​Decisions Discussed in This Issue: Summer 2013

Please click the links below to see an expanded summary of the decision described.  Copies of any case discussed in this issue are available upon request. 


Alien Tort Statute

Court of Appeals Holds That Group Using Aggressive Tactics at Sea to Interfere with a Whaling Vessel Can Be Held Liable for Piracy under Alien Tort Statute

Institute of Cetacean Research, a Japanese Research Foundation v. Sea Shepherd Conservation Society (US Court of Appeals 9th Circuit, Feb. 25, 2013)

An anti-whaling group calling itself Sea Shepherd Conservation Society (“Sea Shepherd”) used its ships to interfere with Japanese vessels hunting whales on the high seas. Japanese whaling ships operated by the Institute of Cetacean Research (“Cetacean”) sued Sea Shepherd and its leader for piracy under the Alien Tort Statute, seeking damages and injunctive relief. The district court dismissed the action. Assessing the claim under the United Nations Convention on the Law of the Sea's definition of "piracy" ("illegal acts of violence or detention, or any act of depredation, committed for private ends by the crew or the passengers of a private ship . . . on the high seas, against another ship . . . or against persons or property on board such ship”), the district court found that the Sea Shepherd was not acting out of “private interest,” but rather out of altruistic motives. Further, the court found it did not use “violence,” as defined by the international treaty, because its members were not trying to hurt anyone.

On appeal, the court reversed and enjoined the activities of the Sea Shepherd. The court of appeals held that, notwithstanding the group’s alleged good motives, they were still acting out of private interests. The court explained that “private interest” simply distinguishes the acts of private parties from the acts attributable to a state. Further, the court of appeals held that Sea Shepherd used violent tactics to stop the whaling and in doing so endangered the lives of those on the Cetacean whaling vessels. Thus, the court concluded that Sea Shepherd was guilty of piracy. Finally, the court of appeals rejected the argument that relief should be denied because the Cetacean ships were allegedly acting in violation of an Australian injunction in conducting their whaling in the Southern Ocean. The court explained that the claimed violation of the Australian order provided no basis for denying Cetacean relief under the Alien Tort Statute in US courts.

First Reported District Court Decision to Find That Plaintiffs Overcame Presumption Against Extraterritorial Application of Alien Tort Statute

Mwani v. Bin Laden (US District Court, D.D.C., May 29, 2013)

In a recent landmark decision, the US Supreme Court held that, where a dispute is between foreign nationals that occurred on foreign ground, the ATS cannot be used to establish jurisdiction in a US court except where the claims “touch and concern the territory of the United States” with “sufficient force” to displace the presumption against the extraterritorial application of the ATS. Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, 1669 (2013).

The court in Mwani is believed to be the first to find that the “sufficient force” exception had been met. Kenyan nationals filed the case against Usama Bin Laden and al Qaeda, asserting ATS claims arising out of the al Qaeda attack on the US Embassy in Nairobi, Kenya. The district court found that the case touched and concerned the United States with sufficient force to overcome the presumption against extraterritorial application of ATS because, among other reasons, the terrorist attack was plotted in part within the United States and was directed at a US Embassy and its employees. Because the decision involved a controlling question of law as to which there may be a substantial difference of opinion, the district court ordered that the decision be immediately appealed to the court of appeals.


Antitrust/Competition

District Court Approves Settlement Between US Indirect Purchasers and Taiwanese, Korean and Japanese Defendants in TFT-LCD Price-Fixing Case

In re TFT-LCD (Flat Panel) Antitrust Litigation (Indirect Purchaser Actions), (US District Court, N.D. Cal., April 1, 2013)

The district court for the Northern District of California granted final approval of a $571 million antitrust class action settlement between consumers and certain states in the US and defendant companies located in Korea, Japan and Taiwan. The defendants manufactured thin film transistor liquid-crystal display (TFT-LCD) panels used in televisions, computer monitors and notebook computers. The TFT-LCD panels and finished products containing them were exported to the US and sold by subsidiaries of the defendants or third parties to US consumers. Plaintiffs alleged that the defendants participated in a global conspiracy to fix prices for the TFT-LCD panels they manufactured. The consumers and states asserted claims under federal and state antitrust laws and that the court had jurisdiction pursuant to the Foreign Trade Antitrust Improvement Act and comparable state laws. After six years of litigation, this group of defendants agreed to pay a total settlement of $571 million, which was in addition to a total settlement of $538.6 million previously paid by other defendants located in Korea, Taiwan and Japan.

District Court Denies Motion for Judgment for Acquittal or for New Trial of Taiwanese Citizen Convicted in United States for Price-Fixing under Section 1 of the Sherman Act

United States v. Steven Leung, (US District Court, N.D. Cal., May 2, 2013)

The district court for the Northern District of California denied a motion for acquittal or, in the alternative, for a new trial of a Taiwanese citizen who was convicted for his role in the international price-fixing conspiracy among manufacturers of TFT-LCD panels used in televisions, computer monitors and notebook computers.

Facts

The defendant, Stephen Leung, was an executive employed by AUO Optronics (“AUO”), a Taiwanese manufacturer of thin film transistor liquid-crystal display (“TFT-LCD”) panels. In March 2013, following an eight-week trial, AUO, its US subsidiary and several employees of AUO were convicted of price-fixing under Section 1 of the Sherman Act (15 U.S.C. § 1). The jury did not reach a unanimous verdict as to Leung, so he had a new trial in late 2012 and was convicted on December 18, 2012. Leung filed a motion for acquittal, or for a new trial, on the grounds that, among other things, (1) the US Government failed to establish, beyond a reasonable doubt, an exclusion under the Foreign Trade and Antitrust Improvement Act (“FTAIA”), and (2) Sherman Act violations based on foreign conduct are subject to rule-of-reason analysis rather than per se illegality as the jury was instructed.

Analysis

The FTAIA, enacted in 1982, establishes a framework for determining whether Sherman Act claims may be brought based on commerce that takes place outside the United States. It provides that the Sherman Act does not apply to foreign commerce unless one of the Act’s statutory exceptions applies. The court instructed the jury that the US government had to prove, beyond a reasonable doubt, “that the members of the conspiracy engaged in one or both of the following activities: (A) fixing the price of TAFT-LCD panels targeted by the participants to be sold in the United States or for delivery to the United States; or (B) fixing the price of TAFT-LCD panels that were incorporated into finished products such as notebook computers, desktop computer monitors, and televisions, and that this conduct has a direct, substantial, and reasonably forseeable effect to trade or commerce in those finished products in the United States or for delivery in the United States . . . .”

The court rejected Leung’s argument that the evidence presented by the US government failed to establish an exception applied, finding that a reasonable jury could have found that the evidence showed the price-fixing conspiracy had a “direct, substantial, and reasonably foreseeable effect” on import commerce to the United States. The court also rejected Leung’s argument that the jury instruction regarding the applicable test for price-fixing conduct under the Sherman Act was improper. The court had instructed the jury that such conduct is per se unlawful, but Leung argued it should be subject rule of reason analysis. The court ruled that it had properly instructed the jury that such conduct is per se unlawful.

Making False Representations to Standard Setting Organization and Bringing Patent Infringement Litigation in China Does Not Support Antirust Action Based on Claim of US Injury

Lotes Co. v. Hon Hai Precision Indus. Co. (US District Court, S.D.N.Y. May 14, 2013)

A district court in New York concluded that a Chinese manufacturer of USB 3.0 connectors that alleged that its competitors failed to license its patents, and that had sued it in China, could not show that the court had subject matter jurisdiction over the case pursuant to the “domestic injury exception” to the Foreign Trade Antitrust Improvement Act (“FTAIA”).

Facts

Plaintiff Lotes Co. (“Lotes”), a Chinese manufacturer of USB 3.0 connectors, supplies those connectors to manufacturers of motherboards in China. The motherboards are sold to original equipment manufacturers in China which manufacture finished computers for name-brand computer manufacturers in China. The computers are then shipped to the US for sale.

A standard-setting organization (“SSO”) called USB Implementers Forum (“USB-IF”) evaluated relevant patent and IP owned by various USB 3.0 connector manufacturers and incorporated some into an industry-wide standard. The defendants, Chinese manufacturers of USB 3.0 connectors that compete with Lotes, contributed technology to the SSO and agreed to license that technology on reasonable and non-discriminatory (“RAND”) terms.

Lotes filed a civil action under US antitrust laws, alleging that it had been injured by the defendants’ refusal to issue RAND licenses and their having brought patent enforcement proceedings in China to prevent Lotes from using their technology. The defendants moved to dismiss.

Analysis

The court dismissed the case, holding that it did not have subject matter jurisdiction under the FTAIA. The Court first found that the FTAIA set up jurisdictional requirements, rejecting authority in other courts of appeals that the FTAIA merely affected the substantive requirements for an action to succeed. Then, it found that Lotes had not alleged conduct that, as required by the FTAIA, had a direct, substantial or reasonably foreseeable effect on commerce in the US. In the court’s view, any increase in computer prices or decrease in competition in the US that resulted from the defendants’ foreign conduct was “simply too attenuated to establish the proximate causation required by the FTAIA.” Interestingly, in a footnote, the court stated that even if it had jurisdiction, it would consider dismissing Lotes’s antitrust claims as a matter of international comity.


Criminal Law

US Law May Punish Crimes Occurring on the High Seas

United States v. Buenaventura-Hurtado (US District Court, M.D. Fla., April 12, 2013)

Plaintiff convicted of drug trafficking on the high seas challenged the constitutionality of his indictment under the Maritime Drug Law Enforcement Act (“MDLEA”). The trial court in Florida rejected the challenge as having been brought too late, but also concluded that it was without merit. Although MDLEA prosecutions for activities in the territorial waters of another country have been found unauthorized under the “Offenses” clause of the US Constitution, the court concluded that the indictment was supported by the “Piracies and Felonies Clause,” which permits Congress to define and punish crimes in international waters.

New York Federal Court Rejects Evidence Regarding Foreign Bank Privacy Laws

Linde v. Arab Bank, PLC(US District Court, E.D.N.Y., May 14, 2013)

In a trial charging banks with Anti-Terrorism Act violations, the Eastern District of New York rejected a defendant bank’s attempt to present evidence of foreign bank privacy laws to a jury. The bank made three arguments in support of introducing evidence of foreign privacy laws: first, the laws were relevant to the defendant’s state of mind; second, the jury should be instructed to acquit the bank of one charge, if the bank acted under compulsion of foreign law; and third, the bank was entitled to rebut a permissible adverse inference imposed by the court for non-production of documents.

The court rejected all three arguments. Noting that alleged misconduct took place domestically as well as abroad, the court held that foreign laws were irrelevant to the bank’s state of mind vis-à-vis compliance with United States laws. Considering defendant’s second argument “an invitation to nullification,” the court refused to instruct the jury that it should ignore the Anti-Terrorism Act if the bank complied with foreign law. Similarly, the court denied the bank’s request to rebut an adverse inference with evidence of foreign law, explaining that permitting a rebuttal would defeat the purpose of the adverse inference and confuse the jury.

Government Official’s Jet Returned

United States v. One Gulfstream G-V Jet Aircraft (US District Court, D.D.C., April 19, 2013)

The federal court in Washington, D.C. dismissed a forfeiture action against a $38.5 million Gulfstream jet purchased by a government minister of Equatorial Guinea (and the son of the country’s president). The US government’s complaint largely rested on assumptions of wrongdoing given that the minister’s lavish lifestyle could not have been financed with his modest government salary. In light of his salary and the corruption of Equatorial Guinea’s “inner circle,” the government alleged that the luxury purchases—including the Gulfstream jet—were made possible by misappropriated public funds and extortion.

The applicable pleading standards for forfeiture actions, however, require more. The court held that to survive a motion to dismiss under the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions, a complaint must allege enough specific facts for the court to infer that the subject property is subject to forfeiture. Because the government’s allegations provided a weak basis for inferring that the Gulfstream was purchased with ill-gotten funds, the court dismissed the complaint, but granted leave to amend.

New Jersey District Court Upholds U.S. Criminal Jurisdiction in Foreign Waters for Drug Trafficking

Munoz-Valdez v. Hollingsworth (US District Court, D.N.J., May 31, 2013)

Although the district court dismissed Petitioner’s habeas petition for lack of jurisdiction, the district court decided to develop a more detailed record addressing the Petitioner’s challenge to his conviction. Petitioner contended that his underlying conduct of drug trafficking operations on a boat 173 miles off the coast of Colombia fell outside of the reach of US criminal jurisdiction. Petitioner relied on a court of appeals decision which was not binding on the trial court holding that the Maritime Drug Law Enforcement Act (“MDLEA”) does not confer US penal jurisdiction over drug trafficking activities taking place in foreign territorial waters. But the trial court here found the validity of the that decision was uncertain in drug trafficking cases on the high seas or in-territorial waters where either the search of the vessel and the defendant’s arrest were performed by local authorities who extradited the defendant to the US for criminal prosecution, or where the search and seizure was performed with the consent of the nation that had sovereignty over the territorial waters. The district court relied on other appellate decisions, as well as the various international conventions aimed at suppressing narcotics trafficking and requiring international cooperation, to hold that, without a binding and contrary appellate precedent, it would not be in a position to grant Petitioner relief even if the jurisdictional bar had been absent.

Extraterritorial Conduct Targeting American Citizens or Interests is within U.S. Criminal Jurisdiction

United States v. Umeh (US Court of Appeals, Second Circuit, June 10, 2013)

Appellants appealed from their convictions for conspiracy to distribute narcotics. Appellants argued they had been denied due process because their wholly extraterritorial conduct lacked the required minimum connection to the United States to support their prosecutions. Appellants also argued that their extraterritorial arrests violated the Mansfield Amendment, which prohibits US law enforcement officers from conducting narcotics arrests in foreign countries. The Second Circuit rejected their arguments and held that their prosecutions were consistent with due process because their extraterritorial criminal conduct targeted US citizens or interests: the jury specifically found that both appellants knew their cocaine would reach the United States.

Appellants argued that their arrests in Liberia also violated the Mansfield Amendment, which provides that “[n]o officer or employee of the United States may directly effect an arrest in any foreign country as part of any foreign police action with respect to narcotics control efforts.” This argument failed because Appellants were arrested by officers of the Republic of Liberia National Security Agency, not US law enforcement. Appellants’ claims that extradition procedures were not properly followed failed as well, since US courts are not required to assure themselves that foreign countries have observed their own internal procedures.

Incidental Contacts Insufficient For Jurisdiction over Essentially Foreign Conspiracy

Devincci Salah Hourani v. Mirtchev (US District Court, D.D.C., May 8, 2013)

On a motion to dismiss Racketeer Influenced and Corrupt Organizations (“RICO”) claims arising from a Kazakhstan-based conspiracy, the D.C. district court held that plaintiffs’ alleged conspiracy had insufficient domestic contacts to fall within RICO’s scope. The district court adopted the approach a majority of courts have taken to evaluate extraterritoriality in RICO claims, focusing on the alleged pattern of racketeering activity, rather than using an alternative approach focused on the location of the “enterprise.” The court held that the alleged domestic connections—the American citizenship of one plaintiff, the location of one defendant enterprise, and the U.S. accounts used in money laundering—were insufficient to sustain a RICO claim under that test. Because the conspiracy took place almost entirely in Kazakhstan, the court dismissed plaintiffs’ complaint with prejudice.


Export Controls/Economic Sanctions

Intesa Sanpaolo Settles Enforcement Action for Alleged Violations of US Embargo Against Cuba, Iran and Sudan

On July 28, 2013, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced that the Italian bank Intesa Sanpaolo S.p.A. (“Intesa”) has paid $2,949,030 to the US government to settle allegations that it violated US regulations that impose embargoes on Cuba, Iran and Sudan. The claim appears to characterize the Italian Bank as a “US person” for purposes of the embargo regulations because the transactions at issue were in US dollars and involved correspondent bank accounts in the US.

Allegations and Settlement

The United States maintains broad embargoes on most business and financial interaction with Cuba, Iran and Sudan. The embargoes are embodied principally in regulations administered by OFAC. The regulations forbid, among other things, supply of services to these nations and dealings involving their governments. In general, OFAC embargo prohibitions apply to “US persons” – citizens and residents of the United States, legal entities that are organized under US law, and other persons in the United States. The Cuba embargo also applies to US-owned or controlled non-US entities.

OFAC alleged that Intesa violated the embargo regulations by processing transactions that terminated in the United States or with US persons for Irasco S.r.l., an Italian company that is owned or controlled by the Iranian government. OFAC also alleged that Intesa processed around 120 transactions that involved Cuba or Sudan.

The OFAC announcement is not clear about the specific embargo prohibitions that Intesa is alleged to have violated. Past practice suggests, however, that OFAC likely contended that the bank’s funds transfers contravened prohibitions on providing services to the embargoed countries and prohibitions on dealings with the countries’ governments and “blocked” (blacklisted) persons in those countries.

Analysis

The Intesa matter is the latest in a series of US enforcement actions against European banks for alleged violations of US embargo requirements that have generally focused on dollar-denominated transactions involving embargoed countries and persons and the European banks’ reliance on US correspondent accounts for currency conversions.

Questions remain about the validity of US government theories that Intesa’s and the other European banks’ activities fall within the scope of US embargo regulations. In particular, characterizing the European banks as “US persons” within the meaning of embargo regulations appears exceedingly aggressive. OFAC’s theory appears to be that the banks are acting in the United States, and are US persons on this basis, when they process transactions through the US banking system. This theory may be vulnerable to court scrutiny but, so far, none of the respondents has chosen to litigate embargo charges.


Intellectual Property (Copyright)

District Court Dismisses Contributory Copyright Infringement Claim Involving Sales Outside the US for Failure To Identify Particular Examples of Infringement

Panoramic Stock Images, Ltd. v. Pearson Education, Inc., (US District Court, N.D. Ill., May 29, 2013)

The plaintiff is a business that licenses the photographs of many photographers on a wide range of subjects. It sued a publisher of textbooks for various forms of copyright infringement. One claim was for contributory copyright infringement, based upon the publisher’s relationship with a third party that claimed on its website to have translated and sold the publisher’s textbooks outside the US. The trial court dismissed the claim, finding that the third party’s general description of its business was not sufficient to allege that the publisher induced or encouraged infringement either inside or outside the US.


Intellectual Property (Trademark)

Court Denies Summary Judgment in Multinational Counterfeiting Case

Zosma Ventures, Inc. v. Nazari, (US District Court, C.D. Cal., May 30, 2013)

The plaintiff sells dietary and nutritional supplements including fish oil. It alleged that the defendant, a former licensee, operated a multinational counterfeiting scheme from its “nerve center” in Los Angeles, in which counterfeit fish oil supplements were shipped from Canada to the US and from the US to Iran. The defendants moved for summary judgment, in part based on the allegation that the allegedly unlawful acts occurred outside of the US, and that these “extraterritorial” acts could not support a trademark infringement claim under the Lanham Act.

The trial court found that the plaintiff had made sufficient allegations of counterfeiting activity in the US to proceed to trial. The court found that the extraterritorial acts also supported a claim, applying the rule that such acts could support a US trademark claim when: 1) the alleged violations create some effect on US foreign commerce; 2) the effect is sufficiently great to present a substantial injury to the plaintiff; and 3) the interests of and links to American foreign commerce are sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.

In applying this test, the court found that an effect on US foreign commerce exists where the defendant has harmed a US corporation through acts directed in the US, even where those acts took place in another country. The second element of the test was satisfied because the plaintiff suffered a loss of sales to allegedly counterfeit competitors. Finally, the court found that the interests of the United States as compared to those of other nations were to be judged under a seven-part test, and that the balance favored the exercise of extraterritorial jurisdiction. In reaching this conclusion the court noted that a) enforcement of the US law caused no conflict with any current foreign legal proceeding; b) plaintiff is a US corporation and defendants are located and do business in the US; c) the plaintiff is seeking damages and injunctive relief relating to activities within the US; and d) the plaintiff is alleging harm to a US corporation and defendants are engaged in activities that target the US.


Intellectual Property (Trade Secrets)

Difficulty Effecting Service of Process for Foreign Defendants Can Indefinitely Delay Trade Secret Suits

A recent blog post by World in US Courts editor Mark Wine with Christina Von der Ahe discusses several recent cases rejecting substantial efforts to effect service of process for foreign defendants in trade secret suits. As the post further details, efforts such as emailing and mailing copies of summons and attempting to serve subsidiaries are ineffective and failure to effect service of process can indefinitely delay or even kill a lawsuit against a foreign defendant.


Personal Jurisdiction

No Personal Jurisdiction Over Irish Medical Manufacturer Under Georgia Long-Arm Statute Despite Defendants’ Business Dealings Within the State

Holizna v. Boston Scientific Corp. et al., (US District Court, S.D. W.Va., April 8, 2013)

In a series of cases involving similar plaintiffs, defendant Proxy Biomedical, Ltd. (“Proxy”) challenged the court’s personal jurisdiction over it in a product liability suit. Personal jurisdiction was assessed under the State of Georgia’s “long-arm statute,” which authorizes suits against out-of-state defendants based on the nature of their contacts with the state. In this case, the plaintiffs claimed they were injured by a medical implant made by Proxy and that Proxy could be sued in Georgia because of various contracts that Proxy had with Georgia corporations and the sale of its products in the state.

Although Proxy had entered into three contracts with Georgia companies and manufactured a component which is “indirectly sold to parties in Georgia,” the court found those contacts fell significantly below the level of regular and substantial contacts necessary to allow a state to have “general jurisdiction” over Ireland-based Proxy—meaning, that Proxy could not be sued in Georgia for acts unrelated to those connecting it with the State. Nor did the court find that there was “specific jurisdiction” over Proxy, pursuant to which a foreign corporation could be sued where the claim arose specifically from its dealings in the State. The court reviewed Proxy’s contacts with Georgia, including various unrelated contracts, participation in trade shows and conferences, and alleged injuries in Georgia caused by a product which incorporated Proxy’s implant, but found no injury related to those activities.

European Manufacturer’s Sale of Motorcycle Tires Through Independent Distributors Not Sufficient to Establish General Personal Jurisdiction Over Manufacturer Under Pennsylvania Law

Sides v. Harley-Davidson, USA (US District Court, E.D. Pa., May 15, 2013)

Defendant Cooper Tire & Rubber Company Europe Limited (“Cooper”) moved to dismiss product liability and negligence claims arising from an accidental motorcycle death claiming that the court could not exercise personal jurisdiction over it. The plaintiff conceded that “specific” personal jurisdiction did not exist because his alleged injury was not the direct result of actions taken by Cooper in Pennsylvania. Accordingly, the question was whether Cooper had “continuous and systematic contacts” with Pennsylvania so as to establish “general” jurisdiction for it to be sued for actions not connected with the state.

The court found Cooper did not maintain a sufficient presence within Pennsylvania to meet this test. While a number of its tires, delivered by a consignee or carrier, had been sold by independent distributors in Pennsylvania, these sales were too small and occasional to be “continuous and systematic.” The court noted that the US Supreme Court has rejected the “sprawling view” of personal jurisdiction under which a manufacturer could be sued “wherever its products are distributed.”

Court of Appeals Orders Jurisdictional Discovery of Defendants Accused of Supporting Terrorism

In re Terrorist Attacks on September 11, 2001 (US Court of Appeals, Second Circuit, April 16, 2013)

These consolidated appeals involve claims under the Anti-Terrorism Act, the Alien Tort Statute, the Torture Victims Protection Act, and various common law torts against numerous foreign corporate entities and individuals. The US Court of Appeals in New York considered the trial court’s dismissal of thirty-seven defendants for lack of personal jurisdiction over them. The plaintiffs alleged the defendants supported terrorism through various means, and thus directed their activities at the United States, establishing both “general” and “specific” personal jurisdiction.

The court rejected “specific” personal jurisdiction as to all defendants except twelve defendants whose conduct, the court found, was alleged to have been especially directed at the United States. For these defendants, the court found the plaintiffs’ allegations involved “more direct” support of the terrorist attacks; they were largely charity officials who allegedly funneled money and resources directly to Al Qaeda with knowledge that Al Qaeda was “engaged in a global campaign of terror” against the United States. Although the court strongly suggested “specific” personal jurisdiction had been established, it ordered jurisdictional discovery to confirm the extent to which the conduct was directed at the United States.

As to the other defendants, the court held that contacts such as (1) maintaining bank accounts in the US, (2) providing financial services to Al Qaeda, and (3) giving indirect financial support to individuals associated with Al Qaeda were insufficient to establish “specific” personal jurisdiction. Nor was there “general” personal jurisdiction, although the plaintiffs argued that various of the defendants’ various business activities, including operating a US office and/or subsidiary, were sufficient to establish general personal jurisdiction.

Personal Jurisdiction Cannot Be Established by Sporadic, But Long-Term Business Activities

In re British Am. Ins. Co. Ltd. (US Bankruptcy Court, S.D. Fla., April 26, 2013)

The British American Insurance Company Limited (“BAICO”) filed suit against one of its former directors after entering into bankruptcy in Saint Vincent and the Grenadines. BAICO alleged a breach of fiduciary duty involving a bad real estate transaction and alleged that the director could be sued in the US because, over the previous seven years, he served as director or officer of eight Florida businesses, conducted business meetings in Florida, directed business activities in Florida through correspondence, and provided financial assistance to his children living in the United States. But the court found the contacts to be “sporadic” overall, and thus not satisfying the “systematic and continuous” requirement for general jurisdiction. As to “specific” jurisdiction, the court found the allegations were not sufficiently connected to the director’s US activities and the injuries they allegedly caused because his relevant US contacts began after the close of the real estate transaction.

Illinois Supreme Court Finds “Specific” Personal Jurisdiction Over French Manufacturer That Only Sold Related Products In The State

Russell v. SNFA (Supreme Court of Illinois, May 28, 2013)

In a product liability suit stemming from a fatal helicopter crash, the plaintiff claimed defendant SNFA, a manufacturer of custom-made aerospace bearings, could be sued in Illinois based on a high volume of indirect and direct sales in the United States and Illinois. The Court found “specific” personal jurisdiction had been established because SNFA purposefully directed its business activities at the United States and Illinois, both directly and through an American distributor.

SNFA manufactured both airplane and helicopter bearings, and claimed that its helicopter bearings, at issue in the suit, were only indirectly sold in the United States through a distributor. However, SNFA sold over $1 million worth of airplane bearings directly to a company in Illinois. The Court rejected SNFA’s attempt to distinguish between “subcategories” of its products and held that “specific” personal jurisdiction could be established even though the suit involved only helicopter bearings, not the airplane bearings directly sold in Illinois. The Court further held that the direct sales to an Illinois company, in combination with several in-person sales visits, were sufficient to establish minimum contacts with Illinois to support jurisdiction.

Employment Agreements and Email Exchanges Insufficient to Establish Personal Jurisdiction

Stiaes v. GEORXT, Inc. (US District Court, E.D. La, June 18, 2013)

A former employee sued GEORXT, Inc. under maritime law and the Oceanographic Research Vessels Act for an injury to his hand. GEORXT moved to dismiss for lack of personal jurisdiction, arguing that, as a corporation organized under the laws of the British Virgin Islands, it had insufficient contacts with Louisiana. The plaintiff alleged GEORXT could be sued because it sent him an offer of employment in Louisiana and executed the employment agreement while the plaintiff resided in Louisiana through a series of emails.

The court granted the motion to dismiss and transferred the case to West Virginia, where GEORXT had greater contacts. The court held that entering into a contract and exchanging emails was not sufficient conduct to establish minimum contacts with Louisiana to support personal jurisdiction.

No Personal Jurisdiction Over Kenyan Bank Under New Jersey Law Based on Dealings in New York

Community Finance Group, Inc. v. Stanbic Bank Ltd. (US District Court, D.N.J., June 25, 2013)

The plaintiff claimed Defendant Stanbic Bank, a Kenyan corporation, breached its fiduciary duty in a fraudulent gold purchase transaction in Kenya. Jurisdiction over Stanbic Bank in New Jersey was alleged to be based upon the bank’s maintenance of a New York bank account with Deutsche Bank, which has offices in New Jersey. The court disagreed, finding that even though Stanbic Bank conducted frequent business through the account, maintaining a bank account in New York could not establish that the defendant had “purposefully availed” itself of the privileges of conducting business in New Jersey.


RICO

RICO Claim Cannot Be Based on “Pattern of Racketeering Activity” Occurring in Ukraine

Borich v. BP Products North America (US District Court, N.D. Ill., May 28, 2013)

Lillian Borich claimed that she was fraudulently induced to move to Ukraine to work for an affiliate of the BP oil company to be responsible for “business to business” sales of the company’s products. The position allegedly reflected an effort to change the affiliate’s business model from one that utilized wholesalers who paid bribes to local government officials and perhaps others. Borich was ultimately terminated, and she filed a RICO claim against various BP entities, alleging that a statutory requirement of a “pattern of racketeering activity” was met by the affiliates alleged practices of obtaining business through bribes in Ukraine.

The court refused to apply RICO extraterritoriality to the alleged “pattern.” Stating that the “proper focus” of the inquiry was the location of the allegedly illegal acts “and their consequences,” the court concluded that bribes in Ukraine used to generate Ukrainian sales “failed to allege a domestic [US] pattern of racketeering activity.” The court also observed that Borich’s claimed injury was not proximately caused by any of the allegedly illegal bribes, but by a termination of her employment that was not described as part of the “pattern of racketeering activity.”

D.C. District Court Examines Location of Pattern of Racketeering Rather of the Than Enterprise

Hourani v. Mirtchev (US District Court, D.D.C., May 8, 2013)

The extraterritoriality of RICO claims is determined based on where the pattern of racketeering activity takes place, rather than where a particular enterprise is located.

Facts

Two brothers with business in Kazakhstan brought RICO and defamation claims against Dariga Nazarbayev, daughter of Kazakhstan’s president, her accomplice, and a US-based company. The brothers claimed that defendants engaged in a plot to take control over Kazakhstan’s media outlets and defame the brothers in support of Dariga’s political ambitions. The plot allegedly began in Kazakhstan, where at Dariga’s behest, the brothers’ businesses were harassed and raided by government officials who eventually gained control of the businesses through extortion. After gaining control of the businesses, defendants laundered plaintiffs’ assets, in part by using a US-based corporation affiliated with Dariga’s co-conspirator, who approved the scheme while in the US. After the brothers were driven out of Kazakhstan, the defendants allegedly defamed the brothers, falsely identifying them as Islamic terrorists and members of Hamas.

The sole connections between the alleged wrongdoing and the United States included: (1) the US citizenship of one plaintiff; (2) the fact that one defendant agreed to the conspiracy while in Washington, D.C.; (3) the domestic corporation used to launder money; and (4) the fact that defendants allegedly laundered money through US accounts. Based on those alleged connections, the court found the conspiracy to be essentially foreign, and therefore outside the scope of RICO.

Analysis

Noting that D.C. Circuit precedent was unclear about how to evaluate whether a scheme falls within RICO’s scope, the district court considered both alternatives: the enterprise-focused approach, and the approach focused on the pattern of racketeering activity. The court considered the plain language of the statute, as well as its legislative history, to determine that the proper focus in evaluating the extraterritoriality of RICO schemes is on the location of racketeering activity.

Drawing on precedent from the Second and Ninth Circuits, the court concluded that the Hourani plaintiffs failed to show anything more than a slim connection with the United States based on isolated, peripheral contacts. The alleged extortion of Kazakh-based assets took place in Kazakhstan, by a Kazakh actor; therefore, every predicate act that proximately caused plaintiffs’ injuries took place abroad. The post-extortion money laundering, and the mere assent by one co-conspirator while in the US, was not enough to render a RICO conspiracy domestic.

Florida Federal Court Dismisses RICO Claims for Failure to Plead with Particularity

Sinapsis Trading USA, LLC v. Secure Wrap of Miami, Inc. (US District Court, S.D. Fla. Apr. 9, 2013)

A Florida district court dismissed a RICO complaint with leave to amend, finding that plaintiffs failed to satisfy the heightened pleading standards required of all fraud claims. The court explained that plaintiffs had to satisfy the heightened pleading requirements under Federal Rule of Evidence 9(b) because RICO claims are essentially a type of fraud claim.

The parties in this case were competitors in the luggage-wrapping business. Plaintiffs, who won an exclusive contract to wrap luggage at Miami International Airport, alleged that defendants engaged in an unlawful, international scheme to retaliate against them for their success with the Miami airport bid. Although plaintiffs made several allegations—ranging from wire fraud, to defamation, to a conspiracy to initiate a malicious prosecution in Argentina—the complaint failed to allege a pattern of racketeering, and failed to allege even a single misrepresentation on which plaintiffs purportedly relied. The court was therefore unable to determine whether plaintiffs sought impermissible extraterritorial application of RICO, and defendants had insufficient notice of plaintiffs’ allegations.


Securities Law Enforcement

Claims for Fraudulent Conduct In Connection With Domestic Offers of Securities Are Actionable Under Section 17(a), Even if the Offer Resulted In an International Sale

Securities and Exchange Commission v. Tourre (US District Court, S.D. N.Y., June 4, 2013)

A district court in New York held that the Securities and Exchange Commission established that a marketer of securities made domestic offers to sell securities that were allegedly fraudulent, even though the receipt of the offer and the sales of the securities occurred internationally.

Facts

The Securities and Exchange Commission (“SEC”) filed an action against defendant Fabrice Tourre, alleging that Tourre violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and Rule 17(a) of the Securities Act of 1933 in connection with the U.S.-based Tourre’s alleged offer and sale of synthetic collateralized debt obligations to U.S. and international investors. Tourre moved for summary judgment on the SEC's Section 17(a) claim, arguing that the SEC did not have jurisdiction over the alleged offers made to international investors because they were not U.S.-based. Conversely, the SEC moved for partial summary judgment on, among other things, the U.S. element of its Section 10(b) and Rule 10b-5 claims.

Analysis

The court held that, under well-established precedent, a transaction is U.S.-based when title passes or irrevocable liability is incurred in the United States. The court further held that the SEC can state a claim under Section 17(a) if it alleges fraud in connection to a U.S. offer of securities, even if the offer resulted in a sale to international entities. In doing so, the court rejected Tourre’s argument that if a sale of securities is not U.S.-based, neither the sale nor the underlying offer is actionable under Section 17(a). The court also rejected Tourre’s argument that an offer is only U.S.-based if made to a person physically located in the United States. Instead, it held that an offer is domestic as long as it is made in the United States.

Based on its findings, the Court denied Tourre’s motion for partial summary judgment, finding that the record contained evidence showing that he engaged in fraudulent conduct in connection to an offer for securities made while he was located in the United States. Conversely, the court granted the SEC’s motion for partial summary judgment, finding that it established that the alleged fraud occurred in connection with transactions in which title passed or irrevocable liability incurred in the United States.

An International Investor Sufficiently Pled a Section 10(b) Claim by Alleging That Its Irrevocable Purchase of Securities Occurred With Its Delivery of Funds to Entity in United States

Arco Capital Corporations Ltd., v. Deutsche Bank AG, (US District Court, S.D. N.Y., June 6, 2013)

A district court in New York held that an international purchaser of securities sufficiently pleaded a Section 10(b) claim by alleging that it delivered the purchase price for the securities to the securities’ trustee in the United States.

Facts

Plaintiff Arco Capital Corporations Ltd. (“Arco”), a Caymanian company based in Puerto Rico, filed an action against defendant Deutsche Bank AG, setting forth two causes of actions for securities fraud under Section 10(b) of the Securities and Exchange Act of 1934 and 10(b)-5 and common law breach of contract. Arco’s claims related to Deutsche Bank’s offer and sale of notes tied to a portfolio containing transactions originated by Deutsche Bank and effected through a Caymanian collateralized loan obligation. Arco purchased several of the offered Notes through its agent Gramercy Emerging Market Funds (“Gramercy”), which transferred the Notes to Arco in a pass-through transaction. In connection with the purchase of the notes, Gramercy executed Note Subscription Agreements with the transaction’s Issuer, which were agreed to and accepted in the Cayman Islands. Deutsche Bank moved to dismiss Arco’s complaint, claiming that Arco could not raise a Section 10(b) claim because, among other things, it did not purchase the Notes on a U.S.-based exchange or in a U.S.-based transaction.

Analysis

The Court held that a transaction is U.S.-based if title is passed or irrevocable liability is incurred in the United States. In support of its complaint, Arco contended that the subject transaction was U.S.-based because, among other things, Deutsche Bank controlled and managed the transaction from New York and the relevant agreements are governed by New York law. The Court found that Arco’s allegations were sufficient to show that Arco’s purchase of the securities was a U.S.-based transaction. It further found that parties incur irrevocable liability in the United States when a purchaser takes and pays for the security in the United States or when the seller agrees to deliver a security in the United States. Thus, it held that Arco sufficiently pled that irrevocable liability was incurred in the United States when Arco alleged that, per the applicable Note Subscription Agreements, Arco was to deliver the securities’ purchase price to the Issuer in New York.

District Court Finds Defendants’ Conduct to be U.S.-based on Receipt of International Investor’s Funds in U.S. Bank Account

Securities and Exchange Commission v. Graulich (U.S. District Court, D.N.J., June 19, 2013)

The Securities and Exchange Commission (“SEC”) filed a civil enforcement action against Defendants William Graulich and iVest International Holdings, Inc., alleging the violation of Section 10(b) of the Securities Exchange Act of 1934, 10(b)-5, and Section 17(a) of the Securities Act of 1933, in connection with Graulich’s alleged misrepresentations made in the course of a “high yield investor” scheme through iVest, a New Jersey based company. Investors in the alleged scheme included a United Kingdom citizen residing in Belgium. After the SEC’s filing of the instant enforcement action, the United States Attorney’s Office for the District of New Jersey charged Graulich in a parallel criminal case for the same conduct, and judgment was entered against him. The SEC moved for summary judgment. Defendants argued that they were not liable for fraud committed on the British investor because Section 10(b) does not apply extraterritorially. The court, however, found that Defendants’ scheme was conducted in the United States because, among other things, it involved the trade of domestic securities backed by domestic banks, and Defendants consummated every sale in the United States by receiving investor funds in iVest’s New Jersey bank accounts. Accordingly, the court granted the SEC’s motion for summary judgment.

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