Eleventh Circuit Reiterates and Applies Strict Rules for the Exercise of District Court Discretion in Deciding Forum Non Conveniens Motions

Posted on May 16, 2012 by Louis M. Solomon

Steven Prophet v. International Lifestyles, Inc., No. 11-12046 (11th Cir. 2011), is a Court of Appeals articulation of an important issue in international litigation.  The issue arises in many contexts where district courts are given discretion.  In this case the underlying issue relates to the application of the doctrine of forum non conveniens. 

District Courts are given fairly wide discretion in applying the doctrine of forum non conveniens.  However, over time, the need and utility of having a predictable body of jurisprudence so that litigants can make more informed choices in deciding where to sue and whether to make motions to dismiss has led appellate courts to constrain that discretion by applying rules, presumptions, categories of relevant considerations, etc. that lower courts are to apply in exercising their discretion.

In Prophet, the Eleventh Circuit went farther than many cases, though the Court of Appeals was quoting and following two recent Eleventh Circuit rulings.  The Court of Appeals first said that it “will reverse a district court’s dismissal based on forum non conveniens only if constitutes a clear abuse of discretion”.  However, the Court of Appeals then says that “by definition” the lower court “abuses its discretion when it makes an error of law”.  Then, the Court of Appeals defined an error of law as follows:

We have explained that dismissal of a complaint based on forum non conveniens is appropriate where:

1. the trial court finds that an adequate alternate forum exists which possesses jurisdiction over the whole case, including all of the parties;

2. the trial court finds that all relevant factors of private interest favor the alternate forum, weighing in the balance a strong presumption against disturbing plaintiffs’ initial forum choice;

3. if the balance of private interests is at or near equipoise, the court further finds that factors of public interest tip the balance in favor of trial in the alternate forum; and

4. the trial judge ensures that plaintiffs can reinstate their suit in the alternate forum without undue inconvenience or prejudice.

The Eleventh Circuit then reversed the lower court’s decision for saying that it was giving “great weight” to the plaintiffs choice of forum (the plaintiffs were U.S. citizens, yet the District Court dismissed the case on forum non conveniens in any event) but not, in the Court of Appeals mind, actually applying the heavy presumption in favor of permitting a U.S. citizen access to a U.S. court.

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Second Circuit, in Matter of First Impression in that Circuit, Holds that non-U.S. Production or Use Does Not Trigger “First Sale Doctrine” Contained in the Copyright Act

Posted on May 14, 2012 by Louis M. Solomon

In reporting on Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982 (9th Cir. 2008), aff’d by an evenly divided Court, Costco Wholesale Corp v. Omega, S.A., 131 S.Ct. 565 (2010) — a Ninth Circuit decision affirmed by the U.S. Supreme Court by an evenly divided Court –we have previously posted on the important aspect of international litigation practice in relation to copyrighted works concerning when the U.S. will or won’t protect works first published internationally.  In a related analysis, the Second Circuit addressed Section 109 of the Copyright Act and held that the first sale doctrine, which allows a person who buys a legally produced copyrighted work to sell or otherwise dispose of the work as he sees fit, does not apply to works manufactured outside of the United States.  John Wiley & Sons, Inc. v. Supap Kirtsaeng, d/b/a Bluechristine99, Docket No. 09-4896-cv (2d Cir. 2011).

The Circuit reviewed the District Court’s interpretation de novo, since the threshold question presented only a legal issue of statutory interpretation.  The statutory analysis begins with 17 U.S.C. sec. 602(a)(1):

Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501.

The first sale doctrine in turn reads that, “Notwithstanding the provisions of section 106(3)[of the Copyright Act], the owner of a particular copy . . . lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy”.  In Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), the Court’s concurring opinion (of Justice Ginsburg) confirmed that the Court was not resolving “cases in which the allegedly infringing imports were manufactured abroad” (Costco involved a “round trip” case, where copies of the copyrighted material traveled from the U.S. to someplace(s) abroad, and then back again).

In the statutory analysis that followed, the Second Circuit understood that certain provisions of the Copyright Act explicitly do “take account of activity occurring abroad”.   The Court of Appeals could not sustain the position of the copyright holder based on a plain reading of the statute alone.   In fact the Court of Appeals found the statutory language ambiguous.  Still, it came out the way the Supreme Court did, in dicta, in Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U.S. 135 (1998), without any extensive analysis of extrinsic evidence.

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Extraterritorial Jurisdiction Found Absent Under the Lanham Act for Trademark Infringement

Posted on May 11, 2012 by Louis M. Solomon

Gucci America, Inc. v. Guess?, Inc., 09 Civ. 4373 (S.D.N.Y. 2011)(SAS)(JLC), discusses the growing issue in international litigation of the “extraterritorial” application of federal laws, in this case the Lanham Act’s prohibition of trademark infringement/false advertising. 

Gucci sued Guess? for trademark infringement and related claims arising from the use of certain trademarks, logos, and designs.  Discovery in the suit sought disclosure of sales and cost data relating to each allegedly infringing product.  This decision by the Magistrate Judge denied the discovery, one ground being that the federal Lanham Act did not apply to the activities claimed in the suit.  That Act “confers broad jurisdictional powers upon the courts of the United States” and has even been read to reach infringing activity abroad “when necessary to prevent harm to commerce in the United States.

Second Circuit authority (Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956)), following the seminal Supreme Court decision in Steele v. Bulova Watch Co., 344 U.S. 280 (1952), articulated three factors for courts to consider in determining whether the Lanham Act can reach infringing activity taking place abroad:

(1) whether the defendant is a United States citizen; (2) whether there is a conflict between the plaintiffs trademark rights in the United States and the defendant’s trademark rights under foreign law; and (3) whether the defendant’s conduct has a “substantial effect on United States commerce.”

The Court also reiterated the Second Circuit’s view that the absence of both the first two factors are fatal to exercising such jurisdiction; the fact is that no case in the Second Circuit has applied the Lanham Act extraterritoriality absent a substantial effect on United States commerce.

It is also settled, says the Guicci Court, that “a showing of consumer confusion or harm to plaintiff’s goodwill in the United States is sufficient to demonstrate a substantial effect on interstate commerce”.  The Court looked for evidence of, for example, diverted non-U.S. sales, or re-entry of goods into the U.S.  The Court also addressed whether a defendant’s “domestic commercial activity can support a finding of substantial effect on U.S. commerce”.  The Court found that it did not — at least not in this case.  For example, the Court found that

“Evidence that certain Defendants have domestic facilities for foreign shipping or that some decision-making regarding Defendants’ foreign activities takes place in the United States does not by itself constitute a substantial effect on United States commerce.”

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Another Court Follows Broad Interpretation of “Relating to” Jurisdiction Sufficient to Invoke the New York Convention

Posted on May 9, 2012 by Louis M. Solomon

Ariel Freaner v. Enrique Martin Lutteroth Valle, Case No. 11CV1819 JLS (MDD) (S.D. Cal. 2011), involves the removal of a case to federal court and the court’s decision to maintain federal jurisdiction, and not remane, under the New York Convention.  The issue is an important one for international litigation practitioners.

The noteworthy holdings in the decision include:

First, the Court determined that the international agreement among the parties was one that “falls under” the New York Convention.  Said the Court,

Under § 202 [of the Convention], “[i]n order for an agreement to fall under the Convention, it must arise out of a commercial relationship. At least one of the parties to the agreement must not be a U.S. citizen, or, if the agreement is entirely between U.S. citizens, it must have some ‘reasonable relation’ with a foreign state.”

Second, this, in turn, requires an understanding of whether the agreement “relates to” the subject matter of the action.  In a significant decision that we posted on (here), the Court stated:

The Ninth Circuit has recently interpreted the “relates to” requirement, concluding that “an arbitration agreement or award falling under the Convention ‘relates to’ the subject matter of an action whenever it could conceivably affect the outcome of the plaintiff’s suit.” [Infuturia Global Ltd. v. Sequus Pharm., Inc., 631 F.3d 1133 (9th Cir. 2011)]; see also [Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002)] (“[Federal courts] will have jurisdiction under § 205 over just about any suit in which a defendant contends that an arbitration clause falling under the Convention provides a defense. As long as the defendant’s assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meet the low bar of ‘relates to’.”)

Finally, the Court was unwilling to read the contract’s choice of law provision, designating California, as clear evidence that California’s arbitration rules should apply as well.

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Case Against IBM Japan Proceeds To Jurisdictional Discovery For Plaintiff To Attempt To Establish “Reverse” Piercing By Showing that the Absent Subsidiary Is the Agent or Instrumentality of the Present Parent; Court Also Denies Forum Non Conveniens Dismissal

Posted on May 7, 2012 by Louis M. Solomon

Frederick W. Gundlach v. Int’l Business Machines Corp., et al., No. 11-CV-846 (S.D.N.Y. 2012), presents a pro se plaintiff’s claims against IBM and several non-U.S. affiliates for breach of contract and various employment related claims, including claims under Japan’s Labor Law.    For international practice purposes, the Court’s decision should be considered on the following issues:

First, in connection with the Court’s analysis of personal jurisdiction under New York’s Civil Practice Law and Rules Section 301, the Court stated (all citations omitted)

“Under the New York long-arm statute, general jurisdiction exists over non-residents ‘doing business’ in New York.” . . . The Court may exercise jurisdiction over an “out-of-state defendant if the defendant engages in continuous and systematic business activities within New York,” or in other words, does business “with a fair measure of permanence and continuity.” This standard is “stringent” and, “[a]t its core, . . . boils down to ‘presence.’” Factors that courts consider in determining a defendant’s presence in the state include: “the existence of an office in New York; the solicitation of business in the state; the presence of bank accounts and other property in the state; and the presence of employees of the foreign defendant in the state.”

However, although the Court held that to make a prima facie showing of presence of IBM Japan by reason of the presence of IBM itself in New York, the Court was willing to deem plausible a reverse piercing theory:  attempting to show that Defendant IBM Japan is subject to jurisdiction here because it is a mere department or agent of its New York-based parent corporation.  The Court found that the plaintiff “has made a showing sufficient to at least warrant limited discovery in order to determine whether personal jurisdiction over IBM Japan is proper”.

Second, the Court also found that a plaintiff need not strictly make out a prima facie case; rather the requisite showing “is committed to the sound discretion of the district court on a case-by-case basis without bright-line limits” (quoting Linde v. Arab Bank, PLC, 262 F.R.D. 136 (E.D.N.Y. 2009)).

Third, the Court denied IBM Japan’s forum non conveniens motion on the ground, perhaps surprisingly, that “IBM Japan has failed to show that an adequate alternative forum exists” (in Japan).

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Eleventh Circuit Determines That Some But Not Claims Must Be Arbitrated

Posted on May 4, 2012 by Louis M. Solomon

Jane Doe v. Princess Cruse Lines, Ltd., Jane Doe v. Princess Cruse Lines, Ltd., No. 10-10809 (11th Cir. 2011), addresses the important necessity of careful corporate drafting of international arbitration provisions, a topic we have posted on in the past.

Plaintiff Doe alleged a harrowing story of a woman working for Princess Cruise Lines on one of its ships, who alleged she was drugged by other employees, raped, and physically injured while she was unconscious, and, as the Court of Appeals summarized, “when she reported to officials of the cruise line what had happened to her they treated her with indifference and even hostility, failed to provide her with proper medical treatment on board, and interfered with her attempts to obtain medical treatment and counseling ashore”.  The issue before the Circuit was whether and to what extent her claims were arbitrable under a broad arbitration provision.  In addition to making specific reference to the required arbitrability of claims for personal injury, the arbitration provision specified:

[T]he Company and crew member agree that any and all disputes, claims, or controversies whatsoever (whether in contract, regulatory, tort or otherwise and whether pre-existing, present or future and including constitutional, statutory, common law, admiralty, intentional tort and equitable claims) relating to or in any way arising out of or connected with the Crew Agreement, these terms, or services performed for the Company.

Despite its breadth, the Court of Appeals determined that many of the plaintiff’s claims did not have to be arbitrated.  The Court held that the “relating to”, “arising out of”, and “connected to” language “marks a boundary by indicating some direct relationship” or “direct connection”; hence, claims that were not even indirectly tethered to the work environment or relationship fell outside the arbitration provision.  The Court of Appeals so held notwithstanding the following holding of the Supreme Court in Aguilar v. Standard Oil Co. of N.J., 318 U.S. 724 (1943):

Unlike men employed in service on land, the seaman, when he finishes his day’s work, is neither relieved of obligations to his employer nor wholly free to dispose of his leisure as he sees fit. Of necessity, during the voyage he must eat, drink, lodge and divert himself within the confines of the ship. In short, during the period of his tenure the vessel is not merely his place of employment; it is the frame-work of his existence. For that reason among others his employer’s responsibility for maintenance and cure extends beyond injuries sustained because of, or while engaged in, activities required by his employment. In this respect it is a broader liability than that imposed by modern workmen’s compensation statutes.

The Court also held that Princess had waived its right to claim on appeal that the arbitrator, not the Court, should have decided the issue of arbitrability in the first instance; the Court found that Princess waived any right to appeal since it was Princess that went to the District Court in the first place.

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Court Upholds Counterclaim Against the U.S. on Political Question Grounds — Only To Dismiss It for Failure to Exhaust Administrative Procedures and for Failure To State A Claim

Posted on May 2, 2012 by Louis M. Solomon

U.S. v. Kellogg Brown & Root Services, Inc., 10-cv-530 (RCL) (D.D.C. 2012), presents the interesting case whether a defendant in an international litigation can or should counterclaim litigation, in this case against the U.S. government.  The U.S. sued KBR for over $100 million in allegedly false claims arising from the war in Iraq.  The government is seeking civil penalties and treble damages.  Once the government sued, the defendant had the choice to counterclaim, which it did here.  The government then moved to dismiss on a variety of grounds that arise with some frequency in international litigation. 

Of particular interest is the government’s invocation of the political question doctine, which the government said “bars judicial second-guessing of the military’s decision making as regards the provision of force protection in Iraq”.  As a result, argued the government, “KBR’s challenge to the military’s performance of its contractual obligation to provide force protection is nonjusticiable”.

The Court rejected these defenses. “Absent some discovery”, said the Court, “and more detailed briefing by the parties specifically concerning the political question problem, the Court cannot perform the ‘discriminating analysis’ required to resolve this problem”. See El Shifa Pharm. Indus. Co. v. U.S., 607 F.3d 836, 841 (D.C. Cir. 2010).

At the same time, the Court agreed that DKR’s failure to exhaust its administrative remedies.  Under the Contract Disputes Act, a contractor is required make a written claim against the government before going to court.  The Court did not address whether that rule applied in the case where there are time limits set on litigants to assert their counterclaims, including mandatory or compulsory counterclaims.

Also, the Court then went on to find that the contractor has failed to state any claim for relief because of the fatal failure to plead a claim for “recoupment” in the manner required by law.  The Court did not explain why it went through the earlier and extensive analysis in its decision if in fact the Court had determined that there was no cause of action alleged.

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District Court Rejected Reconsideration of Discovery Ruling Requiring Disclosure of Flight Data In Connection with Plan Columbia

Posted on April 30, 2012 by Louis M. Solomon

Venancio Aguasanta Arias, et al. v. Dyncorp, et al., Civil Action No. 01-1908 (D.D.C. 2012), denies a motion for reconsideration of a discovery order in an international litigation.   The underlying case involves allegations relating to “Plan Columbia”, where the government allegedly hired Dyncorp to assist “in illicit drug crop eradication by spraying fumigants from airplanes onto cocaine and heroin poppy plantations in Columbia”.  The claims in the case are by plaintiffs who allegedly were harmed by the fumigant.  The plaintiffs are 3,200 citizens and residents of Ecuador, who brought claims under the Federal Alien Tort Claims Act as well as under various international and state common law torts.

Initially, the plaintiffs discovery demands for flight data was denied as irrelevant.  This the District Court rejected on the ground that such data could “tend to corroborate or dispute accounts from the pilots or accounts from the victims or accounts from potential eyewitnesses about the spraying”. 

The motion for reconsideration argued that the District Court erred in granting the discovery because, said the defendants, a higher than normal standard should have been employed in testing the discovery demands because the discovery may contain sensitive data.  The District Court was unwilling to find that it has overlooked material fact or law in its earlier determination.

Here, though, the defendants also sought an interlocutory appeal to the District of Columbia Circuit Court of Appeals, since, according to the defendants, the District Court’s order implicated “how courts should balance . . . national security concerns against judicial rules of discovery”.  Hence, interlocutory appeal under 28 U.S.C. sec. 1292(b) was warranted.  The District Court rejected this contention as well.  There is a strong federal policy against piecemeal appeals “and against obstructing or impeding an ongoing judicial proceeding by interlocutory appeals”.  The defendants had not identified any split in relevant authority or any controlling issue of law.  The motion for interlocutory appeal was denied.

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Case Conditionally Dismissed on Forum Non Conveniens Grounds Even In the Face of Blocking Statute in Chosen Non-U.S. Jurisdiction

Posted on April 27, 2012 by Louis M. Solomon

Del Istmo Assurance Corp. v. Meletios Platon and Italkitchen Int’l, Case No. 11-61599-CIV-COHN/SELTZER (S.D. Fla. 2011), addresses the interesting and important issue in international practice of the choice of forum considerations applicable when one sovereign nation passes statutes attempting to block or regulate what disputes can be resolved in its courts based on what other nations do with respect to similar cases in their courts.  For a general discussion of blocking statutes in the jurisdiction and discovery contexts, see our e-book, International Practice: Topics and Trends.

The plaintiff in Del Istmo is a non-U.S. corporation organized under the laws of Panama.  The defendants are Florida corporations.  The claims in the suit arise out of alleged misappropriation of funds placed in trust to secure the payment for kitchens, leaving plaintiff with the obligation of paying on bonds that it had to execute.

The Court analyzed the case principally under the doctrine of forum non conveniens.  Even though the defendants were Florida corporations, and the plaintiff came to Florida from Panama to sue, the Court gave the plaintiff’s choice of forum little deference and was prepared to dismiss the case on forum non conveniens grounds if it found that Panama was an adequate and available forum.  In claiming that its own jurisdiction, the plaintiff relied on the fact that the remedies available in Panama were not as favorable as those in the U.S. under Florida law.  This the Court rejected on the basis of settled law.

The plaintiff also relied on a Panama blocking statute, which provided:

For any legal proceeding under this Chapter [Panamanian]  judges are not competent (to hear the case) if the complaint or the action being commenced in [Panama] has been previously dismissed or denied by a foreign judge under the application of forum non conveniens. In these cases, judges should dismiss or not recognize the complaint or demand on grounds of constitutional or preemptive jurisdiction.

The Court observed that a prior Florida state court case had been dismissed on forum non conveniens grounds in favor of Panama, only to have the Panama court refuse to hear the matter on the basis of this blocking statute, and when the plaintiff in that earlier case returned to Florida the Florida appellate court dismissed it again, ruling:

the case plainly belongs in Panama” and United States’ “courts cannot be compelled by other countries’ courts and lawmakers to resolve cases that should be determined in those countries. . . . If the foreign country chooses to turn away its citizen’s lawsuit for damages suffered in that very country,” there was no reason for United States’ resources to be devoted to hearing the matter.

The federal district court in Del Istmo did not go that far.  It did, however, dismiss the suit on the condition that the plaintiff be permitted to reinstate its suit if the Panama court would not hear the plaintiff’s claims there.

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District Court Dismisses Claim by U.S. Citizen Against the U.S. Arising on Non-U.S. Soil On Sovereign Immunity Grounds

Posted on April 25, 2012 by Louis M. Solomon

Cottonham v. United States Embassy, Bankok, Thailand, No. C-11-3131 (N.D. Cal. 2011), is almost a more brief decision than this posting, but the issue is one worth consideration for those in international practice.

Plaintiff Cottonham alleged that when he went to the U.S. Embassy in Bangkok, Thailand to obtain more pages for his passport, his passport was taken from him without explanation; that he was then arrested in part for not having a passport; and then jailed in Thailand for eight days. 

Since Cottonham was a prisoner at the time he filed this complaint (for reasons undisclosed in the District Court opinion), the Court believed it was required to “engage in a preliminary screening of any case in which a prisoner seeks redress from a governmental entity or officer or employee of a governmental entity”.

Upon doing so, the Court reviewed the complaint and dismissed it, with prejudice and without leave to replead.  The Court’s ground was that the only possible claim was against the U.S., governed by the Federal Tort Claims Act, which, the Court said, waived the sovereign immunity of the United States for certain torts committed by federal employees acting within the scope of their employment.  However, there is an exception to the waiver of sovereign immunity:  to acts or omissions of the U.S. “arising in a foreign country.” 28 U.S.C. § 2680(k). The Court went on:

This exception applies even if “the tort occurs in a foreign area under United States control.” Nurse v. United States, 226 F.3d 996, 1003 (9th Cir. 2000). The foreign country exception “bars all claims based on any injury suffered in a foreign country, regardless of where the tortious act or omission occurred.” Sosa v. Alvarez-Machain, 542 U.S. 692, 712 (2004).

The District Court, however, did not consider whether other causes of action might exist.  Is it the case that there is and can be no cause of action in a U.S. court against the U.S. by a U.S. citizen allegedly mistreated by the U.S. on non-U.S. soil?

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