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Gregory P. Joseph

Federal procedure affects transnational litigation in many ways. This article focuses on recent developments in three areas: 28 U.S.C. 1782, which allows discovery in U.S. federal court in aid of proceedings abroad; the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. 1602 ff., particularly the definition of who or what is a sovereign at section 1603; and the New York Convention on the Recognition and Enforceability of Foreign Arbitral Awards, 9 U.S.C. 201 ff., specifically the ability of a U.S. court to enjoin foreign litigation aimed at upsetting an international arbitration award. Section 1782 discovery issues create circuit splits U.S. discovery for foreign cases. Section 1782 authorizes resort to federal discovery devices in aid of civil litigation abroad. Section 1782(a) provides in part that: “The district court of the district in which a person resides or is found may order him to give his testimony . . . or to produce a document or other thing for use in a proceeding in a foreign or international tribunal . . . .The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person.” For several years, the circuits have been split as to whether Section 1782 requires a showing that the information sought in the United States is discoverable in the foreign proceeding. The 1st and 11th circuits, for example, demand a showing of foreign discoverability on the theory that “Congress did not seek to place itself on a collision course with foreign tribunals and legislatures, which have carefully chosen the procedures and laws best suited for their concepts of litigation.” In re Application of Asta Medica S.A., 981 F.2d 1, 6 (1st Cir. 1992). The 2d, 3d and 9th circuits reject that approach, holding that there is no explicit requirement of discoverability in the statute and that the district court, in applying Section 1782, should instead “be guided by the ‘twin aims’ of the statute, namely ‘providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts.’ ” Euromepa S.A. v. R. Esmerian Inc., 154 F.3d 24 (2d Cir. 1998). Yet a third approach appears to distinguish between requests from foreign courts or governments, on the one hand, and private litigants on the other. Under this approach, any requirement of foreign discoverability is dispensed with if the request is made by a foreign sovereign. See, e.g., In re Letter Rogatory from the First Court of First Instance in Civil Matters, Caracas, Venezuela, 42 F.3d 308, 310-11 (5th Cir. 1995). The U.S. Supreme Court is set to decide this issue in its review of the 9th Circuit’s decision in Advanced Micro Devices Inc. v. Intel Corp., 292 F.3d 664 (9th Cir. 2002). (This may be that rare occasion on which one might profitably wager that the Supreme Court will affirm the 9th Circuit. The solicitor general, in urging the court to grant certiorari, argued that a foreign discoverability requirement ought not be a sine qua non of discovery under Section 1782.) Advanced Micro also presents the Supreme Court with two other recurring questions under Section 1782: What constitutes “a proceeding in a foreign or international tribunal” within the first sentence of the statute, and who is an “interested person” within the second sentence. The foreign proceeding in Advanced Micro is not a litigation, but rather an antitrust investigation by the Directorate General Competition of the European Commission. The U.S. plaintiff, moreover, is not a party to the directorate’s investigation but merely the complainant that triggered the investigation. The U.S. Supreme Court can be expected to articulate criteria framing both of these issues for future litigation. Foreign sovereign immunity. Foreign entities strive to invoke the FSIA because it provides, among other things: a guaranteed federal forum, protection against punitive damages and a bench, rather than a jury, trial (see 28 U.S.C. 1441(d)). One of the practical problems in determining the applicability of the FSIA is that the definitional section, 28 U.S.C. 1603, is less than perfectly drafted. Section 1603(a) provides that “[a] ‘foreign state’ . . . includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).” Note the use of the word “includes” rather than “means.” Section 1603(b)(2) then provides that ” ‘agency or instrumentality of a foreign state’ means any entity . . . which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof.” Does the term “foreign state” as used in Section 1603(b)(2) mean the same thing that it means in Section 1603(a)? If so, why does (b)(2) also list-twice-”political subdivision,” given that “political subdivision” is “include[d]” within the definition of “ foreign state” in subsection (a)? Is “political subdivision” in (b)(2) to be read as surplusage, or is “foreign state” in (b)(2) to be read as referring only to the ultimate sovereign (and thus the entity capable of having political subdivisions)? These questions matter when a second-tier subsidiary of a foreign state claims to be a sovereign. If the shares of the subsidiary are owned not by the ultimate foreign sovereign but rather by an “instrumentality” (other than a political subdivision), is the subsidiary entitled to invoke the FSIA? This question divided the courts for several years. Last term, in Dole Food Co. v. Patrickson, 123 S. Ct. 1655, 1659 (2003), the Supreme Court affirmed the 9th Circuit’s ruling that “a subsidiary of an instrumentality is not itself entitled to instrumentality status” and, thus, is not a sovereign within the FSIA. See also the post-Dole decisions in USX Corp. v. Adriatic Ins. Co., 345 F.3d 190 (3d Cir. 2003), and Wong v. Boeing Co., 2003 U.S. Dist. Lexis 15685 (N.D. Ill. Sept. 2, 2003). Dole also resolved another circuit split, holding that the point in time as of which sovereign status is determined is the date on which the action is commenced-not the date on which the conduct in question occurred. Id. at 1662. A close look at the ‘Karaha Bodas’ case New York Convention. The New York Convention is an international treaty that confers federal subject-matter jurisdiction over disputes between U.S. citizens and foreign entities that are subject to arbitration, and permits the recipient of an international arbitration award to enforce it in federal court. The question in Karaha Bodas Co. v. Negara, 335 F.3d 357 (5th Cir. 2003), was whether a federal court in the United States properly issued an antisuit injunction barring the losing party in an international arbitration from suing the prevailing party in another country to block enforcement of an arbitration award that had been entered under the laws of yet a third country. The 5th Circuit vacated the antisuit injunction and, under its analysis, it would be difficult ever to sustain such an injunction in these circumstances. The plaintiff in Karaha Boda had contracted to build a power plant in Indonesia. The defendant, the Indonesian government, later halted the project in breach of its contract with the plaintiff. The contract specified arbitration in Switzerland under Swiss law. The arbitrators awarded more than $260 million in damages. Indonesia unsuccessfully appealed in the Swiss courts, and then filed suit in the Indonesian courts to vacate the award. The plaintiff, a Cayman Islands entity, filed suit to enforce the award in a number of countries, including the United States. In the U.S. proceeding, it obtained an injunction action barring Indonesia from proceeding in its own courts to block enforcement of the award. The 5th Circuit did not conclude that the district court was without power to enter an antisuit injunction but made it clear that the structure of the New York Convention would seldom, if ever, permit one. The court focused on the fact that the courts of the United States did not have primary, but only secondary, jurisdiction over the arbitration award. Under the New York Convention, primary jurisdiction is vested in the courts of the country in which, or under the law of which, an award is made-in this case, Switzerland. The courts of all other signatories to the convention (including the United States) have only secondary jurisdiction. The Karaha Bodas court stressed that courts of secondary jurisdiction have only a limited role relating to enforcement within their borders. In vacating the injunction, the 5th Circuit emphasized that an Indonesian injunction would not be binding or effective in any other country-hence, where’s the harm? The Karaha Bodas court held that the ineffectiveness of the Indonesian injunction abroad coupled with the fact that the New York Convention contemplates multiplicative, post-award enforcement proceedings in jurisdictions around the world undercut the plaintiff’s claim of injury, while comity considerations weighed against entry of the injunction. Separately, in an unreported decision, the Southern District of Indiana has clarified that the word “arbitration” in the New York Convention denotes mandatory, binding arbitration, and not nonbinding mediation. Conseco Inc. v. National Union Fire Ins. Co., 2002 U.S. Dist. Lexis 26554 (S.D. Ind. Jan. 15, 2002). The Conseco court also held that, where a contract affords the parties the alternative of binding arbitration or nonbinding mediation, the contract does not “relate to” arbitration within the meaning of the convention (thus triggering federal jurisdiction) once the parties have elected the nonbinding route. Gregory P. Joseph of Gregory P. Joseph Law Offices LLC in New York, is a fellow of the American College of Trial Lawyers. He can be reached at [email protected].

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