February 27, 2015
2014 was a watershed year for transnational litigation in United States courts. Rulings by the United States Supreme Court and several United States courts of appeals dramatically reshaped the circumstances under which foreign defendants are subject to general personal jurisdiction, further developed the standards for extraterritorial application of United States laws, and provided important guidance on the scope of sovereign immunity and application of the Foreign Sovereign Immunities Act (“FSIA”) to commercial disputes. The year also saw major developments in the long-running, multifaceted global battle among Chevron Corporation, Ecuador, and United States and Ecuadorian lawyers, as well as in the litigation between Argentina and NML Capital, Ltd., and Yukos Capital and Samaraneftegaz. In 2014, global litigants also continued to expand their use of 28 U.S.C. § 1782 (“Section 1782”) to deploy expansive United States discovery tools in support of foreign disputes. In response, federal courts have issued key rulings regarding the types of proceedings Section 1782 applies to, the effect of foreign laws protecting privacy and secrecy, and a court’s power to compel production of documents stored outside the United States. In this review, we discuss and analyze the bellwether transnational litigation actions involving these companies, as well as other developments in transnational litigation from 2014 that will be most significant to companies with cross-border operations and involved in transnational disputes. For ease of reference, we have included hyperlinks to each Part of the alert in this Executive Summary.
Part I: Over the past year, Daimler AG v. Bauman[1] has served to redefine the circumstances under which foreign defendants are subject to general personal jurisdiction in the United States. Part I of this alert addresses Daimler and how it has been applied.
Part II: The year saw dramatic decisions in cases of transnational attempts to defraud U.S. defendants, including Chevron Corporation’s successful RICO suit against the purveyors of what the Wall Street Journal called the legal “fraud of the century.” This section also discusses Laguna v. Dole Food Co., Inc.,[2] a California Court of Appeal decision affirming dismissal of a case that had produced a multi-million dollar judgment as a sanction for the Nicaraguan-based fraud on the court perpetrated against Dole Food Co. and other United States corporations.
Part III: Whether and when United States law can be applied extraterritoriality (and what that means) continues to be the focus of significant litigation. Part III addresses the latest development of the standards for extraterritorial application of United States laws as first articulated in Morrison v. National Australian Bank Ltd,[3] including 2014’s important guidance on the scope of sovereign immunity and the FSIA’s application to commercial disputes.
Part IV: 2014 saw significant activity in the foreign judgment and arbitral award enforcement and defense arena.
Part V: Recent developments in transnational judgment collection are addressed in this section, including an overview of NML Capital, Ltd.’s long-running effort to collect $1.8 billion in judgments against the Republic of Argentina and the groundbreaking enforcement of important arbitral awards, including the awards arising out of the complex, decade-long Yukos Oil Company dispute.
Part VI: This section addresses developments in transnational discovery, including Section 1782. In 2014, global litigants continued to expand their use of Section 1782 to deploy expansive United States discovery tools in support of foreign disputes. In response, federal courts have issued key rulings regarding the types of proceedings Section 1782 applies to, the effect of foreign laws protecting privacy and secrecy, and a court’s power to compel production of documents stored outside the United States.
The Supreme Court’s January 2014 decision in Daimler AG v. Bauman,[4] reduced the accessibility of United States courts to plaintiffs bringing actions against foreign corporations. In Daimler, the Court unanimously held that a foreign corporation with no employees or facilities in the United States could not be subject to personal jurisdiction based on the activities of its agent, an indirect corporate subsidiary, in the forum state.
In Daimler, which was argued at the Supreme Court by Gibson Dunn’s Thomas H. Dupree Jr., the Court unanimously held that even if the extensive California-based conduct of an indirect subsidiary, including multiple physical facilities and a position as the leading supplier of luxury vehicles in the California market, were imputed to the foreign parent corporation (Daimler AG), they did not subject Daimler AG to general personal jurisdiction in California because that conduct was “slim” when compared to its worldwide operations, and thus was insufficient to render it “at home” in California.
Plaintiffs sued Daimler AG (a German corporation) in California district court for an alleged wrong that related to an Argentine subsidiary and occurred in Argentina, arguing that jurisdiction was appropriate because Mercedes-Benz USA, another indirect corporate subsidiary, distributed Daimler AG-manufactured vehicles in California. After the district court dismissed for lack of personal jurisdiction, the Ninth Circuit affirmed, but then reversed itself en banc. In a 9-0 decision in which all but one justice joined the majority opinion (Justice Sotomayor concurred), the United States Supreme Court reversed: “Exercises of personal jurisdiction so exorbitant, we hold, are barred by due process constraints on the assertion of adjudicatory authority.”[5] Instead, general jurisdiction over a defendant could exist only when that entity’s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”[6] With regard to corporations, the Court identified the “paradigm” bases for general jurisdiction as “the place of incorporation and the principal place of business.”[7] The Court also considered jurisdictional principles from other countries, concluding that: “Considerations of international rapport thus reinforce our determination that subjecting Daimler to the general jurisdiction of courts in California would not accord with the ‘fair play and substantial justice’ due process demands.”[8]
In the transnational context, Daimler‘s impact has been immediate in two primary ways, by (1) narrowing the circumstances under which general jurisdiction will be found over foreign corporations and (2) placing greater emphasis on the importance of addressing international comity concerns before exercising jurisdiction.
Marking a significant development in transnational litigation, multiple courts applying Daimler over the past year have found that they did not have personal jurisdiction over foreign defendants in transnational and multi-jurisdictional suits.[9]
For example, the Southern District of Texas explicitly recognized that Daimler narrowed the courts’ ability to exercise personal jurisdiction when it noted that while a foreign company’s contacts with Texas would have previously been sufficient for general jurisdiction, Daimler‘s “even more stringent test” rendered them insufficient.[10]
In Sonera Holding B.V. v. Cukurova Holding A.S., the Second Circuit interpreted Daimler as reaffirming “that general jurisdiction extends beyond an entity’s state of incorporation and principal place of business only in the exceptional case.”[11] Sonera Holding involved a judgment enforcement suit against a Turkish holding company registered in Turkey. The defendant did not conduct any operations or own any property in New York or the United States. The plaintiff argued that general jurisdiction should exist nonetheless because the defendant and its affiliates had engaged in some transactions with United States businesses, among other limited activities within the United States. The district court held that these contacts were sufficient to create personal jurisdiction. The Second Circuit reversed and remanded the decision.
After determining that New York law would control the issue of personal jurisdiction, the court held that “even a company’s ‘engage[ment] in a substantial, continuous, and systematic course of business’ is alone insufficient to render it at home in a forum.”[12] The defendant and its affiliates’ United States conduct did “not come close to making” the defendant “at home” in New York.[13] The court also cautioned that “Daimler‘s gloss on due process” may lead New York courts to reevaluate the “doing business” standard for personal jurisdiction under New York law.[14]
Following Daimler, courts have also generally declined to follow the Ninth Circuit’s agency theory for obtaining general personal jurisdiction.[15] Indeed, Daimler was initially brought to the Court on a challenge to the Ninth Circuit’s “agency” theory of jurisdiction, whereby it imputed the forum-contacts of a subsidiary to the parent where the subsidiary conducted “important” affairs of the parent. While the Supreme Court ruled that it was unnecessary to reach the agency question, it indicated in dicta that this theory was not valid. [16]
While application of Daimler has helped deter several transnational suits with suspect United States connections, it is not a complete bar to transnational suits.
Deciding a motion for reconsideration filed after the issuance of Daimler, the District of Minnesota held that it could still assert general jurisdiction over a foreign parent company on the basis of its subsidiary’s location and substantial contacts to the forum.[17] In Barriere v. Juluca, the Southern District of Florida determined that an Anguillan-based corporation was “at home” in Florida based on the maintenance of an in-state sales office, and the substantial activities of the company’s agents in the state.[18] The district court recognized that “Daimler has undoubtedly limited the application of general jurisdiction to foreign defendants,” but distinguished the case at hand because, unlike in Daimler, there was “no ‘absence’ of a Florida connection to the injury, perpetrator, or victim.”[19] The court held that the denial of personal jurisdiction would “effectively deprive American citizens from litigating in the United States for virtually all injuries that occur at foreign resorts maintained by foreign defendants.”[20]
Interestingly, a second Southern District of Florida decision distinguished Barriere in a case involving a similar set of facts, finding no general jurisdiction over the foreign company. In Aronson v. Celebrity Cruises, Inc., the court focused on the fact that, unlike in Barriere, there was no “sustained and direct contact with the state” such as an in-state office or telephone number.[21] The court noted that the fact-specific nature of the general jurisdiction analysis “ha[d] led to some seemingly inconsistent results in this district.”[22]
And, because Daimler has been interpreted as principally being a case about general jurisdiction, at least one court has held that it did not prohibit finding specific personal jurisdiction based on a theory of agency. Distinguishing Daimler on the basis that it did not address the viability of establishing specific personal jurisdiction through an agency theory, in In re Chinese-Manufactured Drywall Products Liability Litigation, the Fifth Circuit upheld the exercise of specific jurisdiction over a foreign manufacturer and its subsidiary,[23] allowing the subsidiary’s contacts with the forum to be imputed to the manufacturer for the purpose of finding specific jurisdiction.[24] Likewise, the District Court for the Northern District of California distinguished Daimler in In re Cathode Ray Tube (CRT) Antitrust Litigation, holding that the exercise of personal jurisdiction over a Chinese company manufacturing cathode ray tubes (CRTS) where there was specific personal jurisdiction was reasonable under the circumstances.[25]
In 2014, U.S.-based multinational companies successfully litigated in United States courts to vindicate the rule of law against fraud and corruption directed at them by plaintiffs’ lawyers from the U.S. and overseas. Gibson Dunn was counsel for the companies involved in two of the most significant cases related to this issue, representing Chevron Corporation and Dole Food Company, Inc.
On March 4, 2014, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York entered judgment for plaintiff Chevron in Chevron Corp. v. Donziger et al., Case No. 11-cv-0691. The court found that the U.S. lawyer who masterminded a $9.2 billion judgment against the company in Ecuador did so “by corrupt means,” and in the process violated U.S. federal laws prohibiting attempted extortion, wire fraud, money laundering, witness tampering, and obstruction of justice, as well as the Foreign Corrupt Practices Act. The court entered judgment for Chevron and imposed equitable relief designed to ensure that “the defendants here may not be allowed to benefit from [the Ecuadorian judgment] in any way.” Calling the case “extraordinary” and “includ[ing] things that normally come only out of Hollywood,” the court’s 485-page opinion detailed the evidence against U.S. plaintiff’s lawyer Steven Donziger and his team, finding that “[t]he wrongful actions of Donziger and his Ecuadorian legal team would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador — and they knew it. Indeed, one Ecuadorian legal team member, in a moment of panicky candor, admitted that if documents exposing just part of what they had done were to come to light, ‘apart from destroying the proceeding, all of us, your attorneys, might go to jail.'” The court determined that Donziger and his team even “wrote the [Ecuadorian] court’s Judgment themselves and promised $500,000 to the Ecuadorian judge to rule in their favor and sign their judgment.” “If ever there were a case warranting equitable relief with respect to a judgment procured by fraud,” the court concluded, “this is it.”
The decision follows a six-week trial and represents a major victory for Chevron in its multi-pronged response to the long-running purported environmental litigation emanating from Ecuador known as the Lago Agrio litigation. Gibson Dunn represented Chevron in the closely watched case. Chevron has long maintained that the proceedings in Ecuador were marred by fraud on the part of the plaintiffs’ lawyers, as well as corruption and collusion between the Lago Agrio plaintiffs (“LAPs”), the Ecuadorian court, and the Ecuadorian government. As a consequence, Chevron sued the plaintiffs’ lawyers and other agents in the Southern District of New York under the federal RICO statute and other laws. The decision vindicates Chevron’s claims of fraud and corruption and sends a powerful message to U.S. and other lawyers tempted to capitalize on the weaknesses of foreign judicial systems to attempt to extract payoffs from U.S. companies. At the same time, it forcefully supports international efforts to promote the rule of law.
During the trial, Chevron presented overwhelming and virtually uncontested evidence that Donziger and his co-conspirators had procured the judgment through bribery and fraud, including forging expert reports, hiring Ecuadorian engineers to pose as “neutral” monitors to influence the Ecuadorian court, hiring consultants in the U.S. to ghostwrite the damages report of a purportedly neutral court-appointed “special master” (Richard Cabrera), and bribing the Ecuadorian judge who issued the decision (Nicolás Zambrano) to permit them to ghostwrite the decision in their favor. Chevron’s evidence of the ghostwriting included verbatim quotations from the LAPs’ internal work product that appeared on dozens of pages of the judgment. “These documents never were filed with the Lago Agrio court or made part of the official case record,” the court noted, and “Defendants utterly failed to explain how or why their internal work product — their ‘fingerprints’ — show up in the Judgment.”
Chevron also called as a witness former Ecuadorian judge Alberto Guerra, who testified that he had long served as Judge Zambrano’s paid ghostwriter, including in the case against Chevron. Guerra produced bank deposit slips and other evidence of payments from the LAPs. He also testified that he had served as a middle-man, conveying Judge Zambrano’s bribe solicitation to the LAPs, who accepted it, and then editing their draft of the judgment, which Judge Zambrano then issued as if it were his own. Donziger called Judge Zambrano as a witness, who denied the bribery scheme, but admitted that Judge Guerra had been his ghostwriter. Chevron also presented evidence that when Chevron sought discovery from the LAPs’ attorneys and consultants in U.S. courts, Donziger and his co-conspirators engaged in a campaign of obstruction to prevent the truth from emerging, filing false affidavits in U.S. courts and tampering with witnesses. Chevron also presented evidence that Donziger and his co-conspirators had engaged in an improper pressure campaign against Chevron, propagating numerous falsehoods based on their fabricated evidence in the press and to various state and federal agencies in an attempt to extort a settlement from Chevron.
In rendering its decision in favor of Chevron, the court noted that “[t]he transnational elements of the case make it sensitive and challenging,” but concluded based on the extensive evidentiary record that Donziger was liable under RICO for operating a racketeering enterprise that committed numerous federal crimes, including:
The court also held that the evidence showing that Donziger’s team had written the Ecuadorian judgment, not Judge Zambrano, was “overwhelming and unrefuted.” In support of this finding, the court noted that with respect to the overlap between the LAPs’ internal work product and the judgment, “[t]here is no plausible explanation for their presence in the Judgment except that whoever wrote the Judgment copied parts of them.” The court found that Judge Zambrano, who was unable to remember even the most significant aspects of the 188-page judgment that he claimed to have authored, was “a remarkably unpersuasive witness.” In addition, the court held that former judge Guerra’s testimony was credible, determining that Guerra “told the truth regarding the bribe and the essential fact as to who wrote the Judgment. The court is convinced that the LAPs bribed Zambrano and wrote the Judgment in their favor.”
Defendants’ appeal is pending before the Second Circuit.
Also, in March of 2014 the California Court of Appeal unanimously affirmed dismissal of a case against Gibson Dunn client Dole Food Company as a “fraud on the court” perpetrated by U.S. and Nicaraguan plaintiffs’ lawyers. Captioned Rojas Laguna v. Dole Food Company, Case No. BC233497, the appeal affirmed a trial court ruling in Tellez v. Dole Food Company, Los Angeles Superior Court, Case No. BC312852, where the court found that U.S. and Nicaraguan plaintiffs’ lawyers had “coached their clients to lie about working on banana farms, forged work certificates to create the appearance that their clients had worked on Dole-contracted farms, and faked lab results” as part of a scheme to obtain the judgment against Dole. In the 25-page appellate decision, the court of appeal found no “valid ground” to disturb the trial court’s ruling “that plaintiffs and their counsel committed a fraud on the court by presenting false evidence and testimony.”
Tellez originally went to trial in 2007 and resulted in a multi-million dollar verdict against Dole, in favor of Nicaraguan plaintiffs claiming injuries from pesticide exposure on Dole-contracted farms in the late 1970s. The U.S. and Nicaraguan plaintiffs’ lawyers handling the case pitched it as a watershed win for U.S. plaintiffs’ lawyers, who brought cases in the United States and Nicaragua and obtained billions in Nicaraguan judgments. It was meant to open the floodgates to additional verdicts and suits.
The decision from the court of appeal was the culmination of years of effort by Dole to have the Tellez proceedings re-opened and dismissed for plaintiff fraud, based on a rarely used procedure known as a petition for writ of error coram vobis. Shortly after the Tellez judgment, Dole, represented by Gibson Dunn, exposed evidence in the related case Mejia v. Dole Food Company, Los Angeles Superior Court, Case No. BC340049, showing that the Tellez claims resulted from what the court found to be a wide-reaching fraudulent scheme perpetrated by U.S. and Nicaraguan lawyers. Based on this evidence from Mejia–which, according to the trial court, showed a “heinous conspiracy” “to defraud th[e] court, to extort money from the defendants, and to defraud the defendants”–Dole successfully petitioned the Court of Appeal and the trial court to re-open the Tellez proceedings, after final judgment and while the case was pending appeal. This petition paved the way for a year-long evidentiary process, where, as the Court of Appeal recounted, Dole showed by clear and convincing evidence that the Tellez plaintiffs and their counsel perpetrated fraud on the court by:
In affirming these findings, the Court of Appeal held that the Tellez plaintiffs “raise no sufficiency of the evidence challenge with regard to the relevant findings in this case that they too committed a fraud on the court by submitting false testimony, fraudulent declarations and work certificates, and fraudulent laboratory reports as part of the fraudulent scheme orchestrated by their attorneys.” The Court held that Dole met the legal requirements for the “drastic remedy” of relief from a final judgment based on a petition of writ of error coram vobis.
In 2014, courts continued to apply the Supreme Court’s landmark decision in Morrison v. National Australian Bank Ltd. to limit the extraterritorial application of federal statutes.
Morrison involved claims brought under Section 10(b) of the Securities Exchange Act of 1934 by foreign purchasers of the stock of a foreign company on a foreign stock exchange.[26] Under preexisting case law in the federal courts of appeals, whether Section 10(b) applied was generally considered a jurisdictional question resolved with reference to a variety of tests designed to determine whether enough conduct had occurred in the United States or significant enough effects were felt in the United States to justify applying the statute.[27] Morrison displaced those inquiries.
Morrison reaffirmed that the extraterritoriality analysis turns on the statutory text, which must be read in light of the presumption against extraterritoriality. Thus “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.”[28]
If a statute does not overcome the presumption against extraterritoriality with such a “clear indication,” the only remaining question is whether the asserted application of the statute at issue is extraterritorial, and thus impermissible.[29] This analysis depends on “the focus of congressional concern” behind the statute at issue.[30] The Morrison plaintiffs had alleged that the fraud at issue in the case had taken place in Florida, but the Court ruled that this connection to the United States was insufficient to permit application of Section 10(b). After examining the statutory text, the Court concluded that Section 10(b) only prohibits deceptive conduct “in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered,” meaning that Congress’ focus was “not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”[31] In other words, “deception with respect to certain purchases or sales is necessary for a violation of the statute.”[32] The Court, therefore, held that Section 10(b) applies only to “the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”[33]
In the 2013 landmark case, Kiobel v. Royal Dutch Shell Petroleum Co., the Supreme Court held that, consistent with the presumption set forth in Morrison (that a statute without a clear indication of extraterritorial application has none), the ATS presumptively does not apply to extraterritorial activity.[34] Twelve Nigerian nationals residing in the United States sued Dutch, British and Nigerian corporations pursuant to the ATS, alleging that the corporations aided and abetted the Nigerian Government in committing violations of the law of nations in Nigeria, including state-sponsored torture and murder.[35] While noting that the ATS was “strictly jurisdictional” and “does not directly regulate conduct or afford relief,” the Court held that the statute was nonetheless subject to the canon of statutory interpretation known as the presumption against extraterritorial application.[36] That canon provides that “[w]hen a statute gives no clear indication of an extraterritorial application, it has none,”[37] and reflects the “presumption that United States law governs domestically but does not rule the world.”[38] The Court noted that international comity concerns “implicated in any case arising under the ATS, are all the more pressing when the question is whether a cause of action under the ATS reaches conduct within the territory of another sovereign.”[39] Finding that the ATS did not indicate extraterritorial application sufficient to overcome the presumption, the Court concluded that, “there is no indication that the ATS was passed to make the United States a uniquely hospitable forum for the enforcement of international norms,”[40] and held that violations of the ATS occurring outside the United States be shown to “touch and concern the territory of the United States . . . with sufficient force,”[41] for the claim to survive.
While just a year and a half has passed since Kiobel, its effects have been immediate. The case has been a basis for dismissing ATS actions in a number of circuit courts. In Chowdhury v. Worldtel Bangladesh Holding, Ltd., the Second Circuit pointed to the Kiobel court’s comment that “all the relevant conduct took place outside the United States,” barring the plaintiffs’ case for violations of the law of nations, the body of customary international law.[42] On those grounds, the court overturned the plaintiff’s favorable jury verdict as to their ATS claims because all of the relevant conduct in the case occurred in Bangladesh.[43] The Eleventh Circuit used similar language to dismiss a claim where the plaintiffs alleged violations of the ATS, but where the conduct in question occurred in Colombia.[44] They also pointed out that the defendant’s nature as a corporation is not enough to overcome the presumption against extraterritoriality.[45] In Mujica v. AirScan Inc., the Ninth Circuit also made clear that the defendants’ status as United States corporations did not alone provide a sufficient nexus.[46] They stated that there needed to be sufficient conduct occurring in the United States, agreeing explicitly with the Eleventh and Second Circuits on their interpretation of Kiobel.[47] Although the cases above have had dissenting opinions taking a different opinion of extraterritoriality, the overall trend in the Circuit courts has been to deny plaintiffs’ claims under the ATS unless a sufficient nexus to the United States is shown.[48]
While Kiobel may have put ATS actions on life-support in certain Circuits, it is too early to call the death of extraterritorial ATS actions. In June 2014, a unanimous panel of the United States Court of Appeals for the Fourth Circuit overturned a lower court’s dismissal of an action brought by four former Iraqi detainees against defense contractor, CACI International, Inc., claiming the United States defense contractor’s employees directed their torture in the Abu Ghraib prison.[49] Writing for the panel, Judge Keenan concluded that the district court erred in finding it lacked jurisdiction because the alleged abuses occurred on foreign soil.[50] Judge Keenan explained that the plaintiffs had alleged sufficient connection to the United States, including CACI having won permission and security clearance from the United States government to conduct the interrogations and the alleged acquiescence in the misconduct of CACI managers based in the United States, to “require a different result than that reached in Kiobel.”[51] The Court of Appeals then remanded the case to the district court that had originally dismissed the action.[52]
City of Pontiac Policemen’s & Firemen’s Retirement System v. UBS AG continued Morrison‘s trend of further restricting the extraterritorial application of the United States securities laws and signaled the continued limitation on the use of the United States securities laws exclusively to securities that are traded on United States exchanges.[53]
In City of Pontiac, the Second Circuit, in an issue of first impression, addressed the application of United States securities laws to foreign securities cross-listed on United States exchanges. The court ruled that the ban on extraterritorial application of United States securities laws applies not only to situations where foreign securities are listed on foreign exchanges, but also when such securities are cross-listed on United States exchanges.[54] Previously, the Supreme Court had ruled in Morrison that Section 10(b) of the Exchange Act did not “‘provide[] a cause of action to foreign plaintiffs suing foreign [ ] defendants for misconduct in connection with securities traded on foreign exchanges.'”[55]
The trend since Morrison for courts to restrict the application of United States securities laws to securities traded exclusively on United States exchanges continued in 2014 with Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE.[56] In Parkcentral, the Second Circuit held that a group of hedge funds that had entered into derivative transactions in the United States tied to the stock of a foreign issuer listed only on foreign exchanges could not bring a Section 10(b) suit against a foreign company for alleged fraudulent statements that it made primarily abroad relating to the foreign issuer.[57]
The plaintiff hedge funds argued that the securities-based swap agreements (“Swaps”) entered into in the United States, which were economically equivalent to short sales of Volkswagen AG (“VW”) stock listed on foreign exchanges, constituted “domestic transactions” under Morrison, such that they could bring a Section 10(b) action in the United States against German corporation Porsche Automobile Holdings SE (“Porsche”) and its executives relating to allegedly fraudulent statements that Porsche had made regarding its intentions with respect to VW stock.
The Second Circuit acknowledged that the Swaps may have qualified as domestic transactions under Morrison, and it also considered its decision in Absolute Activist Value Master Fund Ltd. v. Ficeto,[58] which outlined what constituted a domestic transaction. Nonetheless, it ruled that, “while [Morrison] unmistakably made a domestic securities transaction (or transaction in a domestically listed security) necessary to a properly domestic invocation of Section 10(b), such a transaction is not alone sufficient to state a properly domestic claim under the statute.”[59] The court reasoned that where the claims “are so predominantly foreign as to be impermissibly extraterritorial” and likely to “place § 10(b) in conflict with the regulatory laws of other nations,” then, based on “the principles underlying the Supreme Court’s decision in Morrison,” plaintiffs may not bring a Section 10(b) claim even if it relates to a domestic transaction.[60] The court observed that if a domestic transaction were alone sufficient to bring a Section 10(b) claim, then the United States securities laws would apply extraterritorially to “allegedly fraudulent conduct anywhere in the world” so long as a derivative transaction relating to the underlying foreign securities was entered into in the United States–even where the foreign defendants were unaware of the derivative transaction.[61] Unwilling to accept that possibility, and noting that the allegations in Parkcentral related to predominantly foreign activity, the Second Circuit held that while the Swap transactions were consummated in the United States, that alone was insufficient under Morrison to state a Section 10(b) claim and therefore affirmed dismissal of the complaints.[62]
In Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir. 2014), the Second Circuit held that a private right of action under the Commodity Exchange Act (“CEA”) arises only when “a plaintiff shows that one of the four transactions listed in § 22 [of the CEA] occurred within the United States.”[63] Unless a plaintiff could show that a “domestic transaction” had occurred–evidenced either by a title transfer of the security within the United States or if a buyer or seller incurred “irrevocable liability” related to the transaction within the United States –there could be no private right of action for suits premised on foreign transactions.[64] Domestic activity undertaken to complete a foreign transaction, such as a wire transfer of funds to the United States, was “insufficient to demonstrate a domestic transaction.”[65] The court rejected the argument that Morrison only foreclosed extraterritorial application of substantive laws, not those that merely created causes of action. Morrison, it reasoned, did not draw “any such distinction,” and the Supreme Court had confirmed this conclusion in Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), which relied on Morrison to find that the Alien Tort Statute (a jurisdictional law) did not apply to extraterritorial conduct.[66] It also noted that litigants who could not establish a “domestic transaction” could still “seek recovery through an administrative proceeding at the Commodity Futures Trading Commission.”[67]
In Liu Meng-Lin v. Siemens AG, 763 F.3d 175 (2d Cir. 2014), the Second Circuit held that the anti-retaliation provision of the Dodd-Frank Act does not apply to extraterritorial conduct. Liu Meng-Lin involved allegations that the plaintiff had been fired for reporting alleged improper payments by his employer in China, North Korea, and Hong Kong. After the district court dismissed the plaintiff’s complaint, the Second Circuit affirmed. The court first concluded that the complaint only alleged extraterritorial conduct, and that the defendant’s listing on the New York Stock Exchange was insufficient to overcome the presumption against extraterritorial application of United States securities laws.[68] The court next found that the anti-retaliation provision did not suggest that Congress had intended for it to have extraterritorial application. Nothing in the text or legislative history indicated such intent,[69] and even though other sections of the Dodd-Frank Act provided for exterritorial application, Congress’s decision to omit that language from the anti-retaliation provision counseled against relying on these other sections.[70] The court also refused to credit agency regulations that supported extraterritorial application because “it is far from clear that an agency’s assertion that a statute has extraterritorial effect, unmoored from any plausible statutory basis for rebutting the presumption against extraterritoriality, should be given deference,” and also because those regulations were insufficiently related to the statute’s anti-retaliation provision.[71]
On September 16, 2014, a federal district court in the District of Columbia found in favor of the Commodity Futures Trading Commission after a challenge was raised to its adoption of a general policy that provided for extraterritorial application of the derivatives provisions of the Commodities Enforcement Act and related regulations.[72] The court concluded that “Congress has clearly indicated that the swaps provisions within Title VII of the Dodd-Frank Act–including any rules or regulations prescribed by the CFTC–apply extraterritorially whenever the jurisdictional nexus in 7 U.S.C. § 2(i) is satisfied.”[73] Given Liu Meng-Lin and the Supreme Court’s restrictive approach toward extraterritorial application of United States laws in Morrison and beyond, challenges to the Commodity Futures Trading Commission’s general policy may be forthcoming.
The Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a, governs the application of the Sherman Act to foreign conduct. Specifically, it provides that foreign anticompetitive conduct which does not involve United States import commerce, is subject to United States antitrust law only if that conduct: (1) had a direct, substantial, and reasonably foreseeable effect on United States domestic commerce, and (2) that effect “gives rise” to a Sherman Act claim.
In 2014, three United States Courts of Appeals issued rulings on the extraterritorial reach of the United States antitrust laws and the meaning of the FTAIA. Two of the rulings arose from the ongoing litigation concerning the TFT-LCD panel industry.
First, in United States v. Hui Hsiung, the Ninth Circuit joined the Second, Third, and Seventh Circuits in holding that the FTAIA does not create a jurisdictional limit on the power of federal courts, but rather “provides substantive elements under the Sherman Act in cases involving no import trade with foreign nations.”[74] The court then held that the defendants’ transactions between foreign producers and purchasers located in the United States were “import trade” and fell “outside the scope of the FTAIA.”[75] Because the convictions could be independently sustained on the basis of the clearly proven import trade, the court declined to decide whether the evidence relating to foreign sales of panels that were incorporated into finished consumer products before being imported into the United States was sufficient to establish that the foreign sales had a “direct” effect for purposes of the domestic effects exception to the FTAIA.[76]
Second, in Motorola Mobility LLC v. AU Optronics Corp. (“Motorola I”), a Seventh Circuit panel ruled that the FTAIA did not extend United States antitrust law to a scenario that now arises regularly in United States antitrust matters: the sale abroad of price-fixed products to a foreign buyer, which then integrates those price-fixed products into a finished product that is eventually sold in the United States.[77] As the court explained, the effect on United States domestic commerce in such a situation is not “direct” under the FTAIA, but rather a situation where foreign conduct “filters through many layers and finally causes a few ripples in the United States.”[78] Nor did the foreign conduct “give rise” to a Sherman Act claim because Motorola–the company which sold finished products in the United States–“mediated” the effect of any price fixing by deciding what price to charge for those phones.[79] But on July 1, 2014, the panel granted Motorola’s request for rehearing and vacated its March 27, 2014 decision, to allow for briefing and oral argument, including amici from the DOJ, FTC, Belgium, Japan, and Korea.
On rehearing in Motorola Mobility LLC v. AU Optronics Corp. (“Motorola II“), and again in writing for a unanimous panel, Judge Posner stepped back from Motorola I‘s finding that the effect of the alleged conduct on United States commerce was not direct, reasonable, and foreseeable.[80] Instead, he conceded that the United States effect fell into a gray area. He assumed for the sake of the opinion that there was a direct effect on United States commerce, but declined to decide that point. Instead, the panel unanimously affirmed the dismissal, holding that Motorola could not meet the additional requirement that the effect on domestic United States commerce give rise to an antitrust cause of action because Motorola’s foreign subsidiaries that purchased the allegedly price-fixed product outside of the United States, and not Motorola itself, were the direct purchasers, Motorola did not have a claim under the Sherman Act.
The court’s decision in Motorola II undertook an extensive analysis of antitrust standing and the indirect-purchaser doctrine of Illinois Brick Co. v. Illinois, which bars indirect purchasers from pursuing Sherman Act claims for damages.[81] While the court acknowledged that some parent-subsidiary relationships may be exempt from the Illinois Brick bar, it held that foreign subsidiaries are not because they are incorporated under and subject to foreign regulation.[82] Judge Posner noted that the disadvantage of regulation shopping through foreign incorporation is that a subsidiary’s remedies are limited to those granted by its country of citizenship.[83] Subsidiaries must “take the good with the bad,”[84] and the court held that Motorola, in attempting to avoid that consequence, was merely “asserting a right to forum shop.” [85]
Although the court barred Motorola from recovering civil damages, it took care to differentiate the civil remedies from the scope of the United States DOJ’s authority in criminal matters. The DOJ had asked the court to “hold that the conspiracy to fix the price of LCD panels had a direct, substantial, and reasonably foreseeable effect on United States import and domestic commerce in cellphones incorporating these panels.”[86] While the court declined to make such a finding, it addressed the government’s request for “a disclaimer that a ruling against Motorola would interfere with criminal and injunctive remedies sought by the government against antitrust violations by foreign companies.”[87] It emphasized that the ruling was limited to whether a United States -based parent company may sue on behalf of its subsidiaries, and did not constrain the government’s future ability to seek criminal and injunctive remedies of foreign corporations, provided that it can demonstrate the requisite statutory effect on domestic commerce.[88]
Third, in Lotes Co. v. Hon Hai Precision Industry Co.–which concerned a Taiwanese electronics manufacturing company’s claim that the defendants, “a group of five competing electronics firms,” had attempted to gain monopoly power over the entire USB connector industry–the Second Circuit addressed whether the plaintiff stated a viable claim under the Sherman Act.[89] In concluding that the plaintiff’s allegations fell short, the court affirmed the lower court’s judgment dismissing the plaintiff’s claims, but on alternative grounds.[90] In doing so, the court overruled its prior decision in Filetech S.A. v. France Telecom S.A.[91] and held that “the requirements of the FTAIA are substantive and nonjurisdictional in nature,” but rejected the plaintiff’s argument that the defendants had waived the FTAIA’s requirements.[92] Adopting the Seventh Circuit’s (as opposed to the Ninth Circuit’s) approach, the court also held “that foreign anticompetitive conduct can have a statutorily required ‘direct, substantial, and reasonably foreseeable effect’ on United States domestic or import commerce even if the effect does not follow as an immediate consequence of the defendant’s conduct, so long as there is a reasonably proximate causal nexus between the conduct and the effect.”[93] The court, however, did not decide whether the plaintiff plausibly alleged “the requisite ‘direct, substantial, and reasonably foreseeable effect’ under the proper standard” because the court found that the plaintiff’s claim did not satisfy the FTAIA’s “second limitation,” which requires that the “domestic effect . . . ‘give[ ] rise to'” the claim.[94] In particular, the court explained, “regardless of what effect the defendants’ conduct ha[d] on United States domestic or import commerce, any such effect did not ‘give[ ] rise to’ the plaintiff’s claim. To the contrary, in the causal chain the plaintiff allege[d], the plaintiff’s exclusion from the relevant market actually precede[d] the alleged domestic effect.” [95]
Although these decisions provide some guidance about the extraterritorial reach of the United States antitrust laws, Circuit Courts are not uniform in their approaches. The Hsiung and Motorola II decisions were the subject of pending petitions for en banc review. Motorola’s en banc petition has been denied.[96] Motorola has stated it will request Supreme Court review. The resolution of those petitions, and possible petitions to the United States Supreme Court for writs of certiorari, will remain at the front of observers’ attention in 2015. The Hsiung rehearing was also denied en banc and the opinion was superseded.[97]
The Racketeer Influenced and Corrupt Organizations Act (“RICO”) 18 U.S.C. §§ 1961–1968 creates criminal and civil liability when a “pattern of racketeering”–arising from the violation of certain federal or state criminal laws–is associated with an “enterprise.”
In 2014, the Second Circuit held in European Community v. RJR Nabisco, Inc. that RICO applies to extraterritorial conduct to the extent that conduct violates an underlying RICO-predicate criminal statute with extraterritorial reach.[98]
European Community involved allegations that the defendant “managed, and controlled a global money-laundering scheme with organized crime groups” in violation of RICO and New York law.[99] The district court dismissed the RICO claims because it found that RICO itself did not overcome the presumption against extraterritorial application, that the “focus” of RICO was the criminal enterprise, and in the case before it, the alleged enterprise was “located and directed outside” the United States. The Second Circuit reversed, explaining that by establishing some RICO predicate crimes that could “only occur outside the United States” or could apply to both domestic and extraterritorial conduct, “Congress manifested an unmistakable intent that certain of the federal statutes adopted as predicates for RICO liability apply to extraterritorial conduct.”[100] Relying primarily on RICO’s statutory text, the Second Circuit held that:
RICO applies extraterritorially if, and only if, liability or guilt could attach to extraterritorial conduct under the relevant RICO predicate. Thus, when a RICO claim depends on violations of a predicate statute that manifests an unmistakable congressional intent to apply extraterritorially, RICO will apply to extraterritorial conduct, too, but only to the extent that the predicate would. Conversely, when a RICO claim depends on violations of a predicate statute that does not overcome Morrison‘s presumption against extraterritoriality, RICO will not apply extraterritorially either.[101]
It explained that, by making extraterritorial application of RICO “coextensive with extraterritorial application of the relevant predicate statutes,” “unmistakable” congressional intent would be satisfied, there would be simplification of “what conduct is actionable in the United States,” and certain “incongruous results” would be avoided, such as the shielding of “purely domestic conduct from liability simply because the defendant has acted in concert with a foreign enterprise.”[102] Applying its standard to the predicate statutes before it, the Second Circuit determined that the complaint at issue “allege[d] sufficient domestic conduct” for the mail fraud, wire fraud, and Travel Act allegations.[103]
In Petroleos Mexicanos v. SK Engineering & Construction Co. Ltd.,[104] the Second Circuit relied on European Community to affirm dismissal of a complaint filed by Pemex alleging RICO liability based on wire fraud. Pemex had relied exclusively on the wire fraud statute in pleading predicate acts, which European Community established as insufficient to support extraterritorial application of the RICO statute.
In Reich v. Lopez,[105] a district court also considered RICO allegations based on violations of predicate offenses of the Travel Act and wire fraud. The court held that the plaintiff had alleged “sufficient domestic conduct for each of these predicate acts” to overcome extraterritoriality concerns.[106] Specifically, the plaintiff alleged bribery of foreign officials via wire communications originating from the United States, defendants’ travel to and from the United States, defendants’ use of United States bank accounts, and defendants’ use of wire communications in United States interstate commerce to direct the alleged bad acts.[107]
While United States courts are finding ways to respond to the influx of transnational suits, foreign judgment recognition and enforcement suits, which have been on the rise for the past decade, showed no sign of slowing in 2014. Indeed, many plaintiffs appear to see recognition and enforcement suits as a vehicle for making an end run around the traditional United States trial process.[108] Instead of engaging in pre-trial discovery and a full domestic trial on the merits, they file suits asking United States courts to domesticate foreign judgments and to treat the factual findings and evidence from the foreign proceeding as the law of the case, often based on little more than proof of the foreign judgment itself.[109] If the foreign judgment is the product of fraud, corruption or a breakdown in the rule of law, it threatens the integrity of the United States system, as it can be difficult and time-consuming for defendants to reveal the deficiencies in foreign judgments.[110]
Subject to certain requirements, United States courts are willing to entertain the recognition and enforcement of final and enforceable foreign civil judgments for a fixed sum of money, excluding judgments for fines, penalties or taxes. Further, the United States generally adheres to the rule that the courts of one nation will not enforce the penal laws of another nation.[111] The question of whether a certain state statute constitutes “penal law” depends on whether its purpose is to punish an offense against the public justice of the state, or to afford a private remedy to a person injured by the wrongful act.[112]
In a recent decision, Plata v. Darbun Enterprises, Inc., a California state court reiterated that “the issue whether a monetary award is a penalty within the meaning of the [Recognition Act] requires a court to focus on the legislative purpose of the law underlying the foreign judgment. A judgment is a penalty even if it awards monetary damages to a private individual if the judgment seeks to redress a public wrong and vindicate the public justice, as opposed to affording a private remedy to a person injured by the wrongful act.”[113]
In the same vein, in Harvardsky Prumyslovy Holding v. Kozeny, an intermediate New York appellate court held that the Czech judgment at issue was not “a fine or other penalty” and was therefore entitled to recognition in New York even though it had been issued by a criminal court in the Czech Republic.[114] In that case, the monetary judgment was found to be remedial and therefore the judgment was considered to constitute a “judgment of a foreign state granting . . . a sum of money,” thus entitled to recognition in New York.[115]
In general, the guiding principle in determining whether a litigant in foreign court proceedings had sufficient notice of the proceedings so as to allow recognition and enforcement of the foreign judgment is whether a reasonable method of notification was employed and reasonable opportunity to be heard was afforded to the person affected. In a recent decision, Gardner v. Letcher,[116] the District of Nevada pointed to the fact “that no summons was served and that the ‘Summary of the Document to be Served’ form was not completely filled out.” Because the Hague Convention’s requirements for service were also not satisfied, the court concluded that the Swiss court did not have personal jurisdiction over the defendant.[117]
In Midbrook Flowerbulbs Holland B.V. v. Holland America Bulb Farms, Inc.,[118] the Western District of Washington granted summary judgment in favor of Midbrook, which had been seeking to enforce a judgment from a Dutch court against Holland America, a Washington company. The court granted an order recognizing the Dutch judgment pursuant to the Uniform Foreign-Country Money Judgments Recognition Act (“UFCMJRA”).[119] While the court recognized that the UFCMJRA allows courts not to recognize a foreign judgment if “[t]he specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law,” the court concluded that Holland failed to demonstrate that the Dutch proceedings were not compatible with due process.[120]
On June 16, 2014, the United States Supreme Court delivered two rulings related to a dispute arising from Argentina’s 2001 default on its external debt, Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2250 (2014), and Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2819 (2014). In 2005 and 2010, Argentina restructured most of that debt by offering creditors new securities, with less favorable terms, in exchange for the defaulted ones. Most bondholders accepted Argentina’s offer. Respondent, NML Capital, Ltd. (“NML”), among others, did not and sued Argentina in a United States federal district court to collect the debt, and prevailed.
The most important of these Supreme Court rulings, Republic of Argentina v. NML Capital, Ltd. (“NML I“), 134 S. Ct. 2250 (2014), concerned a dispute over third-party subpoenas that NML served on two banks in 2010 to discover information about Argentina’s property and financial transactions.[121] Theodore B. Olson of Gibson Dunn argued the case before the Supreme Court on behalf of NML. One of the banks, joined by Argentina, moved to quash the subpoena, and NML moved to compel compliance.[122] The district court upheld the requested discovery, and the Second Circuit affirmed.[123] Joined by the United States as amicus curiae, Argentina requested the Supreme Court to reverse the decision of the Second Circuit and to hold that the FSIA protects it from discovery into its assets held outside the United States and other assets Argentina claimed were immune from execution in United States courts. In a 7-1 decision, the Supreme Court rejected Argentina’s arguments, upheld NML’s subpoenas, and held that the FSIA did not confer upon Argentina the requested protection from post-judgment discovery of information, thereby affirming the District Court and the Second Circuit.[124]
Justice Scalia, writing for the majority, began by noting that “[t]he rules governing post-judgment execution proceedings are quite permissive.”[125] Foreign sovereign immunity,” Justice Scalia noted, “is, and always has been, ‘a matter of grace and comity on the part of the United States, and not a restriction imposed by the Constitution.'”[126] After setting out the evolution of the application of comity, the Supreme Court emphasized that the FSIA now provides a “comprehensive” set of legal standards to govern any claim of immunity by foreign sovereign States and, as such, “any sort of immunity defense made by a foreign sovereign in an American court must stand on the Act’s text. Or it must fall.”[127] According to the Court, nowhere in the FSIA’s “comprehensive” framework did the legislature prohibit or limit discovery in aid of execution of a foreign sovereign’s assets.[128]
The Court also rejected Argentina’s argument that the FSIA categorically barred discovery into assets that a foreign sovereign regards as diplomatic or military. While the subpoenas were “bound to turn up information about property that Argentina regards as immune,” the Court noted that NML “may think the same property not immune.”[129] In that situation, the foreign sovereign’s “self-serving legal assertion will not automatically prevail; the District Court will have to settle the matter.”[130]
Regarding the potential effects of granting such a discovery order on international comity and international relations, the Court responded that “[t]hese apprehensions are better directed to that branch of government with authority to amend the Act.”[131]
The ruling has been referred to in seven decisions from federal courts of appeals from three Circuits, the Second, Third, and Seventh Circuits.[132]
In conjunction with the ruling in NML I, the Court denied Argentina’s petition for certiorari seeking review of a different Second Circuit decision that required Argentina to repay NML and other holders of defaulted bonds any time it made payments on the securities that it had issued in the 2005 and 2010 exchange offers. See Republic of Argentina v. NML Capital, Ltd. (“NML II“), 134 S. Ct. 2819 (2014). Since its default, Argentina had not made a single payment on NML’s bonds, whereas it had continued to pay other creditors who accepted smaller exchange offers that Argentina had pressed upon them.[133] NML sought, and the district court issued, an injunction requiring Argentina to provide equal treatment to NML’s bonds.[134] The Second Circuit affirmed this injunction, concluding that Argentina breached a provision in its bond agreement with NML that required Argentina to treat NML’s bonds at least equally to the rest of its external debt.[135] Moreover, the Second Circuit held that the injunction was consistent with the FSIA,[136] and that it served the public interest by ensuring that contracting parties meet their obligations.[137] Argentina was supported by the governments of France, Mexico, and Brazil (but not the United States), in its petition for review of that decision, but the Supreme Court rejected it, allowing the District Court’s injunctions — which had been stayed — to take effect.[138]
In another case related to the Argentine bond dispute, on December 23, 2014, in Aurelius Capital Master, Ltd. v. Republic of Argentina, the Second Circuit issued a summary order upholding orders by the Southern District of New York compelling Argentina and third-party banks to comply with additional discovery demands issued by NML.[139] The court held that, even if NML’s discovery related to diplomatic or military property potentially immune from attachment under international treaties or the FSIA, Argentina’s assertions of immunity did not entitle it to withhold otherwise discoverable information.[140] The court reasoned as follows:
First, the Second Circuit rejected Argentina’s contention that the FSIA prohibits discovery of sovereign property that is potentially immune from attachment, noting that the United States Supreme Court had already rejected this argument in the NML I ruling summarized in the preceding section.[141]
Second, the Second Circuit rejected Argentina’s argument that the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations–treaties to which both the United States and Argentina are signatories–prohibited attachment of diplomatic and consular property and discovery of diplomatic and consular documents.[142] The court held that to the extent the discovery demands reached diplomatic or consular property that was immune from attachment, Argentina should object if and when NML actually sought to execute on such property.[143] Insofar as the discovery demands reached diplomatic or consular documents that were privileged or inviolable under the treaties, the court held that Argentina should present its objections to the District Court “in the form of assertions of privilege or inviolability.”[144]
Third, the Second Circuit rejected Argentina’s argument that discovery into a foreign sovereign’s purported military property was precluded by the FSIA, 28 U.S.C. § 1611. Citing NML I, the court reiterated that “the potential immunity of property from attachment does not preclude discovery of that property,” and noted that such discovery may in fact be “necessary for the parties to properly litigate the existence of immunity.”[145]
In a different 2014 case implicating the FSIA, on August 29, 2014, the D.C. Circuit delivered its ruling in Odhiambo v. Republic of Kenya.[146] Plaintiff, an employee of a Kenyan private bank who had reported certain tax irregularities associated with accounts at his employer bank, claimed he had made the report in response to an ad by the Kenya Revenue Authority promising a reward in exchange for such information.[147] The plaintiff claimed that Kenya had failed to pay him the promised reward.[148] After the plaintiff was identified as an informant, he feared for his safety and Kenyan authorities assisted him in moving to the United States as a refugee.[149] The plaintiff then sued Kenya for breach of contract in relation to the alleged underpayment of rewards.[150] Kenya moved to dismiss on the basis of sovereign immunity.
The D.C. Circuit held that the FSIA barred the suit because none of the statute’s enumerated exceptions applied. Specifically, the court found that Kenya’s accession to the 1951 Convention Relating to the Status of Refugees was not sufficient for “the exacting showing required for waivers of foreign sovereign immunity.“[151] Furthermore, the court rejected, among others, plaintiff’s argument that jurisdiction existed under the third clause of the “commercial activity exception,” [152] which permits suit when a claim is based “upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.“[153] The court agreed that plaintiff’s claim was based on Kenya’s commercial activity outside the United States, but found that it could not be found to cause a direct effect in the United States merely because Odhiambo now lived there.[154] The court noted that in prior breach of contract cases, the point of whether an effect was “direct” had hinged on whether the United States was the place of performance of the contract.[155] The court concluded that Kenya’s alleged breach of contract only had an indirect effect in the United States as a result of Odhiambo’s intervening relocation.[156] According to the court, to allow plaintiffs to sue for breach of contract under this exception after moving to the United States would vastly expand the scope of the exception.[157] The court therefore held that “breaching a contract that does not establish or necessarily contemplate the United States as a place of performance does not cause a direct effect in the United States.”[158]
In 2007, Yukos Capital S.A.R.L. secured an award in the amount of 3,080,711,971 Russian Rubles plus fees and costs against OAO Samaraneftegaz in an arbitration conducted in New York under the ICC Rules of Arbitration. In 2010, Gibson Dunn filed a petition on behalf of Yukos Capital to confirm the award in the Southern District of New York. After extensive discovery into the validity of the arbitration agreement, which Samaraneftegaz asserted was invalid, the Southern District granted the petition in 2013. The Southern District rejected Samaraneftegaz’s defenses to confirmation, including: (1) Samaraneftegaz’s request that the Court dismiss the enforcement action on forum non conveniens grounds; (2) Samaraneftegaz’s claim that the Southern District lacked personal jurisdiction over Samaraneftegaz; and (3) Samaraneftegaz’s arguments that the award should not be enforced under the New York Convention because Samaraneftegaz lacked notice of the arbitration and the award was against public policy.[159] Samaraneftegaz appealed. In a later proceeding, the Southern District converted the amounts awarded in Russian rubles into United States dollars using the exchange rate as of the date the arbitration award was issued.[160] Samaraneftegaz appealed that order as well.
On November 4, 2014, the Second Circuit, in a summary opinion, affirmed the district court’s decision to enforce the award and to convert the rubles award into dollars as of the date of the award.[161] The court rejected Samaraneftegaz’s claim that enforcement of the award violated public policy, finding that the “district court was not required to defer to [a] Russian court’s determination that enforcement would violate Russian public policy” and that Samaraneftegaz had “never made any public policy arguments to the arbitrators.” Regarding the currency conversion, the court noted that the district court had followed “prevalent practice” by having “correctly determined that the proper date of conversion is the date that enforcement action arose, which is necessarily the date of the arbitration award.”[162] Robert Weigel of Gibson Dunn argued the case on behalf of Yukos Capital.
In furtherance of its enforcement strategy, Yukos Capital moved for a turnover order based on the actions that Samaraneftegaz had taken that effectively depleted its available assets. Turnover orders are a judgment enforcement mechanism available under New York law.[163]
On January 9, 2014, the Southern District of New York issued a turnover order in favor of Yukos Capital.[164] The court enjoined Samaraneftegaz from paying dividends, making loans or any other asset transfers to its shareholders or corporate affiliates until it paid Yukos Capital or posted a bond for the full value of the award. The court also rejected Samaraneftegaz’s argument that it would suffer irreparable harm from the turnover order–finding instead that Yukos Capital would suffer irreparable harm and have no adequate remedy at law in the absence of the turnover order because Samaraneftegaz had made sizeable transfers of dividends and interest free loans to its corporate affiliates, effectively depleting its available assets. Finally, the court characterized Samaraneftegaz’s efforts to re-litigate the issues that had already been decided as “strained and entirely unsubstantiated,” as well as “a transparent attempt to escape paying the judgment.” Samaraneftegaz appealed the turnover order.
Expressing no opinion as to the merits of the underlying issues, the Second Circuit vacated the turnover order and remanded to the district court to clarify its ruling on alternative service of the turnover motion and to explain its conclusion that no foreign law conflict exists.
Until recently, Section 1782 was rarely used as a discovery tool in aid of foreign litigation, but since 2010 it is increasingly becoming an essential tool as litigants pursue transnational lawsuits. Section 1782 enables litigants to use the United States’ broad discovery process to obtain evidence that might otherwise be unavailable within the constraints of pending foreign proceedings. Section 1782 also does not restrain the use of such evidence if offered in a domestic action. As a result, litigants may initially seek the discovery for use in the foreign litigation, but may ultimately use the evidence collected to bring a separate action in the United States.
While there are limits to the availability of Section 1782 discovery, 2014 saw the expansion of certain of those limits.
Courts remain divided over which foreign arbitral tribunals may serve as the basis for a Section 1782 application. Since Intel, courts have universally found that investor-state arbitration–which arises from treaty obligations contained in bilateral investment treaties or multilateral investment treaties–constitutes a “tribunal” under Section 1782.[165]
With respect to private commercial arbitration, however, appellate courts have not provided clear guidance on whether Section 1782 assistance is available. The Eleventh Circuit initially seemed open to the idea and held, in In re Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., that Section 1782 applied to a private commercial arbitration because the tribunal was a “first-instance decision-maker whose judgment was subject to judicial review.”[166] However, in January 2014, the Eleventh Circuit vacated the decision–in part because it did not have a sufficiently developed record on the nature of the arbitration tribunal–and issued a new decision that did not reach the issue because two lawsuits in Ecuadorian courts had been filed, thus obviating the need for the Eleventh Circuit to go further.[167]
As a result, the only appellate rulings on the issue are from the Courts of Appeals for the Fifth[168] and Second[169] Circuits, which do not recognize foreign private arbitral bodies (as opposed to investor state arbitration) as “tribunals” for Section 1782 purposes. Notwithstanding these appellate rulings, a number of federal district courts have ruled to the contrary, and have allowed the use of Section 1782 to collect evidence for use in purely private foreign arbitrations.[170]
Foreign statutes seldom provide American-style discovery, like that found in Section 1782. While Section 1782 has some built-in protections–like the statutory requirement that prohibits compelled disclosure in violation of “any legally applicable privilege” and the Intel factors that grant courts discretion to deny “unduly intrusive or burdensome requests” and requests that attempt to “circumvent foreign proof gathering restrictions”–courts deciding Section 1782 applications have weighed the impact of foreign statutes and come out on both sides.[171]
In October 2014, the Southern District of New York quashed a Section 1782 subpoena seeking documents located in Russia and Ukraine from the law firm Chadbourne & Parke LLP for use in proceedings in Amsterdam, Netherlands, in part on the ground that they were “protected under Russian and Ukrainian client confidentiality and personal data privacy laws” such that disclosure “would offend core tenets of our [United States] legal system (and those of Russia and Ukraine).”[172]
Whether documents located outside the United States can be obtained through Section 1782 discovery from a corporation with a presence in the United States is the subject of dispute. Where the target is “found” in the district and has “control” over the documents under the Federal Rules of Civil Procedure, courts have been wrestling inconclusively with whether Section 1782 permits discovery of documents located overseas.
In 2014, several courts denied discovery applications that sought documents located overseas. In In re Slawomir Kaczor and Tomasz Rogucki,[173] the Southern District of Ohio denied a Section 1782 application for discovery in aid of Polish proceedings because, among other things, the discovery sought was located in Poland and “courts have read into § 1782 a threshold requirement that the material sought be located in the United States.”[174] The court also noted that the legislative history of Section 1782 establishes that it “was intended to aid in obtaining oral and documentary evidence in the United States . . . and was not intended to provide discovery of evidence maintain[ed] within a foreign district.”[175] Likewise, in In re Certain Funds, Accounts, and/or Investment Vehicles Managed by Affiliates of Fortress Investment Group LLC,[176] the Southern District of New York observed that “courts have read into § 1782 a threshold requirement that the material sought be located in the United States,” though the court denied the discovery application on other grounds.”
[2] No. B233497, 2014 WL 891268 (Cal. Ct. App. Mar. 7, 2014).
[6] Id. at 761 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011)) (quotation marks omitted).
[7] Daimler, 134 S. Ct. at 749 (citing Goodyear, 131 S. Ct. at 2853-54).
[9] See, e.g., Air Tropiques, Sprl v. N. & W. Ins. Co., No. H-13-1438, 2014 WL 1323046, at *10 (S.D. Tex. Mar. 31, 2014); Brown v. CBS Corp., 19 F. Supp. 3d 390, 397-98 (D. Conn. 2014); Krishanti v. Rajaratnam, No. 2:09-cv-05395 (JLL)(JAD), 2014 WL 1669873, at *6 (D.N.J. Apr. 28, 2014); Intellectual Ventures I LLC v. Ricoh Co., Ltd., No. 13-474-SLR, 2014 WL 4748703, at *3 (D. Del. Sept. 12, 2014).
[10] Air Tropiques, 2014 WL 1323046, at *10.
[11] 750 F.3d 221, 223 (2d Cir. 2014).
[12] Sonera Holding, 750 F.3d at 226 (quoting Daimler, 134 S. Ct. at 761).
[13] Sonera Holding, 750 F.3d at 224-26.
[15] The Ninth Circuit’s agency theory focused on a showing of “special importance of the services performed by the subsidiary.” Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011). They looked to whether the services performed by the subsidiary were of the sort that, had they not been performed, would have had to have been performed by the parent corporation’s own officials. Id.
[16] Daimler, 134 S.Ct. at 759-60.
[17] George v. Uponor Corp., 988 F. Supp. 2d 1056, 1079-80 (D. Minn. 2013), reconsideration denied (Apr. 14, 2014).
[18] No. 12-23510-CIV, 2014 WL 652831, at *8-9 (S.D. Fla. Feb. 19, 2014).
[21] No. 12-cv-20129, 2014 WL 3408582, at *6-7 (S.D. Fla. May 9, 2014).
[23] 753 F.3d 521, 528, 530 (5th Cir. 2014).
[25] 27 F. Supp. 3d 1002, 1006, 1015 (N.D. Cal. 2014).
[32] Id. at 272 (quoting Section 10(b)).
[42] Chowdhury v. Worldtel Bangladesh Holding, Ltd., 746 F.3d 42, 49 (2d Cir. 2014) (citing Kiobel, 133 S.Ct. at 1669).
[44] Cardona v. Chiquita Brands Int’l, Inc., 760 F.3d 1185, 1189 (11th Cir. 2014).
[46] 771 F.3d 580, 593 (9th Cir. 2014).
[47] Id. at 596 (agreeing with the Eleventh Circuit in Cardona and the Second Circuit in Daimler AG).
[48] See also Ben-Haim v. Neeman, 543 F. App’x 152, 154 (3d Cir. 2013) (taking the same stance as the Second, Eleventh and Ninth Circuits).
[49] Al Shimari v. CACI Premier Tech., Inc., 758 F.3d 516 (4th Cir. 2014).
[52] Al Shimari v. CACI Int’l, Inc., 951 F. Supp. 2d 857 (E.D. Va. 2013).
[53] 752 F.3d 173 (2d Cir. 2014).
[55] Id. at 179 (quoting Morrison, 561 U.S. at 250-51).
[56] 763 F.3d. 198 (2d Cir. 2014).
[58] 677 F.3d 60 (2d Cir. 2012).
[59] Parkcentral, 763 F.3d at 215 (emphasis added).
[65] Id. at 275 (citation omitted).
[67] Id. at 270, 273 (citation omitted).
[68] Liu Meng-Lin, 763 F.3d at 179.
[72] Sec. Indus. and Fin. Mkts. Assoc. v. U.S. Commodity Futures Trading Comm’n, No. 13-1916 (PLF), 2014 WL 4629567 (D.D.C. Sept. 16, 2014).
[74] 758 F.3d 1074, 1088 (9th Cir. 2014).
[77] 746 F.3d 842 (7th Cir. 2014) (Posner, J.), reh’g granted and opinion vacated (July 1, 2014).
[78] Id. at 844 (internal quotation marks omitted).
[80] No. 14-8003, 2015 WL 137907 (7th Cir. Jan. 12, 2015).
[82] Motorola II, 2015 WL 137907 at *6.
[84] Id. at *12 (internal quotation marks omitted).
[86] Id. at *9 (internal quotation marks omitted).
[89] 753 F.3d 395, 398 (2d Cir. 2014).
[91] 157 F.3d 922 (2d Cir. 1998).
[92] Lotes, 753 F.3d at 398-99, 404-09.
[94] Id. (quoting 15 U.S.C. § 6a(2)).
[96] Motorola Mobility LLC v. AU Optronics Corp., 773 F.3d 826 (7th Cir. 2014), reh’g en banc denied, No. 14-8003, 2015 WL 137907 (7th Cir. Jan. 12, 2015).
[97] United States v. Hui Hsiung, No. 12-10492, 2015 WL 400550 (9th Cir. Jan. 30, 2015).
[98] 764 F.3d 129 (2d Cir. 2014).
[104] 572 F. App’x 60 (2d Cir. 2014).
[105] 2014 WL 4067179 (S.D.N.Y. Aug. 18, 2014).
[108] See Osorio v. Dole Food Co., 665 F. Supp. 2d 1307 (S.D. Fla. 2009); Bridgeway Corp. v. Citibank, 45 F. Supp. 2d 276, 288 (S.D.N.Y. 1999), aff’d, 201 F.3d 134 (2d Cir. 2000).
[109] See Restatement (Third) of Foreign Relations Law §§ 481-86 (1987); Uniform Foreign-Country Money Judgments Recognition Act, ULA FC Money JMT § 3(a) (2005).
[110] See William E. Thomson & Perlette Michèle Jura, Confronting the New Breed of Transnational Litigation: Abusive Foreign Judgments, U.S. Chamber Institute for Legal Reform (Oct. 2011).
[111] Huntington v. Attrill, 146 U.S. 657, 673-74 (1892).
[113] No. D062517, 2014 WL 341667, at *5 (Cal. Ct. App. Jan. 31, 2014).
[114] 117 A.D.3d 77, 79 (2014).
[116] No. 2:12-CV-00488-KJD, 2014 WL 3611587, at *1 (D. Nev. July 18, 2014).
[118] No. 14-5409 RJB, 2014 WL 5605058, at *1 (W.D. Wash. Nov. 4, 2014).
[121] NML I, 134 S. Ct. at 2253.
[124] When it issued the bonds, Argentina expressly waived any jurisdictional immunity it otherwise had under the FSIA.
[125] NML I, 134 S. Ct. at 2254.
[126] Id. at 2255 (citing Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486 (1983)).
[127] NML I, 134 S. Ct. at 2255-56.
[132] Mare Shipping Inc. v. Squire Sanders (US) LLP, 574 F. App’x 6 (2d Cir. 2014); Exp.-Imp. Bank of the Republic of China v. Grenada, 768 F.3d 75 (2d Cir. 2014); Gucci Am. v. Weixing Li, 768 F.3d 122 (2d Cir. 2014); Ohntrup v. Makina Ve Kimya Endustrisi Kurumu, 760 F.3d 290 (3d Cir. 2014); Pine Top Receivables of Ill., LLC v. Banco de Seguros del Estado, 771 F.3d 980 (7th Cir. 2014); Bormes v. United States, 759 F.3d 793 (7th Cir. 2014); Gates v. Syrian Arab Republic, 755 F.3d 568 (7th Cir. 2014).
[133] NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230, 237 (2d Cir. 2013).
[138] NML II, 134 S. Ct. 2819.
[139] No. 13-4054, 2014 WL 7272279 (2d Cir. Dec. 23, 2014).
[146] 764 F.3d 31 (D.C. Cir. 2014).
[153] 28 U.S.C. § 1605(a)(2).
[154] Odhiambo, 764 F.3d at 38.
[160] Yukos Capital S.A.R.L. v. OAO Samaraneftegaz, 963 F.Supp.2d 289 (S.D.N.Y. Aug. 6, 2013).
[161] Yukos Capital S.A.R.L. v. Samaraneftegaz, No. 13-3357-CV, 2014 WL 5572696 (2d Cir. Nov. 4, 2014).
[164] Yukos Capital S.A.R.L. v. OAO Samaraneftegaz, 2014 WL 81563 (S.D.N.Y. Jan. 9, 2014).
[165] See, e.g., In re Appl. of Mesa Power Group, LLC, 2012 WL 6060941 (D.N.J. Nov. 20, 2012); In re Appl. of Chevron Corp., 2012 WL 3636925 (S.D. Fla. June 12, 2012).
[166] 685 F.3d 987, 997 (11th Cir. 2012).
[167] Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 747 F.3d 1262 (11th Cir. 2014).
[168] The Fifth Circuit, in El Paso Corp. v. La Comision Ejecutiva Hidroelecctrica Del Rio Lempa, issued an unpublished opinion that Section 1782 did not apply to a private commercial arbitration conducted pursuant to an agreement under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules. 341 F. App’x 31 (5th Cir. 2009).
[169] The Second Circuit held, in a pre-Intel decision that Section 1782 did not apply to a private foreign arbitration held by the ICC International Court of Arbitration. NBC v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999).
[170] See, e.g., In re Owl Shipping, LLC & Oriole Shipping, LLC, 2014 WL 5320192 (D.N.J. Oct. 17, 2014) (finding that the London Maritime Arbitrators Association constituted a Section 1782 tribunal).
[171] Intel, 542 U.S. at 264-65.
[172] In re Application Pursuant to 28 U.S.C. Section 1782 of Okean B.V. and Logistic Solution Intern. to Take Discovery of Chadbourne & Parke LLP, 2014 WL 5090028 (S.D.N.Y. Oct. 10, 2014).
[173] 2014 WL 4181618 (S.D. Ohio Aug. 21, 2014) (quoting In re Certain Funds, Accounts, and/or Inv. Vehicles Managed by Affiliates of Fortress Inv. Grp. LLC, 2014 WL 3404955, at *2 (S.D.N.Y. July 9, 2014)).
[176] In re Certain Funds, 2014 WL 3404955, at *4 (S.D.N.Y. July 9, 2014).
Gibson, Dunn & Crutcher’s Transnational Litigation Practice Group lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact any member of the Gibson Dunn team, the Gibson Dunn lawyer with whom you usually work, or any of the following practice group co-chairs:
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Scott A. Edelman – Los Angeles (+1 310-557-8061, [email protected])
Andrea E. Neuman – New York (+1 212-351-3883, [email protected])
William E. Thomson – Los Angeles (+1 213-229-7891, [email protected])
Perlette Michèle Jura – Los Angeles (+1 213-229-7121, [email protected])
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