Embassy Law Web Log   
Washington, DC, USA      




Central Bank Funds Subject to Collection in U.S. Courts

The United States Supreme Court ruled on April 20, 2016 that the American legislative body has the constitutional authority to change the law in the midst of post-litigation proceedings to ensure that a winning party can collect from a foreign nation's central bank even if the law did not permit such collection during the litigation. The decision in Bank Markazi v. Peterson is read as permitting Congress to pick a winner:

Article III of the Constitution establishes an independent Judiciary with the province and duty … to say what the law is in particular cases and controversies. Marbury v. Madison, 1 Cranch 137, 177. Necessarily, that endowment of authority blocks Congress from requir[ing] federal courts to exercise the judicial power in a manner that Article III forbids. Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218. Although Article III bars Congress from telling a court how to apply pre-existing law to particular circumstances, Robertson v. Seattle Audubon Soc., 503 U.S. 429, 438–439, Congress may amend a law and make the amended prescription retroactively applicable in pending cases, Landgraf v. USI Film Products, 511 U.S. 244, 267–268; United States v. Schooner Peggy, 1 Cranch 103, 110.
The Iran Threat Reduction and Syria Human Rights Act of 2012 "makes a designated set of assets available to satisfy the judgments underlying a consolidated enforcement proceeding which the statute identifies by the District Court’s docket number. 22 U.S.C. §8772," the court explained when it considered the new statute constitutional. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Exceptions to the Foreign Sovereign Immunities Act

On March 14, 2016, the United States District Court for the District of Columbia granted in part and denied in part the defendants' Renewed Motion to Dismiss in the matter of De Csepel v. Republic of Hungary. The Court found that it did indeed have subject matter jurisdiction under the expropriation exception to the Foreign Sovereign Immunities Act, but that the claim of jurisdiction under the statute's commercial activity exception does not apply.

The case involves forty-four paintings that were to be inherited by the heirs of the Baron Mór Lipót Herzog, a Hungarian Jew and the original collector and owner of the Herzog Collection. During World War II, much of the collection was seized by the Hungarian government and its Nazi collaborators. The defendants - in particular, Hungarian museums - are currently in possession of forty of these paintings, falling into four categories: (1) art acquired by defendants after the Holocaust; (2) art confiscated during the Holocaust that was never returned to plaintiffs; (3) art confiscated during the Holocaust that was returned to plaintiffs, and then subsequently seized back by criminal forfeiture; and finally, (4) art confiscated during the Holocaust that was returned to plaintiffs, and then subsequently deposited with the museums by the 1950 bailment agreement. Thus, plaintiffs allege that defendants breached post-WWII bailment agreements when defendants refused to return the pieces to the plaintiffs in 2008.

In turn, defendants filed their third motion to dismiss in 2015, claiming that neither the FSIA's commercial activity exception nor its expropriation exception applies to plaintiffs' claim. After examination, the Court found that it has subject matter jurisdiction under the expropriation exception to the FSIA, but that plaintiffs cannot show a factual basis for their claim of jurisdiction under the statute's commercial activity exception.

The commercial activity exception may be applied in situations where the action is based upon commercial activity within the United States, performed in the United States in connection with commercial activity of the foreign state elsewhere, or outside the United States in connection with commercial activity elsewhere that causes a direct effect on the United States. Using the 1950 bailment agreements as evidence, the Court found that the evidence presented by the plaintiff to demonstrate commercial activities that affected the United States in some way is not enough for the commercial activity exception to apply. The Court had initially ruled on an earlier Motion to Dismiss that the bailment agreements inferred a direct effect on the United States; however, the Court now writes: The 1950 bailment agreement contained no hints regarding Hungary's future obligations. But if there was an unspoken understanding at all regarding performance, it is decidedly implausible that it obligated Hungary to return art to the United States. Given legal restrictions on exporting art from the country and the pattern of conduct between Hungary and the Herzog family… there is no basis to conclude that the either party understood the bailment as implying such a performance requirement. In this case, an inference was not enough to prove an effect.

Meanwhile, the expropriation exception of the FSIA applies in any case where rights in property taken in violation of international law are in issue. Citing the recent decision in Simon v. Hungary, the Court concluded, among other things, that because the forty-two paintings that were seized during World War II were taken in violation of international law due to the genocidal nature of the Holocaust, the Court does have subject-matter jurisdiction over the case. In reference to the eventual return of the artwork years after the conclusion of WWII, the Court states: It is puzzling to suggest that artwork confiscated during the Holocaust as part of a campaign of genocide loses its status as property taken in violation of international law because it is eventually released to its owner after years of deprivation. Therefore, while the expropriation exception to the FSIA does apply, the commercial activity exception simply does not. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

Some do, others don't: Workers Comp

Self-insurance, statutory workers compensation, foreign sovereign immunity and the widely recognized principle of internal organization of missions conspire to create the setting of an interesting case in Massachusetts: Ted Folkman, Case to Watch: Merlini v. Consulate General of Canada. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Non-Suit in Development Assistance

Unsurprisingly, the United States District Court for the District of Columbia dismissed a lawsuit against an international organization under the International Organizations Immunities Act, the counterpart to the Foreign Sovereign Immunities Act for states, when Indians sought compensation for various damages allegedly resulting from the development assistance granted for a power station in their region. On March 24, 2016, the court filed a 13-page opinion in Budha Ismail Jam v. International Finance Corporation, which outlines the basic concepts of the immunities protecting an arm of the World Bank in Washington, DC. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Forum Non Conveniens and the Foreign Sovereign Immunities Act

On January 22, 2016, the United States Court of Appeals for the Second Circuit in New York upheld the decision of the lower court in the matter of Bahgat v. Arab Republic of Egypt. The plaintiffs -- Dr. Ahmed Baghat, his three children, and his company, Global One Limited -- as well as the defendants -- the Arab Republic of Egypt and the National Bank of Egypt -- are all Egyptian parties. Therefore, in the initial judgment of the United States District Court for the Southern District of New York, the district court dismissed the suit brought by the plaintiffs on the grounds that the defendants were protected by the Foreign Sovereign Immunities Act. An alternative ruling concluded that the suit should be dismissed under the doctrine of forum non conveniens.

A forum non conveniens ruling is made when a case is better suited to be heard in a different court, or forum. The court of appeals affirmed the forum non conveniens decision and concluded that the case should be heard in an Egyptian forum.

The appellate court's decision to affirm the judgment was based upon several factors. To begin, a district court's decision to dismiss a case under forum non conveniens is made using a three-step analysis:

At step one, a court determines the degree of deference properly accorded the plaintiff's choice of forum. At step two, it considers whether the alternative forum proposed by the defendants is adequate to adjudicate the parties' dispute. Finally, at step three, a court balances the private and public interests implicated in the choice of forum.

Thus, owing to the fastidiousness of the aforementioned three-step analysis, the court of appeals gives substantial deference to a district court's decision to dismiss a case for forum non conveniens. The court writes, [w]e will only reverse if the trial court has 'clearly abused its discretion.'

In this matter, the court compared potential abuses of discretion to the three-step analysis described above. Because the majority of the plaintiffs currently reside in Egypt, the political unrest in Europe had no potential damaging effects on the dispute, and because all the relevant information regarding the case is located in Egypt and would thus require substantial knowledge of Egyptian law, the court of appeals determined that the suit is, indeed, better suited for an Egyptian forum rather than a United States court. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

The Direct-Effect Clause in the FSIA

In Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC, the United States Court of Appeals for the Second Circuit in New York City confirmed subject-matter jurisdiction of the district court over a foreign government-owned sovereign wealth fund under the direct-effects clause of the Foreign Sovereign Immunities Act, quoting the Supreme Court in Republic of Argentina v. Weltover, 504 U.S. 607, (1992):

Under the direct‐effect clause, a foreign state is not immune from jurisdiction if the plaintiff's "lawsuit is (1) 'based upon … an act outside the territory of the United States'; (2) that was taken 'in connection with a commercial activity' of [the foreign state] outside this country; and (3) that 'cause[d] a direct effect in the United States.'""
The required facts for the direct effect of foreign acts in the United States are often disputed, but in this matter involving commercial notes, securities, a bankrupt foreign bank and representations to investors, the facts clearly pointed to effects in the United States where investors obtained interests in the securities and suffered the alleged harm. The February 3, 2016 decision rests in part on the recent Supreme Court precedent in OBB Personenverkehr AG v. Sachs, 136 S.Ct. 390 (2015). -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Enforcement into Foreign State's U.S. Assets

On January 15, 2016, the United States Supreme Court published the transcript and audio recordings of its January 13, 2016 hearing in the Bank Markazi v. Petersen case. The bank argued that Congress acted unconstitutionally when it created a law for the enforcement of a specific judgment for damages into the assets of Iran. A decision is expected before the end of the current term of the Supreme Court. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Can Embassy Visits Change Extradition Law?

Would a foreign fugitive's regular visits to his embassy avoid tolling the statute of limitations on the alleged crimes for which his home country has requested his extradition? In the matter USA v. Liuksila, a Finnish citizen in Washington argued that the statute of limitations had run.

He may have been absent from Finland but through his embassy contacts had been available to Finnish authorities, and he had also cooperated with a Finnish detective. Since he remained available to them, he suggested, he was not truly absent from Finland. Therefore, the tolling effect could not have occurred, the statute had run and he could no longer be extradited from the United States to Finland, he claimed.

In a 14-page opinion of January 5, 2016, the United States District Court for the District of Columbia analyzed the law in light of these facts and concluded that the mere absence from Finland is determinative. Visits to the embassy do not have the same effect as returning to the jurisdiction seeking extradition! -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.

Comity for Sovereign's Acts

On January 5, 2015, the United States Court of Appeals for the Second Circuit in New York City ruled that a federal judge had not appropriately considered the validity of trademark transfers under Russian law in the matter of Fed. Treasury Enter. Sojuzplodoimport v. Spirits Int'l B.V.. Bearing in mind the ideas of state sovereignty and comity, Judge Dennis Jacobs writes: …the US District Court for the Southern District of New York erred in considering whether the asserted basis for standing to pursue the section 32(1) claims was valid under Russian law.

During the prime of the Soviet Union, the Soviet enterprise known as VVO-SPI obtained a trademark in the United States in order to sell its vodka Stolichanya through various US distributors such as PepsiCo. VVO-SPI eventually assigned the trademark licenses to PepsiCo from 1990 to 2000.

The subsequent collapse of the Soviet Union in the early 1990s led to widespread privatization of various Soviet enterprises, purportedly including VVO-SPI, which ultimately became controlled by SPI International. As successor in interest to VVO-SPI, SPI International claimed ownership of the Stolichanya trademarks. After discontinuing the licensing agreement with PepsiCo in 2000, SPI sold the trademark rights to the Dutch company Allied Domecq. However, in 2001, a court in the Russian Federation ruled that VVO-SPI had not actually been privatized. In response to the ruling, the Russian Federation established the agency and VVO-SPI successor known as the Federal Treasury Enterprise Sojuzplodoimport in an effort to reclaim the trademarks. FTE and Cristall - a company that FTE had entered into exclusive licensing agreements with - sued Allied Domecq, its subsidiaries, and SPI International.

In the US District Court for the Southern District of New York, FTE laid claim to the Stolichnaya vodka trademarks that originated during the Soviet Union, arguing violations of section 32(1) of the Lanham Act, as well as other federal and state law claims. Ultimately, the district court dismissed all the claims, citing incontestability of the trademarks due to the duration of the trademark's existence.

A subsequent issuance of a Decree by the Russian Federation on behalf of FTE led to the vacating of the dismissal of section 32(1) claim. As Judge Jacobs writes:

The Degree and Assignment were indisputably acts of a foreign government. The declaration of a United States court that the executive branch of the Russian government violated its own law by transferring its own rights to its quasi-governmental entity (FTE) would be an affront to the government of a foreign sovereign.
The court further cited a potential violation of foreign sovereignty, stating,
The doctrines of comity and act of state preclude a United States court from invalidating an action of a foreign sovereign with respect to a transfer of rights among its branches or entities on the ground that the transfer is invalid under the law of that foreign sovereign.
Put simply, the ruling acknowledges the power of the sovereign state and its government - a factor that cannot be ignored in a United States Court. The case, in regards to the section 32(1) claim, has been remanded for further proceedings. -- Kathryn Campbell, Legal Assistant, Berliner Corcoran & Rowe LLP, Washington, DC.

State Wins Stay of Enforcement After Arbitration

The November 3, 2015 decision in Getma International v. Republic of Guinea by the United States District Court for the District of Columbia illustrates usefully the conditions for a stay of excution of a disputed arbitral award. The District Court determined that the main conditions for the enforcement of the foreign award existed but it accepted the limitations established by the Federal Arbitration Act, namely an application of discretion.

Relying on the factors established by the United States Court of Appeals for the Second Circuit in Europcar Italia, S.p.A. v. Maiellano Tours Inc., 156 F.3d 310, 316-17 (2d Cir. 1998), the court carefully examined six EuropCar factors. It concluded that the dispute surrounding the award counseled against confirmation and enforcement. However, it noted that staying these proceedings indefinitely could be seen as an abuse of discretion. See Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 732-33 (D.C. Cir. 2012) and limited the stay for a period through April 30, 2016. -- Clemens Kochinke, partner, Berliner Corcoran & Rowe LLP, Washington, DC.