rd party D, pursuant to FRCP Rule 14(a)
ii.
When a person is joined under FRCP Rule 19 (a) as a person to be “joined
is feasible”, neither a claim against such a person, nor a claim by that
person will work.
iii.
FRCP 20 Joinder, when a P sues multiple Ds in the same action on
common law and facts
iv.
Claims by prospective Ps who try to intervene under FRCP 24 do not get
the benefit of it. This is true whether the intervention is permissive or of
right.
c. Defensive posture required: basically additional claims asserted by Ds fall
within the court’s supplemental jurisdiction, but additional claims (or the
addition of new parties) by P’s are generally not included. So, expect these
cases only where the claimant who is trying to benefit from it is an a defensive
posture.
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D. Comity: common law (worldwide); to get respect you have to give respect;
like custom; the principle by which the courts of one jurisdiction may accede or
give effect to the laws or decisions of another; courteous recognition accorded by
one nation to the laws and institutions of another. Two versions:
1) A basic principle – perhaps even the basic principle – of conflict of laws
2) Courts sit to do justice between individual litigants, and so comity is significant to choice of
law only when the sovereign is directly concerned.
The Dutch Banks Case (Handout, p. 273): a clinic in transnational litigation; our Prof.
represented the Dutch bank; Dutch banks lending tons of $$ to a typewriter factory (the
biggest business in town at the time) that goes into bankruptcy under Dutch bankruptcy
law, and then gets sued in the U.S.; On Comity: we should, in observance of comity,
recognized these proceedings, but only if and to the extent that the Dutch court is
willing to recognize the American judgment in its proceedings. This solution would
afford appropriate protection an American creditor, yet also acknowledge the
primary role of the Dutch court in equitably distributing the available funds.
Should we have/protect comity? Depends if we are considering it in the context of public v.
private, revenue v. contract, criminal v. civil
II. Arbitration:
Forum Selection Clauses: is a provision in a contract providing that “all (or specified) disputes
arising out of or related to this agreement shall be resolved in the High Court of Justice in
London” or “…in the Supreme Court of NY County,” or other named forum. Such a clause has
two aspects. If it works as intended, such a clause:
1) constitutes consent by each party to the contract to be sued at the chosen forum; and
2) deprives courts that would otherwise have jurisdiction over the parties and the
controversy of jurisdiction to hear the case
Arbitration Clauses: a special and common type of forum selection clause is a provision
calling for all (or specified) disputes arising under or related to the contract between the
parties to be submitted to arbitration. A well-drafted arbitration clause will provide at a
minimum for the subjects covered, the place of arbitration and the manner of selecting
the arbitrators. These clauses often contain, in addition, references to an administering
institution, to rules under which the arbitration is to be governed, and (either in the same
clause or in a separate clause) to the law applicable to the contract and the arbitration.
The absence of appeal is, of course, one of the principal features of arbitration,
sometimes seen as an advantage, in that it reduces costs and opportunity for delay,
sometimes viewed as a disadvantage, in that errors may go uncorrected. This is so in both
‘private law’ – contracts and warranties, good faith, compliance with specifications, etc.
AND ‘public law’ – those arising under the securities and antitrust laws.
Federal Arbitration Act (1925): designed to allow parties to avoid “the costliness
and delays of litigation” and to place arbitration agreements “upon the same
footings as other contracts”; it is, in sum, a policy guaranteeing the enforcement
of private contractual arrangements: the Act simply “creates a body of federal
substantive law establishing and regulating the duty to honor an agreement to
arbitrate”; “any doubts concerning the scope of arbitrable issues should be
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resolved in favor of arbitration”; thus, the parties intentions are controlling
however, that intention is generously construed as to issues of arbitrability;
validly concluded agreements to arbitrate are enforceable, even if one of the
parties later rejects the agreement; enforcement has two aspects:
i. If A brings an action in court against B arising out of a contract containing
an agreement to arbitrate, B is usually entitled to a stay or dismissal of the
action pending arbitration; and (§ 3)
ii. If either A or B refuses to proceed with arbitration, the court can order the
parties to proceed with the arbitration, or the arbitration can proceed
without the participation of the other side. If one party fails to appoint an
arbitrator as provided in the agreement to arbitrate and there is no
provision for an institution to do so, the court has the authority to appoint
the arbitrators. (§ 4)
Arbitrability: traditionally, controversies arising out of commercial contracts – disputes about
quality of goods tendered or delivered, damages for breach, excuses for delay, conformity of
merchandise or services rendered with industry standards, fairness in allocation of short supplies
among several customers, and so on – have been the stuff of arbitration. Public law issues (i.e.
securities and anti-trust claims) have not been regarded as arbitratable, and agreements to
arbitrate have not been enforced in regard to claims arising from such laws.
Unterweser Reederei G.m.b.H. v. Zapata Off-Shore Co. (p. 283): U.K. court finds in
favor of P and the forum selection clause agreed upon by both parties.
It is important to note that the type of jurisdiction clause which Bremen and subsequent decisions
have upheld is the ‘mandatory’ (or ‘exclusive’) type of clause, which obligated the parties to the
bill of lading (or other contract) to litigate in one specified court, as opposed to the merely
‘permissive’ clause, by which the parties simply agree to the jurisdiction of a specified court
without expressly excluding jurisdiction elsewhere. A jurisdiction clause may still be mandatory,
rather than permissive, however, where in addition to providing for the exclusive jurisdiction of a
given court, it also qualifies that provision by an exception (i.e. permitting the carrier to sue the
merchant in the latter’s place of business).
Because foreign jurisdiction clauses and agreements are now presumptively valid in the U.S., the
alleged ‘inconvenience’ to the parties and their witnesses of such provisions has seemingly
declined in importance in American courts as a factor in determining whether such terms are
enforceable. The argument that enforcement of a jurisdiction clause should be denied where the
clause required P’s to incur substantial ‘transaction costs’ (i.e. travel expenses, airfare, and hotel
bills), and related inconvenience, in order to litigate in the designated court, was rejected by the
Supreme Court in Carnival Cruise Lines, Inc. v. Shute (p. 324), a carriage of passengers decision
where the forum selection clause in the passenger ticket required the WA state P’s to sure the
carrier in FL. The Sup. Ct. denied that such costs and inconvenience lessened or weakened the
P’s right to a trial by a competent court on the liability issue or the related measure of damages.
More recent decisions have similarly downplayed the relevance of inconvenience in forum
selection clause analysis. Nevertheless, the Sup. Ct. in its decision in Green Tree Financial Corp
– Alabama v. Randolph, indicated that if a party seeking to avoid arbitration can show that it
would be ‘prohibitively expensive’ (a term which the court declined to define), an arbitration
agreement could be held unenforceable. The Sup. Ct. thus left a narrow window open for striking
down foreign arbitration (and presumably also foreign jurisdiction) clauses or agreements where
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a party can demonstrate that the costs of compliance with the provision in question would
prevent it from ‘effectively vindicating its federal statutory rights in the arbitral forum”.
The Bremen et. al v. Zapata Off-Shore Co. (p. 287): the leading American decision on
forum selection clauses; a major change in judicial attitudes towards foreign forum
selection by contract occurred in an international towage case (here); the U.S. Sup. Ct., in
a matter, which was subject to suit simultaneously in England, recognized a jurisdiction
clause giving jurisdiction outside the U.S. This followed the English tradition of given
effect to jurisdiction clauses. In the case at hand, both the American and English Courts
ordered suit in England under the same clause in the same matter. The U.S. Sup. Ct. held
that a foreign jurisdiction clause in a freely negotiated, international contract should
be enforced, unless the claimant could show convincing evidence that the clause was
unjust or unreasonable or was the product of fraud or overreaching or was contrary
to a strong public policy to the forum. Furthermore, a contractual choice-of-forum
clause should be held unenforceable if enforcement would contravene a strong
public policy of the forum in which suit is brought, whether declared by statute or
by judicial decision. Rationale: “the elimination of all such uncertainties by agreeing in
advance on a forum acceptable to both parties is an indispensable element in international
trade, commerce, and contracting.” In other words, “courts should remain attuned to
well-supported claims that the agreement to arbitrate resulted from the sort of
fraud or overwhelming economic power that would provide grounds for the
revocation of any contract.”
Notes: It is difficult to see what circumstances, short of a revolutionary change
such as in Iran or Angola, would lead a U.S. court to disregard a forum selection
clause though. The ‘heavy burden’ required to overcome enforcement of a forum
selection clause would not be satisfied by a showing by P’s that if the clause were
upheld they would be subject to a less favorable law that if they could remain
where they are. International agreements, it appears, have a preferred place, in the
sense that contractual provisions that might be struck down in a wholly domestic
controversy will be upheld in international transactions.
Scherk v. Alberto-Culver Co. (p. 297): parties are free to decide that a present dispute
should be submitted for arbitration; The Bremen rationale was adopted by the United
States Supreme Court in Scherk v. Alberto Culver Co., 417 U.S. 506 (1973), to enforce a
contract clause providing for settlement of disputes by arbitration before the International
Chamber of Commerce in Paris, France. Despite this clause, the United States party to
the agreement brought suit in the Third District Court in Illinois. The Supreme Court held
that an agreement to arbitrate before a specified tribunal is, in effect, a specialized
forum selection clause that designates not only the site of the suit, but the procedure
to be used in resolving the dispute as well and is therefore enforceable.
In addition to the statutory bases listed in the Federal Arbitration Act for vacation
of an order of an arbitration panel, there exists a judicially created basis
commonly known as manifest disregard of the law. This exception was created
by dicta in Wilko v. Swan, 346 U.S. 427 (1953) in which the court held that an
arbitration clause in a margin agreement violated the Securities Act of 1933
and was thus held unenforceable. In enumerating the benefits of litigation over
arbitration, the court commented: “In unrestricted submissions, such as the
present margin agreements envisage, the interpretations of the law by the
arbitrators in contrast to manifest disregard are not subject, in the federal courts,
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to judicial review of error in interpretation. The authors of one study explain that
nine of twelve circuits have adopted essentially the same standards for manifest
disregard of the law: (a) the court may not set aside a panel order simply because
it might have interpreted the agreement differently or some errors were made in
interpreting the facts or law; and (b) the governing law alleged to have been
ignored must be well defined, explicit and clearly applicable.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (p. 306): Court upholds
arbitrability of Securities Act of 1933 claims. The Sherman Act's commitment to free
competitive markets is among our most important civil policies. This commitment,
shared by other nations which are signatory to the Convention, is hardly the sort
of parochial concern that we should decline to enforce in the interest of international
comity. Indeed, the branch of Government entrusted with the conduct of political
relations with foreign governments has informed us that the "United States' determination
that federal antitrust claims are non-arbitratable under the Convention . . . is not likely to
result in either surprise or recrimination on the part of other signatories to the
Convention; new two-part test - - the court should: 1) determine whether the parties’
agreement to arbitrate reached the statutory issues; 2) then, upon finding it did,
consider whether legal constraints external to the parties’ agreement foreclosed the
arbitration of those claims. Rationale: “As in Scherk v. Alberto-Culver Co., we
conclude that concerns of international comity, respect for the capacities of foreign and
transnational tribunals, and sensitivity to the need of the international commercial system
for predictability in the resolution of disputes require that we enforce the parties’
agreement, even assuming that a contrary result would be forthcoming in a domestic
context.”
The American Safety Doctrine (p.312):
1) Private parties play a pivotal role in aiding governmental enforcement
of the antitrust laws by means of the private action for treble damages
2) The strong possibility that contracts which generate antitrust disputes
may be contracts of adhesion militates against automatic forum
determination by contract
3) Antitrust issues, prone to complication, require sophisticated legal and
economic analysis, and thus are ‘ill-adapted to strengths of the arbital
process (i.e. expedition, minimal requirements of written rationale,
simplicity, resort to basic concepts of common sense and simple
equity)
4) Just as ‘issues of war and peace are too important to be vested in the
generals, decisions as to antitrust regulation of business are too
important to be lodged in arbitrators chosen from the business
community – particularly those from a foreign community that has had
no experience with or exposure to our laws and values
The court then goes on to explain why this test is no longer applicable nor controlling.
Notes: Cases like this will not, except in the most rare of cases, be submitted to
arbitration. (p. 327) Typical arbitration cases in which antitrust issues come up
will likely follow the pattern in this case.
Form contract among merchants: if both parties have signed the K form, the fact that the forum
selection clause was not bargained for will not make the clause any less effective. Effectiveness
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of such clauses becomes an issue if one party has not signed the form, but has not repudiated it.
(typo?)
Contracts with consumers:
Carnival Cruise Lines, Inc. v. Shute (p.324)– The Shute’s went on a cruise. On the ticket,
there was a forum selection clause that said any litigation related to the cruise must be
tried in Florida. The ultimate question is one of “fundamental fairness”, which the
court must scrutinize and decide. Rule: it is not true that a non-negotiated forum
selection clause in a form ticket contract is never enforceable simply because it is not
the subject of bargaining. We won’t allow the cruise line to select a forum with the
purpose of discouraging legitimate lawsuits. Basically, forum selection clauses are
good law. This case is a powerful reaffirmation by the Sup. Ct. of its belief in upholding
forum selection clauses.
Notes: In the end, however, the Mitsubishi case, and Piper Aircraft, makes clear that the U.S.
Sup. Ct. is not at all concerned about ‘ouster of U.S. courts’ jurisdiction’, nor about foreign
fora; and that it is strongly supportive of arbitration, in particular in international
transactions. These cases are often viewed as a trilogy however, there is one important
difference between Zapata on one side and Scherk and Mitsubishi on the other. Scherk and
Mitsubishi arose not only under the securities and anti-trust laws, but also involved the Federal
Arbitration Act. What the U.S. Supreme Court holds with respect to the scope and effect of
arbitration clauses in international (and interstate) transactions constitutes binding precedent in
interpreting a federal statute. Zapata, in contrast (and also Carnival Cruise), involved federal
courts exercising admiralty jurisdiction; those cases are clearly binding in admiralty, and
probably also on federal courts exercising federal question jurisdiction. It seems that the holding
in Zapata is not binding on state courts in the U.S. or on federal courts exercising diversity
jurisdiction.
Thus, if a contract between an American party A and a British party B not involving
admiralty contains a clause calling for adjudication in London, it is not clear that B could
prevent an action from going forward in state or federal court in Alabama. In contrast, if
the same contract contained an arbitration clause, even if A brought an action in state
court, B could move successfully either in state court, or on removal to federal court, for a
stay or dismissal pending arbitration, pursuant the §2 of the Federal Arbitration Act and
the U.N. Convention.
Why Arbitrate?: without a forum selection agreement, a dispute between parties from different
countries either involves the P litigating in the courts where the D is established, or litigating in
her own country, with all the problems of judicial jurisdiction plus, at least potentially, the
problems of enforcement of foreign judgments. Apart from maritime, commodities, and related
industries, selection of a third (neutral?) country by two parties is relatively rare. However, when
both parties agree to arbitration, they are essentially agreeing on a neutral forum, which is not
tied to the judicial or political structure of either party. Arbitral awards are easy to enforce
(thanks to the United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards aka the New York Convention) and are easier to enforce than judgments of
courts. Provisions in an agreement with a state entity to arbitrate future disputes avoids the
problems of sovereign immunity. Arbitration in the international context (as in the case in the
domestic context) is usually confidential, quicker than litigation, and there is no possibility of
appeal. Arbitration proceeds without discovery really; tribunals never impose sanctions for
failure to comply with document requests though they do draw inferences based on the failure.
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Most just comply with the ‘suggestions’ or ‘invitations’ that the tribunal/opponent makes to
share documents.
Arbitral Institutions and Rules: arbitration that takes place purely by agreement between the
parties (aka ad hoc arbitration) is governed by the internationally agreed upon United Nations
Commission on International Law (UNCITRAL) (see p. 333). Most international commercial
arbitrations however, are conducted by one of the following institutions dedicated entirely to
arbitration and related means of dispute settlement like the London Court of International
Arbitration (LCIA) and the American Arbitration Association (AAA) or institutions that have
arbitration as just one of their important functions like the International Chamber of Commerce
(ICC) or the Stockholm Chamber of Commerce (SCC). ICC rules are outlined on p. 333-335.
The Arbitrators: the AAA, LCIA, and ICC rules provide that there will be one arbitrator unless
the parties have agreed otherwise of the institution believes that there should be three; the
UNCITRAL rules proved the reverse. If there is one, that person is generally a national of neither
party. In cases where a significant sum is at stake or the parties come from states with different
legal and commercial traditions, a panel of three arbitrators would be the norm. How arbitrators
are chosen outlined on p. 336.
The Law Applied by Arbitrators: if the agreement to arbitrate contains a choice-of-law clause, it
is virtually always followed. However, there may be instances when the conflict of laws rules of
the chosen state might be applied as well, if for example the internal law does not address the
issue in question. If there is no choice-of-law clause in the agreement, there are several
possibilities. The arbitrators might:
1) Apply the law applicable at the place of arbitration, on the assumption that
designation of the site constituted an implied choice of law;
2) Apply the conflict of laws rules of the place of arbitration;
3) Could themselves decide on the applicable law, presumably on some basis involving
the expectation of the parties, the jurisdiction having the most significant relationship
with the transaction or the issue in question, or the place of performance;
4) Can feel free, in the absence of agreement to the contrary, to apply a kind of
international law merchant or lex mercatoria (The Law Merchant refers to a legal
system used by merchants in 13th century England. Rather than being the result of
the edict of a final authority, it was evolved based on common usage), which applies
commonly accepted rules of law on such matters as a duty of good faith or a
requirement of notice, in preference to rules peculiar to a particular state of which
only one, but not the other party to the contract could have been aware; or
5) May believe that it may not be necessary to make an initial determination of the
applicable law, and prefer to wait until they have a through knowledge of the case, to
see whether there is actually a legal issue between the parties at all, and if so whether
as to that issue there is a real conflict between the law, say, of the seller’s and
buyer’s state of domicile.
The Conduct of an International Arbitration: how the arbitration goes forward depends largely on
the background and disposition of the arbitrators and counsel as well as the nature of the
controversy - - there are no real, controlling rules.
Judicial Review: in most countries, there is some possibility of setting aside awards for ‘gross
miscarriage of justice’, misconduct (including undisclosed conflict of interest) by the arbitrators,
or ‘manifest disregard’ of law. Very rarely will an award be set aside.
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Pros and Cons of Arbitration:
Pros – in important cases, arbitrators tend to devote more time than is available for
judges in most of the world’s commercial centers; if there are 3 arbitrators, gross error is
less likely that if a matter is heard before a single judge; arbitration has become a major –
if no always the preferred – element in the settlement of private disputes across national
frontiers
Cons – if a court of first instance errs, appeal is available, in arbitration, there is no
appeal
United Nations Convention on Recognition and Enforcement of Arbitral Awards (6/1/58): a
convention singed at the U.N. in N.Y. concerning arbitration between private persons, ‘whether
physical or legal’. The basic idea of the convention was to make arbitral awards and agreements
to arbitrate rendered in a foreign state enforceable in any state party to the convention (Article
III). The convention calls for enforcement of awards via arbitration and default just the same.
Membership in the convention is no longer required, just entering into agreements to arbitrate in
states that are members is enough to make the awards enforceable.
Van Walsum N.V. v. Chevalines S.A. (p. 345): silence cannot be considered agreement
(to an arbitration clause) unless ‘the rules of good faith require that a party manifest
its disagreement if it intends not to be bound’
Chemicals & Phosphates Ltd. v. N.V. Algemeene Oliehandel (p. 347): agreement in
writing means either an agreement signed by the parties or an exchange of letters or
telegrams; this means only that each party to a K must be informed in a sufficient
manner, on the basis of written documents, that the other party knows that possible
disputes arising from the K are to referred to arbitration, and that each party must consent
thereto. This rule has not been adopted by the majority of the convention though - proposed by the Netherlands. Court finds good faith basis negates need for writing.
Frey v. Cuccaro (p. 349): writing found to be required. P’s claim re: two unsigned K’s
dismissed. Here, the Convention prevails over the Italian law against ousting the
jurisdiction of the courts and over the alleged Austrian law that would regard a writing
evidencing an oral K sufficient to establish the effectiveness of the arbitration clause.
Parsons & Whittemore Overseas Co., Inc. v. Societe Generale De L’Industrie Du Papier
(Rakta) (p. 350): the leading American case, and one of the leading cases anywhere,
on the enforcement of arbitral awards under the Convention. The Convention
provides for the enforcement of arbitration agreements and the confirmation of foreign
arbitral awards. Convention, Articles II, III. District courts have been given original
jurisdiction over actions or proceedings falling under the Convention and any party to a
foreign arbitration may seek confirmation in a district court of an arbitral award within
three years after the award is made. "The court shall confirm the award unless it finds one
of the grounds for refusal or deferral of recognition or enforcement of the award specified
in the . . . Convention." The grounds for refusing to enforce an award are limited to
the specific defenses enumerated in Article V of the Convention, which provides:
1. Recognition and enforcement of the award may be refused . . . only if [the]
party [requesting refusal] furnishes . . . proof that:
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(a) The parties to the agreement referred to in article II were, under the
law applicable to them, under some incapacity #, or the said agreement is
not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the country where the award was
made; or
(b) The party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration proceedings
or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to arbitration, provided
that, if the decisions on matters submitted to arbitration can be separated
from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized and
enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties, or, failing such
agreement, was not in accordance with the law of the country where the
arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused
if the competent authority in the country where recognition and
enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the
public policy of that country, in which enforcement is sought.
The party opposing enforcement has the burden of proving the existence of one of
these enumerated defenses. See Fotochrome, Inc. v. Copal Co., 517 F.2d 512, 518 (2d
Cir. 1975); Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie Du
Papier (RAKTA), 508 F.2d 969, 973 (2d Cir. 1974).
Notes: notice the use of the word ‘may’ in Article V above. If a court chooses to
recognize or enforce an award notwithstanding establishment of one of the
defenses set out in Article V, there is no violation of the Convention; if the
court refuses to grant enforcement for another reason – for instance because it
disagrees with the arbitral tribunal in its definition of force majeure (is a common
clause in contracts which essentially frees one or both parties from liabilities
when an extraordinary event beyond the control of the parties, such as flood, war,
riots, acts of God, et cetera prevents one or both parties from fulfilling their
obligations under the contract.Under international law it refers to an irresistible
force or unforeseen event, beyond the control of a State making it materially
impossible to fulfill an international obligation. Force majeure precludes an
international act from being wrongful, where it otherwise would have been) – that
would be a violation of the Convention.
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Soc. Audi-NSU Auto Union A.G. v. S.A. Adelin Petit (p. 357): The problem with this
approach is that the Convention is silent on which law should determine the arbitrability
of the dispute and various commentators are divided on this particular issue. For instance,
whilst van den Berg suggests that the court seized ought to judge arbitrability according
to the law applicable in their own jurisdiction various other authors propose that this
should be based on either a cumulative application of the law of the forum and the law
governing the arbitration agreement or just the law governing the arbitration agreement.
Furthermore, many courts have distinguished between domestic and international
arbitrability holding that what is arbitrable will be different in the international
context. Consequently, it is possible that a court in the EU would not apply its domestic
law to the question of arbitrability. Convention defense (Article V2a) wins out here.
Chromalloy Aeroservices Corporation v. Arab Republic of Egypt (p. 367): a 1996 case
involving an application under the New York Convention, an award made against Egypt
in an international commercial arbitration. The Egyptian Court of Appeal had nullified
that award. The U.S. District Court for the District of Columbia stated: "Under the
Convention, "Recognition and enforcement of the award may be refused" if Egypt
furnishes to this Court "proof that [t]he award has been set aside by a competent authority
of the country in which or under the law of which, that award was made". In the present
case, the award was made in Egypt, under the laws of Egypt, and has been nullified by
the court designated by Egypt to review arbitral awards. Thus, the court may, at its
discretion decline to enforce the award". The court, in fact, chose to recognize and
enforce the award, despite the decision of the Egyptian Court of Appeal quashing
the award. In reaching its decision, the Court examined many factors, including
"international comity". Its opening observation in the section of the judgment dealing
with international comity was to cite the following phrase from Laker Airways Limited v.
Sabina, Belgium World Airways: "No nation is under an unremitting obligation to enforce
foreign interests which are fundamentally prejudicial to those of the domestic forum".
Despite reaching the conclusion that the decision of the Court of Appeal at Cairo "is
proper under applicable Egyptian law". The Court nevertheless ignored the Court of
Appeal’s decision to quash the award and concluded that "the award of the Arbitral panel
is valid as a matter of U.S. law".
Notes: Parisian Court of Appeals upheld enforcement of the award and the
Egyptian gov’t paid the award in full so, Judge Green’s decision never did go
before an appeals court in the U.S.
Lapine Technology Corporation v. Kyocera Corporation (p. 375): the parties explicitly
agreed that either party may bring the award to the Federal District Court for fact finding
review, as well as application of law. Lapine = American; Kyocera = Japanese; their K
designated California law as the governing law and included an arbitration clause
requiring any dispute to be settled by arbitration by the ICC rules. It went on to establish
the U.S. D.C. for Northern California as the entity to ultimately enforce, modify, or
correct that award if one of the three set out standards of review was met. The arbitration
resulted in a decision in favor of Lapine; who turned to the D.C. for confirmation of its
award while D went to same court and asked change the award. The court held that this
kind of arrangement (bringing the courts in to validate arbitration awards) is legit
and remanded to the lower court to make a decision. This holding is widely
criticized.
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III. Discovery: “No aspect of the extension of the American legal system beyond the
territorial frontier of the U.S. has given rise to so much friction as the requests for documents in
investigation and litigation in the U.S.”
General Principles: forms of discovery under the federal rules include six main types:
1)
2)
3)
4)
5)
6)
Automatic disclosure
Depositions, taken from both written and oral questions
Interrogatories addressed to a party
Requests to inspect documents or property
Requests for admission of facts
Requests for physical or mental examination
FRCP Rule 26 (b), which applies to all forms of discovery, provides that the parties, “may obtain
discovery regarding any matter, not privileged, that is relevant to the claim or defense of any
party”. So, the two principal requirements for discoverability of material are that it is:
1) Not privileged, and
2) Relevant to some claim or defense in the suit
Relevant but inadmissible: to be discoverable, it is not required that the information necessarily
be admissible. For example, inadmissible material may be relevant, and thus discoverable, if it:
1) Is likely to serve as a lead to admissible evidence, or
2) Relates to the identity and whereabouts of any witness who is thought to have
discoverable information
Privilege: only material, which is not privileged maybe discovered; generally, in diversity cases,
state law of privilege applies. Who may assert: only the person who could assert the privilege at
trial may resist discovery on the grounds of privilege.
Discovery in Other Countries:
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1) English Style – ‘cars face up on the table’ but still fewer cards than in the
U.S.; differs from the U.S. sharply in that:
iii. There is very little discovery from 3rd persons
iv. Except to preserve testimony there is no examination before trial
v. Non-parties may be summoned to appear at trial, and may be required at
such time to produce documents or other evidence in their possession
vi. Except in personal injury and wrongful death actions, discovery from nonparties is not available
vii. Discovery is primarily between the parties, and focused almost entirely on
documents
viii. Attorneys are not required to hand over a bunch of documents; it simply
means that each side’s solicitor is required to prepare and send to the
other’s solicitor a list of documents within the above categories that are or
have been in her client’s control. Thereafter, each party may give notice to
the disclosing party that it wishes to inspect any documents on the list and
to make copies of any such document that it does not already have.
ix. Relies on party disclosure rather than responding to requests from your
adversary; each party is required to disclose:
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1. The documents on which she relies and
2. The documents which
a. Adversely affect her own case
b. Adversely affect another party’s case or
c. Support another’s case
3. The documents, which she is required to disclose by a relevant
practice direction
x. What doesn’t need to be disclosed:
1. So-called “train of inquiry” documents: documents that may lead
to documents that might advance one party’s case or damage the
opponent’s case
2. Documents that may be “relevant”, but do not fall with categories
#1 & #2 above but are part of the story or background
2) Civil Law Style – (Germany, Holland, France, et. al.); different in that:
i. No trials in civil litigation, in the sense of a consecutive period of time
when witnesses give oral evidence in open court, first for one side, then
for another.
ii. Emphasis is much more on documentary proof of fact than on oral
evidence, and much more on the responsibility of each side to gather its
own evidence than on the obligation of disclosure by the two sides to one
another or participation by strangers to the controversy
iii. Pleading are much more detailed than in the U.S. or England
iv. The judge, not the parties, may summon witnesses to testify, and the
judge, not counsel, conducts the questioning; our style of crossexamination is non-existent
v. Witnesses may be sworn or otherwise subjected to penalty for giving false
evidence, parties, who may be heard by the judge, but their testimony is
not given under oath (it’s highly suspect since they are trying to ‘win’_
vi. Verbatim transcripts of oral testimony are almost never made, instead the
judge summarizes the testimony and the witnesses sign off on it, and it
becomes part of the dossier along with all the other documents of the case
vii. Most cases proceed on the basis of exchange of documents between the
parties however the judge may make her own motion or order another
party or a 3rd person to produce documents if they are relevant to an issue
necessary for decision and are described with specificity
viii. Applications to the judge to order production of documents must be
specific or supported by selected evidence
3) Canadian Style – somewhere in between
i. Pre-trial depositions are possible and without time limit
ii. Number of depositions is limited
iii. List based disclosure procedure
The U.S. Grand Jury: operates under the rules of criminal, not civil procedure, and as the courts
repeatedly stress, if interest are to be balanced, the interest in favor of disclosure is a public, not
merely a private, interest. The thought behind the requirement of indictment by a grand jury is
that a formal accusation, even when followed by an acquittal, can ruin a person’s reputation and
may cause severe harm, and that a group of citizens chosen from the public – usually 23 men and
women – can serve as protection against abuse by the state by approving a prosecution for a
serious crime only if they are satisfied that probably cause exists that a crime has been
committed and that the accused has committed it. A secondary function of the grand jury is to
investigate corruption or other situations that need cleaning up. For proc. and procedure details,
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see p. 748. The Founders thought the grand jury so essential to basic liberties that they provided
in the 5th Amendment that federal prosecution for serious crimes can only be instituted by a
‘presentment or indictment of a grand jury.’ Finally,
1) No judge presides to monitor its proceedings
2) It deliberates in secret and may determine alone the course of its inquiry
3) May compel the production of evidence or the testimony of witnesses as it considers
appropriate, and it operation generally is unrestrained by the technical procedural and
evidentiary rules governing the conduct of criminal trials
The Foreign Compulsion Defense - Societe Internationale Pour Participations Industrielles Et Commerciales, S.A. v. Rogers
(p. 749): Foreign hotstility towards American-style discovery led some countries to
utilize ‘blocking’ statutes to stop discovery by American attorneys if the evidence sought
would not be discoverable under foreign laws. United States courts face a dilemma
when a foreign party cannot comply with both American discovery orders and a
blocking statute. This is THE landmark case is this area. P, a Swiss company, could not
comply with discovery request for banking records located in Switzerland because
compliance would constitute criminal violations of Swiss secrecy laws. The U.S.
Supreme court held that the P’s inability to fully comply did not justify dismissal of
its case as a sanction for non-compliance, especially since the P made a good faith
attempt to comply. Following Rogers, American courts have viewed blocking statutes
and banking and commercial secrecy laws as affronts to the American judicial process,
and, but now, if a foreign P invokes a blocking statute, the court will likely find that
the foreign P is attempting to circumvent American discovery rules.
U.S. v. First National City Bank (p. 757): the various federal courts remain open to the
legislative and executive branches of our government if matters such as this prove to have
international repercussions. Parties “can avoid rather than provoke disrespect for the
sovereignty of a friendly nation” by pursuing the alternative of applying for an
order of judicial assistance permitting disclosure from the Supreme Court.
First National City Bank of New York v. Internal Revenue Service (ref. on p. 766): if you
the discovery requirements of one sovereign would force you to violate the laws of
another sovereign, you need to choose between obeying one and disobeying the other
and suffer the consequences of your choice.
Public and Private Interests Intertwined - Blocking Statutes: Are designed to take advantage of foreign government compulsion defense
(Restatement § 441) by prohibiting disclosure, copying, inspection, or removal of documents
located in territory of enacting state in compliance with order of foreign authorities. (ie.
Protection of Trading Interest Act of 1980 - UK law preventing corporations from revealing
business documents). Some statutes apply through own force, some are invoked, and some are
applicable unless waiver is obtained from foreign court. All statutes carry penal sanctions.
Rio Tinto Zinc Corp v. Westinghouse Electric Corp (p.783): Amongst the various
formulations encapsulating this meaning are that the evidence required is "direct evidence
for use at a trial as contrasted with information which may lead to the discovery of
evidence"; the antithesis of fishing: "[Fishing] arises in cases where what is sought is not
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evidence as such, but information which may lead to a line of enquiry which would disclose
evidence. It is the search for material in the hope of being able to raise allegations of fact,
as opposed to the elicitation of evidence to support allegations of fact, which have been
raised bona fide with adequate particularisation."
Letters Rogatory: A letter rogatory is a formal request from a court in one country to "the
appropriate judicial authorities" in another country requesting service of process. Although
statutory authority generally refers to the instrument as a "letter rogatory", the terms "letter
rogatory" and "letter of request" (which is used specifically in the Hague Evidence Convention)
have come to be virtually synonymous in actual practice. They can be used in civil and criminal
matters, and have been used in administrative matters. The execution of a request for judicial
assistance by the foreign court is based on comity between nations, absent a specific treaty
obligation such as the Hague Service Convention.
Note: You can run into trouble with these letters because if they are too overreaching/
offensive at all in the forum you are trying to reach, they can (some or all) be thrown the
hell out.
Corporations cannot claim the 5th amendment right not to incriminate oneself.
In re Uranium Antitrust Litigation; Westinghouse Electric Corporation v. Rio Algom
Limited (p. 789): suit against 29 domestic and foreign companies alleged to be coconspirators in an international cartel controlling the supply and price of uranium. When
the price of uranium rapidly rose from about $6 per pound to about $40 per pound,
allegedly as a result of the cartel, Westinghouse was caught short. If it had to buy on the
open market at $40 but resell to the utilities at $6, it would allegedly incur damages in the
billions of dollars. The case was reportedly one of the largest civil suits then pending in
the United States. Because uranium is not just a fuel used by electric utilities but also a
strategic mineral used for nuclear weapons, foreign governments with uranium reserves
resisted efforts by the parties to obtain discovery. This resulted in a clash between Judge
Prentice Marshall, who had ordered the discovery, and companies like Noranda, which
were constrained by orders of their home governments prohibiting the discovery. The
existence of a conflicting foreign law, which prohibits the disclosure of the requested
documents does not prevent the exercise of this power. Societe teaches us that the
decision whether to exercise that power is a discretionary one which is informed by
three main factors: 1) the importance of the policies underlying the U.S. statute
which forms the basis for the P’s claims; 2) the importance of the requested
documents in illuminating key elements of the claims; and 3) the degree of flexibility
in the foreign nation’s application of its nondisclosure laws. Relying further on the
Court’s additional suggestion that each case must depend upon its particular facts.
Point of interest: Judge Marshall’s rant on how our anti-trust laws are the
greatest and most important support/protection for our economic policies and
our very free-enterprise system. He says these laws are to our economic freedom
what the Bill of Rights is to our fundamental personal freedoms. (see p. 797 for
full view)
§442 - Requests for Disclosure: (p. 806) A balance of interests- 1) In deciding whether to issue order directing production of information located abroad,
and in framing such order, US court should take into account the importance of
investigation or litigation of documents or other information requested; degree of
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specificity of request; whether information originated in US; availability of alternate
means of securing information; and extent to which noncompliance with request would
undermine important interests of US, or compliance with request would undermine
important interests of state where information is located.
2) If disclosure of information located outside US is prohibited by law in which
information or prospective witness is located,
a) US court may require person to whom order is directed to make good faith effort to
secure permission from foreign authorities to make information available,
b) Court should not impose sanctions except in cases of deliberate concealment or
removal of information or failure to make good faith effort attempt to secure
documents, and
c) Court may make findings of fact adverse to party that has failed to comply with
order for production.
Law Enforcement and Secrecy Laws - Anywhere you wire-transfer U.S. $’s, it necessarily goes through U.S. bank first
U.S. v. Bank of Nova Scotia I (p. 808): supoena seeking documents issued in miami from
antigua & the bahamas and to do that needs to command the mother bank in Canada to
get those agencies to release them; Court says: too much bad impact on international
relations to let this fly
U.S. v. First National Bank of Chicago (p. 815): the bank had not made a good faith
effort to comply with the subpoena; the information was ought by a grand jury
conducting a tax and drug investigation, so that the interest of the U.S. in the grrand
jury process of investigation and enforcement of its criminal laws was involved as well as
its interest in determination and collection of taxes. Disclosure with the consent of the
customer here would not be a criminal offense in the Greek law here, and the power of
the Bahamian court to permit disclosure did not appear to be strictly limited. As a
result, we can stray from Nova Scotia I and the D is ordered to comply. - - not sure of
this!!
U.S. v. Bank of Nova Scotia II (p. 820): another exception to the act of state doctrine - - if
the executive makes its wishes known that it should be immune, so be it; Bank of Nova
Scotia appealed from order of the United States District Court for the Southern District of
Florida, James C. Paine, J., holding it in civil contempt for failing to comply with an
order enforcing a grand jury subpoena duces tecum issue by federal grand jury
conducting a tax and narcotics investigation of a United States citizen. The Court of
Appeals, Lewis R. Morgan, Circuit Judge, held that: (1) enforcing subpoena, which
called for production of records maintained at any branch office, including that in
the Bahamas, would not violate due process, notwithstanding that compliance would
allegedly require bank to violate Bahamian bank secrecy rule, and (2) principle of
comity did not require that enforcement be denied as a Bahamian court would be
able to order production. Affirmed.
Enjoining Compliance With Grand Jury Subpoenas - X. A.G. v. A Bank (p. 836): precisely the same essential facts as Nova Scotia just
different location; so this judge is violating the act of state doctrine; comes out similar to
english spinners/ici/dupont case; see judge ryan’s bit; discussed the question of disclosure
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of documents in breach of the duty of confidentiality owed by a bank to its customers.
Leggatt J. referred to the case of British Nylon Spinners Limited v. Imperial Chemical
Industries Limited [1952] 2 All ER 780 and quoted the passage. "The Courts of this
Country will, in the natural course, pay great respect and attention to the Superior Court
of the United States of America, but I conceive that it is nonetheless the proper province
of English Courts, when their jurisdiction is invoked, not to refrain from exercising that
jurisdiction if they think that it is their duty so to do for the protection of rights which are
peculiarly subject to their protection. In so saying, I do not conceive that I am offending
in any way against the principles of comity". The Judge also referred to the comment of
Denning L.J., "The writ of the United States does not run in this country, and, if due
regard is had to the comity of nations, it will not seek to run here." X A.G. v. A Bank was
a case involving injunctions preventing a Bank from complying with subpoenas issued by
an American Court in three actions. Although the proceedings were in chambers
judgment was given in open court, Leggatt J. summarized as follows:- “On the one hand,
there is involved in the continuation of the injunction impeding the exercise by the United
States Court in London of powers which, by English standards, would be regarded as
excessive, without in so doing causing detriment to the Bank; on the other hand, the
refusal of injunctions, or the non-continuation of them, would cause potentially very
considerable commercial harm to the plaintiffs, which cannot be disputed, by
suffering the Bank to act for its own purposes in breach of the duty of
confidentiality admittedly owed to its customers. Any sanction imposed now on the
Bank would look like pressure on this Court, whereas as it seems to me, it is for the New
York Court to relieve against the dilemma, in which it turns out to have placed its own
national, by refraining from holding it in contempt proceedings are issued". Accordingly,
it was ordered that the injunctions should continue. UK Court
International Judicial Assistance - Hague Convention on Taking Evidence Abroad in Civil or Commercial Matters
The U.S. and France (along with 15 other countries) had acceded to the Hague Evidence
Convention, which prescribed procedures (for civil matters only) by which a judicial authority in
one contracting state may request evidence located in another. Allows for discovery of
‘evidence’ (testimony or documents to be specific) only not all relevant information; the Hague
Convention is similar to letters rogatory
1) Introduction: Provides shorter method of obtaining evidence without proceeding
through diplomatic channels.
2) Article I: “May” be used to obtain evidence abroad. Letter of request shall not be
used to obtain evidence, which is not intended for use in judicial proceedings,
commenced or contemplated.
a) Foreign Pretrial Conceptions: Foreign countries have opinion that US pretrial
discovery is something used to determine if there is basis for lawsuit not yet filed or
as fishing expeditions. Most countries strictly limit pretrial discovery to specifically
identified documents in possession of party. Therefore, any mention of pre-trial
discovery should be avoided in a letter of request to a foreign country.
b) Foreign v. US Positions: Foreign countries feel that whatever pretrial techniques
US adopts for itself, these tactics may be applied to people or documents outside of
the US only with explicit permission; the notion of discovery is seen as a sovereign
function. The US position is that persons who do business in US, or who otherwise
bring themselves within US jurisdiction to prescribe and to adjudicate, are subject
to burdens as well as benefits of US law, including laws on discovery.
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i. Effect of these positions: Some foreign states have enacted ‘blocking statutes,’
making it illegal for their domestic countries to comply with US discovery
procedures.
3) Article 10: Compulsion for disclosure of evidence determined by the internal law of
the requested state
4) Article 12: Requested state may refuse only if such discovery is a sole function of its
judiciary, or if the discovery would interfere with its sovereign interest.
5) Article 23: Contracting state may at time of signature, ratification or accession,
declare that it will not execute letters of request issued for purposes of obtaining pretrial
discovery of documents as known in common law countries.
a) Avoid use of “pre-trial” term.
In Re State of Norway’s Application (p. 877): Lord Goff upheld the decision of the Judge
of the first instance that "witnesses should not be required to reveal the identity of a
settlor in breach of a banker's duty of confidentiality unless the witness should have
evidence that the settlor was acting as the nominee or agent of the tax payer". UK
Court
Societe Nationale Industrielle Aerospatiale v. US District Court for the Southern District
of Iowa (p. 894):
1) Facts: Claimant brings action against French aircraft company related to the crash of
its plane, which was defective, and the resulting injuries of the pilot and passenger. US
court issues discovery motion in accordance with Federal Rules of Civil Procedure.
Claimant states that issuance of discovery motions requires conformance with
procedures in Evidence Convention.
2) Issue: Whether US court must employ procedures established in Evidence
Convention when litigants seek answers to interrogatories, production of documents,
and admissions from French adversary over whom court has personal jurisdiction?
3) Reasoning: Purpose of convention was to establish system for obtaining evidence
located abroad that would be tolerable to state executing request nad would produce
evidence utilizable in requesting state. Four possible interpretations:
a) Convention is required to be used to be used exclusively. Other discovery
procedures are to be excluded whenever evidence is located abroad and needed by
US court. Rejected as inconsistent with language and negotiating history.
b) Convention should be utilized first, but not to the point of excluding other
procedures. Although the dissent favors this rule, it was rejected as inconsistent
with language and negotiating history. The benefits of this rule are the more
favorable foreign relations and more predictable outcomes.
c) Convention should be applied by notions of comity on a case by case basis. This
view is taken by the majority, due to the flexibility afforded to US courts and
balance given to American litigants. See footnote 25, p. 747.
d) Convention should be viewed as optional and not as treaty obligations. Convention
should be viewed as undertaking among sovereign states to facilitate discovery to
which US court should resort to when it deems that course of action is appropriate
(ie. non-party to suit with information outside US)
4) Conclusion: Due to non-preemptive intent, Convention does not deprive district
court of jurisdiction it otherwise possessed to order foreign national party to produce
evidence physically located within a signatory nation. The application of the
convention should thus proceed through a comity analysis on a case-by-case basis.
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5) Practical Effect of Aerospatiale: Careful lawyers should first use the FRCP, and if
objected to, could utilize the Treaty, in order to avoid prolonged litigation on the
comity issue (especially considering the vague comity standards in the majority
opinion); produces a “delayed first resort.” However, many states require the Hague
Convention as first resort, heightening the federal requirements.
So we see that there are 3 ways to view the Convention:
Will
Should
Can
Mutatis Mutandis: After making the necessary changes; Also Known As: Having changed what
must be changed; Example: The two parties finally signed the contract mutatis mutandis
28 U.S.C. §1782: A very useful discovery device is attracting increased attention from lawyers
involved in foreign litigation where potential witnesses or documents may be available in the
United States. The extent of the discovery available under the procedures described below may
exceed that permitted in the foreign jurisdiction, and in certain cases discovery may precede
institution of the foreign litigation. It allows parties to foreign litigation, and foreign courts, to
apply to a U.S. federal district court for an order directing a witness to give testimony or to
produce documents or other physical evidence:
§1782 Assistance to foreign and international tribunals and to litigants before such
tribunals.
(a) The district court of the district in which a person resides or is found
may order him to give his testimony or statement or to produce a
document or other thing for use in a proceeding in a foreign or
international tribunal. The order may be made pursuant to a letter rogatory
issued, or request made, by a foreign or international tribunal or upon the
application of any interested person and may direct that the testimony or
statement be given, or the document or other thing be produced, before a
person appointed by the court:
A person may not be compelled to give his testimony or statement
or to produce a document or other thing in violation of any legally
applicable privilege. . . .
Any court or litigant may apply for Section 1782 discovery, not only those in countries
which are parties to the Hague Convention, which is entirely separate and does not limit
rights under Section 1782. The various formalities of a Hague Convention request need
not be followed in a Section 1782 application. In order to secure testimony or document
discovery in a Section 1782 proceeding, the application must be made by a foreign court
or tribunal or litigant or "any interested person," it must be for use in a foreign
proceeding, and "the person or entity from whom the discovery is sought must be a
resident of, or be found in, the district in which the application is filed." In re Bayer, 146
F.3d 188, 193 (3d Cir. 1998) (clarifying John Deere Ltd. v. Sperry Corp., 754 F.2d 132
(3d Cir. 1985)).
The application for judicial assistance can usually be made ex parte, without notice to the
subject of the application, and the subpoena directing testimony or production of
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documents is issued by the court if the requirements of Section 1782 are prima facie
satisfied. If the subject of the subpoena objects, then the usual procedure is a motion to
quash the subpoena, and the District Court then schedules a hearing on the motion.
The applicant does not first have to attempt to secure the requested testimony or
documents in the foreign proceeding. Application of Malev Hungarian Airlines, 964
F.2d 97, 100-101 (2d Cir. 1992), cert. denied sub nom. United Technologies Int'l Inc. v.
Malev Hungarian Airlines, 506 U.S. 86 (1992). And the prevailing view is that the
foreign proceedings need not be actually pending but must be at least "within reasonable
contemplation" or "imminent" in the sense that they are very likely to occur very soon.
See Euromepa S.A. v. R. Esmecian, Inc., 154 F.3d 24, 28 (2d Cir. 1998). If the foreign
rules permit new evidence on appeal, then Section 1782 may be available even postverdict.
A foreign private commercial arbitration is not a "proceeding in a foreign or international
tribunal" as those words are used in Section 1782. National Broadcasting Company, Inc.
v. Bear Stearns & Co., Inc., 165 F.3d 184, 191 (2d Cir. 1999); accord Republic of
Kazakhstan v. Biederman Int'l, 168 F.3d 880, 883 (5th Cir. 1999). See the Federal
Arbitration Act, 9 U.S.C. ｧ 1 et seq., for the exclusive available discovery alternatives
involving foreign arbitrations. The foreign proceeding must be before an "adjudicatory"
panel, and guardianship, bankruptcy and similar proceedings have formed the proper
basis of Section 1782 applications.The principal issue litigated under Section 1782 is
"discoverability," that is, whether the testimony or documents sought in the Section 1782
application would be available according to the discovery rules of the foreign
jurisdiction. The various Federal Courts of Appeal are not in accord on this issue, and to
date the U.S. Supreme Court has declined to resolve the conflict, so at the moment the
answer to the "discoverability" question depends on where the application is made:
In the First Circuit (Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode
Island), Eleventh Circuit (Alabama, Florida, and Georgia), and the D.C. Circuit
(Washington), only discovery allowed in the foreign jurisdiction is available in Section
1782 applications. In re Application of Asta Medica S.A., 981 F.2d 1, 7 (1st Cir. 1992);
In re Request for Assistance from Ministry of Legal Affairs of Trinidad and Tobago,
848 F.2d 1151, 1156 (11th Cir. 1988); In re Crown Prosecution Service of the United
Kingdom, 870 F.2d 686, 692-93 & 692 n.7 (D.C. Cir. 1989). But see Marra v.
Papandreou, 59 F. Supp. 2d 65, 74 n.9 (D.D.C. 1999). Courts are all over this place on
this one!!
In Re Application of Euromepa, S.A. (p. 926): discovery would be prohibited only if the
opposing litigant could demonstrate that the foreign court would reject evidence obtained
with the aid of Section 1782. In the Second Circuit (Connecticut, New York, and
Vermont), Third Circuit (Delaware, New Jersey, Pennsylvania, and the Virgin Islands),
and Seventh Circuit (Illinois, Indiana, and Wisconsin), there is no discoverability
requirement in Section 1782 proceedings, although in some circuits the issue has not yet
been decided at the Court of Appeals level.
IV. Enforcement of Foreign Judgments:
No state recognizes or enforces the judgment of another state rendered without jurisdiction of the
judgment debtor. Some states require a treaty or proof of reciprocity (i.e. Germany); some have
no such requirement (i.e. France). Some states reserve the right to review the merits of a foreign
judgment, though they do not always do so (i.e. Belgium); other states do no enforce foreign
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judgments at all in the absence of a treaty (i.e. Netherlands). The U.S., with a long and
constitutionally mandated tradition of enforcing sister-state judgments, appears to be the most
receptive of any major country to recognition and enforcement of foreign judgments, but, to the
surprise of many persons both in the U.S. and abroad, the effect of foreign judgment in the
U.S. is a matter of state not federal law.
The Brussels Convention: in 1968, the EEC entered into a Convention on Jurisdiction and
Enforcement of Judgments in Civil and Commercial Matters (aka the Brussels Convention),
which at present embraces the 15 members of the Community plus (through the related Lugano
Convention) the remaining members of the European Free Trade Area (EFTA) – Iceland,
Norway, and Switzerland. The U.S. is not a party to any treaty concerning recognition and
enforcement of judgments.
Thus overall, the law on recognition of enforcement of foreign judgments is a mix of
judge-made law, statute, bilateral treaty, and multilateral convention, but no general
principles have emerged that can be said to rise to the level of customary international
law apart from treaty. The statutes and treaties concerned with foreign judgments
typically focus on judgments in civil or commercial disputes granting or denying a sum
of money. However, apart from ‘public law’ judgments, there is no law against
recognition of other types of judgments.
Article 5: Actor forum rei sequitur – the P follows the forum of the D; in the U.S. came
to mean that the D could be sued in the state of his/her domicile, or in whatever state
he/she could be personally served with process, even if the presence in that state was only
temporary.
Article 3: if judgment of other contracting states were going to be easily recognized and
enforced, then the specified bases of jurisdiction must be the only ones permitted, and
each contracting state must be prepared to give up – at least within the ambit of the
Convention – those bases of jurisdiction that the other states regarded as exorbitant.
Contracting states were not required to repeal the objectionable statutory bases of
jurisdiction, but jurisdiction on these bases could henceforth not be exercised in actions
against persons domiciled in other contracting states.
EEC = no stare decisis! Almost forced/necessary to formulate a common law now though
to make this stuff work
How it works: In the absence of a treaty, enforcement in F-2 of a judgment of F-1 generally
requires an action, often by some form of summary proceeding. An action, of course requires
jurisdiction over the judgment debtor. Jurisdiction for this purpose may be based on the presence
of assets in the forum state. An order of a court in F-2 to enforce a judgment of F-1 results in a
new F-2 judgment (or exquatur), which can then be executed by a sheriff or marshal in F-2.
Reasons in support of foreign enforcement (p. 390):
1) Comity
2) Efficiency
3) Res judicata
4) Fairness
Reasons against foreign enforcement (p. 390):
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:
1)
2)
3)
4)
5)
6)
Many states are distrustful of foreign courts, especially if that foreign court is
looking to impose its law on a citizen of the forum state
Different states have different vies on how and why judicial systems should
work
Every state is careful not to enforce a judgment contrary to its own public
policy
Could be enforcing an unfair judgments
Lack of comity
Lack of due process; lack of original appropriate jurisdiction; could be a default
judgment; contrary judgments
In the beginning - Hilton v. Guyot (p. 391): The extent to which the United States, or any state, honors
the judicial decrees of foreign nations is a matter of choice, governed by "the comity
of nations." Comity "is neither a matter of absolute obligation, on the one hand, nor of
mere courtesy and good will, upon the other." United States courts generally recognize
foreign judgments and decrees unless enforcement would be prejudicial or contrary
to the country's interests.
Friendship Commerce and Navigation Treaties: treaties upon which countries would agree to do
business together
Johnston v. Compagnie Generale Transatlantique (p. 404): comes down to public int’l
law v. private int’l law; here, Justice Pound is anxious to establish several points: 1) he
insists that the issue is one of private, not public law; 2) more than a decade before Erie,
he wants to establish that the issue of recognition of foreign judgments is one of state
and not federal/national law. Having established both of these points, the Court
proceeds to reject the requirement of reciprocity and the emphasis on the nationality of
the parties, and grants recognition to the judgments.
Compare this to: British Columbia Loggers; furthermore, this discussion is a
kind of mirror image of the discussion concerning The Bremen v. Zapata OffShore Co. In regard to forum selection clauses, the U.S. Supreme Court takes the
internationalist position; its decision is probably not binding on state courts,
thought it has proved generally persuasive. In regard to recognition and
enforcement of foreign judgments, the Supreme Court in a different era takes the
anto-internationalist position, also not binding on state courts, and this position
has proved generally unpersuasive. In regard to arbitration – concerning both
forum selection and recognition and enforcement – the internationalist position
prevails by statute and treaty, and the federal/state issue disappears.
Uniform Foreign Money Judgments Recognition Act (p. 409): speaks of final judgment – not
interim orders or judgments subject to confirmation or modification; formulated by the ABA and
the National Conference of Commissioners on Uniform State Laws; adopted to codify state rules
that had been applied by the majority of courts in the U.S.; 31 states/territories have adopted it; it
was subsequently adopted by the Restatement; so it now stands as the ‘American Rule’ on the
subject; a judgment issued by, say a Wisconsin court should be enforced in Germany the same
way as a judgment of a California court, although Wisconsin has not adopted the Uniform Act
while California has done so; says:
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Except as provided in section 4, a foreign judgment meeting the requirements of section 2
is conclusive between the parties to the extent that it grants or denies recovery of a sum
of money. The foreign judgment is enforceable in the same manner as the judgment of a
sister state which is entitled to full faith and credit.
§2: This Act applies to any foreign judgment that is final and conclusive and enforceable
where rendered even though an appeal there from is pending or it is subject to appeal.
§4: (a) A foreign judgment is not conclusive if:
(1) the judgment was rendered under a system which does not provide impartial tribunals
or procedures compatible with the requirements of due process of law;
(2) the foreign court did not have personal jurisdiction over the defendant; or
(3) the foreign court did not have jurisdiction over the subject matter.
(b) A foreign judgment need not be recognized if
(1) the defendant in the proceedings in the foreign court did not receive notice of the
proceedings in sufficient time to enable him to defend;
(2) the judgment was obtained by fraud;
(3) the [cause of action] [claim for relief] on which the judgment is based is repugnant to
the public policy of this state;
(4) the judgment conflicts with another final and conclusive judgment;
(5) the proceeding in the foreign court was contrary to an agreement between the parties
under which the dispute in question was to be settled otherwise than by proceedings in
that court; or
(6) in the case of jurisdiction based only on personal service, the foreign court was a
seriously inconvenient forum for the trial of the action.
Jurisdiction, Default Judgments and Enforcement Abroad - Somportex, Ltd. v. Philadelphia Chewing Gum Corporation (p. 411) – U.K.: For the
reasons heretofore rehearsed we will not disturb the English Court's adjudication of
jurisdiction; we have deemed as irrelevant the default nature of the judgment; we
have concluded that the English compensatory damage items do not offend
Pennsylvania public policy; and hold that the English procedure comports with our
standards of due process.
Somportex, Ltd. v. Philadelphia Chewing Gum Corporation (p. 417) – U.S.: clearly a
vote for recognition and enforcement of foreign country judgments, in line with the prorecognition attituge of the Uniform Act (which favors forum selection clauses) and of the
Restatements of Conflict of Laws and Foreign Relations Law.
Henry v. Geoprosco International Ltd. (p. 423): company with headquarters in London
recruits oil field workers in Canada, an oil-producing area, and send them to work in the
Middle East. Mr. Henry gets fired and sues for breach of his employment contract in
Canada per Canada’s version of Order 11. D moved to dismiss which gets denied and
subsequently withdraws from the litigation. P wins a default judgment but D refused to
pay. P then seeks to enforce in London. The court refused to enforce the default
judgment, a decision that was widely criticized. As a result, English D’s sued in a
foreign court can now:
1) Move for dismissal for lack of jurisdiction
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2) Move for dismissal on grounds of forum non-conveniens
3) Move for a stay or dismissal pending arbitration or
4) Move for the release of seized property
all without any fear of being bound in England by an unfavorable result. If any of these
actions succeed, the D is escapes F-1 jurisdiction. If they all fail, and the D has not put in
an answer or otherwise contested the action on the merits, it can withdraw and re-litigate
the issue of jurisdiction in the English court if the P seeks to enforce the resulting
judgment.
Recognition of Foreign Judgments in Europe - - (See Brussels Convention Above)
Elefanten Schuh GMBH v. Jacqmain (p. 445): contract and judgments based on them
cannot be nullified for being in the wrong language; parties cannot agree to derogate
from the Convention; Convention applies only where related actions are brought before
courts of two or more contracting states
Establissements Rohr S.A. v. Ossberger (p. 451): the Convention must be interpreted as
meaning that it allows the D not only to contest the jurisdiction but to submit at the
same time in the alternative a defense on the substance of the action without,
however, losing his right to raise an objection of lack of jurisdiction.
Notes: Together these two cases illustrate both halves of the Convention and the
connection between them. The ‘objective and spirit of the Convention’ seem to
prevail over a literal reading of it. On these two cases, the resolution is essentially
the one arrived at in Rule 12 (h) of the FRCP and rules of procedure of nearly
every American state: A D may not postpone a challenge to personal
jurisdiction until he sees how the case is going: he must raise the challenge no
later than at the first responsive pleading. But the ‘special appearance’ has no
place in the Bussels system; joining substantive and jurisdictional defenses is
encouraged, and practically required. Just to make sure that the point is clean, the
last paragraph of Article 28 expressly excludes using the public policy of F-2 as a
way to raise jurisdictional objections.
Krombach v. Bamberski (p. 458): criminal matters and civil matters are linked; there is a
civil transnational obligation; in the last 10 years there has been a strong international
push to punish business for things like lying, falsifying records, etc. - - civil wrongs; the
Court held:




there had been a violation of Article 6 § 1 (right to a fair hearing) of the
European Convention on Human Rights, taken together with Article 6 § 3(c);
there had been a violation of Article 2 of Protocol No. 7 (right of appeal in
criminal matters) to the Convention;
the finding of a violation in itself constituted sufficient just satisfaction for the
non-pecuniary damage sustained by the applicant;
the respondent State was to pay the applicant 100,000 French francs (FRF) for
costs and expenses.
In other words, the fact that a court assumed jurisdiction on a basis prohibited by
the Brussels Convention was not a valid ground for other contracting states to
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refuse to enforce its judgment, but the fact that the court did not allow the
defendant to defend himself through a lawyer was such a valid ground.
Affaire Krombach v. France (p. 467): The case concerns the defendant's conviction in
absentia and his sentencing to 15 years' imprisonment for manslaughter in the death of
his stepdaughter, a French national who died at the applicant's home in Germany in July
1982. He was ordered to pay compensation to the victim's father, a civil party in the
proceedings. Invoking article 6(1) and article 6(3)(b), the applicant complained that he
was denied legal representation at his trial before the assize court, which convicted him in
absentia in March 1995, under article 630 of the Code of Criminal Procedure. He further
complained under article 2 of Protocol No. 7 that, owing to this conviction in absentia, he
had been denied a right of appeal on points of law by virtue of article 636 of the Code of
Criminal Procedure. The Court dismissed the applicant's claim for pecuniary damages
and ruled that the non-pecuniary damage to have been sufficiently remedied by the
findings of a violation contained in the judgment. The Court awarded the applicant for
costs and expenses.
Uniform Laws Annotated (ULA): rules written to apply uniformly across several states; so, each
state doesn’t have to re-invent the wheel so to speak; things like child custody/removal, etc.
Recognition and Enforcement Without Benefit of Treaty - Solimene v. B. Grauel & Co. (p. 476): P gets hurt on the job, sues manufacturer and wins
a big cash judgment. P then seeks to enforce judgment against manufacturer in their
home forum (Germany) but the court there refuses to recognize it. Looks like they did
it out of spite for: 1) overarching U.S. Discovery; 2) HUGE award; 3) the F-1 jury
(Mass) didn’t list/provide any reasons for why they found in favor of the P in the first
place (Germany not so keen on foreign juries/our whole system). This was the first
decision of a German court concerning recognition of an American judgment based on a
jury verdict in a product liability case.
P. & Co., Inc. v. T. (p. 480): court refused to recognize judgment; some stock/futures
trades by D in NY gave rise to a debt he refused to pay back; investment firm seeks and
gets judgment in their favor then seek to enforce against D in his home forum (Germany);
court there refused to recognize as they have a law, which protects traders in futures
from their own folly -- citing 27(1) of the Brussels Convention (“If such recognition is
contrary to public policy in the State in which recognition is sought” the judgment
will not be recognized)
S.A.C. Inc. v. F. & J. (p. 482): illustrates two traps into which even experienced litigators
might well fall; the contract contained an arbitration clause, which, being part of the
particular negotiated transaction prevails over general conditions of sale. The German
court holds, as most courts do, when both parties participate without objection in
litigation, the arbitration clause has lapsed or has been waived. The unusual part of
this phase of the case is the court’s holding that once the arbitration clause is out of the
way, the forum selection clause pointing to the courts of Nurnberg is somehow revived,
like a prior will that springs back into effect when a subsequent will is revoked. The other
trap is more surprising. Nearly everywhere an accepted basis of jurisdiction over a nonresident is jurisdiction based on a counterclaim and certainly – as in this case – a related
counterclaim. If a party invokes the jurisdiction of a court, it does not seem right that it
can at the same time claim immunity from the jurisdiction of that court with respect to the
same transaction or controversy. But that is what happens here.
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IV. Defenses
A. Public Law and Conflict of Laws
Restatement (Second) Conflict of Laws § 187: The law of state chosen by parties to govern their
contractual rights and duties will be applied if particular issue is one which the parties could have
resolved by explicit provision in their agreement direct to that issue ... unless either (a) chosen
state has no substantial relationship to parties or transaction and there is no other reasonable
basis for parties choice or (b) application of law of chosen state would be contrary to
fundamental policy of state which has materially greater interest than chosen state in
determination of particular issue and which, under § 188 would be state of applicable law in
absence of effective choice of law clause.
European Communities Convention on Law Applicable to Contractual Obligations:
a. Article 3 - Freedom of Choice: (1) Contract shall be governed by law chosen by parties.
The choice must be expressed or demonstrated with reasonable certainty by terms of
contract (no reasonable relationship test). (3) Fact that parties have chosen foreign law,
whether or not accompanied by choice of foreign tribunal, shall not, where all other
elements relevant to situation at time of choice are connected with one country only,
prejudice application of rules of law of that country which cannot be derogated from
contract hereinafter called “mandatory rules” (limitation - can’t contract out of mandatory
rules).
b. Article 4 - Applicable Law in Absence of Choice: (1) Should contract not dictate choice
of law, contract shall be governed by law of country with which it is most closely
connected. (2) It shall be presumed that contract is most closely connected with country
where party who is to effect performance has principal place of business.
How to Choose Law for Contracts, and How Not to: The EEC Convention:
Party Autonomy Rule: Rule states to apply law chosen by parties - “unless...” or “except...”
No scheme gives parties complete freedom to choose law for validity. At very least there is
requirement that there be some reasonable nexus between contract and chosen law. Defense
of party autonomy centers on importance of protecting expectations of parties and on need
for certainty and predictability in trans-jurisdictional commercial dealings
Revenue Rule: an established rule of the common law of conflict of laws that a P many not bring
(or may not obtain judgment in) an action to enforce a foreign revenue law. Revenue rule is good
in the interest of fairness, efficiency, and justiciability; a substantive defense/Common Law
Holman v. Johnson (p. 1): Tea was sold to one who intended to smuggle it into England.
Vendor knew nothing of the plan to smuggle and buyer failed to pay. Vendor then sought
payment in England. Held: because contract was valid where it was made (Dunkirk)
and vendor was not in on plan to smuggle, he should get paid.
Government of India v. Taylor (p. 3): The Government of India sought to prove in the
voluntary liquidation of a company registered in the United Kingdom but trading in India
for a sum due in respect of Indian income tax, including capital gains tax which arose on
the sale of the company's undertaking in India. Held: claims on behalf of a foreign State
to recover taxes due under its laws were unenforceable in English courts and there
was no valid distinction for this purpose between foreign States and States adhering
to the British Commonwealth.
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Her Majesty the Queen in Right of Province of British Columbia v. Gilbertson (p. 8): The
revenue rule provides that the courts of one sovereign will not enforce the tax
judgments or un-adjudicated tax claims of another sovereign.
Embargoes, Exchange Controls, and the Like - Regazzoni v. K.C. Sethia Ltd (p. 16): Held : that the contract was unenforceable since an
English court will not enforce a contract, or award damages for its breach, if its
performance would involve doing an act in a foreign and friendly State which
violates the law of that State. This principle is based on public policy and international
comity. It does not follow from the fact that today the court will not enforce a revenue
or penal law at the suit of a foreign State that today it will enforce a contract which
requires the doing of an act in a foreign country which violates such law, but, whether or
not an exception must still be made in regard to the breach of a revenue law in deference
to old authority, the present case could not fall within any such exception. Expansion of
the Revenue Rule : « An English court will not have regard to a foreign law of a
penal, revenue, or political character… »
The Effect of the International Monetary Fund Agreement (p. 33) - Banco do Brasil, S.A. v. A.C. Israel Commodity Co, Inc. (p. 22): there is a remedial
consideration which bars recovery in this case: P is an instrumentality of the
Government of Brazil and is seeking, by use of an action for conspiracy to defraud,
to enforce what is clearly a revenue law. This is a matter for the Federal Gov’t, which
not only has not entered into such further accords but has not even enacted the enabling
provision into law. Therefore the order is dismissed.
Banco Frances E Brasileiro S.A. v. John Doe (p. 26): Nothing in the agreement prevents
an IMF member from aiding, directly or indirectly, a fellow member in making its
exchange regulations effective. Indeed, conduct reasonably necessary to protect the
foreign exchange resources of a country does not offend against international law. Here,
the P is a private bank seeking rescission of the fraudulent currency exchange
transactions and damages. Thus, we find no basis for reliance upon the revenue law
rule to deny a forum for suit.
B. Act of State Doctrine: in its traditional formulation precludes the courts of
this country from inquiring into the validity of the public acts of a recognized
foreign sovereign power committed within its own territory; these acts are nonjusticiable; must be a well-settled area of international law and widely held that
the public act violates international law; it’s also argued that the public acts must
be legitimate; possible exceptions: purely commercial activity of a state& if there
is a treaty on topic; this is a largely but not exclusively American development;
AOS frequently raised by D’s when the foreign sovereign is not even a party to
the case. A substantive defense
Sovereign immunity is jurisdictional issue, recognized by international law, which arises only
when foreign state or its instrumentality is sought to be made party to litigation or where its
property is involved. The act of state doctrine, on the other hand, is a substantive defense with
constitutional underpinnings in the separation of powers which may be raised as defense in
litigation between two private parties or even where US is suing a US defendant. It is, however,
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limited to acts, which have taken place in a foreign state’s territory. Issue of act of state goes to
merits and is therefore, a substantive defense, which may be raised even if court has already
found to have both personal and subject matter jurisdiction. (or it can act vice versa, and preclude
a finding of personal and subject matter jurisdiction, because there would exist no cause of
action.
A.M. Luther v. James Sagor and Co. (p. 502): Act of state doctrine applies. Every
sovereign state is bound to respect the independence of every other sovereign state,
and courts of one country will not sit in judgment of acts of government of another,
done within its own territory. Redress of grievances by reason of such acts must be
obtained through means open to be availed of by sovereign powers as between
themselves.
Anglo-Iranian Oil Co. Cases (p. 504): the court did not decline to examine the foreign
law, but accorded it every benefit of the doubt, so as to hold an expropriation that was
in fact politically motivated and without compensation not so plainly in contravention of
international law as to be regarded as not transferring title to the state and thereafter to
purchasers from the state. The threat of litigation by Anglo-Iranian made oil from Iran
hard to sell in the West in the early 1950’s except in Italy and Japan, but no court other
than the one here (an English court sitting in Africa) actually held the nationalization
unlawful.
The 1st Hickenlooper Amendment: In 1962 Brazil expropriated assets of subsidiary of ITT,
provoking sharp response from Congress. At same time, Brazil’s president was coming to US to
request financial assistance. Senator Hickenlooper proposed amendment to Foreign Assistance
Act of 1962. It became § 620 (e) (1) of Foreign Assistance Act and read:
President shall suspend assistance to government of any country to which assistance is
provided when the government of such country:
1) Has nationalized or expropriated or seized ownership or control of property owned by
any US citizen or corporation ... not less than 50% owned by US citizens.
2) Has taken steps to repudiate or nullify existing contract or agreements with any US
citizen.
3) Has imposed or enforced discriminatory taxes or other exactions, or restrictive
maintenance or operational conditions.
4) Unless such government should take within reasonable time to take appropriate steps
designed to provide relief.
Banco Nacional de Cuba v. Sabbatino (p. 508): In response to a US sugar quota, Cuba
expropriated Compania Azucarera Vertientes-Camaguey de Cuba (C.A.V.), in which
mostly US citizens held stock. Its fully-owned subsidiary had contracted to sell sugar to
Farr, Whitlock & Co., a U.S. commodities broker. Farr, Whitlock made a second contract
with the Cuban government, then refused to take payments from its customers and
refused to accept the sugar. Banco Nacional de Cuba had been assigned the Cuban
government's rights under the second contract and sued Farr, Whitlock in US District
Court. The Cuban government invoked the Act of State Doctrine, urging the US not to
review its sovereign expropriation of property. The District Court gave summary
judgment in favor of Farr, Whitlock finding the expropriation invalid because it was
motivated by a retaliatory and not a public purpose; it discriminated against American
nationals; and it failed to provide adequate compensation. Should the Act of State
Doctrine be invoked? Held Harlan, Warren, Black, Douglas, Clark, Brennan, Stewart,
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Goldberg: Yes. Precedent says that the Act of State doctrine applies, even if
international law has been violated. International law does not require application
of the Act of State doctrine. The interests of the state in dealing with international
disputes are best addressed by the executive, not the judicial. The judicial branch
does not negotiate with foreign countries, and judicial decisions might alter the flow
of trade. Act of state does have constitutional underpinnings. It arises out of basic
relationships between branches of government in system of separation of powers.
The executive branch oversees foreign affairs. Judicial decisions would not protect
investors by enhancing trade in, for example, newly independent developing countries
because judicial decisions are so sporadic. Dissent White: The Court should wait for the
State Department to give an opinion and, if there is no objection, the Court should
examine the case on its merits. The majority should not create new precedent by deciding
1) the examination of international law is for the executive branch and outside the realm
of the courts; 2) that acts of a foreign state regarding property of aliens domestically is
beyond the reach of the domestic courts; and 3) the courts must adjudicate a claim
regarding foreign law if the claim is properly before it, and is thereby forced to rule and
validate any lawless act.
Limiting the Act of State Doctrine - 2nd Hickenlooper Amendment: was passed as reaction to Sabbatino in 1962; restricts application
of the Act of State doctrine, but only with respect to “a confiscation or other taking after January
1, 1959 and reads:
22 USC § 2370: Notwithstanding any other provision of law, no court in US shall decline on
ground of federal act of state doctrine to make determination on merits giving effect to
principles of international law in case in which claim of title or other right to property is
asserted by any party including a foreign state based upon a confiscation or other taking, by
an act of state in violation of the principles of international law, including principles of
compensation and other standards set out in this subsection.
Restatement (Third) Foreign Relations Law § 444: Compromise laid out in 2nd Hickenlooper
Amendment is to limit scope of the amendment to (1) claims arising out of expropriations in
violation of international law and (2) specific claims to property located within the US, as
contrasted to claims for compensation and damages.
Act of State Doctrine will apply unless:
a. Bernstein Exception: Executive authority says is shouldn’t
1) Reverse Bernstein Exception: AOS will not apply unless Executive authority (i.e.
State Dept./Pres.) supports adjudication
b. Violation of International Law: 2nd Hickenlooper Amendment
c. Commercial Activity: Still disputed, as Dunhill was only a plurality opinion.
d. Acting entity, although an agent of a state, is legally separate: W.S. Kirkpatrick,
Dunhill (“No statute, decree, order or resolution of the Cuban government was offered in
evidence indicating that Cuba itself had repudiated its obligations…as a sovereign matter.”)
e. The Act in Question Violates a Treaty
f. Counterclaims and Set-Offs: where there is a Bernstein Letter, there is no showing that an
adjudication of the claim will interfere with delicate foreign relations, and the claim against
the foreign sovereign is asserted by way of counterclaim and does not exceed the value of
the sovereign’s claim, adjudication of the counterclaim can not be avoided via AOS
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g. Territorial Limitation: if the property in question was situated in the taking state at the
time of the taking, AOS applies. However, for intangible property, like bank deposits and
loans, the situs may not be within the taking state, in which case AOS doesn’t apply.
First National City Bank v. Banco Nacional de Cuba (p. 527): Petitioner Bank loaned
Banco $15 million. $5 million was paid off. The Castro government came to power in
1959 and in 1960 the Cuban militia seized all branches of the Bank in Cuba, so the Bank
sold Banco's collateral and realized a $1.8 million excess. Banco sued for the excess, but
Bank countersued to keep it as damages. Following Sabbatino, should Cuba be granted
immunity? Held No. Before Sabbatino, the State Department had written a letter
saying that it expressed no opinion in the case, but it has since written a letter that
"no opinion" does not mean to invoke the act of state doctrine. The act of state
doctrine (along with sovereign immunity) is judicially created so as not to interfere
with state diplomacy, so it would defeat the purpose of the doctrine to invoke it
when the state department has indicate it that not allowing immunity would not
interfere with diplomacy. Concur Douglas: The Bernstein case shouldn't govern.
Instead, the decision should be based upon Republic of China, which says that counterclaims are allowed, as Cuba initially brought this case against Bank. Concur Powell:
Bernstein is not valid, and Republic of China should not apply, but the court should hear
the case because the whole idea of separation of interests between the judiciary and the
executive is suspect to begin with, as it would require permission of the court from the
judiciary before invoking jurisdiction. The court should hear apply international law
where appropriate, including here. Dissent Brennan, Stewart, Marshall, Blackmun:
Sabbatino wasn't just about causing executive embarrassment—it stated that the judiciary
should not become involved with political issues in general. Here there is an absence of
consensus on the applicable international rules; there are no relevant treaties, the Cuban
government is recognized, and the US government can create a remedy for those
concerned; so this is a political question. The executive cannot turn this into a cognizable
claim by "simple stipulation".
Alfred Dunhill of London, Inc. v. Republic of Cuba (p. 543): person who owes the money
- - its their law that gets applied; Acts by foreign sovereign is no more effective if it is
given label of act of state than if it was given label sovereign immunity. Court
declines to extend act of state doctrine to acts committed by foreign sovereigns in
course of purely commercial operations.
Kalamazoo Spice Extraction Co. v. Government of Socialist Ethiopia (p. 552): The
PMGSE in 1974 came to power in Ethiopia and took over the Ethiopian Spice Extraction
Company (ESESCO), of which Kal-Spice, and American corporation, owned about 80%.
Kal-Spice wouldn't accept the PMGSE Compensation Commission offers for
compensation and sued ESESCO as the alter ego of PMGSE seeking damages for the
expropriation of ESESCO. Does the act of state doctrine apply? Held: No, because,
analogous to the sovereign immunity doctrine, there is a "treaty exception"
regarding controlling legal principles. The 1953 Treaty of Amity and Economic
Relations (Treaty of Amity) precludes the government taking property for any but a
public purpose; and the taking without prompt effective compensation.
Mannington Mills, Inc. v. Congoleum Corp (p. 78): US court does have jurisdiction. US
court has jurisdiction when practices of US citizen abroad has substantial effect on US
foreign commerce under Sherman Act (See Antitrust section) However, as a substantive
defense, the act of state doctrine asserts that there is judicial abstention from inquiry
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into validity of act of foreign government. However, the court holds that simply
ministerial acts such as the issue of patents are distinct from discretionary acts such as
expropriation,and does not constitute act of state upon which US courts cannot adjudge.
Congoleum also makes foreign compulsion defense. Foreign compulsion shields parties
from antitrust liability when the parties carried out in obedience to mandate of foreign
government. Where governmental action rises no higher than mere approval, compulsion
defense will not be recognized. It is neccessary that foreign law must have coerced
defendant into violating US antitrust law. Defense is not available if defendant could
have legally refused to accede to foreign power’s wishes. (Notes: export business; D lied
to get patents in 19 other countries) judge here cites Timberlane & uses §403
considerations; this case illustrate that when limitations on US judicial jurisdiction
do not apply, limits on legislative jurisdiction may. Thus, once act of state, FSIA,
and foreign compulsion are declined, the court may still decline adjucation through
a flexible comity analysis
The Situs of Debts and the Act of State Doctrine - Garcia v. Chase Manhattan Bank, N.A. (p. 565): bank deposits are a unique contractual
relationship usually governed by state law, specifically the UCC; a debt is an intangible
asset that has no physical location therefore, it has its situs in the eyes of the law,
wherever it can be collected. (Harris v. Balk) In this case, because bank and depositors
agreed that money could be collected in Cuba, that became the situs, and AOS sprang
into effect. P’s claim was dismissed.
Perez v. Chase Manhattan Bank N.A. (p. 571): the situs is determinative; if the property
is within the sovereign territory, the AOS doctrine doesn’t apply; a debt is located
within a foreign state when that state has the power to enforce or collect it (Harris v.
Balk), which is dependent on the presence of the debtor. If the debtor is present and the
debt is payable there, the foreign sovereign then has the power to enforce or collect it,
which constitutes an act within it’s own borders = AOS applies and P’s claim is
dismissed. Only when a debt or other obligation is not payable at all in the
confiscating state would the AOS doctrine be inapplicable.
Dissent: in determining the legal situs of an intangible asset, it is clear that the
asset travels with the creditor. That rule is supported by fiscal reality since a debt
can only be said to be an asset of the creditor, and not the debtor for whom it is a
liability.
Allied Bank International v. Banco Credito Agricola De Cartago (p. 579): Allied, and
agent for a syndicate of 39 creditor banks, sued three Costa Rican banks owned by the
Republic of Costa Rica to recover on promissory notes issued after the failure of the
Latin American Bank. Costa Rica had suspended external debt repayments in response to
worsening economic problems. Costa Rica moved to dismiss, and Allied moved for
summary judgment. The district court denied all motions because of act of state doctrine
because deciding otherwise would embarrass the US government in its relations with the
Costa Rican government. Held The act of state doctrine does not apply. The first
decision assumed that holding the act contrary to international law would embarrass the
executive branch, but the executive has since informed the court that such actions are
against state policy in light of IMF principles. Does the act of state doctrine apply?
Held No. The act of state doctrine does not apply to seizures of property outside the
borders of the foreign state. Here, using act of state debt situs analysis, because
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Costa Rica could not wholly extinguish the obligations to Allied, the situs of the debt
must not have been in Costa Rica. (Ordinary situs analysis would come to the same
conclusion: Costa Rica agreed to pay the debt in New York City in United States dollars.)
Held As there remains no defense against Allied's motion for summary judgment,
the summary judgment should be granted.
Expropriation: the right of the sovereign to take private property, which under the U.S.
Constitution, must be for public purpose and only on the payment of just compensation. The
right is grounded in public policy, which deems the good of the community to take priority over
individual interest. An individual who owns property under the protection of the laws of the
community tacitly agrees to subject that property to the needs of the community.
Act of State in a Non-Expropriation Context - Hunt v. Mobil Oil Corporation (p. 591): In Hunt, an independent oil producer alleged that
the concerted activity of other oil producers prevented the P from reaching certain
agreements with the government of Libya, with the result that the Libyan government
terminated the P's right to produce and export crude oil and nationalized its assets. Held:
inquiries into the motivation (as distinguished from the validity) of the official acts
of a foreign sovereign are not barred by the act of state doctrine; Such a wide array
of factual and legal contexts may counsel against a single, inflexible rule as to when
(if ever) inquiry into the cause of a foreign government's acts should be barred by
the act of state doctrine. However, such that an inquiry into motivation necessarily
implicates validity here so, AOS applies and P’s complaint is dismissed.
Compare to: Sabbatino, Timberlane (motives of a foreign government or its
agents are implicated have involved the institution of judicial proceedings),
Mannington Mills & Mitsubishi (motives of a foreign government or its agents are
implicated have involved the revocation of a license under local law)
W.S. Kirkpatrick & Co., Inc. v. Environmental Tectonics Corp. Int’l (p. 598):
1) Facts: CEO of Kirkpatrick contracted with Nigeria citizen to get contract to assist
with building Air Force base in Nigeria. As reward for contracts, Kirkpatrick would
pay 20% commission to 2 Panama entities who would disperse funds as bribes to
Nigeria officials. Nigeria law prohibits both payment and receipt of bribes in
connection with award of government contract. Unsuccessful bidder brought matter to
US court under the FCPA. Kirkpatrick claims defense under act of state doctrine.
2) Issue: Whether act of state doctrine bars US court from entertaining cause of
action that does not rest upon asserted invalidity of official act of foreign sovereign,
but that does require imputing to foreign officials an unlawful motivation (the
obtaining of bribe) in performance of such official act?
3) Reasoning: In every case in which court has held that act of state doctrine
applicable, the relief sought or defense interposed would have required US court to
declare invalid official act of foreign sovereign performed within its own country. Act
of state issues arise only when US court must decide - that is, when the outcome of
the case turns upon - effect of official action by foreign sovereign. When that
question is not in the case, neither is act of state doctrine. That is situation here.
4) Conclusion: Act of state doctrine has no applicability here because validity of no
foreign sovereign act is at issue - - bribery is illegal in Nigeria too and not conducted
by the sovereign itself.
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Compare to: Dissent in Mannington Mills Case – argues that the court should
look at the motivation of the act (although not a public act in Mills case) to
determine if substantive defense should apply. (p. 86)
C. Sovereign Immunity: Jurisdictional Defense
1. Schooner Exchange v. McFaddon (US Supreme Court, 1812) - - The Classical View
a. Facts: US citizen attempts to claim title to armed national vessel of foreign country within
US territorial waters.
b. Rule & Reasoning: Sovereign immunity. Immunity of state from jurisdiction of courts
from another state is an undisputed principle of customary international law. Rooted
in the perfect equality and absolute independence of sovereigns. Sovereign states are equal
actors in international arena, and general international law requirement that state consent to
any rule or application of law to its conduct, lead the notion that one state is not subject to
suit in courts of another.
2. Continuation of Absolute Theory of Sovereign Immunity
a. Berizzi Bros. Co. v. Pesaro (p. 608): Berizzi brings action against the steamship Persaro,
which is owned and operated by Italian government, for failure to deliver artificial silk
from Italy to New York. Court dismisses due to sovereign immunity.
3. Rise of Restrictive Theory of Sovereign Immunity
a. Problem: Sovereign immunity, based upon the absolute independence of sovereigns,
directly conflicts with another soveriegn’s “full and absolute territorial jurisdiction.” This
is especially true since nations have begun to “enter the marketplace.”
b. Tate Letter (Department of State, 1952): Acknowledged international trend from the
absolute or classic theory of sovereign immunity to restrictive theory of sovereign
immunity. Under this new restrictive theory, parties were not immunized when they acted
like private parties, in particular by entering into commercial transactions, they are
amenable to suit in countries in which they act or where their acts have effect. Alleviates
some of the problems of absolute sovereign immunity, provides deprived private parties
that have dealt with foreign countries with legal recourse and prevents foreign states from
utilizing unfair advantage in competition with private enterprises. However, the Tate Letter
did not and could not really succeed in establishing a workable and effective law governing
claims against foreign states - - didn’t define the distinction between private and public
state acts nor who should define them. Very often came down to the nature of the activity
(i.e. corporation issuing bonds v. government bonds).
i) Jure Imperii: public acts of a state (immunity still recognized here)
ii) Jure Gestonis: private acts of a state (immunity no longer recognized here)
c. Victory Transport, Inc. v. Comisaria General de Abastecimientos y Transportes (p. 614):
new restrictive theory of sovereign immunity; “The purpose of the restrictive theory of
sovereign immunity is to try to accommodate the interest of individuals doing business
with foreign governments in having their legal rights determined by the courts, with the
interest of foreign governments in being free to perform certain political acts without
undergoing the embarrassment or hindrance of defending the propriety of such acts before
foreign courts… . Such [immune] acts are generally limited to the following categories: (1)
internal administration, such as expulsion of an alien; (2) legislation, such as
nationalization; (3) the armed forces; (4) diplomatic activity; and (5) public loans. But a
foreign government’s contract to purchase bullets or erect fortifications for army and the
like are sovereign rather
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than commercial or private acts. A claim of sovereign immunity may be presented to
the court in three ways: 1) by requesting its claim of immunity be recognized by the
State Department; 2) the accredited and recognized representative may present the
claim directly to the court; or 3) both of the above but if one comes back with a ‘no’
your chances of success in the other sinks; furthermore, the court often took the
State Department’s failure to respond as a denial of immunity. Each application
will be considered on a case-by-case basis.
d. Foreign Sovereign Immunities Act (FSIA) 1976 to fix problems left by Tate Letter
1) FSIA § 1602 - Findings and Declaration of Purpose: Under international law, states
are not immune from jurisdiction of foreign courts insofar as their commercial activities
are concerned, and their commercial property may be levied upon for satisfaction of
judgments rendered against them in connection with their commercial activities.
2) FSIA § 1604 – General Rule: Foreign state is immune from jurisdiction, with
exceptions.
3) FSIA § 1605-1607 (Esp. 1605(a)(2)): Exceptions to sovereign immunity, the most
common of which is the commercial activity exception; are the acts the type of actions
by which a private party engages in ‘trade and traffic or commerce’?
4) Not a Perfect Remedy: Many courts have complained about the confusing structure
of the Act using such epithets as “statutory labyrinth”, “twisted exercise in statutory
draftsmanship”, and “bizarre structure”.
FSIA Does Not Apply If:
 § 1605 - - General exceptions
o It waives immunity explicitly or implicitly
o Commercial activity carried on in the U.S. or with a direct effect on the U.S.
o Property taken in violation of international law and that property is in the U.S.
and/or that property was taken by an agency or instrumentality of the foreign
sovereign and that representative is engaged in commercial activity in the U.S.
o If cause of action is immovable property within the U.S.
o Tort committed by foreign state within the U.S.
o Arbitration agreement could be executed in the U.S.
o Personal injury or death cause by torture, extra-judicial killing, aircraft sabotage,
hostage taking or assisting such acts if engaged in by an official of the state within
the scope of his or her employment
 §1606 - - Extent of Liablity
o If not entitled to immunity per 1605 or 1607, the foreign state is liable in the same
manner and to the same extent as a private individual including punitive damages
if liable for state sponsored torture, etc. (1605(a)(7) or in violation of the Trading
With the Enemy Act.
 §1607 - - Counterclaims
o Counterclaim is arising out of the same subject matter/claim and does not exceed
the value of the sovereign’s claim, adjudication of the counterclaim can not be
avoided via FSIA
Trading With the Enemy Act: law forbidding trade with enemies in times of war. The official
description of the Act, as part of Public Law, is: "An Act To define, regulate, and punish trading
with the enemy, and for other purposes." The law was passed by Congress in 1917, in order to
prevent American citizens from doing business with the German Empire, a nation with which the
U.S. was at war. One of the most famous applications of the law was the seizure of the Union
Banking Corporation by the American government in October 1942, on the basis that it was a
Nazi "front group". The Union Banking Corporation was operated by Prescott Bush. The law has
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subsequently been applied to the Axis Powers, Cuba under Fidel Castro, Iraq under Saddam
Hussein, and others. Today the law is applied to most regimes which the U.S. does not have
diplomatic relations with. In 1983, financier Marc Rich was convicted of, among other things,
violating the Trading with the Enemy Act for trading in oil with Iran during the Iran hostage
crisis. He was one of many people pardoned by President Bill Clinton in his last days in office.
There have been accusations that Dick Cheney violated the Trading with the Enemy Act when a
subsidiary of Halliburton Corporation opened an office in Tehran, Iran, while Cheney was CEO
of that company. More recently, the Act has been used by the Department of Justice to prosecute
"Human shields" who travelled to Iraq in advance of the 2003 invasion, on the basis that they
spent money while in Iraq to act as human shields. The Trading with the Enemy Act is Public
Law 65-91, 65th Congress, Session I, Chapters 105, 106, October 6, 1917.
4. Subject Matter Jurisdiction and FSIA
a. Texas Trading v. Federal Republic of Nigeria (p. 635)
1) Facts: Nigeria contracted to buy vast amounts of cement, commodity crucial to
construction of infrastructure. Overbought, so docks became clogged with ships waiting
to unload. Unable to accept further shipments, Nigeria repudiated its contracts. Nigeria
via its central bank changed its letters of credit from irrevocable to revocable.
2) Issue: Whether sovereign immunity defense deprives court of jurisdiction over
Nigeria?
3) Reasoning: Sovereign immunity is not a defense in this case. FSIA § 1605 states that
a foreign nation shall not be immune from jurisdiction of courts of US in any case
in which action is based upon commercial activity. Commercial activity
encompasses whenever a government enters into a contract to purchase goods and
services. Furthermore, as per § 1605, Nigeria’s activity had a direct effect in US. US
district court has subject matter jurisdiction. Constitution Article III § 2 states that each
suit between state or citizen thereof and foreign state comes within judicial powers by
way of diversity grant. US court has personal jurisdiction. Also, Nigeria = invoked U.S.
Law (Hanson v. Denckla), had every reason to be hauled into U.S. court (Shafer v.
Heitner), and we need to set a standard for all others who come after them to follow
(WWV Corp. v. Woodson).
4) Conclusion: Defense of sovereign immunity is not available in any of Nigeria’s
actions. District court has power to hear claims.
5. Personal Jurisdiction and FSIA
a. FSIA § 1608: Outlines service, time to answer and notice requirements to satisfy personal
jurisdiction over foreign states or its agency.
b. Sugarman v. Aeromexico, Inc. (p. 650): although Sugarman’s legal claim arose for a delay
in Mexico, it happened on the homeward portion of a roundtrip flight from the U.S. and
was purchased in the U.S. Accordingly, P’s claim is based upon a commercial activity
carried on by D in the U.S. 1606(a)(2)(clause 1). Held: D, per the FSIA, is not immune
from suit in the U.S.; D does regular business with the U.S. so, it has to face U.S. law
c. Vencedora Oceanica Navigacion S.A. v. Comagnie Nationale Algerienne de Navigation
(C.N.A.N.) (p. 654): the court adopted a ‘nexus approach’ rather than a literal reading of
1605(a)(2) and cites to Sugarman; requires a connection between the lawsuit; at least one
element of a plaintiff's claim be based on commercial activity alleged to have occurred
or have a ‘direct effect’ in the United States; direct effect is construed broadly/found
to be satisfied if they want it to; court employs a ‘doing business’ and a ‘foreseeability of
suit in the U.S.’ test; Compare to Helicopteros re: jurisdiction analysis
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6. Federal Question and FSIA - - Alien v. Alien
a. Verlinden BV v. Central Bank of Nigeria (p. 667): Question of sovereign immunity is
federal question for purposes for subject matter jurisdiction. Actions against foreign
sovereigns in US courts raise sensitive issues concerning foreign relations of US, and primacy
of federal concerns is evident. To promote these federal interests, Congress exercised its article
1 powers by enacting statute comprehensively regulating the amenability of foreign nations to
US suits. Statute must be applied by district courts in every action against foreign sovereign,
since subject matter jurisdiction in any action depends on existence of one of its specified
exceptions. Matter must meet ‘arising under’ and minimum contacts requirements; here,
because of FSIA (Congress has spoken), P must sort of put forth and anticipatory defense
as part of a well pleaded case; diversity clause and ‘arising under’ clause of the U.S.
Constitution makes suits between 2 aliens fit into confines of due process
Louisville & Nashville Railroad v. Mottley (p. 697): Did the federal district court have
ubject matter jurisdiction over the case? A suit arises under the Constitution and laws of
the United States only if the original statement of the plaintiff’s cause of action shows
that it is based on the Constitution or federal statutes. Rule: a federal court can’t have
jurisdiction just because the defendant might use a federal law or the Constitution to
defend himself.
7. Attachment and Execution
a. Libra Bank Ltd. V. Banco Nacional de Costa Rica (p. 679)
1) Facts: Plaintiff makes $40 million loan to Banco Nacional. Included in loan
documents was waiver of any immunity from legal proceedings in US. Defendant
defaulted on payment of loan and on promissory notes evidencing loan. Bank brought
action against Banco Nacional, and a sheriff seized Banco Nacional property located
within US.
2) Issue: Whether loan document constitutes explicit waiver of sovereign immunity?
3) Reasoning: Banco Nacional is instrumentality of Costa Rican government. In general,
through sovereign immunity, all assets in NYC are immune from attachment. However,
should Banco Nacional issue specific waiver, then Banco waives sovereign
immunity protection (FSIA § 1610). Waiver was, and must be explicit.
4) Conclusion: Banco Nacional waived its sovereign immunity through explicit waiver.
b. S&S Machinery Co. v. Masinexportimport (p. 682): Romanian foreign trade company a
foreign state in a breach of contract action for the sale of lathes, drills and machine parts to
a U.S. corporation; (“[S]tatements of foreign officials – regardless of their political or
ideological orientation – have been accorded great weight in determining whether an entity
is entitled to claim the protection of the FSIA.”), Waiver wasn’t explicit here (esp. since
‘other liability’ is a generic term) so FSIA still applies
c. Birch Shipping Corp. v. Embassy of United Republic of Tanzania (p. 687): (Execution)
did not involve distinguishing commercial from non-commercial activity. That case
applied a section of the Act which subjects to execution assets “used for a commercial
activity.” 28 U.S.C. § 1610(a). The issue was only “whether it is proper to attach an
account which is not used solely for commercial activity.” The court was not troubled by
which uses of the account were commercial and which were non-commercial. The issue
was only whether the word “solely” ought to be read into the section. Certainly the statute
places no such restriction upon property which may be attached, nor is there anything in
the legislative history indicating that Congress contemplated such a limitation. Central
bank accounts are exempt, but that exception is not applicable to accounts used for
mixed purposes. Indeed, a reading of the Act which exempted mixed accounts would
create a loophole, for any property court be made immune by using it, at one time or
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another, for some minor public purpose. Defendant asserts, however, that failure to find
this property immune will make it impossible for foreign countries to maintain embassies.
Even if it could be shown this was actually a problem, the solution would not be the broad
immunity defendant asks, but segregation of public purpose funds from commercial
activity funds. Holding otherwise would defeat the express intention of Congress to
provide, in cases of commercial litigation such as this, that a "judgment creditor [would
have] some remedy if, after a reasonable period, a foreign state or its enterprise failed to
satisfy a final judgment." Accordingly, the property at issue here is not immune from
attachment, and the motion to quash the writ is denied.
d. Letelier v. Republic of Chile (p. 689): to sue a foreign sovereign in the U.S., there must
have been a tortuous act in the U.S.; where the families of Chilean dissident leaders sued
Chile in the United States for allegedly assassinating such leaders in Washington; action
brought by the survivors of Orlando Letelier, a former Chilean diplomat and opponent of
the dictatorship of Gen. Augusto Pinochet, who was assassinated by a car bomb in
Washington, D.C. on Sept. 21, 1976, together with Mrs. Ronni Moffitt. An investigation
concluded that Chilean secret police were responsible for the assassination. The
commission, established under a bilateral treaty, determined the amount of a settlement
due the claimants. Held: kidnapping is not commercial activity so FSIA cannot be
invoked. However, monetary award turned out to be uncollectable as P’s sought to
D’s plane as payment. The plane was deemed to remote to be attached.
Abuse of Human Rights, Terrorism, and Civil Litigation - Alien Tort Statute: 28 U.S.C. Sec. 1350, was part of the Judiciary Act of 1789; it confers
jurisdiction (and a cause of action per Filartiga/no cause of action per Tel-Oren) over suits
by aliens and only for violations of treaties and the law of nations and only against
individuals; It simply states that "The district courts shall have original jurisdiction of any civil
action by an alien for a tort only, committed in violation of the law of nations or a treaty of the
United States." In 1789 this would have included torts which occurred during acts of piracy,
violations of safe-conducts, or interference with the rights of ambassadors.
It was on the books but very rarely used for 190 years, until revived by the decision in Filartiga
v. Pena-Irala, 630 F.2d 876 (2d Cir. 1980), a case which involved a suit by relatives of a
Paraguayan who was kidnapped and tortured by the defendant, a Paraguayan police official. This
sort of matter is now covered by the Torture Victim Protection Act (1992).
The Alien Tort Statute remains in use as plaintiffs try to find some basis for jurisdiction for
claims involving torts arguably in violation of modern international law and about 100 suits have
been filed under the act since 1980. Importantly, the statute provides a legal venue to victims
who could not otherwise bring their oppressors to justice by allowing U.S. courts to decide
human rights cases even when neither party has any connection whatsoever to the United States
(however, the accused perpetrator must be in the U.S. to be served court papers). However, if the
defendant in a claim brought under the Alien Tort Statute is a foreign sovereign state (or some
agency or subdivision thereof), the jurisdictional requirements of the Foreign Sovereign
Immunities Act still must be satisfied before a court can hear the claim.
One area which has recently excited opposition is the use of the statute to sue American and
other international corporations for damages which result from their actions in other countries.
The opposing position of the National Association of Manufacturers has been adopted by the
administration of George W. Bush, but has not resulted in a United States Supreme Court
decision which precludes such legal actions.
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The Filartiga Case (p. 706): there are few, if any, issues in international law today on
which opinion seems to be so united as the limitations on a state’s power to torture
persons held in its custody; punitive damages can, and should be, awarded here; in the
end, international law was applied and it was held that an act that was a crime under
the law of nations, could also constitute a tort; D was convicted and assessed over $10
million in judgment
The Tel-Oren Case (p. 708): what § 1350 does not mean has been decided. In the TelOren case both Judge Bork and Judge Robb, in their separate concurring opinions,
rejected the Second Circuit's Filartiga decision, Judge Bork on the ground that § 1350
does not create a cause of action, Judge Robb on the ground that Filartiga is
"fundamentally at odds with the reality of the international structure and with the role of
United States courts within that structure." Since then some of the opinions following
Filartiga maintain that Congress ratified its interpretation of § 1350. The ratification
argument rests on enactment of the Torture Victim Protection Act of 1991. The Alien
Tort Act is thus beside the point: it confers jurisdiction but not a substantive cause of
action. The House Report on the torture victim bill did state that § 1350 "should remain
intact to permit suits based on other norms that already exist or may ripen in the future
into the rules of customary international law." But the statement of one congressional
committee is by no means a statement of “Congress”.
Argentine Republic v. Amerada Hess Shipping Corp. (p. 710): A Liberian company sent
its ship near the Argentine Republic, at war with Great Britain. Argentine Republic
attacked the ship, even though it was in international waters, it repeatedly radioed that
country's authorities, and it raised a white flag. The company sued the Argentine
Republic in a US District Court for a tort under the Alien Tort Statute, 28 U.S.C. 1350,
but the court dismissed the case because the Foreign Sovereign Immunities Act of 1976
(FSIA) does not authorize jurisdiction over a foreign state in this situation. Does FSIA
override the Alien Tort Statute and provide immunity? Held: Yes. The decision
must be upheld, because Congress intended FSIA to be the sole basis for obtaining
subject matter jurisdiction in federal court over a foreign state in this country. None
of its exceptions apply. Concurrence Blackmun: The Court of Appeals didn't decide
whether an exception applies, so the case should be remanded.
§404 Universal Jurisdiction to Define and Punish Certain Offenses: A state has jurisdiction
to define and prescribe punishment for certain offenses recognized by the community of nations
as of universal concern, such as piracy, slave trade, attacks on or hijacking of aircraft, genocide,
war crimes, and perhaps certain acts of terrorism, even where none of the bases of jurisdiction
[normally open to the state per §402] is present.
On Enforcement: it is fairly clean that judgments for punitive damages are very difficult if not
impossible to enforce, but he compensatory portion of a judgment comprising both punitive and
compensatory damages might be enforced, as was held in an instance in the German Supreme
Court arising out of a child molestation case in California.
Torture Victim Protection Act: undertaken to cure the shortcomings of the Alien Tort Statute that
emerved in Tel-Oren; it: 1)establishes a cause of action; 2) defines the offenses to which it
applies, in place of the vague, and arguable dated referencet to ‘violation of the law of nations’ in
the Alien Tort Statute; and 3) sets out a specific statute of limitations; liability is imposed only
on individuals not on states and is linkied to action by the D under actual or apparent authority or
color of law of any foreign nation; provides a cause of action for damages to anyone - aliens
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and citizens alike - who suffered torture (based on a few defined offenses) anywhere in the
world at the hands of any individual acting under the law of any foreign nation but, only
against individuals over whom personal jurisdiction could be obtained. The Torture Victim
Act does not contain its own jurisdictional provision. But it is clear that any case brought
pursuant to that statute would arise under federal law and thus come within 28 U.S.C. § 1331, the
grant of general federal question jurisdiction.
Note: Nevertheless, most litigation in this area has proceeded under the Alien Tort
Statute or under the amendments to the FSIA.
Kadic v. Karadzic (p. 715): Appellants' allegations that Karadzic personally planned and
ordered a campaign of murder, rape, forced impregnation, and other forms of torture
designed to destroy the religious and ethnic groups of Bosnian Muslims and Bosnian
Croats clearly state a violation of the international law norm proscribing genocide,
regardless of whether Karadzic acted under color of law or as a private individual. The
District Court has subject-matter jurisdiction over these claims pursuant to the Alien Tort
Act. The offenses alleged by the appellants, if proved, would violate the most
fundamental norms of the law of war embodied in common article 3, which binds parties
to internal conflicts regardless of whether they are recognized nations or roving hordes of
insurgents. The liability of private individuals for committing war crimes has been
recognized since World War I, and remains today an important aspect of
international law. The District Court has jurisdiction pursuant to the Alien Tort Act
over appellants' claims of war crimes and other violations of international
humanitarian law.
FSIA (Amended): in 1996, as part of the Anti-terrorism and Effective Death Penalty Act,
Congress enacted §1605(a)(7) of the FSIA, providing that foreign states shall not be immune
from jurisdiction of U.S. Courts for personal injury or death cause by torture, extrajudicial killing, aircraft sabotage, hostage taking or assisting such acts if engaged in by an
official of the state within the scope of his or her employment. Furthermore, they pushed
through §1610(a)(7), which states that commercial property shall not be immune from
attachment in aid of execution upon a judgment relating to a claim under §1605(a)(7),
regardless of whether the property was involved with the act upon which it was based. The
Act was made applicable only if the claimant or the victim is a U.S. National and the D is a
foreign/sovereign state and; sovereign immunity is lifted only if the foreign state is or has
previously been designated by the Secretary of State as state sponsor of terrorism (7 states
have been so designated: Cuba, Iran, Iraq, Libya, North Korea, Syria, and Sudan); §1605(a)(7)
(B) provided that the foreign state does not lose immunity if the act occurred in its territory
and the claimant has not made an offer to arbitrate the claim under accepted international
rules of arbitration.
The Iran Cases (p. 730), The Cuba Case (p. 732): cases against foreign sovereigns
successful but unable to collect $.
Victims of Trafficking and Violence Prevention Act of 2000: undertaken to get the above P’s
their money; provided relief for claimants who: 1) had obtained a final judgment against Iran or
Cuba as of 7/20/2000; or 2) had filed suit on one of the 5 specified dated and received a final
judgement after that date. These claimants – but only these claimants – were given three options
to collect their money (see. p. 734).
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D. Treaties/Conventions
Article 6 U.S. Constitution makes treaties supreme
Treaty of Westphalia: It is often said that the Peace of Westphalia initiated the modern fashion of
diplomacy as it marked the beginning of the modern system of nation-states. Subsequent wars
were not about issues of religion, but rather revolved around issues of state. This allowed
Catholic and Protestant Powers to ally, leading to a number of major realignments. The nationstate would be the highest level of government, subservient to no others and were to be
free/sovereign from each other.
E. Res Judicata
Res Judicata = a principle or doctrine that generally bars re-litigation or reconsideration of
matters determined in adjudication; precludes the presentation of issues in a post-conviction
petition which have previously been decided upon direct appeal; precludes any re-hearing of the
merits after a final judgment on the merits by a competent tribunal or after some other final
determination having the same effect; refers to suits on the same cause of action; an affirmative,
procedural defense
Egyptian helicopter case?
Johnston v. Compagnie Generale Transatlantique (p. 404): comes down to public int’l
law v. private int’l law; here, Justice Pound is anxious to establish several points: 1) he
insists that the issue is one of private, not public law; 2) more than a decade before Erie,
he wants to establish that the issue of recognition of foreign judgments is one of state and
not federal/national law. Having established both of these points, the Court proceeds to
reject the requirement of reciprocity and the emphasis on the nationality of the parties,
and grants recognition to the judgments. P had already obtained a judgment in France
that went against him; so he sought reversal in NY courts.
Compare this to: British Columbia Loggers; furthermore, this discussion is a
kind of mirror image of the discussion concerning The Bremen v. Zapata OffShore Co. In regard to forum selection clauses, the U.S. Supreme Court takes the
internationalist position; its decision is probably not binding on state courts,
thought it has proved generally persuasive. In regard to recognition and
enforcement of foreign judgments, the Supreme Court in a different era takes the
anto-internationalist position, also not binding on state courts, and this position
has proved generally unpersuasive. In regard to arbitration – concerning both
forum selection and recognition and enforcement – the internationalist position
prevails by statute and treaty, and the federal/state issue disappears.
F. Forum Non-Conveniens: Declining Jurisdiction
Even when US court has subject matter and personal jurisdiction over parties, it may dismiss
case when alternative forum has jurisdiction to hear case, and when trial in chosen forum would
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establish oppressiveness and vexation of defendant out of all proportion to plaintiff’s
convenience or when chosen forum is inappropriate because of considerations affecting court’s
own administration and legal problems. Dismissal on forum non-conveniens grounds may be
granted even though the law applicable in alternative forum is less favorable to plaintiff’s chance
of recovery. The court may also conclude that there is a local prejudice against one of the parties
that will keep them from getting a fair trial or that important witnesses for whom travel is
difficult may not be able to make it to the current venue. Purely US doctrine with no foreign
counter-parts (limited UK application); major defense! A home run, a dismissal; gets you out
of u.s. court if you get the judge to agree; if you want to stay in u.s. court, you’ve got to
prepare to defend against it; a substantive defense
Piper Aircraft v. Reyno (p. 259) – There was a plane crash in Scotland. The plane was
manufactured by a Pennsylvania company with parts made in Ohio. A representative of
the decedents, who lived in Scotland, filed lawsuits against the two companies in the
United States because the laws here are more favorable to plaintiffs than in Scotland.
Rule: A court has the authority to decline jurisdiction if the suit may be brought
more appropriately in another forum (in this case Scotland).
In Re Union Carbide Corp. Gas Plant Disaster at Bhopal, India (p. 266): On January 4,
2000, plaintiffs amended their complaint to add claims under New York State common
law for alleged environmental pollution in and around the Bhopal plant. UCIL (an
American company) was incorporated under Indian law and 50.9 percent of its stock was
owned by the U.S. corporation (D). Pesticides were imported from Union Carbide in the
United States and formulated in Bhopal into a saleable product. In 1979-1980, UCC
decided to back-integrate the UCIL plant to manufacture pesticides. During the
manufacture of pesticides, hazardous wastes were generated and dumped within the
plant's premises. A deadly gas leak from UCC's facility killed thousands of people in
Bhopal, India and maimed several thousand. Immediately after the Disaster, the UCIL
plant was closed by order of the Indian government and placed under the control of the
Indian Central Bureau of Investigation ["CBI"]. Id. _2. The plant never resumed normal
operations, and all activity at the site was closely monitored and controlled by the CBI,
the Indian courts and Indian Pollution Control Board. Plant was then sold to Indian
company and American control/influence effectively ended. Contamination and its
effects were discovered later and personal injury suit against U.S. Co’s followed.
Defendants argue that New York common law does not extend to claims for harm
suffered in India claiming that "Indian law may apply to the claims, but plaintiffs have
disavowed reliance on such law." Plaintiffs' original complaint stated that their causes of
action arose under the laws of India. New York law applies in cases in which the harm
occurs abroad, and where there is no conflict with the law of the foreign
jurisdiction. But, the court finds that the statute of limitations has run its course per
NY law (under that provision, a personal injury action must be commenced within three
years of the date of accrual, i.e., the date of the injury. This traditional rule applies "even
where the result is to deprive injured plaintiffs of their day in court."). And balancing this
request against the fact that defendants have already built the hospital shows this
request not to be equitable. Plaintiffs' request for an injunction requiring medical
monitoring is denied. Held: Plaintiffs' claims are untimely and directed at improper
parties. Union Carbide has met its obligations to clean up the contamination in and
near the Bhopal plant. Having sold their shares long ago and having no connection
to or authority over the plant, they cannot be held responsible at this time. The
claims against Andersen are also dismissed. Defendants' motion is granted in its
entirety.
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