Global Tort Choice of Law/Venue Issues

Smart plaintiffs continue to find ways around the Morrison rules on the proper venue for securities claims. The most recent example arises from the Porsche litigation in which hedge funds all hired top notch lawyers to pursue securities claims involving the fiasco with Volkswagen. David Bario covers the story in American Lawyer.

One side note. Wall Streeters spend lots of time complaining about plaintiff’s lawyers ruining the world. But when they can make money from litigation, the Wall Streeters sure know how to find their way to court with excellent lawyers. 

Time certainly flies. It seems just the other day I was writing this post about the grant of cert in the f-cubed securities litigation on application of US law with respect to fact patterns involving mainly overseas acts, but some US impacts and facts. The main point of that post was to suggest that the 2d Circuit opinion seemed to lack depth of knowledge of class action law outside the US. The post also expressed my hope hope that the briefs would educate our high court on class action law in other nations. (As it turns out, the briefs do include sections addressing some conflict of law issues as between national approaches to class action law. However, the sections are relatively brief and superficial, perhaps because of page limits.)

Today’s post offers a few big picture observations on the issues regarding  "extraterritorial" application of laws.  The issues are being argued here in the context of securities claiming. So, the party  and amicus briefs to some large degree focus on parochial arguments about what is and is not good for the US securities industry and others who interact with that system.  One hopes the Court will look at the broader picture. On that topic,  Kevin LaCroix at the D & O Diary has a very helpful post collecting examples of the "extraterritorial" issue in certain other substantive settings that are on the short term horizon for the Court.  

And, of course,  the range of issues is not limited to the Court’s short term case list. One can readily go back through prior posts on this blog to see fact patterns and "extraterritorial"  issues that will over time arise for tort, insurance and bankruptcy law.  Think about, for example, the melamine contamination cases arising from acts China, personal jurisdiction issues from product liability cases involving goods that travel the world, corporate "demergers" in Australia where decisions are driven by future tort claim possibilities, an Australian mass tort defendant that in a decade has thrice changed its global home to try to achieve perceived short-term benefits from local laws, and the billions of dollars of insurance coverage that vanish  when  insurers use UK schemes of arrangement to avoid past promises made in insurance policy contracts. All of those situations involve fact patterns with many actions overseas, and impacts in the US and throughout the world

Consider also the rule to "be careful what you wish for in litigation"   Defeating application of US law now may produce short-term happiness for some  parties,  but it’s hardly the end of the story. In the f-cubed case, briefs have been filed by, for example, other governments and global investors. These are constituencies  that are not going to disappear, and so there will be litigation somewhere over the merits, it’s just a question of where and when the issues will be litigated.  Moreover, litigation financing funds can and will flow globally – the capital of the US plaintiff’s bar is no longer the dominant weapon it once was (but neither is the weapon gone), and so business groups need to confront the reality that they could end up litigating cases all over the world.  In a related vein, we’ve seen US examples of court systems competing to attract litigation. Court system competition inevitably will happen on an international level, On those possibilities, see this interesting article by Prof. Hannah Buxbaum as she explores possible competition between international legal systems.  She has written extensively on international law issues, and is guest blogging this week at the Conglomerate blog  due to the f-cubed topic. One of the Professor’s articles is cited in at least one of the briefs.

One final thought. So many important issues, and so relatively little attention ill be given to them in terms of terms of oral argument and  pages of briefs. Brevity of course has value at times, but perhaps outcomes would be better with more time to hear more depth about laws and legal systems around the world?  On time and attention,  I’ll mention that I happened to be in London a few year back during the week the intermediate appellate court was hearing  oral argument on pleural plaques issues. The court held oral arguments every day for a week.  I stopped by to watch and listen to part of the argument and heard extensive discussion of US "asbestos law"  and its lessons and implications.  Maybe SCOTUS  could learn something more from the "more time"   approach ? And, some day, courts in other nations also will be hearing about these issues; how will they handle the subjects?

 

Using bankruptcy code chapters 11 and 15 to avoid litigation is not quite as easy as some might think, as illustrated by an order that is here and is described in the LAW 360 article below.

Law360, New York (December 03, 2009) — A federal judge has ruled that a London-based fur broker that filed the equivalent of bankruptcy in the U.K. can’t stay a bid-rigging suit in the U.S. without first petitioning for recognition of the U.K. insolvency proceedings under Chapter 15.

Judge Ricardo S. Martinez of the U.S. District Court for the Western District of Washington rejected Fein & Co.’s motion to stay the putative antitrust class action Wednesday, saying the fur broker hasn’t shown that it can’t file Chapter 15.

The fur broker had argued in a Nov. 3 motion that comity necessitated the district court to stay the antitrust suit against Fein as it would have if the company had filed for bankruptcy in the U.S.

Meanwhile, the two mink fur producers who filed the action accusing Fein and other fur brokers of bid-rigging said an entity going through insolvency proceedings outside the U.S. can obtain relief here only through Chapter 15.

Siding with the plaintiffs, Judge Martinez said Chapter 15 “has provided a specific structure for addressing cross-border insolvencies, together with appropriate remedies.”

The Washington court will consider granting Fein relief if it receives Chapter 15 relief in the U.S., he added. “Until that time,” he said, “the court declines to stay these proceedings.”

The plaintiffs, Wanechek Mink Ranch and Smith Mink Ranch Corp., alleged that between 2000 and 2004, the defendants engaged in a bid-rigging scheme that depressed the prices the plaintiffs and other mink fur producers were paid for their furs at auctions.

In addition to Fein, some of the other fur brokers named in the case include Delta Trading Corp., Klondike International Furs Ltd. and Alaska Brokerage International Inc.

The defendants moved to dismiss the case in November 2008, but Judge Martinez refused to do so in early May.

Following the U.S. Supreme Court’s landmark ruling in Iqbal v. Ashcroft in May, the brokers asked the court to dismiss the action again, this time saying it didn’t meet the heightened pleading standard laid out by the high court.

The brokers noted that in the court’s May 5 order declining to dismiss the case, it pointed to repeated statements in the complaint that the defendants “agreed” to a bid-rigging scheme as well-pleaded allegations.

“The Ashcroft case puts to rest any lingering notion after Twombly that such allegations are sufficient,” the defendants said. “If all it takes to state an antitrust claim is to write the words ‘they agreed,’ no claim would fail under Rule 8.”

The U.S. Department of Justice launched an investigation into anti-competitive practices among fur brokers in 2004. In 2006 Alaska Brokerage was indicted, and an individual broker pleaded guilty to a conspiracy charge. The company was fined $30,000.

Attorneys for both sides didn’t immediately return calls for comment Thursday.

Plaintiffs are represented by Hagens Berman Sobol Shapiro LLP, Kohn Swift & Graf PC, Preti Flaherty Beliveau & Pachios LLP, Barrack Rodos & Bacine, Berger & Montague PC, Weinstein Kitchenoff & Asher LLC and Langer & Grogan PC.

Defendants are represented by Byrnes & Keller LLP, Wilson Smith Cochran Dickerson, Stoel Rives LLP and Yarmuth Wilsdon Calfo PLLC.

The case is Wanechek Mink Ranch and Smith Mink Ranch Corp., on behalf of themselves and all others similarly situated, v. Alaska Brokerage International Inc., case number 06-cv-00089, in the U.S. District Court for the Western District of Washington.

This post offers a brief comment arising from the now widely reported fact (see, for example, SCOTUSblog and many others) that the U. S. Supreme Court granted certiorari from the 2d Circuit’s opinion in the so-called foreign-cubed (a/k/a f- cubed) Rule 10b-5 securities case titled Morrison, et al., v. National Australia Bank, et al. (08-1191), which is sometimes called the NAB case. For the uninitiated, f-cubed refers to 1) “foreign” plaintiffs suing in the US under US law regarding a 2)”foreign” issuer of securities that resulted in the buying and selling of stock in 3) “foreign” countries.

The comment is that one hopes that briefing in the Supreme Court will cover in some depth the scope of class action litigation in countries outside the US. I say that because the 2d Circuit’s opinion, slip op at 14 -15, refers to arguments that seem to me both dated and incorrect as to the extent of class action remedies outside the US. On the topic of the growing availability of class actions or class like remedies outside the US, I once again commend to readers a fairly new article titled “Global Litigation Trends.” The authors are Mark Behrens, Gregory Fowler and Silvia Kim, who are all Shook Hardy lawyers. The article was published at 17 Michigan State Journal of International Law 166 (2008-09). You can download it here from the TortsProf blog.

Pasted below are the 2d Circuit’s statements about class actions outside the US:

“In support of their position, Appellees and amici point to a parade of horribles that they claim would result if American courts exercised subject matter jurisdiction over such actions. They contend that this would, among other things, undermine the competitive and effective operation of American securities markets, discourage cross-border economic activity, and cause duplicative litigation. Their principal objection, though, is that entertaining such actions here would bring our securities laws into conflict with those of other jurisdictions. For instance, in Switzerland, no comprehensive federal legislation governs securities fraud, and private remedies are the only ones available. In Canada, securities class actions are recognized, but most provinces do not recognize
the fraud on the market doctrine. In various other countries, class actions are either not available or the ability of class actions to preclude further litigation is problematic. See, e.g., David A. Skeel, Jr., Can Majority Voting Provisions Do It All?, 52 Emory L.J. 417, 423 (2003) (noting that “most other countries do not have procedural devices that are even remotely similar to the U.S. class action”); Gerhard Walter, Mass Tort Litigation in Germany and Switzerland, 11 Duke J. Comp. & 3 Int’l L. 369, 372 (2001) (observing that “class actions do not exist in Germany, Switzerland, and most other countries of the civil law system”). In essence, Appellees argue that other countries have carefully crafted their own, individual responses to securities litigation based on national policies and priorities and that opening American courts to such actions would disrupt and impair these carefully constructed local arrangements….” (emphasis added)

It’s hard to say where this all will end up since the Court apparently is continuing to pursue Chief Justice Roberts’ agenda to decide “business cases,” and there are so many interested constituencies. For more background, note that insurance side commentary on NAB was noted in this prior post which, in turn, links to another blog with commentary and links back to the 2d Circuit opinion and briefs. In addition, as SCOTUSblog points out, note that review was granted ” even though the U.S. Solicitor General had urged it to bypass the case. Even while arguing that the case was not a proper one to address the issue, Sol. Gen. Elena Kagan filed a brief extensively outlining the government’s views on the question, suggesting that the key law against securities fraud should sometimes apply to international dealings. (Justice Sotomayor took no part in the order granting review; it was not immediately apparent why she was recused. She did not vote on this case while on the Second Circuit.)”

This post at Kevin LaCroix’s D & O Diary covers an interesting new decision from Canada on global choice of law issues arising from D & O policies, and identifies contract clauses that might be changed to obtain better outcomes. Here’s an excerpt:

“The November 12 Opinion

In his November 12, 2009 decision (here), Justice Walker determined that British Columbia law is the proper law to be applied to the interpretation of the policy.

He began with the determination that the parties intended different laws to apply to different parts of the policy (a choice of law principle known as dépeçage). In reaching this conclusion, Justice Walker referenced several different parts of the policies at issue, including in particular the primary policy’s definition of “Loss,” which contained a provision specifying that the policy’s coverage for punitive and exemplary damages would be determined under the law most favorable to the insured. Justice Walker also referenced the policy’s Oregon state amendatory endorsements, which specified that Oregon law would govern any disputes regarding alleged misrepresentations in the insurance application.

Justice Walker determined that given these clause-specific choice of law provisions, and given the absence from the policies of any general choice of law provisions, the “proper law” governing the disputes arising under other policy provisions “is left to be determined by the court hearing the dispute to find based on the application of its own laws, taking into account the directing language in the policies.”

Reviewing these circumstances in this light, and discounting the policies’ various connection to jurisdictions in the United States, and applying British Columbia choice of law principles, Justice Walker concluded that “the policies have the closest and most substantial connection with BC,” and therefore BC law governs the coverage dispute presented by the receiver.

In substantiating this decision, Justice Walker stated that given the importance of the Canadian subsidiary, “most of the claims could be expected to arise from Canadian operations,” and he stressed that the P&T Ltd. employees’ wage claims are “unique to Canadian operations” and have “no equivalent in Oregon,” as a result of which Justice Walker concluded that “the proper law of the policies to determine the carriers’ coverage obligations for these claims is BC law.”

He added that the parties “would reasonably have expected BC law to apply to determine the insurers’ coverage obligations.”

Here is a Law.com article by Andrew Longstreth regarding the defense view on whether a major securities class action should be litigated in the US or India. What outcome would you want as GC?

The article explains that PwC and others would prefer to litigate in India. A key excerpt is set out below:

“The Satyam scandal may have worsened India’s already poor reputation for corruption, but Satyam’s auditors–PricewaterhouseCoopers and Lovelock & Lewes–would still like to see the case handled in India rather than the U.S. Their motion, filed by Wilmer Cutler Pickering Hale and Dorr, argues that virtually all of the key evidence, witnesses, and defendants are located in India. But it also claims that Indian courts, “which have a history of expediting legal matters of national significance,” are more than prepared to take on the case. They say India has a securities fraud statute in which victims of a fraud on the market can be compensated. And since the matter of Satyam–in which more than $1 billion in assets were misstated–is India’s Enron, it will get be a top priority.

“Quite simply, what is arguably the highest-profile legal matter in India, will command the attention of the Indian judiciary and proceed swiftly,” wrote the Wilmer lawyers. “This case belongs in India.” (The lawyers have also filed a separate motion to dismiss the case on more traditional grounds.)

With a hat tip to Mondaq, this article from Proskauer summarizes a recent 2d Circuit ruling holding that forum selection clauses may be enforced against successor entities in the context of an entity 90% owned by the Argentine government. The case arises in the context of business to business litigation, but the same principles presumably will apply to consumer claims where a contract terms is interposed as a substantive defense or as controlling forum. That may be a mixed blessing for corporations as choosing one forum or law may actually foster class action claims because it will simplify otherwise extant issues regarding choice of law and/or forum.

The article’s key excerpt explains the following:

“On October 23, 2009, the Second Circuit definitively ruled in Aguas Lenders Recovery Group LLC v. Suez, S.A (ALRG) that U.S. forum selection clauses are enforceable against successors in interest under ordinary principles of contract law – even when the successor is a non-U.S. entity. The opinion ( found here) clarifies this key legal issue, further strengthening predictability in international transactions. Applying ordinary successorship law to forum selection clauses prevents a defaulting successor from escaping liability on a jurisdictional theory when substance and jurisdiction were negotiated as one contractual package.

In ALRG, Proskauer represents the Plaintiff-Appellant in claims against an Argentine entity, AySA. ALRG sued AySA to recover on more than $125 million in loans made to Aguas Argentinas – a now-defunct Argentine entity that ran Buenos Aires‘ water and sewage system. ALRG alleges that AySA is Aguas‘ successor in interest. Among other things, ALRG alleges that AySA (owned 90% by the Argentine government) was specifically created to, and did, take over Aguas‘ contracts and operations after Aguas‘ shareholders opted to get out of their arrangement with Argentina and that, as part of that takeover, AySA received the physical assets that had been built, improved or acquired using money borrowed by Aguas, the accounts receivable, and assumed various of Aguas‘ employment and other contracts – yet shirked its obligations under Aguas‘ loan agreements (which were expressly binding on all successors). Proskauer filed claims against AySA (and others) in the Southern District of New York based, in part, on express forum selection clauses in the operative agreements.”