Trends In International Litigation : International Business Lawyer & Attorney : Ed Joffe : Joffe & Joffe Law Firm : Miami, Florida Global Customs & Trade Issues

An English distributor, Accentuate Ltd, and Canadian licensor, Asigra Inc., entered into a software distribution agreement which contained clauses requiring arbitration and a choice of law provision providing that the laws of Ontario and Canada govern. When a breach of the agreement occurred, the distributor threatened to bring a claim in England under an EU Directive--Commercial Agents (Council Directive) Regulations 1993– which provides a self-employed commercial agent with indemnity or compensation upon termination of an agency contract.

In response to the threat of litigation, the licensor started arbitration in Canada for a declaration that the distributor had no claims against it. In the resulting awards, the tribunal stated that the laws of Ontario (and federal laws of Canada) applied to the dispute and that the regulations were irrelevant.
Rather than challenge the awards, the distributor applied to an English court for permission to serve the licensor out of the jurisdiction in order to obtain compensation under the regulations. The licensor applied to the court to stay proceedings on the grounds that the parties had agreed to refer disputes to arbitration in Toronto under Canadian law. The judge declared that the court had no jurisdiction, but granted the distributor permission to appeal. The distributor appealed to the High Court, arguing that the choice of law amounted to an evasion of EU law.

The appellate court reversed and found that the requirements of the regulations were mandatory; thus, an arbitration clause in favor of Canadian law was null and void and inoperative to the extent that it required the submission to arbitration of questions pertaining to mandatory provisions of EU law. Furthermore, recognition of any resulting awards would be refused on public policy grounds. As a result, the stay of proceedings was lifted and permission to serve the licensor out of the jurisdiction was confirmed.

This decision is troublesome. The concept behind both choice of law provisions and arbitration clauses is that the parties have the right to contractually agree on all terms of their business arrangement--including the remedies. This decision undercuts these rights. Anyone doing business in the European Union is forced to make sure that he is not falling into a trap of unintended consequences.

 

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As Dennis Berman reported in the Wall Street Journal, the French appear to have bested Tim Geithner when the Federal Reserve agreed to the full payment demands of France's bank regulator and two of AIG's largest creditors, Société Générale SA and Calyon Securities, a unit of Crédit Agricole SA., as part of its bailout of American International Group Inc.

The French banks and the regulator, known as the Commission Bancaire,won the day by arguing that the bank executives could be criminally liable for accepting a discount on their contracts. While true in the abstract, "their argument was very overstated," said Pierre-Henri Conac, a University of Luxembourg law professor and a director of France's oldest corporate-law review. "Banks give haircuts every day." Their refusal was crucial, as it helped set the tone for U.S. banks, including Goldman and Merrill, to resist negotiation.
 

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On January 19,2010 the Justice Department announced that twenty-two executives and employees of companies in the military and law enforcement products industry have been indicted for engaging in schemes to bribe foreign government officials to obtain and retain business, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Channing Phillips for the District of Columbia; and Assistant Director Kevin Perkins of the FBI’s Criminal Investigative Division. Twenty-one defendants were arrested in Las Vegas yesterday. One defendant was arrested in Miami. The indictments stem from an FBI undercover operation that focused on allegations of foreign bribery in the military and law enforcement products industry.
The 16 indictments unsealed today represent the largest single investigation and prosecution against individuals in the history of DOJ’s enforcement of the Foreign Corrupt Practices Act (FCPA), a law that prohibits U.S. persons and companies, and foreign persons and companies acting in the United States, from bribing foreign government officials for the purpose of obtaining or retaining business. The indictments unsealed today were returned on Dec. 11, 2009, by a grand jury in Washington, D.C.

In connection with these indictments, approximately 150 FBI agents executed 14 search warrants in locations across the country, including Bull Shoals, Ark.; San Francisco; Miami; Ponte Vedra Beach, Fla.; Sarasota, Fla.; St. Petersburg, Fla.; Sunrise, Fla.; University Park, Fla.; Decatur, Ga.; Stearns, Ky.; Upper Darby, Penn.; and Woodbridge, Va. Additionally, the United Kingdom’s City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments.

These cases are being prosecuted by Assistant Chief Hank Bond Walther and Trial Attorney Laura N. Perkins of the Criminal Division’s Fraud Section, and Matthew C. Solomon of the U.S. Attorney’s Office for the District of Columbia.

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Although receiving little publicity, our federal government continues to prosecute environmental crimes.  On January 14, 2010, Gunther Wenzek, a German national, was sentenced to serve three years on probation and pay a criminal penalty of over $35,000 by Judge Anna J. Brown of the U.S. District Court for the District of Oregon for smuggling coral into the Port of Portland, Ore., the Justice Department announced.The penalty included a criminal fine of $16,510, nearly $10,000 in restitution to the National Oceanic and Atmospheric Administration, and a community service payment of $8,890.

Wenzek owns a company named CoraPet, based in Essen, Germany, that sells various coral products to retailers in the United States. The investigation was launched in 2007 after Wenzek tried to ship a container loaded with fragments of endangered coral from reefs off the Philippine coast to Portland. After this initial shipment, agents subsequently seized two full containers of endangered coral shipped by Wenzek to a customer in Portland. These two shipments made up a total of over 40 tons of coral.

The corals seized have been identified as corals from the scientific order Scleractinia, genera Porites, Acropora, and Pocillopora, common to Philippine reefs. Due to the threat of extinction, stony corals, such as those seized in this case are protected by international law. Philippine law specifically forbids exports of all coral. Moreover, the Convention on International Trade in Endangered Species bars importation of the coral Wenzek tried to import to customers in the United States, without a permit.

The case was investigated by the U.S. Fish and Wildlife Service, U.S. Immigration and Customs Enforcement and the National Marine Fisheries Service. The case was prosecuted by U.S. Attorney’s Office for the District of Oregon and the Justice Department’s Environmental Crimes Section.

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 The Kingdom of Bahrain today formally launched the Bahrain Chamber of Dispute Resolution and, in the process, became the first country in the world to establish an arbitration "free zone" and introduce the concept of statutory arbitration. The Chamber, an initiative of Bahrain's Ministry of Justice and delivered in partnership with the American Arbitration Association, the world's leading provider of conflict management and dispute resolution services, will be known formally as the BCDR-AAA.
When international disputes are heard at the BCDR, where the parties involved agree to be bound by the outcome, the award will be guaranteed and not subject to challenge in Bahrain. This resolves an issue that has been a significant problem in many parts of the world, despite existing international conventions. Bahrain's arbitration "free zone" will, therefore, offer jurisdictional and legal certainty to the recognition of arbitration awards, an essential component of modern day commercial transactions.

In another global first, Bahrain has also introduced the concept of statutory arbitration for commercial and financial disputes. Cases that would previously have come before Bahrain's domestic courts, where the claim is over 500,000 BHD ($1.3m USD) and involves an international party or a party licensed by the Central Bank of Bahrain, will now be directed to the BCDR-AAA for final and binding resolution. The move is aimed at providing additional benefit to Bahrain's commercial, banking and financial services sectors, which form a long-established hub within the region.

Bahrain Minister of Justice, HE Sheikh Khaled bin Ali Al Khalifa commented: "In establishing the BCDR-AAA, Bahrain has sought to bring the very latest in global ADR solutions to the region. BCDR has partnered with the world's leading provider - the AAA - to ensure the highest standards of international best practice are consistently delivered. And have also enacted cutting-edge legislation that guarantees the independence of the Chamber itself and, vitally, the interests of its users.
 

AAA President & CEO William K Slate II commented: "The American Arbitration Association is honored and pleased to partner with the Minister of Justice to form the BCDR. As alternative dispute resolution grows internationally, public and private sector legal officials are experiencing its efficiencies and fairness.
 

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Mahmoud Reza Banki, a 33 year old management consultant at a major New York consulting firm -- was arrested last Thursday on an Indictment charging him with violating the Iran Trade Embargo and with operating an unlicensed money transfer business between the United States and Iran.

According to the Indictment Banki, a United States citizen and resident of New York, allegedly provided money transmitting services to residents of Iran by operating a "hawala," a type of informal value transfer system in which money does not physically cross international boundaries through the banking system. In the hawala system, funds are transferred by customers to a hawala operator, or "hawaladar," in one country, and corresponding funds, less any fees, are disbursed to recipients in another country by hawaladar associates on that end. Banki allegedly received wire transfers totaling approximately $4.7 million from companies and individuals --located in, among other places, Saudi Arabia, Kuwait, Latvia, Slovenia, Russia, Sweden, the Philippines, and the United States-- in a personal bank account he maintained for this purpose at Bank of America in Manhattan.

Generally, Banki did not know the wire originators personally. He received the funds with the understanding that an equivalent amount of Iranian currency would, in turn, be disbursed to intended recipients residing in Iran. Banki informed an Iran-based co-conspirator when funds had been received, and the co-conspirator then disbursed the funds, less any fees, in Iran. Banki allegedly used certain of the funds transferred into his Bank of America account to make joint investments in the United States with the Iran-based co-conspirator. Among other things, Banki used the funds to purchase a $2.4 million condominium in Manhattan; to invest in securities for his own benefit and that of the co-conspirator; and to make payments on his credit card accounts, including approximately $55,000 in one month alone in the summer of 2007.

BANKI is charged with violating the International Emergency Economic Powers Act( IEEPA), together with Executive Orders and United States Department of Treasury regulations; conducting an unlicensed money transmitting business; and conspiracy to commit those two crimes. If convicted, BANKI faces a maximum sentence of five years in prison on each of the conspiracy and unlicensed money transmitting counts, and 20 years in prison on the IEEPA violation count.

This case is being handled by the Office's Complex Frauds and Asset Forfeiture Units. Assistant United States Attorneys E. Danya Perry and Jason Hernandez are in charge of the prosecution. The charges and allegations contained in the Indictment are merely accusations, and the defendant Mahmoud Reza Banki is presumed innocent. 

Earlier today theNew York Post reported that Mr. Banki was denied bail.

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 CYBERsitter, LLC which does business as Solid Oak Software, has filed suit in the US District Court, Central District of California  against the Chinese government and two Chinese companies (among others) for software piracy in the theft of approximately 3,000 lines of code from Solid Oak’s internet content filtering program. This software called CYBERsitter, was designed to help parents protect their children from viewing inappropriate pornographic and violent content on the Web. CYBERsitter , the first commercially available Internet content filter, has been published for over 14 years and has over 2.4 million active CYBERsitter users worldwide, including 20 thousands of businesses, individuals, and schools in China.

The law suit alleges that Chinese software developers, in collaboration with the Chinese government, purported to design an Internet content filtering program known as Green Dam Youth Escort. Like CYBERsitter, the Green Dam program was allegedly designed to block pornographic and violent Internet content from children. Unlike CYBERsitter, however, the Green Dam program was found to contain filters to block political  and religious content expressing views that differed from those of the Chinese government.

Solid Oak alleges that a group of  independent researchers at the University of Michigan confirmed that the Green Dam developers had  copied verbatim   nearly   3,000   lines  of code  from the CYBERsitter program and incorporated   it   into the Green Dam program.

The stolen materials include the heart of the CYBERsitter software: its proprietary content filters. The Chinese government has issued Green Dam usage figures reporting — as of early June 2009 — that over 153 million computers marketed for home use had been sold with the Green Dam program, that the Green Dam program had been installed on more than half a million computers in Chinese schools and that Green Dam had been downloaded by users from the Internet an additional 3.27 million times.

The plaintiff seeks over $ 2 Billion Dollars in damages under a variety of theories including misappropriation of trade secrets, unfair competition and copyright infringement.

The court case will impose significant challenges for Solid Oak including defenses of personal jurisdiction and sovereign immunity and this litigation will take years to unfold.
Diplomacy has been unable to stop, or even thwart, the wholesale violation of US intellectual property rights in China. It will be interesting to see if civil litigation and the risk enormous money damages will provide the needed threats and sanctions to bring a stop to this piracy.

At the end of the day, i.e. years from now, this case will eventually settle - Just the cost of doing business with the world’s most populous economy.
 

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Multinational  businesses sued in US beware.  Ignoring litigation obligations can have serious financial consequences.  The Supreme Court of Washington upheld a  $ 8 million dollar default judgment against Hyundai imposed as a discovery sanction. 

On February 15, 1997 Jesse Magaña was a passenger in a 1996 Hyundai Accent, two-door hatchback driven by Ricky Smith. As they drove over a hill they saw an oncoming truck driven by Dennis Nylander that appeared to be in their lane. Smith swerved the Accent to avoid the truck, causing his car to veer off the road. The car hit several trees and spun violently. Magaña was thrown out of the rear window and landed about 50 to 100 feet away from where the car eventually stopped. He was rendered a paraplegic due to the accident.

Magaña filed suit on February 8, 2000 in Clark County Superior Court, Washington, against Hyundai Motor America and Hyundai Motor Company (collectively Hyundai) and the drivers of both vehicles.

Fast forwarding through a detailed procedural history, the trial court found that Hyundai had willfully violated the discovery rules , its discovery abuses had substantially prejudiced Magaña in preparing for trial and it had spoiled and lost evidence. The trial court imposed an $ 8 million dollar default judgment against Hyundai as a discovery sanction. The Washington Court of Appeals reversed in a two-to-one decision and remanded for a new trial.

However, in November, 2009 the Supreme Court found that trial courts need not tolerate deliberate and willful discovery abuse, that given the unique facts and circumstances of this case, the trial court appropriately diagnosed Hyundai's willful efforts to frustrate and undermine truthful pretrial discovery efforts by striking its pleadings and rendering an $8,000,000 default judgment plus reasonable attorney fees. This result appropriately compensates the other party, punishes Hyundai, and hopefully educates and deters others so inclined. 

This decision should serve as a reminder to large companies, both domestic and foreign, that US courts will not tolerate playing games in producing evidence during the pretrial process.
 

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