Source: https://www.gibsondunn.com/2016-mid-year-transnational-litigation-update/
Timestamp: 2018-08-16 13:51:09
Document Index: 139134197

Matched Legal Cases: ['§ 1962', '§ 1961', '§ 1962', '§ 1962', '§ 1962', '§ 1782']

Gibson Dunn | 2016 Mid-Year Transnational Litigation Update
2016 Mid-Year Transnational Litigation Update
Earlier this year, Gibson Dunn published the latest installment of its annual Transnational Litigation Update. See 2015 Year-End Transnational Litigation Update (February 17, 2016, accessible here). This Mid-Year Update expands on certain key issues addressed by the 2015 Update, including recent case law related to general jurisdiction, the application of United States statutes to extraterritorial conduct, and cross-border discovery. This Update also details Chevron’s decisive victory in the U.S. Court of Appeals for the Second Circuit against the perpetrators of an extortionate scheme against the company involving a multibillion-dollar Ecuadorian judgment, a scheme the Wall Street Journal characterized as the "legal fraud of the century."[1]
Part I: Chevron Wins Decisive Victory in Second Circuit RICO Appeal Concerning Corrupt Scheme to Obtain $9.5 Billion Judgment Through Bribery and Fraud
On August 8, 2016, in Chevron Corp. v. Donziger, Case No. 14-826, a unanimous panel of the Second Circuit affirmed the district court’s trial judgment against New York lawyer Steven Donziger and two of his Ecuadorian clients, granting Chevron equitable relief under the federal RICO statute and New York common law from a fraudulently procured $9.5 billion Ecuadorian judgment.[2] The Second Circuit affirmed in full the relief granted by the district court, including an injunction preventing Donziger and his Ecuadorian clients from attempting to enforce the judgment in any court in the United States, and the imposition of a constructive trust over any proceeds they successfully collect from the judgment. The ruling represents a resounding victory for Chevron in exposing what The Wall Street Journal has characterized as the "legal fraud of the century."[3] Gibson Dunn represented Chevron at trial and on appeal.
In an opinion authored by Circuit Judge Amalya L. Kearse and joined by Circuit Judges Barrington D. Parker and Richard C. Wesley, the Second Circuit repeatedly underscored that the defendants had not challenged the district court’s extensive factual findings. The district court chronicled over hundreds of pages how New York plaintiffs’ attorney Steven Donziger and his co-conspirators orchestrated an extortionate scheme by procuring a multibillion-dollar Ecuadorian judgment against Chevron through corrupt means and then attempting to leverage it to extract a massive payment from the company. Observing that the "record in the present case reveals a parade of corrupt actions by the [Ecuadorians’] legal team," the Second Circuit noted that the defendants’ wrongful conduct included fabricating evidence, bribing foreign officials in violation of the Foreign Corrupt Practices Act, and ghostwriting the multibillion-dollar judgment against Chevron and bribing the Ecuadorian judge to issue it. Chevron Corp. v. Donziger, No. 14-826, 2016 WL 4173988, at *42 (2d Cir. Aug. 8, 2016).
In affirming the district court’s judgment, the Second Circuit rejected Donziger’s argument that Chevron lacked standing as "without merit," holding that "Chevron clearly met the requirements for Article III standing when it commenced the present action." Id. at *38-40. The court similarly rejected Donziger’s mootness argument regarding the purported "substitute" nature of the Ecuadorian appellate court decisions, and dismissed as "untenable" the assertion that there was no connection between the "corrupt conduct at the trial level" and the appellate decisions. Id. at *41-43. The court held that the multibillion-dollar Lago Agrio judgment was "clearly traceable to the [Ecuadorian defendants’] legal team’s corrupt conduct." Id. at *42.
The Second Circuit likewise rejected Donziger’s challenges to the application of RICO to his conduct (the Ecuadorian defendants were not defendants to the RICO claim). Noting that there was "no challenge to the sufficiency of the evidence" that Donziger committed a pattern of racketeering, id. at *50, the court concluded that Chevron had proven all the requisite statutory elements of its civil RICO claim. The court also specifically held that RICO permitted courts to grant injunctive relief to private litigants: "[A] federal court is authorized to grant equitable relief to a private plaintiff who has proven injury to its business or property by reason of a violation of [18 U.S.C.] § 1962." Id. at *52.
Moreover, the injunction was supported by New York common law, the Second Circuit held, which "has long recognized that equitable relief may be granted to a person victimized by the procurement of a judgment through fraud that is extrinsic to the gravamen of the cause of action," and that such relief may be granted by a court with personal jurisdiction over the parties, "even though the fraudulent judgment was entered in a different jurisdiction." Id. at *55. The court also rejected the defendants’ argument that Chevron had an adequate remedy at law–namely, a money judgment and/or the ability to defend against individual enforcement actions. Id. at *57. Noting that the defendants’ professed strategy was to "inundate" Chevron with multiple enforcement actions, thereby "forcing it to incur sizeable legal fees," the court held that Chevron’s ability to defend itself in these actions was not an adequate remedy at law. Id.
Finally, the Second Circuit rejected the Ecuadorian defendants’ argument that the district court lacked personal jurisdiction over them and had no power to enjoin them from enforcing a judgment procured by wrongful conduct on the part of their lawyers and agents. The district court had stricken their personal jurisdiction defense as a discovery sanction for their repeated failure to comply with discovery orders requiring them to produce documents in the possession of their Ecuadorian agents, a sanction the Second Circuit upheld. Id. at *60-63. The court also reasoned that not holding the Ecuadorian defendants accountable for the actions of their lawyers would violate basic lawyer-client principles and "run afoul of the Supreme Court’s warning that fraud ‘is a wrong against the institutions set up to protect and safeguard the public . . . .’" Id. at *63 (quoting Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 246 (1944)). The court found "ampl[e]" support for the district court’s conclusion that the Ecuadorian defendants "retained Donziger as their attorney and gave [their Ecuadorian lawyer] power of attorney," thereby ratifying all of their fraudulent conduct. Id. at *64. Assuming, for the sake of argument, that the Ecuadorian defendants had not been personally involved in the wrongdoing, the court explained, "[e]ven innocent clients may not benefit from the fraud of their attorney." Id.
Part II: Key Transnational Jurisdiction Developments–New Implications of Daimler AG v. Bauman for Personal Jurisdiction over Foreign Corporations Based on Compliance with State Registration Statutes
As we noted in our 2015 Update, courts have continued to limit the circumstances in which a foreign corporation may be subject to general personal jurisdiction in United States courts following the U.S. Supreme Court’s 2014 decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014). In Daimler, the Supreme Court held that a corporation will ordinarily only be subject to general jurisdiction where it is "at home," i.e., in its principal place of business or its place of incorporation. Daimler has occasioned a re-examination of other fundamental tenets of personal jurisdiction, including whether a company’s compliance with a state’s corporate registration statute and designation of an agent for the service of process constitute "consent" to personal jurisdiction, as many courts had held prior to Daimler. Since Daimler, federal district courts have come to conflicting rulings on this issue.[4]
In April, a state supreme court addressed this issue for the first time since Daimler, when the Supreme Court of Delaware held that compliance by non-Delaware corporations with the state’s corporate registration statute alone was not sufficient to constitute consent to general jurisdiction in Delaware courts. Genuine Parts Co. v. Cepec, 137 A.3d 123 (Del. 2016). In so holding, the Delaware Supreme Court departed from decades-old precedent holding otherwise. See Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988).[5] The Genuine Parts decision was followed by two additional state supreme court decisions addressing similar issues.
Prior to Daimler, several other states had held that corporations consented to jurisdiction by registering to do business in the state. In Sternberg, the Delaware Supreme Court had held that a non-Delaware corporation that was duly registered to do business in the state as a foreign corporation, and was therefore required to appoint an agent to receive service of process in the state, had consented to general jurisdiction in the courts of Delaware. 550 A.2d at 1109. The court reasoned that "express consent is a valid basis for the exercise of general jurisdiction in the absence of any other basis for the exercise of jurisdiction" and interpreted Delaware’s corporate registration statute as requiring such consent. The court, however, also found that the defendant had sufficient contacts with the state to justify the exercise of specific jurisdiction. Id. at 1124-25. Genuine Parts appears to be the first decision since Daimler in which a state supreme court has revisited this issue and may serve as an example for other states to revisit their previous holdings on consent-by-registration theories on personal jurisdiction. Indeed, several other state courts had previously interpreted compliance with their registration statutes as constituting consent to general personal jurisdiction. See, e.g., Bagdon v. Phila. & Reading Coal & Iron Co., 111 N.E. 1075 (N.Y. 1916); Confed. of Can. Life Ins. Co. v. Vega y Arminan, 144 So. 2d 805 (Fla. 1962); Mittelstadt v. Rouzer, 328 N.W.2d 467 (Neb. 1982); Rykoff-Sexton, Inc. v. Am. Appraisal Assocs., Inc., 469 N.W.2d 88 (Minn. 1991); Allstate Ins. Co. v. Klein, 422 S.E.2d 863 (Ga. 1992); Werner v. Wal-Mart Stores, Inc., 861 P.2d 270 (N.M. 1993); Merriman v. Crompton Corp., 282 Kan. 433 (Kan. 2006).[6]
In Genuine Parts, the plaintiff sued a Georgia corporation in Delaware and asserted personal jurisdiction based on the defendant’s registration and designation of an agent for service of process in Delaware. 137 A.3d at 125-26. The Delaware Supreme Court found Sternberg to be in tension with Daimler even though Daimler did not involve issues of consent. "[A]fter Daimler," the court held, "it is not tenable to read Delaware’s registration statutes as Sternberg did"–i.e., as holding that, simply by complying with the registration statute and appointing an agent for service of process, a corporation consents to general personal jurisdiction in the state. Id. at 126. The court held that the crux of the question was whether the "exercise of personal jurisdiction [is otherwise] consistent with the Due Process Clause of the Fourteenth Amendment," not just whether a corporate registration statute can be construed as requiring some form of consent to jurisdiction. Id. The court then explained that, unless Delaware is the place of incorporation or principal place of business of the defendant corporation, "[i]n most situations . . . Delaware cannot exercise general jurisdiction over the foreign corporation." Id. at 127.
The court also cited to policy considerations in support of its decision, calling consent-by-registration an "unreasonable toll[] simply for the right to do business" in a state. Id. at 137. Because of the now-interconnected nature of the economy, the court noted that the considerations underpinning the Sternberg ruling–i.e., ensuring that states can provide a forum for the redress of harms by corporations–had ceased to be relevant. As the court noted, we no longer "live in a time when states have no effective bases to hold foreign corporations accountable for their activities within their borders." Id. Cognizant of Delaware’s status as a leader in commercial law, the court noted that if it held that simple compliance with the Delaware registration statute constituted consent to general personal jurisdiction, it would "also encourage other states to do the same," and that Delaware has a "strong interest in avoiding overreaching in this sensitive area." Id. at 143. The court emphasized that the adoption of a different solution would entail that "major Delaware public corporations with national markets could be sued by . . . stockholders on an internal affairs claim in any state in the nation because the corporations have had to register to do business in every state." Id.
Two additional state supreme courts recently addressed the same issue of whether compliance with their corporate registration statutes subjects foreign corporations to jurisdiction or venue in the states. In Bristol-Myers Squibb Co. v. Superior Court of San Francisco County, Case No. S221038 (Cal. Aug. 29, 2016), the California Supreme Court rejected the argument that Bristol-Myers Squibb could be subject to general jurisdiction in the state because it had "registered to do business in California and ha[d] maintained an agent for service of process" there. Slip op. at 15. The court first explained that "[t]he purpose of state statutes requiring the appointment by foreign corporations of agents upon whom process may be served is primarily to subject them to the jurisdiction of local courts in controversies growing out of transactions within the State." Id. (quoting Morris & Co. v. Ins. Co., 279 U.S. 405, 408-09 (1929) (emphasis in original)). Following this, the court held that "a corporation’s appointment of an agent for service of process, when required by state law, cannot compel its surrender to general jurisdiction for disputes unrelated to its California transactions." Id. Similarly, the Supreme Court of Colorado, while ruling on a challenge to venue in the state, recently held that compliance with the state’s registration statute, which requires the maintenance of an agent for the service of process, does not "convert[] a nonresident corporate defendant into a resident." Magill v. Ford Motor Co., Case No. 15SA332, at 16 (Colo. Sept. 12, 2016).
The decisions of the Delaware, California, and Colorado Supreme Courts may signal increased activity in this area, as more state courts are revisiting their general jurisdiction law in the wake of Daimler. Corporate defendants being sued under a theory of general personal jurisdiction should consider challenging that theory if the forum is not one where they are "at home."
Part III: The Evolution of Extraterritoriality–RJR Nabisco, Inc. v. European Community Provides New Direction on the Extraterritorial Limit of RICO; Second Circuit Limits the Extraterritorial Application of the Stored Communications Act
Whether and when federal law can be applied extraterritorially (and the implications of such extraterritorial application) continues to be the focus of significant litigation with respect to the Alien Tort Statute ("ATS"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, the Securities Exchange Act, federal criminal laws, bankruptcy laws, claims brought under European Union laws, and common law claims.
Extraterritorial Application of RICO. On June 20, 2016, the Supreme Court of the United States held that RICO’s substantive provisions apply extraterritorially only to the extent that the underlying predicate criminal offenses required to establish a RICO claim may apply to extraterritorial conduct: "A violation of § 1962 may be based on a pattern of racketeering that includes predicate offenses committed abroad, provided that each of those offenses violates a predicate statute that is itself extraterritorial." RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2103, – U.S. – (2016).[7] This portion of the opinion was unanimous among the seven Justices deciding the case, as Justice Sotomayor did not take part in the decision. RJR Nabisco is the first decision since Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), in which the Supreme Court has held that the presumption against extraterritorial conduct was rebutted as to a federal statute. RJR Nabisco clarifies that foreign conduct may serve as the basis of a RICO theory–provided that the underlying predicate statutes apply extraterritorially. Four of the seven Justices also held, however, that a private plaintiff bringing a RICO suit must allege a domestic injury.
By way of brief factual background, the case was filed by the European Community and 26 of its member states (collectively, the "European Community") against RJR Nabisco ("RJR") in the United States District Court for the Eastern District of New York in 2000. The European Community alleged that RJR had participated in a global money-laundering scheme involving the smuggling of narcotics into Europe, the sale of those narcotics for euros, and the financing of large shipments of RJR cigarettes into Europe using those euros in a series of complicated black-market transactions. European Cmty. v. RJR Nabisco, Inc., No. 02-cv-5771, 2011 WL 843957, at *1-2 (E.D.N.Y. Mar. 8, 2011). RJR moved to dismiss on the grounds that RICO does not extend to racketeering activity outside the United States. The district court agreed and dismissed the complaint. Id. at *7.
On appeal, the United States Court of Appeals for the Second Circuit reversed. The court held that Congress had "clearly manifested an intent" that some of the predicate acts alleged in the complaint should apply extraterritorially, and that by incorporating those predicate acts into the RICO statute, Congress had demonstrated its intent that RICO should apply extraterritorially "to the extent that extraterritorial violations of [the predicate] statutes serve as the basis for RICO liability." European Cmty. v. RJR Nabisco, Inc., 764 F.3d 129, 137 (2d Cir. 2014). The court further held that the money laundering and material support of terrorism statutes alleged as predicate acts expressly provided for extraterritorial application, id. at 140, and that while the mail fraud, wire fraud, and certain other statutes did not apply extraterritorially, the complaint stated domestic violations of those predicate acts because it "alleged conduct in the United States that satisfies every essential element" of the statutes. Id. at 142.
RJR sought rehearing and argued, among other things, that RICO’s private right of action requires a domestic injury. The court denied rehearing and issued a supplemental opinion holding that RICO does not require a domestic injury. European Cmty. v. RJR Nabisco, Inc., 764 F.3d 149, 151-52 (2d Cir. 2014) (per curiam). In so holding, the court reasoned that if an injury suffered abroad was caused by the violation of a predicate statute that applies extraterritorially, then the plaintiff may seek recovery for that injury under RICO. Id. at 151. RJR thereafter sought rehearing en banc; the court denied the request with five judges dissenting. European Cmty. v. RJR Nabisco, Inc., 783 F.3d 123 (2d Cir. 2015).
The Supreme Court granted certiorari on two questions: (1) whether RICO’s substantive prohibitions in Section 1962 apply to predicate acts occurring in foreign countries, and (2) whether RICO’s private right of action in Section 1964(c) extends to injuries suffered abroad. RJR Nabisco, 136 S. Ct. at 2099.
In its decision reversing and remanding the case, the Court first noted that the analysis of whether a statute applies extraterritorially requires a "two-step framework": the court must first ask whether the normal "presumption against extraterritoriality" has been rebutted by a "clear, affirmative indication that [the statute] applies extraterritorially," and only if there is no such indication, then the court must ask whether the case otherwise involves a domestic application of the statute by looking to the statute’s "focus." Id. at 2101. Regarding the second step, the Court explained that if conduct relevant to the statute’s focus occurred in the United States, then the case may involve a domestic application of the statute "even if other conduct occurred abroad." Id. But if the conduct relevant to the statute’s focus occurred abroad, "then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory." Id. And the Court appeared to confirm what it implied in Kiobel–that where "’all the relevant conduct’ regarding these violations ‘t[akes] place outside the United States,’" the court need not apply the "focus" test. Id. at 2101. Applying this framework, the Court agreed with the Second Circuit that RICO’s incorporation of predicate acts that themselves expressly apply extraterritorially manifested a "clear, affirmative indication that § 1962 applies to foreign racketeering activity." Id. at 2102. The Court emphasized, however, that the extraterritorial application of Section 1962’s substantive provisions applies "only to the extent that the predicates alleged in a particular case themselves apply extraterritorially," noting that "[t]he inclusion of some extraterritorial predicates does not mean that all RICO predicates extend to foreign conduct." Id. The Court also explained that the extraterritorial application of Section 1962 does not depend on the location of the RICO enterprise, which "does not impose an independent constraint" on RICO claims. Id. at 2104.
Turning to the second question, the Court held that courts must "separately apply the presumption against extraterritoriality to RICO’s private cause of action," explaining that the creation of a private cause of action is a separate and distinct issue from the question of whether underlying conduct should be permitted. Id. at 2106. Noting that "[a]llowing recovery for foreign injuries in a civil RICO action, including treble damages, presents the . . . danger of international friction," the Court held that there is nothing in Section 1964(c) that provides a clear indication of Congress’s intent to create a private cause of action for injuries suffered outside of the United States. Id. at 2107. The Court rejected the argument that RICO’s private right of action should apply to injuries suffered abroad because the Clayton Act, which served in some respects as a model for portions of RICO, has been interpreted to permit such claims. Id. at 2109-11. The Court explained that it has "not treated the two statutes as interchangeable," and it distinguished cases in which the Clayton Act was found to apply to foreign injuries. Id. at 2109-10 & n.11. The Court noted that it had no occasion to consider, and did not pass on, the nature of any requisite domestic injury. Id. at 2111.
Applying its holding to the case at hand (and reversing the Second Circuit), the Court held that the European Community’s claims "must be dismissed" because they "rest entirely on injury suffered abroad." Id. The Court’s decision turned on a stipulation that the European Community filed in the district court, waiving its damages claims for all domestic injuries; the district court accepted this waiver and dismissed those claims with prejudice. Id. Left with no domestic injuries on which to base the claims, the Court mandated their dismissal.
Three of the seven Justices–Justices Ginsburg, Breyer, and Kagan–dissented from the Court’s holding that RICO’s private right of action requires a domestic injury. The dissenting Justices wrote that they "would not distinguish . . . between the extraterritorial compass of a private right of action and that of the underlying conduct," but instead would "link[], not separat[e], prohibited activities and authorized remedies." Id. at 2113 (Ginsburg, J., dissenting). The dissenting Justices argued that "RICO’s private right of action . . . expressly incorporates § 1962," and should therefore incorporate the extraterritorial application of that section. Id. In support of their argument, the dissenting Justices cited not only the Clayton Act, which courts have held does not have a domestic injury requirement, but also RICO’s expansive definition of "person" and the statute’s legislative history. Id. at 2113-14 & n.3.
Extraterritorial Application of the Stored Communications Act. The Second Circuit addressed the extraterritorial application of Section 2703 of the Stored Communications Act ("SCA"), which governs the conditions under which internet service providers must disclose stored communications to the U.S. Government, in In re Warrant to Search a Certain Email Account Controlled and Maintained by Microsoft Corp., No. 14-2985, 2016 WL 3770056 (2d Cir. July 14, 2016). This decision has important implications for companies making international data storage and transfer decisions. Microsoft was served with a warrant requesting data from a specific Microsoft email address pursuant to the SCA. Microsoft provided responsive data but moved to quash the warrant to the extent it applied to any data stored on its servers in Ireland. Id. at *1-4. The motion to quash was denied and Microsoft appealed to the Second Circuit. Applying Morrison, the Second Circuit held that "the SCA does not authorize a U.S. court to issue and enforce an SCA warrant against a United States-based service provider for the contents of a customer’s electronic communications stored on servers located outside the United States." Id. at *19. The Second Circuit considered the text and legislative history of the SCA and found that Congress did not intend the SCA’s warrant provisions to apply extraterritorially and that the statute’s "focus" was on protecting users’ privacy interests. Id. at *14-17. Accordingly, the warrant could not be enforced in relation to Microsoft’s data center in Dublin. Id. at *19. In a concurring opinion, Judge Lynch called for congressional action to clarify "the Act’s privacy protections" and "revise a badly outdated statute." Id. at *19-26.
Extraterritoriality and the Alien Tort Statute and Torture Victims Protection Act. Our 2015 Update reported that, throughout 2015, courts continued to rely on Kiobel v. Royal Dutch Shell Petroleum Co., 133 S. Ct. 1659 (2013), to dismiss actions based on the Alien Tort Statute ("ATS"). Through its discussion of Kiobel and other extraterritoriality caselaw, the Supreme Court’s recent decision in RJR Nabisco, discussed above, also indicates that Morrison‘s "focus" test (Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010)), is the appropriate test for analyzing whether the plaintiffs have alleged a domestic application of the ATS. This ruling arguably displaces decisions from the lower courts that Kiobel did not adopt the "focus" test. See, e.g., Doe I v. Nestle USA, Inc., 766 F.3d 1013, 1028 (9th Cir. 2014) (concluding that "Kiobel II did not explicitly adopt Morrison‘s focus test").
In Warfaa v. Ali, 811 F.3d 653 (4th Cir. 2016), decided before the Supreme Court’s decision in RJR, the United States Court of Appeals for the Fourth Circuit held that ATS claims against a former colonel in the Somali Army, who was allegedly responsible for the kidnapping and torture of the plaintiff in Somalia by the Somali Army, were impermissibly extraterritorial under Kiobel. The court distinguished its prior decision in Al Shimari v. CACI Premier Tech., Inc., 758 F.3d 516 (4th Cir. 2014), where it had permitted ATS claims based on alleged torture by American military contractors in the Abu Ghraib prison in Iraq, noting that given the extensive relevant conduct that occurred in the U.S. in Al Shimari, it was "best read to note that the presumption against ATS extraterritorial application is not irrefutable." Warfaa, 811 F.3d at 660. In contrast, "[a]n ATS claim," such as that alleged in Warfaa, in which the only connection to the U.S. was the "happenstance of [defendant’s] after-acquired residence in the United States" "will fit within the heartland of cases to which the extraterritoriality presumption applies." Id. at 660-61. The court permitted the plaintiff’s claim under the Torture Victim Protection Act ("TVPA") to proceed, finding that the defendant was not protected by foreign official immunity for "jus cogens" (universally accepted) violations of international law. Id. at 661.
The United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal of plaintiffs’ ATS claims against a Lebanese bank plaintiffs alleged aided and abetted terrorist attacks in Licci et al. v. Lebanese Canadian Bank, SAL, No. 15‐1580, 2016 WL 4470977 (2d Cir. Aug. 24, 2016), though on different grounds. In Licci, plaintiffs alleged that defendant Lebanese Canadian Bank, SAL ("LCB") used a correspondent New York bank account to conduct dozens of international wire transfers on behalf of Shahid (Martyrs) Foundation ("Shahid"), an entity that maintained bank accounts with LCB and that plaintiffs alleged was an "integral part" of Hezbollah and "part of [its] financial arm." Id. at *2. Plaintiffs alleged that these wire transfers, totaling millions of dollars, substantially assisted Hezbollah in carrying out war crimes, crimes against humanity, and acts of genocide in Israel through rocket attacks that killed or injured plaintiffs or their family members. Id. at *7-8. The district court dismissed the claims on the basis that the presumption against extraterritorial application of the ATS was not rebutted and because plaintiffs had not adequately alleged aiding and abetting liability under the ATS. However, the Second Circuit found that plaintiffs’ allegations that LCB "used a correspondent banking account at a New York bank to facilitate wire transfers between Hezbollah’s bank accounts in the months leading up to the rocket attacks" sufficiently "touched and concerned" the United States to dispel the presumption against extraterritoriality as long as it sufficiently alleged a violation of the law of nations. Id. at *11. As to that inquiry, the Second Circuit held that the domestic conduct alleged adequately stated a claim for aiding and abetting Hezbollah’s violations of the law of nations because it substantially assisted with those violations and that "LCB acted intentionally, and pursuant to its official policy, in assisting Hezbollah in carrying out the rocket attacks by carrying out the wire transfers, and . . . knew that the bank accounts between which it facilitated transfers were owned and controlled by Shahid, an integral part of Hezbollah," which was sufficient to allege purpose. Id. at *11-13. The Second Circuit nonetheless affirmed dismissal on the basis that the corporate defendant could not be liable for aiding and abetting violations of international law because "the law of nations, while imposing civil liability on individuals for torts that qualify under the ATS, immunizes corporations from liability." Id. at *13 (citing Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 120 (2d Cir. 2010)).
In another recent ruling, the U.S. District Court for the Southern District of Florida permitted claims under the TVPA against corporate officers and employees of Chiquita Brands to proceed, along with Colombian law tort claims, after dismissing all claims under the ATS as impermissibly extraterritorial. See In re: Chiquita Brands Int’l, Inc. Alien Tort Statute & Shareholder Derivative Litig., No. 08-MD-01916-KAM, 2016 WL 3247913 (S.D. Fla. June 1, 2016). The case against Chiquita is based on allegations that the company provided funds to support the Colombian paramilitary group AUC (United Self-Defense Forces of Colombia) during Colombia’s long civil conflict between the AUC and the government, on the one hand, and the Marxist guerrilla group the FARC (Revolutionary Armed Forces of Colombia), on the other hand. The plaintiffs sought to hold Chiquita liable under the TVPA and other doctrines for harm allegedly caused to the plaintiffs’ family members by the AUC. The district court held that the plaintiffs’ aiding and abetting claims under the TVPA "require[d] a showing of ‘knowing substantial assistance’" to the Colombian paramilitaries who were alleged to have murdered and harmed plaintiffs’ family members. Id. at *13. The court found that "[t]he allegations of the Amended Complaints, read in the light most favorable to Plaintiffs, supported a reasonable inference that the Individual Defendants approved and continued to approve Chiquita’s support of the AUC . . . in order to reduce the company’s operating costs in the production of bananas, knowing that violent deaths of thousands of civilians in the banana[-]growing regions of Colombia would be at least a collateral by-product of its support, if not an intended result [of such support]." Id.
Meanwhile, a separate group of Colombian plaintiffs voluntarily dismissed with prejudice analogous claims against Dole Food in California state court, after Dole Food uncovered evidence that the plaintiffs’ counsel, who also represents a group of plaintiffs in the Chiquita cases, had attempted to bribe a former paramilitary witness. Perez v. Dole Food Company, Inc., BC412620 (Super. Ct. L.A. Cnty.). In that case, the plaintiffs brought claims for wrongful death and other torts under state and Colombian law, alleging that Dole Food, like Chiquita, had made payments to the AUC and should therefore be liable for harm caused by the AUC to the plaintiffs’ family members. Dole Food was represented by Gibson Dunn in the matter. Although Dole Food prevailed in two early demurrers on statute of limitations grounds, the plaintiffs’ claims were revived in part by the California Court of Appeal. Overcoming claims of work product and privilege, Dole Food uncovered evidence of extensive interactions between plaintiffs’ counsel and the paramilitary witnesses whose depositions the plaintiffs sought to take through letters rogatory, including payment negotiations and the provision of scripted testimony. Dole Food obtained a $48,000 sanction against plaintiffs’ counsel for abuse of discovery, as well as court-ordered forensic examination of his computers and other electronic devices. As the damning evidence mounted, one of the paramilitary witnesses testified at his deposition that a Colombian lawyer working with plaintiffs’ U.S. counsel had visited him days before in jail to offer him a bribe to provide false testimony against Dole Food. Dole Food was able to corroborate this testimony with an affidavit from a fellow inmate and contemporaneous text messages. Weeks later, the plaintiffs dismissed their case with prejudice, just ahead of Dole Food’s filing of a motion for terminating sanctions. The court entered dismissal on March 2, 2016, and subsequently awarded Dole Food $470,418 in costs over the objections of plaintiffs’ counsel.
Part IV: Cross-Border Discovery Developments
28 U.S.C. § 1782 enables litigants to seek discovery through federal district courts for use in foreign proceedings, where the target of the discovery is located in that federal district. Section 1782 has become an essential tool in transnational litigation. The first half of 2016 included several rulings of interest in Section 1782 proceedings.
The United States Court of Appeals for the Eighth Circuit’s decision in Andover Healthcare, Inc. v. 3M Co., 817 F.3d 621 (8th Cir. 2016), may be of particular interest to practitioners whose clients’ trade secrets may be subject to Section 1782 discovery. In 2013, Andover filed a patent-infringement suit in the District of Minnesota, alleging that 3M had infringed Andover’s patent with its line of Coban bandages. Andover also sued 3M in Germany, arguing that 3M violated a related European patent. While the German action was pending, Andover sought Section 1782 discovery from 3M in the form of samples of the materials relied upon by an expert whose opinion was offered in the German action. Rejecting the application, the district court noted that the discovery at issue was already being considered by the German court and might be granted there. The court held that the Section 1782 proceeding was an attempt to circumvent a potentially adverse discovery order before the German court, further noting that the "highly sensitive nature of the requested discovery, and the lack of certainty that its confidentiality can be maintained," weighed heavily against ordering discovery. Id. at 623-24. The Eighth Circuit affirmed, highlighting that "[t]he German court is in a position to order the requested discovery if the information is needed, and that the German court is best positioned to assess whether any disclosure can be accomplished without jeopardizing the sensitive trade secrets involved." Id. at 624. The case is significant in supporting the principle that courts will not permit Section 1782 discovery to be used to circumvent potentially adverse discovery rulings in foreign proceedings (the first and third Intel factors) and also because of the court’s reliance on confidentiality as a discretionary ground for the denial of discovery under Section 1782.
There is a continued split among courts as to whether participants in foreign proceedings must exhaust discovery options in those proceedings before seeking discovery in a United States court. In 2015, the United States Court of Appeals for the Second Circuit wrote in dicta in Mees v. Buiter that the lower court had erred in reading an "exhaustion requirement" into Section 1782. Mees v. Buiter, 793 F.3d 291, 303 (2d Cir. 2015). In March of this year, a court in the Southern District of New York cited Mees in support of the proposition that there is no exhaustion requirement, but still denied discovery after finding that the Intel factor addressing the character of the foreign proceedings weighed against granting the application. The court was persuaded that the applicant had the opportunity to obtain the same documents in the German proceeding but failed to argue that its opponent’s document production in that action was deficient, and thus denied the request for discovery. In re Application of Elvis Presley Enters. LLC, No. 15-mc-00386, 2016 WL 843380, at *4 (S.D.N.Y. Mar. 1, 2016). This case suggests that Section 1782 applicants should be prepared to explain what efforts they have made to obtain the discovery sought through the relevant foreign tribunal or why it is not available there.
In 2015, we reported that the Turkish Ministry of Justice, acting through the U.S. Attorney, had sought IP address information from at least one blog in a petition for Section 1782 discovery in the Northern District of California. In re Request for Int’l Judicial Assistance, 2015 U.S. Dist. LEXIS 81550 (N.D. Cal. June 22, 2015). The Turkish Ministry of Justice returned to that district earlier this year, again through the U.S. Attorney’s Office, and successfully sought IP address information from Facebook. In re Request for Int’l Judicial Assistance, No. 16-mc-80108, 2016 WL 2957032 (N.D. Cal. May 23, 2016). In July, a company and its president, plaintiffs in a defamation suit in Canada relating to statements made about them by a former employee on the website Glassdoor.com, successfully brought a Section 1782 application requesting discovery from Glassdoor in the Northern District of California. In re Ex Parte Application of Digital Shape Techs., Inc. and Radomir Nikolajev, No. 16-mc-80150, 2016 WL 3913670 (N.D. Cal. July 20, 2016). We will continue to monitor the use of Section 1782 to obtain this type of discovery.
[1] The Wall St. J., Legal Fraud of the Century (Mar. 4, 2014).
[2] See Gibson Dunn Client Alert, Chevron Earns Decisive Victory in Second Circuit Civil RICO Appeal Concerning Corrupt Scheme to Obtain $9.5 Billion Ecuadorian Judgment Through Bribery and Fraud (Aug. 9, 2016).
[3] The Wall St. J., Legal Fraud of the Century (Mar. 4, 2014).
[4] Before Genuine Parts, discussed infra, but post-Daimler, federal courts interpreting Delaware’s registration statutes issued conflicting rulings on this issue. Compare AstraZeneca AB v. Mylan Pharms., Inc., 72 F. Supp. 3d 549, 556 (D. Del. 2014) (no general personal jurisdiction), with Acorda Therapeutics, Inc. v. Mylan Pharms. Inc., 78 F. Supp. 3d 572, 588-89 (D. Del. 2015) (consent to general personal jurisdiction).
[5] See "Del. High Court Sets Example For Revisiting Daimler," Law360, authored by Gibson Dunn partners Perlette Jura and Anne Champion, and Gibson Dunn associate, Richard Dudley (June 6, 2016).
[6] Other states have previously interpreted their corporate registration statutes in the opposite direction–that is, as not conferring general personal jurisdiction over a corporation. See, e.g., Wainscott v. St. Louis-S.F. Ry. Co., 351 N.E.2d 466 (Oh. 1976); Freeman v. Second Jud. Dist. Court ex rel. Cnty. of Washoe, 1 P.3d 963 (Nev. 2000).
[7] See Gibson Dunn Client Alert, U.S. Supreme Court Clarifies Extraterritorial Reach of Civil RICO (June 21, 2016), http://www.gibsondunn.com/publications/Pages/US-Supreme-Court-Clarifies-Extraterritorial-Reach-of-Civil-RICO.aspx.
The following Gibson Dunn lawyers assisted in the preparation of this client update: William Thomson, Anne Champion, Perlette Jura, Mary Beth Maloney, Dylan Mefford, Kamola Kobildjanova, Richard Dudley, and Pablo Figueroa.