International Business Law Advisor : Miami International Business Lawyer & Attorney : Santiago Cueto Law Firm : Florida and Global Business Litigation

 Another great article in the Harvard law School Forum of Corporate Governance and Financial Regulation. Contributor George Conway’s post, Extraterritoriality After Dodd-Frank, explains why now is a great time for “interested parties—such as the many amici curiae, foreign governments, who so emphatically urged the Supreme Court to reject extraterritoriality in National Australia—to make their views known once again, this time to the SEC.”

As we wrote in an earlier post, the Court in Morrison v. National Australia Bank Ltd., No. 08-1191 (U.S. June 24, 2010), held that Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 do not apply to securities transactions that take place outside the United States. The SEC filed its own amicus curiae brief in that case and it’s worth a read.

The Dodd-Frank Provisions

Just when we thought the debate on securities extraterritoriality was winding down, a new law passed by Congress revived the issue. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama earlier this month, contains two provisions, Sections 929P(b) and 929Y, that concern the territorial scope of the federal securities laws. Significantly, neither provision overturns National Australia Bank, and neither should extend the substantive reach of the securities laws extraterritorially at all.

Section 929P(b)

It has been widely assumed that Section 929P(b) would give extraterritorial effect to proceedings brought by the SEC and the Department of Justice. This assumption was not misplaced.  

Just take a look at the Congressional Record from June 30, 2010 and the words of the Bill’s primary drafter, Congressman Paul Kanjorski:

Thus, the purpose of the language in Section 929P(b) is to make clear that in actions and proceedings brought by the SEC or the Justice Department, … provisions of the Securities Act, the Exchange Act, and the Investment Advisers Act may have extraterritorial application.

However, if you look at the wording of Section 929P(b), there is no extraterritorial effect. The provision specifically refers only to the “jurisdiction” of the “district courts of the United States” to hear cases involving extraterritorial elements. It is clear from the language that the provision does not give extraterritorial effect to any substantive regulation.  

As Conway points out, that is a critical and likely fatal, omission.  But that may not be the end of the argument.  Given Congressman Kanjorski’s June 30, 2010 statements on the floor of the House, some judges may be tempted to find substantive extraterritorial reach in Section 929P(b).  Congress may even choose to amend the Bill to give it the intended extraterritorial effect.

Section 929Y

Section 929Y addresses private litigation, but does not change the extraterritoriality standards set out in National Australia. The new provision merely directs the SEC to “solicit public comment” and to “conduct a study to determine the extent to which private rights of action” under the Exchange Act should extend extraterritorially. The SEC must then report the results of its study to Congress within 18 months.

As Conway commented, the prospect of this study “scares a…number of foreign capitals,” which “fear seeing the United States become” a global “financial policeman” through class-action lawsuits.

Extraterritoriality: Still a Reality?

While no one can know what the results of the SEC study will be or whether Congress will seriously consider changing the law as it now stands in regards to the extraterritorial reach of securities laws, anyone with any interest in the matter should start bombarding the SEC with whitepapers, green papers or whatever color of paper will get the agency’s attention.

With the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the debate over the extraterritorial reach of U.S. securities laws is far from over.

 What do you think?

   -Santiago

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Last week our firm filed a lawsuit against Ernst & Young for the fraudulent actions of one of its predecessor firms. Although the dispute is domestic, it is based on conduct that occurred overseas in the Philippines.

The suit is similar to many others that are filed against global enterprises that boast of having a geographic presence in virtually every corner of the globe. Deciding where to file suit is just one of the many factors a party must consider in pursing justice against these geographic behemoths.

The lawsuit reminded me of a post written earlier this year which touches on the complexities involved with litigating against global corporations--in that case, international financial institutions. The original article, How to File a lawsuit Against a Foreign Investment Advisor, is posted in its entirety below:

I was recently contacted by a client who lost several million US dollars due to negligent investment ­advice. Because the firm is based overseas, the client did not know what to do. Unfortunately, this scenario has become all too common in the wake of the global financial crisis.

Whether your claim is against an institution based in the U.S., the EU or elsewhere, you have a number of options. I will very generally touch on them below.

Many wealthy investors rely on foreign investment advisers who are typically employed by international financial institutions.

Unfortunately, as a result of the global financial crisis many investments advisers understated the risks involved with – for example in structured ­products linked to stock market indices.

Almost all legal systems have a concept of negligence, which would make a financial adviser potentially liable if the quality of their advice fell below that to be reasonably expected, causing loss to a client.

Your adviser is also very likely to be subject to local financial regulation and supervision that might include compensation schemes. But where these options are not available locally, or have proved unsatisfactory, your only option might be to sue.

Where should the lawsuit be filed?

Do not assume you have to sue in the courts of the country where the adviser is located: there is often a choice, including the courts where you are domiciled, the courts where a party has a branch office or the courts of some other country. Exercising that choice is critical tactical decision that you must discuss with your attorney.

Do I have a choice of where to file a lawsuit?

Every court has its own laws about its jurisdiction. While the general rule is that you can sue where the defendant is domiciled, there might also be the option of proceeding in the place of the relevant branch or agency involved, or where the service was provided.  Procedural rules in the U.S. and in the EU, for example, provide the circumstances in which courts have jurisdiction, and that often provides a choice.

The choice of where to sue may also be the subject of a private agreement. The contract with the investment adviser has many small-print terms and conditions. The small print typically specifies the court (or arbitral tribunal) that will have jurisdiction in the event of dispute.

Does that mean I have no choice?

The courts will generally respect such “jurisdiction agreements”, which prevent you from suing elsewhere, but this might not be binding in your case. There may be technical arguments that the terms and conditions were not incorporated into the contract or that insufficient effort was made to ensure you were aware of them.

Also, “consumers” can often avoid the unfair and onerous effects of terms and conditions. It is generally regarded as unfair for such individuals to have to bring proceedings overseas, and therefore their local court usually has jurisdiction.

In Standard Bank London v Apostolakis (2001), for example, the bank tried unsuccessfully to enforce an English jurisdiction agreement against a couple in Greece who had been trading substantial ­“forward purchases of foreign exchange in precious metal trading”.

But the contract says it is governed by overseas law..

The “choice-of-law clause” can be a factor but mostly has no bearing on the choice of court. A court can apply ­foreign laws, although it might need expert evidence.

If I have a choice, what factors should I take into account?

• Judgment Recognition

It is important that any judgment obtained in one court is “recognized” by the courts of the place where you might want to enforce the judgment – which will be where the defendant has any assets. In the U.S., many states have enacted variations of the Uniform Enforcement of Foreign Judgments Act. 

If your judgment was the subject of an arbitration, the judgment is enforceable in any country that has signed on to the New York Convention on the Recognition and Enforcement of  Foreign Arbitral Awards (over 142 countries are parties to the Convention).

• Time

Time is also an important consideration, as some courts – in Italy and Germany, for example – are notoriously slow. There have been cases of potential defendants filing their own proceedings in Italy for the express purpose of delay.

• Quality of Courts

The quality of courts and local lawyers is also important. There are courts, even within the EU, that have the reputation of being susceptible to corruption and most developing-world courts are best avoided. In the U.S, the integrity and quality of the courts are generally first rate.  

• Jurisdiction

From a practical standpoint, it’s also worth considering where the defendant would not want to be sued, as that should influence their decision to settle the dispute.

Of course, there many other important considerations that must be discussed with an attorney. I have merely presented a broad overview of the process.

     -Santiago

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 Being an international litigation attorney based out of Miami, I see a great deal of lawsuits filed by foreign plaintiffs here in the U.S. District Court for the Southern District of Florida. By virtue of its close proximity to Latin America and the Caribbean, Miami is one of the busiest places in the country for foreigners to file lawsuits against multinational corporations in the U.S.

I'm sharing this with you because I’m seeing a great deal of interest in the BP oil disaster by foreign nationals who are concerned that the BP oil spill will eventually reach their shores and wreak havoc on their environment. 

With the failure of BP’s “Top Kill” measure, it’s almost inevitable at this point that the transnational doomsday scenario that so many have feared will indeed play out. The probability that other countries will be harmed by the spill is higher than ever. Indeed, experts now project that the spill will intensify and continue to flow well into August.

Could Foreigners File Lawsuits Against BP in the U.S.?

As I commented in the last post, the spill is not yet a transnational matter because it has not breached or otherwise harmed the sovereign domain of any neighboring country.  

In response to that comment, a reader asked me an interesting question--“what happens if the spill does breach and pollute the waters of another nation?  Will those foreigners harmed by the spill have a legal basis to file lawsuits against BP in U.S. courts?”

Answer

It’s a stretch but theoretically, yes.  It's possible for a foreigner to have legal grounds to sue BP in the U.S. for harm caused by the oil spill under the Alien Tort Claims Act (ATCA), which grants jurisdiction to U.S. Federal Courts over "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."  

However, the likelihood of a foreigner ultimately prevailing on a claim against BP in the U.S. is extremely low. As one commenter noted, “no company – whether through trial or at some earlier stage – has yet to lose an ATCA case. Indeed, despite the growing number of ATCA cases brought against multinational companies since 1993, only two have survived to proceed to trial. Most of the cases have been dismissed, mainly on substantive legal grounds. Only a few have settled.”

Alien Tort Claims Act

So what is the ATCA? The ATCA is a centuries-old law that extends U.S. jurisdiction to cover violations of international law abroad and has been increasingly used by foreigners to sue American companies in the United States for their actions in foreign countries. Companies that have faced ATCA cases include Chevron, Coca-Cola, Exxon-Mobil, Firestone, Shell and Wal-Mart.

While I see all kinds of challenges in filing a claim against BP in this context, I don’t view it as such a bad idea.  If more of these kinds of lawsuits were allowed to proceed, then the ATCA could become a powerful tool to increase corporate accountability. And that's a good thing.

What do you think?

   -Santiago

*Postscript*

One matter predicated on the Alien Tort claims Act that I have written several posts on is the Ecuador v. Chevron litigation that's been underway for the past 17 years. The lawsuit was filed as a result of Chevron's reckless practice of dumping enormous amounts of oil waste into Ecuador's river and streams over the course of many years.

 You can read more about the case in these posts: Chevron's Missteps: How Not to Handle Foreign Litigation, Chevron Files International Arbitration Claim Against Ecuador: Forum Shopping in the Hague? and Ecuador Class Action Plaintifss Strike Back at Chevron's Cynical Game of Musical Jurisdictions.

I first read about the Chevron 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.

I'd like to think that the corporate codes of conduct I advocated in the journal article would have served BP well in conducting its drilling operations in the Gulf Of Mexico.  Yeah, I'd like to think.

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As an international litigation attorney, I’m frequently contacted to advise or comment on international business disputes that are of great interest to the media.

Why isn't the BP Oil Spill an International Matter?

On several occasions in the past few weeks, I’ve been asked the same question:  Why is the BP oil disaster a U.S. domestic matter when the spill occurred 50 miles off the U.S. coast in international waters?

I think it’s a great question given the breadth and scope of the spill.

Here's the Short Answer

The short answer is that the spill is a domestic matter because it occurred within the Exclusive Economic  Zone (EEZ) of the United States. 

While the EEZ is technically in international waters, under the United Nations Convention on the  Law of the Seas, a sovereign state has exclusive marine resource rights extending 200 miles from the baseline of its territorial waters. 

May Become International Matter

While—right now---the spill is technically a domestic matter for the United States, the spill may very well spread to neighboring countries.

If this were to occur, the spill would become a transnational environmental disaster, triggering a host of global conventions, international treaties--and even international lawsuits.

There are some who argue that the BP oil spill  already is an international matter.

Others take the position that such accidents are not addressed in international law at all. According to Tim Stephens, a senior lecturer on the law faculty at the University of Sydney and the co-author of a forthcoming textbook on the law of the sea, the international maritime conventions apply “primarily or exclusively” to accidents involving tankers, not to accidents involving oil platforms, like the Deepwater Horizon spill.

Both interesting and compelling arguments that are worthy of further debate.

But for right now, the international legal community is treating  the BP oil disaster as a domestic matter for the United States.

A very bad domestic matter at that.

    -Santiago

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At a round table there is no dispute about place –Italian Proverb

Every company, whether in the product or service business, depends on its suppliers. In today’s highly globalized business environment, it is likely that at least one of these suppliers is located overseas.

While reducing costs is the main motivator for companies to source value chain components abroad—and that’s a good thing for any profit-generating enterprise—this all too frequently results in disputes with suppliers. And that’s not surprising.

It’s natural to assume that distance and cultural nuances will sometimes cause a minor disagreement--whether over price, quality or delivery terms--to flare-up into a serious dispute. 

“So what,” one of my clients once told me, “we’re still getting fantastic margins.”

“Be careful,” I advised the client, “litigation can easily erase those ‘fantastic’ margins. Worse yet, your back- up suppliers may get wind of the dispute and cut you off.  Now you’re left scrambling for a new supplier while your customers are screaming for their orders.” Good luck with that.

Unfortunately, this client cared only for short-term profits and overlooked how important it is to form long-term relationships with suppliers. This brings me to an excellent article in Entrepreneur that does a great job with driving this point home.

The article,  Build a Good Relationship with Suppliers, correctly points out that many business owners seem to get the supplier issue backwards. “They think that because they write the order, they're in the dominant position and can exploit it with unreasonable demands.”  This is exactly the kind of thinking that almost always results in out-sized disputes.

Suppliers are Vital

Like the Italian proverb at the top of this post, companies have got to learn to sit down with their suppliers at a round table and stop worrying about having the best seat. This means giving both sides of the relationship equal value.

The article lays out a number of factors why it pays for a company to build a strong relationship with its suppliers:

• Quality: Supplier components can positively or negatively affect the quality of your product. Higher quality increases customer satisfaction and decreases returns, which adds cash to your bottom line.
• Timeliness: Their timely deliveries are crucial to how customers view your reliability. A quick turnaround can become the key to minimizing your inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs.
• Competitiveness: They can give you the one-up on your competition based on their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends.
• Innovation: Suppliers can make major contributions to your new product development. Remember, they live their product more than you do; they're working to be on the cutting edge of innovation for their product. The good ones will understand your company, its industry and needs, and can help you tweak your new idea.
• Finance: If you've proven to be a considerate, loyal and paying customer, you may be able to tap into your suppliers for additional financing once you hit growth mode--or if you run into a cash crunch. That financing may take the form of postponed debt, extended terms on new purchases, a loan, or an investment in your company.

Treat Your Suppliers Well

The article then identifies 4 ways a company can become a valued customer to its suppliers:

1. Always pay on time. For the sake of emphasis, I'll repeat this one: Pay your bills on time! You can negotiate for favorable payment terms before you place an order, but once the order is placed, don't renege or attempt to change the rules. If you can't, call up your suppliers and tell them why and when you will pay. Don't play games with suppliers' cash. You'll be absolutely amazed at the goodwill and benefits you will earn by observing this simple rule.
2. Provide adequate lead times. Try to give suppliers as much lead time as possible on your orders. Unless there's a compelling, competitive reason not to, share with them an honest projection of your needs and keep them abreast of any significant changes in that estimation. When developing your lead times, it helps to be knowledgeable about your suppliers' production methods and needs.
3. Personalize the relationship. Visit suppliers' offices. While you're at it, include them in some of your strategy meetings. Invite them to break bread and invite them to your office parties and picnics.
4. Share information. Keep the good suppliers aware of what's going on in your company. Tell them about changes in key personnel, new products, special promotions and so on. Many times, you'll find that good suppliers can be help you find new customers.

Understanding why your suppliers are so important and identifying the ways you can be a valued customer will go a long way towards building lasting supplier relationships.

Doing so will greatly minimize the chance a minor disagreement will flare-up into an international dispute. Now who wants that.

    -Santiago

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As an international business attorney, it’s not unusual for a client to ask me what the difference is between civil law and common law.  It’s always a great question and lets me know that they’re engaged and invested in the legal process. This is so whether I’m dealing with a transaction or a dispute.

It’s a great question because the differences between the two legal systems not only impact how business is done, but also how other business people and their lawyers think.  For example, an English solicitor may advise you that you have a very solid and strong case under English Law, whereas a French lawyer might say of the same case, that it appears good 'but you never know what will happen on the day'.

The Basic Difference Between the Two Systems 

• Civil Law: A Civil Law country has a body of law (passed by Parliament) that can be referred to in each individual case and there is no such thing as binding precedent. It is the most prevalent and oldest surviving legal system in the world and is found in continental Europe, much of Latin America and in parts of Asia and Africa.

• Common Law: In Common Law systems the law continually evolves in addition to being amended by laws passed by the legislature. If a higher court has previously interpreted a statute in a particular law this cannot be overridden by a lower court - the decision of the higher court is a binding precedent. 

Common law legal systems are in use in England where it originated, and in nations that trace their legal heritage to England as former colonies of the British Empire, including the United States, Singapore, Pakistan, India, Ghana, Cameroon, Canada, Ireland, New Zealand, South Africa, Hong Kong and Australia

Here's an Example:

In the U.S. (except Louisiana), if you want to know what the law is, you check the statutes, rules and regulations. But you also need to review how these laws have been interpreted and applied by reviewing past legal cases.

Under the Civil Code your inquiry stops with the statutes, rules and regulation - the Civil Code itself. Forget about creative interpretations of the law, or complying with the spirit of the law rather than the letter of the law.

 If the Civil Code says that you need to do X, you need to do X. There is no room for making analogical arguments, such as since doing Y would have the same result as doing X, it should be okay - and perfectly legal - to do Y rather than X. You might as well stop the analysis, and get ready to follow the letter of the law exactly, even if you can think of a hundred different and perhaps better ways to accomplish the same thing.

Pros and Cons

The benefit of a common law system is that you can be confident of what will happen in your case if a similar case has been heard before. The drawback is that if you have an unusual case, there is nothing to stop a judge creating a new law and applying it to your case.

The benefit of a civil law system is that you can only be judged by the laws which were actually written down in front of you at the time. The drawback is that even if previous cases show you should win your case, there is no guarantee a judge will interpret the code in the same way on your case.

Conclusion

Although the distinction between the two systems is a basic tenet of international law, their different legal approaches should be factored into every major international business decision that is made.

      -Santiago

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“As a moth is drawn to the light, so is a litigant drawn to the United States.”   -- Lord Denning

Was Lord Denning right? Last month the U.S. Supreme Court heard oral argument in Morrison v. National Australia Bank on the issue of whether a foreign plaintiff could use U.S. courts to file international securities class actions.

This has to be one of the most interesting international cases heard before the Court in the last few years.

Morrison v. National Australia Bank* seemed to confirm Lord Denning’s decades-old aphorism that United States courts are being inundated by an ever-increasing number of foreign-oriented lawsuits brought by both United States and non-United States citizens.

Or so I thought.

I bring this up because I just read an excellent article in the Cornell Law Review challenging the conventional understanding of an international litigation explosion in the U.S. The article, The Evolving Forum Shopping System, by Christopher A. Whytock, shatters my perception that the number of foreign litigants filing claims in U.S. courts has been increasing.

Rather, the article presents empirical evidence that international forum shopping into U.S. courts has actually been decreasing. The article, embedded in its entirety below, is worth reading. You’ll see why. 

Evolving Forum Shopping System

As the abstract suggests, the "Article’s findings pose a genuine puzzle for legal scholars: Why, in an age of globalization in which one would expect an increase in disputes between U.S. citizens and foreign citizens—and why, given the well-documented attractions that the U.S. legal system offers to plaintiffs—would the number of alienage filings be decreasing?"

Those are excellent questions. The article suggests some intriguing possibilities. For example,  maybe international disputes that would once have been filed in the U.S. federal courts are increasingly being filed in U.S. state courts or submitted to international  arbitration.

Or perhaps U.S. tort reform has reduced the attractiveness of the U.S. legal system for plaintiffs relative to other legal systems or changes to foreign legal systems have increased their attractiveness compared to the United States.  

So many possibilities. What do you think?

    -Santiago

*For additional reading on Morrison v. National Australia Bank, see my previous posts:  U.S. Supreme Court to Decide Whether Foreign Plaintiffs Can Use American Courts to File International Securities Class Actions and Post-Game Analysis of Morrison v. National Australia Bank. Read the Transcript Here.

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I was recently contacted by a client who lost several million US dollars due to negligent investment ­advice. Because the firm is based overseas, the client did not know what to do. Unfortunately, this scenario has become all too common in the wake of the global financial crisis.

Whether your claim is against an institution based in the U.S., the EU or elsewhere, you have a number of options. I will very generally touch on them below.

Many wealthy investors rely on foreign investment advisers who are typically employed by international financial institutions.

Unfortunately, as a result of the global financial crisis many investments advisers understated the risks involved with – for example in structured ­products linked to stock market indices.

Almost all legal systems have a concept of negligence, which would make a financial adviser potentially liable if the quality of their advice fell below that to be reasonably expected, causing loss to a client.

Your adviser is also very likely to be subject to local financial regulation and supervision that might include compensation schemes. But where these options are not available locally, or have proved unsatisfactory, your only option might be to sue.

Where should the lawsuit be filed?

Do not assume you have to sue in the courts of the country where the adviser is located: there is often a choice, including the courts where you are domiciled or the courts of some other country. Exercising that choice is critical tactical decision that you must discuss with your attorney.

Do I have a choice of where to file a lawsuit?

Every court has its own laws about its jurisdiction. While the general rule is that you can sue where the defendant is domiciled, there might also be the option of proceeding in the place of the relevant branch or agency involved, or where the service was provided.  Procedural rules in the U.S. and in the EU, for example, provide the circumstances in which courts have jurisdiction, and that often provides a choice.

The choice of where to sue may also be the subject of a private agreement. The contract with the investment adviser has many small-print terms and conditions. The small print typically specifies the court (or arbitral tribunal) that will have jurisdiction in the event of dispute.

Does that mean I have no choice?

The courts will generally respect such “jurisdiction agreements”, which prevent you from suing elsewhere, but this might not be binding in your case. There may be technical arguments that the terms and conditions were not incorporated into the contract or that insufficient effort was made to ensure you were aware of them.

Also, “consumers” can often avoid the unfair and onerous effects of terms and conditions. It is generally regarded as unfair for such individuals to have to bring proceedings overseas, and therefore their local court usually has jurisdiction.

In Standard Bank London v Apostolakis (2001), for example, the bank tried unsuccessfully to enforce an English jurisdiction agreement against a couple in Greece who had been trading substantial ­“forward purchases of foreign exchange in precious metal trading”.

But the contract says it is governed by overseas law..

The “choice-of-law clause” can be a factor but mostly has no bearing on the choice of court. A court can apply ­foreign laws, although it might need expert evidence.

If I have a choice, what factors should I take into account?

• Judgment Recognition

It is important that any judgment obtained in one court is “recognized” by the courts of the place where you might want to enforce the judgment – which will be where the defendant has any assets. In the U.S., many states have enacted variations of the Uniform Enforcement of Foreign Judgments Act. 

If your judgment was the subject of an arbitration, the judgment is enforceable in any country that has signed on to the New York Convention on the Recognition and Enforcement of  Foreign Arbitral Awards (over 142 countries are parties to the Convention).

• Time

Time is also an important consideration, as some courts – in Italy and Germany, for example – are notoriously slow. There have been cases of potential defendants filing their own proceedings in Italy for the express purpose of delay.

• Quality of Courts

The quality of courts and local lawyers is also important. There are courts, even within the EU, that have the reputation of being susceptible to corruption and most developing-world courts are best avoided. In the U.S, the integrity and quality of the courts are generally first rate.  

• Jurisdiction

From a practical standpoint, it’s also worth considering where the defendant would not want to be sued, as that should influence their decision to settle the dispute.

Of course, there many other important considerations that must be discussed with an attorney. I have merely presented a broad overview of the process.

      -Santiago

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Swiss Parliament Must Still Approve Amended Protocol

The CBS news magazine 60 Minutes featured a story on January 3, 2010 concerning the tax controversy between Switzerland and the United States over Switzerland's secretive banking industry. At the time, it appeared there would be no end in sight to the impasse.

60 Minutes: A Crack in the Swiss Vault

Yesterday, however, the United States and Switzerland signed a landmark agreement to allow the Swiss government to provide information to the IRS on U.S. account holders of Swiss bank UBS. The agreement reached in Washington D.C. amends the income tax treaty between the two countries.

Watershed Moment for Swiss Banking

The agreement marks a watershed moment in the history of Swiss banking and its secrecy laws, which make the disclosure of client names a crime under Swiss law. With the Swiss government now on board, only Parliament’s approval is necessary to proceed with the disclosure.

In August 2009, the U.S. and Switzerland reached an agreement, under which the Swiss government was to hand over to the IRS for investigation information on approximately 4,450 UBS account holders.

In January, a ruling by the Swiss Federal Administrative Court threatened to torpedo the US-Swiss agreement. The court found shortcomings in the deal which the amended protocol now addresses.

Status as Bilateral Tax Treaty

The new protocol to the U.S.-Switzerland treaty establishes the necessary legal basis to allow the Swiss government to fulfill its obligations under the August 2009 agreement to provide information on UBS account holders to the IRS.

The protocol is designed to ensure the legality of the information release by raising the August 2009 agreement to the level of a bilateral tax treaty. According to the Swiss government, “the UBS Agreement now takes precedence over the older and more general convention, and permits Switzerland to provide treaty assistance in cases not only of tax fraud, but also of continued and serious tax evasion.”

However, the August 2009 agreement, having been raised to the level of a treaty, now must be ratified by the Swiss parliament. The Swiss government will not hand over any names until that ratification occurs, except in cases of persons who consent to the transfer or who have reported themselves to the IRS under last year’s voluntary disclosure program.  A non-conformed copy of the new protocol is below:

Amended Protocol Between the U.S. and Switzerland Amending August 2009 Agreement

Agreement Marks a Shift in Swiss Tax Law

Swiss law considers tax evasion — which it defines as the underreporting of income or filing incorrect returns — as a civil violation, different from tax fraud, which it views as a serious crime involving ill-gotten gains and the use of elaborate sham entities to hide assets. The I.R.S. views both tax evasion and tax fraud as criminal offenses.

The new protocol is significant because it shows that the Swiss government now effectively agrees with the American view that tax fraud and tax evasion are similar criminal offenses.

Switzerland to Remain International Banking Capital

Despite the changes, there are a number of reasons that Switzerland will continue to serve as a safe banking haven.  Apart from the controversy over its secrecy laws, Switzerland still has its advantages in safeguarding funds against such uncertainties as coup de main, coup d’etat, revolution and hyperinflation.

Moreover, a host of multinational corporations have recently moved their European headquarters to the Swiss power centers of Zurich, Geneva and Zug because of the rock-bottom tax rates these Cantons offer. I wrote about these tax advantages in an earlier post-- Why Relocating to Switzerland May be the Best Corporate Strategy

The current surge in the Swiss franc further serves to highlight Switzerland's appeal to international banking.  And the skiing is not too bad either.  

Swiss banking is here to stay. What do you think?

    -Santiago 

*This post follows-up on two previous articles I have writton the UBS tax controversy,  UBS Strikes Deal in U.S. Tax Case: The End of Switzerland's Bank Secrecy Rules a Boon to Singapore Banking? and Swiss Banks Shutting Out U.S. Clients Due to Unprecedented Banking Oversight.

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"I mean, this case is Australian plaintiff, Australian defendant, shares purchased in Australia.  It has 'Australia' written all over it."  

                 -- Justice Ginsburg, March 29, 2010

Following up on yesterday's pre-game analysis of oral argument in Morrison v. National Australia Bank,  Hannah Buxbaum over at the Conglomorate blog,  has posted an excellent post-game analysis of this pivotal U.S. Supreme Court case. We thank her for providing a link to the transcript, embedded below:

Morrison v. National Australia Oral Argument Transcript

After reviewing the transcript, Hannah is of the opinion that the Court "will have no problem concluding that f-cubed cases are not governed by U.S. securities law."  But she notes that "the bright-line test advocated by respondents, under which U.S. law would apply only if the securities transaction in question took place in the United States, wouldn't just foreclose those cases -- it would also foreclose cases involving American investors who had invested abroad.  Would that be throwing the baby out with the bathwater?"

That's a great point. What about protecting the interests of defrauded U.S. investors? What do you think?

       -Santiago 

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F-Cubed Securities Class Actions Put to the Test

Today the Supreme Court will hear argument in Morrison v. National Bank of Australia. The case centers on so called “F-Cubed” securities class actions.  As Ashby Jones, of the Wall Street Journal Law Blog explains “the term “F-Cubed” refers to securities class action cases that are largely foreign in nature. The investors are foreign, the issuers are foreign, and the alleged fraudulent conduct took place in a foreign land. Foreign, foreign, foreign. Three “Fs,” hence the name: F-cubed.  

This latest F-cubed class action expands on my  earlier post  “What Do Halley's Comet and "F-Cubed" Securities Class Action Trials Have in Common?

The issue to be determined by the Court in Morrison v. National Australia Bank is whether F-cubed cases may be brought in the U.S.  In Morrison, foreign investors accused National Australia Bank of perpetrating a fraud involving a Florida subsidiary bank.The plaintiffs allege that the Florida connection gives the case enough of a U.S. jurisdictional hook to justify its being brought here. The bank, however, insists that the alleged activity took place in Australia and that the U.S. courts should not have jurisdiction.

Stakes High for Vivendi, Toyota

Shortly after certiorari was granted last year, both foreign companies and governments began to deluge the Court with amicus briefs, signaling the importance of the case worldwide.  

Most notable among foreign companies filing is Vivendi, the French communications firm that was hit with a securities class action in New York in 2002. The company, whose common stock is not listed on any U.S. exchange, challenged the suit on jurisdictional grounds. It lost, and a U.S. jury in January returned a verdict that could cost the company more than $9 billion.

Although it did not file an amicus brief, Toyota is closely watching the case in the wake of its highly publicized safety meltdown. Several securities class actions have been filed in federal courts against Toyota, which trades on the Tokyo Stock Exchange. The allegations are based on statements made by Toyota officials in Japan.

Court Increasingly Reluctant to Exert Extraterritorial Jurisdiction

The case comes to a Court that has grown increasingly skeptical about U.S. courts exerting extraterritorial jurisdiction. In the 2007 case Microsoft v. AT&T, a 7-1 majority spoke approvingly of the presumption that ‘United States law governs domestically but does not rule the world.’ Three years earlier, in Hoffman-LaRoche v. Empagran, a unanimous Court said extending the reach of American antitrust laws too far into foreign situations would be "an act of legal imperialism.

Outcome Will Have Profound Impact on Global Jurisprudence

It will be interesting to see how the Court rules on this case. Whatever the outcome, the impact on global jurisprudence will be profound. 

The plaintiff bar argues that prohibiting foreign-cubed class actions would turn the United States into a safe haven for securities fraud. They argue that without the protection offered by U.S. courts, perpetrators of securities fraud within the United States will be able to 'export' the consequences of their misdeeds with little or no risk of being held responsible.

Defense counsel, on the other hand, argue that American courts cannot and should not expend  resources resolving cases that do not affect Americans or involve fraud emanating from America.

Both sides raise very valid points--what do you think?

     -Santiago

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Dear Hague Evidence Convention:

This letter pains me. In the past several weeks I’ve written several posts extolling the virtues of your convention siblings governing serving process abroad and legalizing documents for use overseas-- the Hague Service Convention and the Hague Legalization Convention.

These two conventions have worked very well to simplify and streamline areas that were previously cumbersome and time consuming.

Black Sheep of Hague Convention Family

However, I take exception with you, Hague Evidence Convetion, the black sheep of the Hague Convention family.

Although your purpose and mission was to reconcile the differing legal philosophies of the Civil Law, Common Law and other systems with regard to the taking of evidence, in practice you have been largely ineffective for U.S. litigants and other signatories.

Yes, I know. Given your status as a ratified treaty, you stand on par with the Federal Rules of Civil Procedure and other federal statutes as "the supreme law of the land" in this country.  I’ve heard it all before. 

I Thought You Were Special

I’ll never forget when I first heard that you’re comprised of three chapters: the first concerning Letters of Request; the second involving the use of Diplomatic Officers, Consular Agents and Commissioners to obtain evidence; and the third containing provisions of general application and certain relevant exclusions.

Not one. Or two. But THREE whole chapters dedicated to harmonizing international evidence rules!

It seemed as if I had won the international evidence gathering lottery.  Surely, my days as a frustrated international evidence gatherer were over--no more Letters Rogatory!

Betrayal

But then I read your Article 23, which lets member states opt out of pre-trial discovery.  I almost tore a service convention apostille in half when I learned that most of your signatories have made such declarations, severely limiting the efficacy of your mechanisms on U.S. litigants who live and die by pre-trial discovery.

Further rendering you largely ineffective, is Article 33, which lets member states opt out of the deposition mechanisms provided for in Chapter 2. No surprise here, a number of contracting states have also expressly limited, or excluded in whole, this method of discovery.  

When the reality hit that your Article 23 & 33 exceptions for all intents and purposes, rendered you fruitless and that I’d soon return to my local rules of evidence, I was overcome with guilt. How could I have considered leaving the ever loyal and faithful federal discovery mechanisms?

Redemption

Federal Rules 26 and 34, for example, have proven to be invaluable in getting documents located outside the U.S.  And federal statutes such as 28 USC § 1782, have been an extraordinary resource in obtaining U.S. sourced documents in aid of foreign proceedings.

Sure there are some issues that arise sometimes and they do not always work, but by and large, the federal discovery mechanisms are more than sufficient for my international evidence gathering needs.

Thanks for Nothing, Hague Evidence Convention. I'm sticking with the Federal Rules.

     -Santiago

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  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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