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

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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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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**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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