International Business Law Advisor : International Business Lawyer & Attorney : Santiago Cueto Law Firm : Global Business Litigation & Finance Commentary

  I recently represented an overseas client who sued a U.S. party based on a transaction that took place overseas.  The transaction centered on several key affidavits, powers of attorney and attestations that we would need to use in U.S. litigation.  

Traditionally, for such documents to be made admissible in U.S. courts, the documents must have been authenticated or “legalized’ by the U.S. embassy or consulate in the country in which the documents originated.  And before authentication is possible, the document must have been certified by the foreign ministry of the country of origin. 

Folks, the red tape involved can be a real headache and extremely time consuming.  This is not what your clients want to hear.

Hague Convention Gives VIP Status to  Documents to Be Used Abroad

 Fortunately, there’s the Hague Legalization Convention to streamline the authentication of documents for use abroad. The Convention is a multilateral treaty designed to cut through the traditional certification process by relying solely on the convention “apostille.”

The apostille gives any public document VIP status for acceptance into any country that is a party to the Convention. Currently, 98 countries have signed on to the Convention.  As one commenter, correctly pointed out--be sure to verify that the target country (ies) are signatories to the Convention before assuming otherwise. You can check here.

U.S. Origin Documents for Use Abroad

In the U.S., all states have authorized their respective Secretaries of State to sign Hague Convention apostilles. Also, the clerk of each federal court has been empowered to issue apostilles for documents originating in that court or contained in the records of cases before that court.  Documents originating in state courts are subject to certification by the court clerk and issuance of a convention apostille by the secretary of state.

When you request the apostille, be sure to specify in which country the document is to be used.  Once the apostille is issued, it’s ready to be used abroad.

Foreign Documents for Use in the U.S.

To be admissible in the U.S., documents from other countries that are parties to the Convention and the prior certifications of those documents need only be covered by a completed apostille issued by the official of the country of origin. That’s all that is generally required.

The documents certified by apostille do not require legalization by the U.S. embassy or a U.S. consulate in the country  where the country originated.

It’s that easy!

What has been your experience with authenticating documents under the Convention?

         -Santiago

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Given the international focus of my practice, I regularly serve process on parties located in foreign   jurisdictions.  Most of the time it's straightforward because many of the countries I deal with are signatories to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, more commonly called the Hague Service Convention.

The Hague Service Convention is a multilateral accord that allows service of judicial documents from one signatory state to another without recourse to consular and diplomatic channels.

Contracting States include the United States, China, the United Kingdom, Japan, South Korea, India, Canada and France, as well as a number of other European countries. And just a few months ago, Australia signed onto the Convention.

The Convention greatly simplifies the service of court documents on persons and companies located overseas in civil or commercial matters.  While the available avenues of service under the convention in any particular case depend on the reservations and service rules of the destination state (conveniently provided here), the steps below are applicable to most contracting parties.

It's important to remember that under Rule 4(f)(1) of the Federal Rules of Civil Procedure, U.S. litigants are required to resort to the mechanism set forth in the Convention if service is to be made in any of the 61 signatory states.

Fortunately, effectuating service of process under the convention is refreshingly straightforward:

1.   Download Form USM-94: All parties are required to use the "Request for Service" (form USM-94) provided by the U.S. Marshall’s Service.  

2.    Locate the Address of the Central Authority. The address and complete contact details for all central authorities can be found here.        

3.   List Applicant’s Name and Address. The attorney representing the person seeking service should execute the portion of Form USM-94 marked "Identity and Address of the Applicant." In addition to the name and address of applicant, be sure to include a telephone and fax number.

4.   Cite the relevant Statutory Authority:  Most foreign central authorities know that private U.S. lawyers are generally authorized by U.S. law to effect service, and that Article 3 of the Convention permits counsel to complete the Convention request forms.

 Nevertheless, some foreign central authorities continue to reject requests completed by attorneys unless the request form cites the specific U.S. or state law authorizing attorneys to serve process.

The best way to deal with this is to make sure that the statutory authority to serve the document appears prominently on the request form (note there is no designated space for this), stating that "service is requested pursuant to Rule 4(c)(2), U.S. Federal Rules of Civil Procedure" which authorizes any person who is not a party and is not less than 18 years of age to serve a summons and complaint.

Requests for service in matters pending in state courts should specify that the request is made pursuant to Rule 4(c)(2) of the U.S. Federal Rules of Civil Procedure and any pertinent state law.

5. Signature and Date (Page 1):  Sign and date the signature block on the Request form.  Do not complete the Certificate on Page 2 of the USM-94. This is the proof of service which will be completed by the relevant central authority after service is effected.

6.  Provide Summary of the Document to be Served (Page 3): The applicant must also complete this part of the USM-94 and identify the documents to be served. e.g. Complaint for Damages, Petition for Injunctive Relief etc.

7.  Send the Request: The completed request form and documents to be served and accompanying translation of the documents to be served, in duplicate (one original, one copy), should be mailed directly to the foreign central authority as provided by Article 3. No translation of the form itself is required.

That’s it!

Here are some additional practice pointers to keep in mind:

Time Frame 

The Convention does not impose an obligatory time frame. Most countries take 30-90 days to effect service. Article 15, second full paragraph, sub-para (b) implies that the maximum time frame is 6 months.

Country Specific Issues

In the United States, an attorney for a party is designated by statute as a "Judicial Officer" and thus can send a service request directly to the "Central Authority" in the foreign state. However, it is important to see whether other countries will accept a direct request from a foreign attorney. Some countries, such as Israel, will not honor a service request unless it is executed by a judge or clerk of the requesting court.

France and Italy permit incoming service on their residents directly by mail. By contrast, Germany and Switzerland and most current or former communist countries require incoming service to be effected exclusively through their Central Authorities.

Other methods of service

In addition to the method set out above, the Service Convention allows a number of other methods for service. Where the State in which the document is to be served allows, documents can be transmitted:  a) by posting the documents directly to the person to be served;  b) through consular or diplomatic channels; or  c) by sending the documents directly to a person authorized to serve the documents in the foreign State. Note that Fed. R. Civ. P. 4(f)(1) authorizes use of these alternatives where the receiving state has not objected.  

Conclusion

The Hague Service Convention greatly simplifies and enhance the process for serving court documents in foreign jurisdictions. The framework provided for service in Contracting States is quicker and more cost-effective than the current methods used.

Once you've secured service of process on a foreign party, the next step is to gather all necessary evidence. That will be the subject of an upcoming post dealing with the Hague Convention on Taking Evidence Abroad in Civil or Commercial Matters.

    -Santiago

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The arc of the moral universe is long but it bends toward justice

— Martin Luther King, Jr.

The seventeen-year war between Ecuador’s 30,000 class plaintiffs against oil giant Chevron  continues its global odyssey, as the oil giant pulls out every trick in the book to avoid an impending $27 Billion judgment against it in Ecuador for contaminating an immense portion of rainforest and devastating the local population.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland.

Chevron’s latest tactical attempt to escape justice in Ecuador is consistent with its October 2007 press release, in which it promised the plaintiffs “a lifetime” of appellate and collateral litigation if they persisted in pursuing their claims.

Unfortunately for Chevron, it grossly underestimated the resolve of the class plaintiffs to seek justice.  As reported in The Wall Street Journal article, Chevron Plaintiffs Ask U.S. Court for Action, the People of Ecuador just filed a Petition to Stay Arbitration in United States District Court (S.D.N.Y) to enjoin Chevron from proceeding on the baseless international arbitration claim it recently filed in Holland. In December the Government of Ecuador filed its own Petition to Stay Arbitration.

As a litigator, I’m mindful that an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, however, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Chevron’s global quest for a favorable forum is a text book example of abusive litigation. To litigate a lawsuit across three continents is a cynical game of musical jurisdictions and takes corporate arrogance and the civil justice system to a new low.  Isn’t it time for Chevron to take a seat when the music stops in Ecuador?

What do you think?

   -Santiago

P.S. This is the third in a series of posts discussing this extremely important case. Be sure to read Chevron Files International Arbitration Claim Against Ecuador: Forum Shopping in the Hague? and Chevron’s Missteps: How Not to Handle Foreign Litigation.

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Only 2 weeks into 2010 and I’m seeing a lot of positive movement on the street. The international markets are roaring back to life. Deal makers are picking up the phone again. And lawyers are being hired to put these deals together.  Based on this snapshot view, I expect to see international transactions skyrocket as investor confidence and flexible credit terms return. While some may perceive this forecast as abundantly rosy, it is not without its thorns.

As the number of international transactions skyrocket, so do foreign parties' attempts to escape from their arbitration agreements and to force disputes into foreign courts. All too often, a party that thought it would be arbitrating international disputes - and that may have commenced arbitration in the agreed forum - may nevertheless find itself the target of foreign litigation.

A recent federal court decision reinforces strong public policies in favor of arbitration and against improper collateral  litigation.  In Telenor Mobile Communications v. Storm LLC, the United States Court of Appeals for the Second Circuit affirmed the district court’s granting of an anti-suit injunction against Ukraine litigation in aid of an UNCITRAL arbitration. You can read the decision here.

As the case illustrates, U.S. federal courts are increasingly resistant to efforts to use foreign litigation to interfere with pending international arbitration, and are increasingly willing to brandish their injunctive powers to prevent such interference.

The Telenor decision should cause parties to arbitration agreements to think twice before staging "friendly litigation" in an effort to avoid their contractual obligations, as Judge Robert D. Sack wrote for the court:

Our view, in light of the findings of the arbitration panel and the district court, is that it is Storm's improper collateral litigation, not the arbitral award that is contrary to public policy, viz., the well-established federal public policy in favor of arbitration. "Through the FAA, Congress has declared a strong federal policy favoring arbitration as an alternative means of dispute resolution." (Internal quotation marks omitted)). Collateral and unilateral litigation of arbitrability – or any other issue pertinent to arbitration, for that matter --undertaken in a foreign forum by a party to that arbitration in an attempt to protect itself from an adverse arbitral award would, if indulged, tend seriously to undermine the underlying scheme of the FAA and the New York Convention.

It's reassuring to see that U.S. federal courts are increasingly protecting the integrity of awards rendered in international arbitration and that collateral litigation commenced by a foreign party to avoid an arbitral award will not be tolerated. 

Trend to Watch:  Look for More U.S. federal courts to hold international parties to their arbitration agreements, and to prevent them from seeking refuge in litigation abroad.

      -Santiago 

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 American innovation spawned the personal computer, the internet and the Ipod.  All radically changed the way the world accessed information. Under a proposed EU Directive, another American innovation—the class action lawsuit—may radically change the way EU consumers' access justice.

Under the proposal presented by the EU Commission, consumers who suffer at the hands of companies that fix prices or abuse their dominant market position could soon find it easier to launch class action lawsuits for compensatory damages. In an attempt to avoid any abuse of class actions, however, the draft directive underlines that only state bodies or non profit-making organizations appointed by national governments in the EU can bring class action lawsuits in national courts. If adopted as a Directive by the European Commission, EU Member States would be required to implement it or face heavy fines.

In response to increased discontent among EU consumers and entrepreneurs over the rise of antitrust violations, the European Commission published a White Paper, Damage Actions for Breach of the EC Antitrust Rules to explore the utility of class action lawsuits in quelling anticompetitive behavior. The EU Commission wrote:

“With respect to collective redress, the Commission considers that there is a clear need for mechanisms allowing aggregation of the individual claims of victims of antitrust infringements. Individual consumers, but also small businesses, especially those who have suffered scattered and relatively low-value damage, are often deterred from bringing and individual action for damages by the costs, delays, uncertainties, risks and burdens involved. As a result, many of these victims currently remain uncompensated.

Opening the court house gates to private damage actions for alleged violations of EU antitrust law would represent a fundamental shift in EU competition policy on two fronts. First, the proposal would allow victims of EU antitrust violations to recover the estimated billions of Euros they forgo each year under the current enforcement regime.

Second, the proposed change would shift the Commission's overwhelming workload to private plaintiffs. As reported in the Financial Times article, Brussels accepts Microsoft’s browser offer and in the New York Times article, Europe Fines Intel $1.45 Billion in Antitrust Case, resources dedicated to the EU's antitrust enforcement efforts have been pushed to the brink. 

Opening the doors to class action redress, would best serve the interests of victimized EU citizens in the following ways:

1. Consumers would be allowed to  create an effective system of private enforcement by means of  lawsuits that complement, but do not replace or jeopardize, public enforcement;
2. Companies would be persuaded to play by the rules, as a greater number of antitrust violations would be detected, which would greatly increase the costs associated with noncompliance; and 
3. EU enforcement would become streamlined and produce beneficial effects in terms of deterrence of future infringements and greater compliance with EU anticompetition policy.

While opponents of the proposed directive fear that the EU would become a forum shopping haven for unscrupulous U.S. attorneys, the export of  American ingenuity by way of innovative jurisprudence will prove to be a positive evolutionary step in EU anticompetition law.

Trend to Watch: Look for the EU to Implement Collective Redress Mechanisims to Complement Existing Anticompetition Laws 

     -Santiago

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If there’s one thing to know in international business, it’s not to flaunt the laws of a sovereign nation, no matter how large your market capitalization or how benign your corporate objective  to “do no evil.”  

Of course, this fundamental precept is often viewed as mere suggestion rather than sound business judgment. In light of a recent French Court ruling against it, Google believed it was  the former.  In the French lawsuit, the internet search giant was found guilty of breaching copyright laws by a Paris court after publishing excerpts of French books on its website.

The Paris Civil Court found that Google violated the copyrights of publisher Editions du Seuil SAS, which filed the lawsuit The publisher accused Google of scanning its books free of charge, letting users browse the content for free, reaping revenues from advertisers but not adequately compensating the creators and original publishers of the works. The French company was one of many to take Google to court for digitally scanning its books without explicit permission.

In a 22-page decision, the French Court wrote:

Google violated author copyright laws by fully reproducing and making accessible on the site” books owned by Seuil without its permission.”

Even French President Sarkozy weighed in on the decision and proclaimed:

We are not going to be stripped of our heritage for the benefit of a big company, no matter how friendly, big or American it is.”

You can read about the decision in the New York Times article, French Court Rules Against Google Over Book Copying and in the Bloomberg article Google’s French Book Scanning Project Halted by Court authored by Heather Smith.

Google has also run into trouble stateside regarding its book scanning project. For an excellent discussion on the class action lawsuit filed against it in the U.S. check out David Lat’s Above The Law article, The Google Books Settlement.

Google is not alone in the extraterritorial application of its hubris. Microsoft just recently settled the an Anti-trust case filed against it by the European Union. It’s an interesting case and worthy of a separate blog article. You can read more about Microsoft’s troubles in the EU in the New York Times article Europe Drops Microsoft Antitrust Case.

In light of the French court’s ruling, Google must pay €300,000 (US$432,000) in damages for breach of copyright to the aggrieved publisher. For each day that the books remain accessible online without permission, Google must pay a further €10,000, the court ruled.

The case should serve to remind U.S. Companies operating overseas to: 1) mind your manners; and 2) follow the law. No matter how big you are.

Are you Feeling Lucky now, Google? 

   -Santiago

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 On a recent trip to Hong Kong, I noted several newly built skyscrapers filling up the remaining voids of the city’s skyline. From my perspective sitting in the Felix restaurant, perched atop a high rise on the other side of Victoria Harbor, it was easy to see how global economic and financial activity had shifted from west to east, especially to markets connected to the Chinese economy.

To illustrate this point, the Financial Times reported yesterday in its article China Eclipses U.S. in IPOs, that “Chinese stock exchanges raised double the amount of money secured by initial public offerings across the US in 2009, highlighting the region’s rising weight in international finance.Ken Poon of Citigroup said:

It is likely to be another busy 12 months [in 2010]. Expect more records to fall."

In light of the surge of economic activity, Hong Kong will likely remain the international arbitration hub in Asia for resolving commercial disputes. Due to its relationship with and proximity to the Mainland, Hong Kong has become the arbitral seat of choice for China-related arbitration.

Between 2007 and 2008, the Hong Kong International Arbitration Center (HKIAC) saw a 34% increase in the number of arbitrations handled by it, which was a significantly bigger increase than those enjoyed by fellow heavy weights American Arbitration Association (AAA), Center for Investment, China International Economic and Trade Arbitration Commission (CIETAC) and International Chamber of Commerce (ICC). This trends is indicative of the world's growing trust in the Hong Kong government's abnility to resolve disputes.

Two recent developments in Hong Kong arbitration are likely to cement Hong Kong's position as the hub for internatioal arbitration in Asia: The new rules of HKIAC and the implementation of the Civil Justice Reforms (CJR).

HKIAC Rules

The overall approach of the new Rules, which went into effect early this year, is to provide “light touch” administration. They are generally based on the UNCITRAL arbitration rules and are said to be inspired by the Swiss Arbitration Rules. The main purpose of the new HKIAC rules is to make arbitration more user friendly to arbitration users both in and outside Hong Kong. It will enable the Hong Kong business community and arbitration practitioners to operate an arbitration regime which accords with widely accepted international arbitration practices and development. The main features of the Administered Rules include:

1. The use of more user-friendly language;
2. The Administered Rules are designed especially with Chinese-foreign disputes in mind and are issued in Chinese and English versions;
3. If the parties to an arbitration are of different nationalities, neither the sole arbitrator nor the chairman of a three-member arbitral tribunal shall have the same nationality as any party unless specifically agreed otherwise by all parties in writing;

Hong Kong Civil Justice Reforms

The CJR is effectively a revamp of the existing civil procedure system. The new procedures are designed to change the litigation culture in Hong Kong, with the courts taking on a much more pro-active role in case management. Hong Kong courts, like those in a number of other jurisdictions, have struggled to address the increasing delays, complexity and expense associated with modern litigation.

Also, prior to the implementation of the CJR the HongKong courts had been held to lack power to entertain an application for a Mareva injunction (or other interim relief) in aid of foreign litigation proceedings. As part of the CJR, both the High Court Ordinance and the Arbitration Ordinance have been amended to make it clear that interim relief can be sought in aid of foreign proceedings and foreign arbitrations as an independent, free-standing form of relief, without being ancillary or incidental to substantive proceedings in Hong Kong.

Conclusion

The recent developments that have taken place in Hong Kong and that are referred to above will all contribute to making Hong Kong an increasingly attractive, and friendly, place for arbitration, as well as to reinforce Hong Kong as a hub for international arbitration in the Asia Pacific region.

Trend to Watch: Look for Hong Kong to Challenge Shanghai and Singapore as the Region’s Premiere Arbitration Center.

-Santiago

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Judge Maintains Jurisdictional Harmony and Refuses to Block Foreign Company’s Suit in France.

In a recent post, I wrote about the “F-Cubed” securities class action trial currently underway in New York federal court. The class action lawsuit, In Re: Vivendi Universal, S.A., alleges Vivendi made material misrepresentations and omissions concerning the firm's liquidity position. The truth about its financial health emerged in 2002 when Vivendi announced several asset sales and credit-ratings agencies downgraded its debt.

You can read more about the trial on the Bloomberg website in the article Vivendi Ex-Chief Messier to Testify at Fraud Trial and in the Wall Street Journal article Messier: I Never Committed Fraud as Vivendi’s Chief Executive.

The Anti-Suit Injunction

The Plaintiffs in the trial recently filed an “anti-suit” injunction to prevent French media giant Vivendi from petitioning the Tribunal de Grande Instance de Paris to enjoin two individual French class members from participating in the New York trial. An anti-suit injunction is an order issued by a court or tribunal that prevents an opposing party from commencing or continuing a proceeding in another jurisdiction or forum.

In an effort to maintain jurisdictional harmony and avoid dueling anti-suit injunctions, Judge Richard J. Howell issued an Order denying the injunction to force Vivendi  to withdraw the French lawsuit.   Judge Howell ruled that he would not encroach on the Paris court's jurisdiction, even though the plaintiffs in the U.S. suit met the qualifications for an injunction. In deferring on the principle of comity, the Court wrote:

[F]oreign anti-suit injunctions technically operate only against the parties, in effect they restrict the jurisdiction of the courts of a foreign sovereign…Consequently, foreign anti-suit injunctions should be “used sparingly . . . and granted only with care and great restraint.”

While the Court’s ruling was a setback for the plaintiffs’ case given that they satisfied all the necessary conditions, it is an instructive lesson on how to lay a solid foundation for the issuance of an anti-suit injunction.

Requirements for Seeking Anti-Suit Injunction

A party seeking anti-suit relief in the U.S. federal court against foreign litigation generally needs to show:

1. The foreign proceedings involves the same issue and parties;
2. The case before U.S. courts will be “dispositive” of the issue in the foreign tribunal; and
3. International comity and equitable consideration favor anti-suit relief.

Absent such a showing, courts generally will allow local and foreign litigation to proceed in parallel, on the basis that final judgment in one will have res judicata effect on the other.

If seeking to commence parallel non-U.S. proceedings, consider whether asserting different parties and issues in the U.S. and non-U.S. proceedings will help to ward off an anti-suit injunction.

If, on the other hand, you are intent on trying to set up a motion for an anti-suit injunction, consider how closely you can draft your pleading to mirror the facts, claims, and issues in the other jurisdiction.

Party Opposing Anti-Suit Injunction Should Consider Pre-Emption

While difficult to obtain, a party that wants to avoid the issuance of a foreign anti-suit injunction designed to stop a U.S. litigation should consider pre-empting the non-U.S. injunction by seeking an “anti-anti-suit injunction” from the U.S. court. These injunctions have been granted, albeit rarely, where the applicant has shown that the other party will seek to frustrate enforcement of the parties’ judgment.

Trend to Watch: The Use of Anti-Suit Injunctions Will Continue to Rise as International Mega-Deals Become More Prevalent    

       -Santiago

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***Update January 29, 2010***

"The jury in the long-running securities class action lawsuit against Vivendi has resulted in a verdict against the company on all 57 of the plaintiffs' claims. However, the jury also found that the two individual defendants, former Vivendi CEO Jean Marie Messier and former Vivendi CFO, were not liable. The jury’s verdict reached only the question of liability.  Damages will be determined in a later phase. Plaintiffs claim damages of over $11 billion." (via Kevin Lacroix D&O Blog)

***         

Answer: they are both once-in-a-life-time events. Or least that’s what Am Litigation Daily’s Andrew Longstretch posits in the article Extremely Rare F-Cubed Securities Class Action Trial Starts This Week Against Vivendi.

The Litigation Equivalent of Halley's Comet: In Re Vivendi Universal, S.A.

Mr. Longstretch compares the trial currently underway in the Southern District of New York to Halley’s Comet because it is a-once-in-a-lifetime chance to witness an “f-cubed” securities class action trial. So called because the case involves foreign investors who bought shares of foreign companies on foreign exchanges.  Three foreign components, hence cubed.

The class action lawsuit, In Re: Vivendi Universal, S.A., alleges Vivendi; Messier; and Guillaume Hannezo, its former chief financial officer, made material misrepresentations and omissions concerning the firm's liquidity position, and the truth about its financial health emerged in 2002 when Vivendi announced several asset sales and credit-ratings agencies downgraded its debt.

Lawyers for the shareholders have argued that Vivendi management portrayed the company as financially healthy, but internally management was concerned about potential liquidity problems, which ultimately caused the stock to drop. Judge Richard J. Holwell’s Class Certification Ruling is worth a read.

"Vivendi's Comet" Closely Watched

The case is being watched closely by the plaintiffs’ bar, which would like to see more foreign investors file international securities suits in U.S. courts. If successful, the case promises to send a stern message that U.S. courts will prosecute and punish foreign companies who use the U.S. as a basis for engaging in fraudulent activity.

You can read more about this extremely rare trial on the Bloomberg website in the article Vivendi Ex-Chief Messier to Testify at Fraud Trial and in the Wall Street Journal article Messier: I Never Commited Fraud as Vivendi’s Chief Executive.

For those of you hoping to catch a glimpse of another F-Cubed securities class action in this lifetime, a bill currently working its way through congress just might make it a regular occurrence.

Could Become Regular Occurrence Under Proposed Bill H.R. 3817

Foreign companies could be sued more easily in U.S. courts under legislation working its way through Congress. The Investor Protection Act of 2009 (H.R. 3817), which was approved by the House financial services committee this month, contains a provision to make it easier for investors to sue public companies in the U.S. even if they are based abroad and listed on overseas exchanges. Section 215 of the proposed Act would in effect legislatively mandate a jurisdictional standard for extraterritoriality.

The proposed language specifies that U.S. courts could properly exercise jurisdiction in any action involving "conduct with the United States that constitutes significant steps in furtherance of violation, even if the securities transaction occurs outside the United States and involves only foreign investors," as well "conduct outside the United States that has a foreseeable substantial effect in the United States."

Under the first of these two prongs, U.S. based conduct alone would be sufficient jurisdictional basis, even with respect to foreign purchasers who purchased their shares of foreign-domiciled companies on foreign exchanges (so-called "f-cubed claimants").

Conclusion

If approved, H.R. 3817 will have a profound effect on international litigation by opening U.S. courts to a torrent of foreign litigation--keeping both sides of the bench busy for years to come. Until then, we'll be sure to pay close attention to Vivendi's Comet before it disappears.

Do you think the proposed legislation will pass?

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Our firm recently filed a class action lawsuit. You can read about the class action on CNBC here and in the ABA Journal article Shill Bids for Domain Names Made by Auction Company Exec, Suit Alleges. You can also find the story on PCWorld in the article Domain Auction Site Face Shill Bidding Lawsuit and in the National Law Journal in this article. 

 The class action is the first nationwide to allege that a domain name provider used a shill bidder to manipulate auctions. So it turns out, that we are not the masters of our own domains after all because in many instances the bids were tampered with. In the articles, I was quoted as saying the following:

The domain name industry is the wild west of intellectual property because it remains unregulated. The online community has been up in arms over what they feel has been an opaque system that just begs for transparency. It is impossible to know whether you are bidding against someone that isn’t working or affiliated with the company conducting the auction.

Domain names are the last frontier for the average person to stake their claim on some very valuable property. The Defendants’ conduct has made it harder for people to do so and we intend to put a stop to this practice, which we perceive as being a major concern in the industry.

So what’s the international angle to all this? I’ve got tons of ideas floating around my head and will let you know in future posts as this case heats up. One of the topics I have in mind is an offshoot of the post I wrote earlier Online Litigation and Foreign Jurisdiction.  Stay tuned.

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In an earlier post, I wrote about the Enforcement of Chinese Judgments in the United States and cited a recent California decision enforcing a Chinese judgment in the United States. The case is unique because it is generally believed that United States courts will not enforce Chinese judgments given the lack of a treaty between the two countries on the issue and given that Chinese courts generally do not enforce United States judgments in China.

While the California decision came as welcome news to the plaintiffs, a recent Florida case may serve to temper the hopes of foreign litigants seeking  to liquidate their judgments in U.S. courts.  Earlier this week, as reported in the Wall Street Journal by Ashby Jones in the article Dole on A Roll: Court Declines to Enforce $97M Judgment, a federal judge in Miami refused to enforce a $97-million judgment ordered by a Nicaraguan court. Plaintiffs sought to enforce the judgment under Florida’s Uniform Out-of-Country Foreign Money-Judgments Recognition Act. The judgment handed down four years ago by 150 Nicaraguans who said they suffered injuries from pesticides used at Dole’s banana farms in the 1970s, can’t be enforced because it was based on a law that violates international legal standards, said Judge Paul Huck in Miami Tuesday. Judge Huck’s Order Denying Recognition of Judgment is worth a read.

In the opinion, Judge Huck found:

[T]hat the judgment in this case did not arise out of proceedings that comported with the international concept of due process. It arose out of proceedings that the Nicaraguan trial court did not have jurisdiction to conduct. During those proceedings, the court applied a law that unfairly discriminates against a handful of foreign defendants with extraordinary procedures and presumptions found nowhere else in Nicaraguan law. Both the substantive law under which this case was tried, Special Law 364, and the Judgment itself, purport to establish facts that do not, and cannot, exist in reality. As a result, the law under which this case was tried stripped Defendants of their basic right in any adversarial proceeding to produce evidence in their favor and rebut the plaintiffs’ claims. Finally, the judgment was rendered under a system in which political strongmen exert their control over a weak and corrupt judiciary, such that Nicaragua does not posses a “system of jurisprudence likely to secure an impartial administration of justice.”

Those are strong words coming from one of the country’s most experienced jurists on the subject of foreign judgments--due in part to the Court’s geographical proximity to South America.

Judge Huck concluded:

That Defendants have established multiple, independent grounds under the Florida Recognition Act that compel non-recognition of the $97 million Nicaraguan judgment. Because the judgment was “rendered under a system which does not provide impartial tribunal or procedures compatible with the requirements of due process of law,” and the rendering court did not have jurisdiction over Defendants, the judgment is not considered conclusive, and cannot be enforced under the Florida Recognition Act. FLA. STAT. § 55.605(1)(a)-(c). Additionally, the judgment will not be enforced because “the cause of action or claim for relief on which the judgment is based is repugnant to the public policy of this state.” FLA. STAT. § 55.605(2)(c). The Court, therefore, orders that Plaintiffs’ judgment shall be neither recognized nor enforced.

The Court was persuaded in part by a United States State Department Country Report, which found that in every year from 1999 through 2008, Nicaragua lacked an effective civil law system. The Report is on point, as Nicaraguan courts have issued judgments in 32 such suits for a total of $2.05 billion against Dole and pesticide makers since 2002.  As reported in the article Assailing Nicaraguan Judicial System, Miami Judge Refuses to Enforce $98 Million Judgment in Banana Pesticide Case, authored by Andrew Longstreth in the American Lawyer Litigation Daily, plaintiff’s own expert “’admitted on cross-examination that some judges are not impartial or independent and emphasized the need to improve Nicaragua's judiciary.’"

Although this is a powerful ruling with potentially broad implications, it remains to be seen whether it will be a major deterrent to bringing other verdicts to the United States. This latest ruling is of particular interest to me given, my earlier posts here and here,  on the Chevron litigation currently taking place in Ecuador.

Trend to Watch: Look for Other U.S. Courts to More Closely Examine Foreign Judgments That Reach Their Doorstep. 

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The rise in international litigation predicated on lawsuits filed under the Alien Tort Claims Act present significant risks for U.S. corporations that do business abroad.  While the law was originally intended to protect US financial interests from piracy on the high seas, it was revived in the early 1980s to seek accountability for overseas human rights violations, such as extrajudicial killings. The early-1990s saw the first ATCA case filed against corporations, and now dozens of companies face such suits. 

Rise in ATCA Lawsuits

According to the recent National Law Journal article Alien Tort Claims Act Cases Keep Coming, lawsuits brought under the ATCA have increased significantly.  Last month, for example, a Los Angeles federal judge ruled that alien tort claims could be brought against London-based Rio Tinto PLC. In that lawsuit, it is alleged that Rio Tinto engaged in mining operations on the island of Bougainville in Papua New Guinea that incited a 10-year civil war, during which thousands of civilians died. 

And as reported in Nathan Koppel's article in the Wall Street Journal, Arcane Law Brings Conflicts From Overseas to U.S. Courts, earlier this year, a New York federal judge allowed claims to move forward alleging that several major multinational companies, including General Motors Corp. and Ford Motor Co., aided and abetted human-rights violations by providing goods and services to South Africa's apartheid regime. To date, major corporations including Unocal, ChevronTexaco, Union Carbide, ExxonMobil, Gap, Coca-Cola, Del Monte, Citigroup, Ford and Nike have been sued under the ATCA for complicity in human rights violations.

According to some, these lawsuits are nothing more than MacGyver-inspired attempts to fashion together extraterritorial law out of paper clips and bubble gum found in arcane and long-forgotten  legal principles.  Thomas Niles, a former U.S. ambassador to Canada and Greece who is now the vice chairman of the United States Council for International Business, a pro-business group, says corporations are being used unfairly as a surrogate for foreign governments in these cases.

You can't sue the government of Nigeria or South Africa because of sovereign immunity, so who are you going to sue? Companies, and they are sued essentially for being" in countries where human-rights violations occur.

Primary Risk Areas 

While it is doubtful that the ATCA will stem the surge of U.S. investments internationally, the recent spate of cases brought under the ATCA highlight the need for corporations to better manage their risks overseas. Managing a corporation today presents a host of challenges not encountered in decades past. In particular, the areas posing the greatest risk are:

1. Human Rights
2. Environment
3. Labor and Employment

Any corporation involved in overseas sourcing, sales or production face a myriad of operational risks involving these three areas. Companies that have chosen to ignore these risks have paid an enormous price in financial and reputational penalties. 

Conclusion

The risks to business reputation from allegations of human rights abuses in particular should force companies and directors to consider these issues seriously, irrespective of whether an ultimate finding of liability is likely.

Trend to Watch: Claims Filed Under the Alien Tort Claims Act Will Continue to Increase

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 As reported by the Wall Street Journal's Lynn Cowan today, China has taken the global lead in initial public offering activity for 2009.

As Ms. Cowan reported, should  the pace continue, China will come out on top of "every other country, and even entire regions such as Europe and North America, for all of 2009." 

Global IPO Dominance

China's global monopoly of the year’s IPOs hardly comes as a shock given the sheer magnitude of the market and the Chinese government's mandate to privatize more companies, according to Thomas B. Fox Jr., head of global capital markets for the Americas at UBS AG. 

"So many areas are still government-held -- natural resources, telecommunications, banks, transportation -- it's hard to imagine a  country having an economy the size of China's with virtually none of the companies being public," he said.

The figures compiled by research authority Dealogic, as reported in this article in Forbes Magazine, illustrate that 38 companies have raised a total of $15.4 billion in their IPOs in China so far in 2009, making China the world's largest IPO market this year.

Although U.S.-based deals were nowhere near the levels seen before 2008, when there were on occasion more than 50 deals in a quarter, it will take some time for more U.S deals to come into the market given the SEC's  three to fourth month processing period. As a result of the lag time, there will be a more significant flow in IPO activity next year, as the companies registering now start to launch.

SEC Application Process to Blame for Poor U.S. Showing?

In light of the SEC's delay in processing new offerings, an argument can be made that the bloated bureaucracy encumbering the pace of applications has made the U.S. less competitive in the global landscape when it comes to raising publicly-sourced funds for flourishing companies.  A quick look at the chart illustrates the glaring divide:  the U.S. can lay claim to only one IPO while China can boast eight (Chart via Wall Street Journal via Dealogic)

Trend to Watch: China Will Boast IPO Dominance Into the 2nd Quarter of 2010

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**Update January 15, 2010**: The Republic of Ecuador and the class Plaintiffs have both challenged Chevron's arbitration claim in New York federal court. You can read about it here and here.

First, the United States. Then Ecuador. Now Holland. Chevron's wanderlust knows no bounds, as it recently filed a parallel international arbitration proceeding in the Hague (Holland).

The Arbitration Claim

As reported in this article in the Wall Street Journal and in this article in the New York Times,  Chevron filed an international arbitration claim before the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The claim is based on Ecuador's alleged violation of investment agreements, international law, and its treaty with the United States--the Encouragement and Protection of Investments Treaty.

Chevron’s claims relate to the Amazon oil lawsuit I wrote about in an earlier post.  In the arbitration filed in the Hague, Chevron alleges that Ecuador’s judicial process is broken and that the South American nation cannot fairly adjudicate the long-running oil pollution litigation.

Through the filing, Chevron seeks to enforce prior settlement and release agreements that the government of Ecuador entered into with Texaco Petroleum when the consortium was terminated, and to hold Ecuador accountable for its obligations under Ecuadorian law and existing international treaties.

Forum Shopping in the Hague Must be Condemned

Chevron's latest move is the litigation equivalent of three card monty and is yet another tactic to divert attention away from the trial taking place in Ecuador. Filing an international arbitration campaign at this point in time smacks of desperation and is a clear example of forum shopping, as Plaintiffs counsel Steven Donziger stated in this Reuters article.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland. 

The Hague is arguably the most hallowed institution for the resolution of high-profile international disputes. Chevron's latest tactic all but mocks the institution's primary mission to administer justice. The Hague must not be utilized to frustrate legitimate legal proceedings taking place elsewhere.

Forum Shopping Creates Broad Incentives for Abuse

As Chevron's arbitration claim illustrates, the opportunity for one party to game the system and manipulate the outcome of a case by choosing a specific forum over another creates broad incentives for abuse. Among other things, forum shopping :

1. creates legal uncertainty (particularly for the defendant);
2. drains resources by imposing substantial additional costs on defendants, who must transport lawyers, documents, and numerous witnesses to the site of the trial – an expense that is multiplied when the trial is located far from the defendant’s place of business.
3. undermines the authority of substantive state law by calling into question the equity of the legal system.

Although under extremely limited circumstances forum shopping may prove a legitimate means to achieve a more just result, it is disproportionately utilized to avoid a just result by exploiting the points outlined above--as Chevron has done.

Conclusion

While an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Trend to Watch: Given the High Profile Nature of Chevron's Claim, Look for an Increase in Similar Filings in the Hague

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The last post discussed the enforcement of Chinese judgments in the United States. In this post, I’ll head across the pond to discuss the implications of a recent English High Court decision on the enforcement of judgments and Freezing Injunctions.

EU Enforcement Law

In D’Hoker v Tritan Enterprises Limited [2009] EWHC 948 (QB), the High Court examined the problem encountered with the "Brussels Regulation" in the context of Freeze Orders. The Brussels Regulation is the principle mechanism for the enforcement of judgments between Member States within the European Union and requires Member State to recognize and enforce judgments of other Member States. The circumstances in which such reciprocal enforcement of judgments is not required include the following:

1.  Where enforcement of the relevant judgment would be manifestly contrary to public policy in the Member State in which recognition is sought (Article 34(1) Brussels Regulation); and
2.  Where the judgment in question was granted ex parte and is intended to be executed without notice (Denilauler v SNC Couchet Fréres (1980) ECR 731).

As discussed in D'Hoker,  these exceptions can create difficulties when enforcing freezing injunctions under the Brussels Regulation because the public policy of each Member State must be examined and ex parte orders are not permitted. So how does one enforce a Freeze Order in the United Kingdom while avoiding these pitfalls?

Public Policy

In considering the public policy exception outlined, above potential claimants should first determine whether the terms of the proposed injunction would offend public policy in any Member State in which it is anticipated that the injunction might need to be enforced.

Second, Claimants should determine whether the injunction was modified after it was initially filed because the Brussels Regulation provides no mechanism for dealing with an order or a judgment that was subsequently modified. The implication of this is that claimants must, upon the modification of a freezing injunction, re-register it as if it were a fresh judgment.

Ex Parte Orders

Orders made without notice fall outside the Brussels Regulation (see Denilauler above) and ex parte freezing injunctions will therefore continue to be treated as unenforceable in England.

An alternative for claimants wishing to enforce a European freezing injunction in England, is to apply for a free-standing injunction in support of foreign proceedings. In England, section 25 of the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997) provides that courts may grant interim relief in support of foreign court proceedings.

An application for such a free-standing injunction is not necessarily straightforward, however, and in most cases will be more expensive and time-consuming than enforcement under the Brussels Regulation.

Conclusion

The D’Hoker case demonstrates that the enforcement of freezing injunctions raises particular difficulties under the Brussels Regulation. As a result of those difficulties it is not always a simple matter to ensure the reciprocal enforcement of freezing injunctions within the European Union.

Trend to Watch: Look for the English High Court to Clarify the Brussels Regulation as they apply to Freezing Injunctions

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on August 12, 2009, the United States District Court for the Central District of California issued a judgment enforcing a $6.5 million dollar Chinese judgment against an American corporate defendant under California’s version of the Uniform Foreign Money Judgments Recognition Act.  The court’s full decision is available here. 

This case is unique because it is generally believed that United States courts will not enforce Chinese judgments given the lack of a treaty between the two countries on the issue and given that Chinese courts generally do not enforce United States judgments in China, which limits the argument for reciprocity in the United States. 

Trend to Watch: Look for California to become a favorable forum for enforcement of Chinese judgments in the United States.

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Some of my recent "how to" posts have offered practical advice and tips concerning various areas of international business law. This post is different--it's a "how not to" article based on Chevron's inept and unethical handling of the oil pollution trial currently taking place in Ecuador. While zealous advocacy is critical to any high caliber practice, it must never cross the line into unethical conduct.

The Lawsuit

To put the case into context, Ecuadorean indigenous groups sued Texaco (which Chevron acquired in 2001) in the U.S. District Court in New York in 1993. The suit alleges the company polluted the Amazon rain forest and rivers, causing damage to the environment and their health. Chevron moved to dismiss the case on grounds of forum non conveniens. The U.S. court dismissed the complaint and held that the case should be resolved by an Ecuadorean court. Based on the ruling, the plaintiffs filed a lawsuit in the small jungle city of Lago Agrio.

After expending an exorbitant amount of resources to have the case dismissed to Ecuador (Chevron submitted numerous Affidavits by top legal experts arguing that Ecuador would be the best venue), Chevron is now arguing that a fair trial in Ecuador is not possible and that the matter should be decided in the U.S.

For an excellent overview of the case, you must read Steven Donziger's recent commentary in Forbes Magazine, The Chevron Way: In an Ecuador Legal Battle Oil Giant Gives U.S. Companies a Bad name. Steven is a New York lawyer representing the Ecuadorean Plaintiffs in the suit against Ecuador.

Corporate Codes of Conduct

I first read about the case in a New York Times article over a decade ago. I was so disturbed by the deliberate corporate pollution of the pristine Amazon rain forest that I wrote a lengthy law journal article that was subsequently published in the Florida Journal of International Law. The article is titled Oil's Not Well in Latin America: Curing the Short Comings of the Current International Environmental Law Regime in Dealing With Industrial Oil Pollution Through Codes of Conduct. The article advanced the idea of corporate codes of conduct as a prerequisite to the grant of drilling concessions. Regarded as a cutting-edge proposition, the article was subsequently cited in leading legal textbooks, law review and journal articles.

The corporate codes of conduct I advocated in the journal article would have served Chevron well in conducting its drilling operations in the Amazon basin. Had Chevron implemented such a code, it would have prevented this decade-old public relations maelstrom.

Chevron's Missteps

Although I believe Chevron committed a serious sin of omission in failing to adopt an appropriate ethical code at the forefront, it pales in comparison to the legal pyrotechnics and machinations it has engaged in during the course of this litigation (including its change of heart concerning venue when the trial did not go its way).

To illustrate this point, the Wall Street Journal recently reported that Chevron released recordings showing the presiding Judge speaking about the case and appearing to have established liability against Chevron even though the trial was yet to finish. A second recording allegedly showed a member of the country's ruling party soliciting bribes in exchange for remediation contracts to be awarded after the verdict. Chevron says the videotapes were a "gift" from two men who, acting independently, used a hidden camera to record the Judge.

Chevron's questionable videotaping is nothing compared to the impending investigation  underway against it, as Steven Donziger reported in his article:

 New York Attorney General Andrew Cuomo--at the request of several Chevron shareholders, including the state's pension fund--has launched an investigation to determine whether Chevron is misleading the financial markets about the risk it faces in Ecuador.

Conclusion

Let's see, there's the decades of oil pollution, abuse of the judicial process, clandestine video taping and now an investigation into misleading the financial markets--all in the name of zealous advocacy? The examples of Chevron's inept and unethical handling of the Amazon lawsuit are boundless. At every step of the lawsuit, Chevron sought to manipulate, abuse and undermine the judicial process. Chevron's handling of the case in the past decade is a case study in how not to handle foreign litigation---or any litigation for that matter.

 Trend to Watch: Corporations Will Watch this Case Closely As The Ground Rules for Foreign Litigation Are Further Developed

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The internet brought the once rarefied world of  international commerce into our living rooms. While one can now order wine directly from a vineyard located in Tuscany, this convenience  has led to a precipitous rise in international litigation.  One of the primary risks in transacting business internationally is the uncertainty in dispute resolution. Both parties will claim that their law governs the dispute. Naturally, this almost always results in protracted litigation over jurisdictional issues. While there are many methods to avoid such a situation, a savvy international lawyer, will negotiate favorable terms into the governing contract. There are a number of approaches an attorney can consider to resolve problems across national frontiers.

Drafting the Contract

Preliminarily, an equitable dispute resolution begins with prevention. This entails drafting a solid and well thought out contract.  I touched on this topic in earlier posts here and here.  Before transacting with anyone online, it is essential that you are fully aware of their terms and conditions of service and ensure you clarify anything you'd like to see in the contract. If your proposals aren't accepted, you're far better to avoid transacting to avoid problems, particularly where substantial money is at stake.

Alternatively, if you are drafting an agreement from scratch it is imperative that you decide mutually on the terms, particularly what is known as the choice of law clause. Choice of law refers to a particular designation in the contractual terms which stipulates that in the event of a dispute, both parties submit to an exclusive jurisdiction. This is usually to the favour of the seller's knowledge, although may even be a neutral jurisdiction to avoid perceived bias. Provided that the choice of law is stipulated in advance, it is a particularly effective way of ensuring disputes are properly resolved to the satisfaction of both parties.

Online Adjudication

Another highly effective way to tackle online litigation is to submit to the exclusive jurisdiction of some online adjudication service in the terms and conditions. This involves a third party, usually a totally independent party, which is designed to regulate and prevent bias or unfavorable outcomes. This eventually leads to a definite ruling one way or the other, which is helpful in ensuring that justice is done. Again, this is all down to the agreement and the way in which it is drafted. By good drafting, many of the problems of litigation can be weeded out before they arise, leading to a more fluid and resolved business relationship in general.

In addition to contractual disputes, much of international litigation is taking shape online, as more and more parties find problems in dealing with others in foreign jurisdictions. Primarily, the issues of copyright and theft of intellectual property becoming commonplace, as issues that strike to the very core of business online. Through establishing more regulatory online framework, it is possible, and indeed encouraged, for more efforts to be injected in regulating the way in which most of our business is conducted. In the coming years, there will likely be much development in Internet law, particularly of a trans-national ilk, which will have a natural knock on effect on offline litigation to the benefit of business and trade.

Conclusion

Online litigation has risen to the forefront of legal thinking in recent years with the rise of the Internet. As business becomes naturally more global, it is important to consider how disputes can be resolved, and indeed how this will pan out in the future. There are suggestions of further developments of voluntary online courts, which will hear cases and establish a code of ethics, and this can only be good news for those parties feeling aggrieved by the system. With each transaction, the Internet is becoming a more stable environment in which to conduct business, and a more regulated forum for marketing and commerce.

Trend to Watch: Look for an increase in litigation arising out of online transactions and a contemporaenous increase in alternative dispute resolution regimes such as online courts.

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To allay fears concerning the handling of users’ personal information, European  regulators have established operating guidelines for social-networking web sites to ensure they comply with the region's privacy laws. As reported in The Wall Street Journal, EU Lays Out Web Privacy Rules, the guidelines were established to shore up EU data privacy laws already in place.

Although the new EU guidelines are specific to social networking sites, they highlight the general rigidity of EU privacy laws. These laws have significant implications for litigation based in the United States. Collecting evidence for U.S. litigation among domestic states can be a challenging task. The task becomes backbreaking when dealing with EU nations. While not an impossible endeavor, it does require that attorneys become familiar with the requirements of EU data privacy law to ensure that data will be available upon request. Doing so will ensure that an e-discovery demand won't expose their clients to prosecution for violation of EU data privacy laws.

Any litigation reaching the European continent promises to frustrate and confound with a level of complexity not normally present in a purely American lawsuit. It is imperative that counsel confer with their clients as to the laws that will govern data created in the EU. This will guide clients in implementing procedures designed  to streamline the flow of data should litigation ever occur. It is equally essential to have access to lawyers versed in European law when litigation does arise. In this manner, the e-discovery can be conducted in the EU itself, which will limit the risk of any liability for  violation of its data privacy laws.

Privacy laws in the European Union derive from EU Directive 95/46/EC and protect personal data from disclosure in virtually all cases. The protection afforded by this directive is in sharp contrast to Federal Rule of Civil Procedure 26, which mandates that parties disclose relevant information regarding “any matter not privileged.”

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