X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
When it arises in the international context, complex litigation typically involves cases pending in more than one jurisdiction or implicating more than one sovereign’s rules or laws. A key question in such cases is how the courts in one jurisdiction will react to decisions made-or possibly to be made-by a court in another jurisdiction. Will the second court give the first court’s decision preclusive effect? For what kind of issues and under what circumstances do U.S. courts defer to the decisions of foreign courts (and vice versa)? When do U.S. courts defer to the authority of a foreign court to decide, even though the foreign court has not taken up, or will not take up, the issue (and vice versa)? These questions are commonly considered under the rubric of “comity.” This article will address the issue of comity in complex commercial litigation in light of three recent decisions. Analysis of comity typically begins with the definition proffered by Justice Horace Gray in Hilton v. Guyot, 159 U.S. 113, 163-64 (1895), quoted in In re Maxwell Communications Corp., 93 F.3d 1036, 1046 (2d Cir. 1996): ” ‘Comity,’ in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” This general, precatory language can mean a lot or a little, depending on how it is used to justify decisions either according or refusing to accord comity to foreign law or proceedings. U.S. courts have been careful to note that comity does not impose any limitation on the sovereign power of the United States. Rather, “[t]he doctrine of international comity is best understood as a guide where the issues to be resolved are entangled in international relations.” 93 F.3d at 1047. It has also been held that comity has its greatest force (and, from U.S. Supreme Court jurisprudence, perhaps its only applicability) when a litigant can show that U.S. law compels it to do something that is actually prohibited by foreign law, rather than just that two sovereign regimes will be dealing with the same issue or approach the matter in different ways. “International comity comes into play only when there is a true conflict between American law and that of a foreign jurisdiction.” 93 F.3d 1036, 1049 (citing Hartford Fire Ins. Co. v. Calif., 509 U.S. 764, 798 (1993) (emphasis added)). “No conflict exists . . . ‘where a person subject to regulation by two states can comply with the laws of both.’ ” Id. at 799, citing Restatement (Third) Foreign Relations Law � 403 (1987). ‘Due regard’ for U.S. laws U.S. courts have articulated the rule that comity cannot be exercised without “due regard” for U.S. laws, as the above quote from Hilton declares. Similarly, it has been held that “deference should be withheld where appropriate to avoid the violation of the laws, public policies, or rights of the citizens of the United States.” In re Treco, 240 F.3d 148, 157 (2d Cir. 2001); Pravin Banker Assocs. Ltd. v. Banco Popular del Peru, 109 F.3d 850, 854 (2d Cir. 1997) (“courts will not extend comity to foreign proceedings when doing so would be contrary to the policies or prejudicial to the interests of the United States”). Federal courts also have rejected attempts by foreign companies or aliens to violate U.S. statutes and then avoid their enforcement through a request for comity. See, e.g., Eaglet Corp. Ltd. v. Banco Central de Nicaragua, 839 F. Supp. 232, 236 n.7 (S.D.N.Y. 1993), aff’d, 23 F.3d 641 (2d Cir. 1994) (rejecting argument that federal “statutory mandate” is outweighed by comity). And there are some well-reasoned cases denying comity to determinations of foreign jurisdictions when a U.S. party has contracted with a foreign corporation. See, e.g., In re Treco (agreement with Bahamian bank); Pravin Banker Assocs. (loan to Peruvian bank); In re United Pan-Europe Communications N.V., 2004 WL 48873 (S.D.N.Y. Jan. 9, 2004) (contract with Dutch company); In re Hourani, 180 B.R. 58 (S.D.N.Y. 1995) (notes guaranteed by Jordanian bank). In practice, however, under the general banner of comity, some U.S. courts defer to foreign courts on matters of foreign law and practice. They accord deference even when both systems of jurisprudence are, or could be, treating the same issues, including in some cases when there is no overwhelming policy reason to prefer the foreign treatment. Recent decisions Let us briefly examine three recent cases to discern whether, how and where U.S. courts are drawing the line between deference to foreign proceedings and protecting U.S. interests from prejudice by foreign laws or proceedings. Sarl Louis Feraud Int’l v. Viewfinder Inc., No. 04 Civ. 9760 (S.D.N.Y. Sept. 29, 2005), involved attempts by French corporations that designed and marketed high-fashion clothing to sue a U.S. corporation that posts on its Web site photographs from fashion shows and other information about fashion events. An earlier judgment was entered against Viewfinder in France on default, but Viewfinder apparently did participate in an appeal of that judgment to a French court of appeals. Among other defenses, Viewfinder asserted in the U.S. court that French law was inconsistent with American copyright and intellectual property principles and that enforcement of the French judgment against it would be inconsistent with the First Amendment. The court rejected Viewfinder’s first argument, finding that French law was not “repugnant to fundamental notions of what is decent and just in the State where enforcement is sought.” Comity, the court said, required deference to that extent. Even so, the court found that enforcement of French law, as well as the judgment obtained in France, would be repugnant to the defendants’ First Amendment rights. Held the court: Comity could not be granted in such an instance. In Argentine Recovery Co. v. Board of Directors of Multicanal, No. 05 Civ 1968 (S.D.N.Y. Sept. 28, 2005), the underlying facts revolved around an Argentine cable company’s attempt to restructure more than $500 million in debt sold to U.S. investors and still held predominantly by U.S. creditors. Multicanal S.A. attempted to cut off creditor claims in the United States by reliance on an out-of-court debt restructuring scheme approved by an Argentine court under a limited and abbreviated procedure enacted by the Argentine legislature in the aftermath of Argentina’s 2001 fiscal problems. Distilling several decisions in the case, the court made at least four comity-dependent rulings: On the basis of comity, it affirmed a prior ruling of the federal bankruptcy court that rejected the investors’ claim that the law governing their investments, because protected by a specific federal law (the Trust Indenture Act), should not be subject to the same deferential attitude as courts have expressed with respect to claims that are not based on specific federal law. Also on the basis of comity, the court rejected the investors’ claim that the voting irregularities that they proved to have existed in the Argentine proceeding should give rise to a revote before the United States recognized the Argentine approval. However, the court was unwilling to grant comity unless the prejudicial discrimination against U.S. retail investors proved to have occurred in the economics of the deal was eliminated. The court also was unwilling to accord comity unless and until the company proved that its restructuring proposal complied with the U.S. securities laws. Norex Petroleum Ltd. v. Access Industries Inc., 416 F.3d 146 (2d. Cir. 2005), addressed the interplay between the doctrine of forum non conveniens and international comity. Norex, a petroleum company based in Calgary, Alberta, Canada, brought a civil Racketeer Influenced and Corrupt Organizations Act action in the Southern District of New York, alleging that its interest in a Russian petroleum company was illegally taken over as part of a larger scheme by defendants in New York, Western Europe and Russia to control the Russian oil industry. The district court dismissed the suit on forum non conveniens grounds, finding that Russia was an adequate alternative forum to resolve Norex’s claims, even though they were barred in Russia due to a prior default judgment (Norex had known of that proceeding and did not challenge it in Russia). The court decided Norex’s choice of forum should be afforded less than substantial deference because New York is not its home. 304 F. Supp. 2d 570 (S.D.N.Y. 2004). The 2d U.S. Circuit Court of Appeals vacated the district court’s decision as an abuse of discretion and reinstated Norex’s claims. Regarding the level of deference to be paid to the plaintiff’s choice of forum, the court rejected any presumption that a foreign plaintiff’s choice of a U.S. forum should be entitled to less than substantial deference and directed district courts to apply the flexible sliding scale approved by the court en banc in Iragorri v. United Technologies Corp., 274 F.2d 65 (2d Cir. 2001). The court further held that, “[w]here, as in this case, the proposed foreign forum, Russia, would deem plaintiff’s claims precluded by a prior adverse default judgment, a United States court cannot conclude that the foreign jurisdiction presently affords an adequate alternative forum.” Interestingly, the court rejected consideration on a forum non conveniens motion of why the proposed alternative forum was not available, focusing instead on whether it actually was currently available and adequate. Yet, in discussing the interplay with international comity, the 2d Circuit noted that “[i]t may well be that a plaintiff that is precluded from litigating a matter in a foreign jurisdiction because of an adverse earlier judgment by its courts will not be able to pursue the claim further in the United States, but the reason for dismissal in such circumstances is our recognition of the foreign judgment in the interest of international comity, not forum non conveniens.” Drawing lines In invoking or discussing the principle of comity, none of the three recent cases analyzed whether the U.S. plaintiff was subject to a foreign rule or regime that required it to do something that was prohibited by U.S. law-or, as the court in Maxwell put it, whether there was a “true conflict between American law and that of a foreign jurisdiction.” One might therefore argue, it seems, that in the absence of a true conflict, U.S. courts should be requiring a defendant to comply with the laws of both jurisdictions-for example, in Viewfinder, requiring the defendant to honor the stricter of the rules (i.e., those of France), or in Multicanal requiring the debtor-company to carry out a vote free of taint, as it would have been required to do under U.S. law. None of the cases directly requires that-though in Norex, arguably, the defendant may be being held to the higher of the applicable standards as between U.S. law and the law of Russia. Yet at the same time, U.S. courts are drawing lines-in Viewfinder at the point where the U.S. defendant would be punished for conduct protected by the U.S. Constitution; in Multicanal at the point where U.S. investors were intentionally discriminated against or where the U.S. securities laws would be violated were deference given. In those circumstances U.S. courts are showing themselves unwilling to defer, in the name of international comity, to foreign rules or processes. Louis M. Solomon is co-chairman of Proskauer Rose’s litigation and dispute resolution department in New York. He has tried more than 50 complex commercial cases in federal and state courts nationwide, in federal and state regulatory tribunals, and in national and international arbitrations and litigations. He represents some creditors in Argentine Recovery Co. v. Board of Directors of Multicanal, a case discussed in this article. He can be reached at [email protected].

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.