Trends In International Litigation

Horizons Lines To Plead Guilty to Price Fixing

Edward Joffe — Tue, 01 Mar 2011 13:35:35 -0500

Horizon Lines LLC has agreed to plead guilty and to pay a $45 million criminal fine for its role in a conspiracy to fix prices in the coastal water freight transportation industry, the Department of Justice has announced.

According to a one-count felony charge, filed last week in U.S. District Court for the District
of Puerto Rico, Horizon Lines LLC, whose principal place of business is in Charlotte, N.C.,
engaged in a conspiracy to fix rates and surcharges for water transportation of freight between
the continental United States and Puerto Rico from at least as early as May 2002, until at least
April 2008.

Horizon Lines LLC transports a variety of cargo shipments, such as heavy equipment,
medicines and consumer goods, on scheduled ocean voyages between the continental United
States and Puerto Rico.

According to the charge, Horizon Lines LLC and co-conspirators carried out the
conspiracy by agreeing during meetings and discussions to allocate customers of Puerto Rico
freight services and to fix the rates and surcharges to be charged to purchasers of water
transportation of freight between the continental United States and Puerto Rico. The department
said that Horizon Lines LLC and co-conspirators also engaged in meetings for the purpose of
monitoring and enforcing adherence to the agreed-upon rates and sold Puerto Rico freight
services at collusive and noncompetitive rates.

In addition to today’s charge, as a result of this investigation, five former executives have
been charged and sentenced to serve prison time. On Oct. 20, 2008, three former Horizon Lines
LLC executives, R. Kevin Gill, Gregory Glova and Gabriel Serra, and another former shipping
executive, Peter Baci, pleaded guilty to a wide-ranging conspiracy to rig bids, fix prices and
allocate customers transporting goods between the continental United States and Puerto Rico by
ocean vessel. On the same day, Alexander Chisholm pleaded guilty for his conduct in
obstructing the Department of Justice’s investigation of the shipping conspiracy.
Horizon Lines LLC is charged with price fixing in violation of the Sherman Act, which
carries a maximum fine of $100 million for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if
either of those amounts is greater than the statutory maximum fine.

A class action civil case has also been pending for several years in Puerto Rico.

Egypt unrest update

Edward Joffe — Thu, 03 Feb 2011 12:07:28 -0500

The Swedish Club, a leading marine mutual insurer, headquartered in Göteborg, Sweden, provides the following update on Egyptian unrest:

There is a nationwide curfew from 17:00 to 08:00 local time which can have a negative affect on port and Suez Canal operation.

Selected port terminals are closed which mainly disrupt container and bulk operations while oil and gas terminals are operating normally. It has been reported that the only open port is Port Said where the military is present, but there are also reports that Damietta are operating but with disruptions. It is difficult to confirm this information.

The Suez Canal remains open to traffic as the military control the operation of the canal. Pilots are given military protection to be able to carry out their duties and are exempted from the curfew.

British Government Delays Implementation of Bribery Act

Edward Joffe — Mon, 31 Jan 2011 14:05:54 -0500

The British Bribery Act is to be delayed for a second time to allow companies to get to grips with the controversial new rules, the British Government has said.

The legislation, which brings in rigorous anti-corruption regulations, was due to come into force in April, following Justice Secretary Ken Clarke's decision last summer to push back a planned October implementation.However, the Ministry of Justice (M0J) has said that its own failure to publish clear guidance for companies by its sell-imposed January deadline and an ongoing review of the regulatory impact of the Act had forced a further delay.

An MoJ spokesman said: "We are working on the guidance to make it practical and comprehensive for business. When the guidance is published it will be followed by a three-month notice period before implementation of the Bribery Act."

The Government has come under pressure from business groups to reconsider aspects of the legislation. Katja Hall, the CBI's director of employment policy, said: "The CBI strongly supports the Government's attempts to modernise and update anti-bribery legislation. But we want the review to clarify the rules for areas like hospitality and third-party services to ensure that people who are engaged in legitimate activities are not caught out.

CARGOLUX FILES APPEAL FROM EUROPEAN COMMISSION FINE

Edward Joffe — Fri, 28 Jan 2011 21:32:13 -0500

On 9 November 2010, Cargolux Airlines International S.A. and 10 other airlines were fined by the European Commission for allegedly operating a cartel in airfreight. Cargolux was fined €79.9 million out of a total amount of €799.4 million. Cargolux has decided to file an appeal against the decision of the European Commission. At this stage, Cargolux does not wish to make any further comments on this pending case.

Cargolux, along with a number of other airlines, has been subject to investigation by antitrust authorities around the world:

In 2009, as a result of an investigation by the Australian Competition & Consumer Commission (ACCC), Cargolux agreed to pay A$5 million in price-fixing penalties.
In 2008, New Zealand's Commerce Commission initiated proceedings in the High Court in Auckland against Cargolux and twelve other airlines for extensive and long-term cartel activity in the air cargo market.
In 2010, the South African Competition Commission (SACC) referred cases of collusion in the air cargo market to the Tribunal for adjudication, involving Cargolux and seven other airlines.
In 2010, the Korea Fair Trade Commission (KFTC) imposed fines totalling 119.54 billion won on nineteen airlines. Cargolux was fined 2.05 billion won.
In 2010, Cargolux pleaded guilty in a Canadian Federal Court and was fined $2.5 million for its role in an air cargo cartel affecting Canada.
In 2009, Cargolux and a number of other cargo airlines entered into plea agreements with the US Dept of Justice following an investigation by the DOJ's Antitrust division. Cargolux agreed to pay a fine of US$119 million. In October 2010, two of the airline's senior executives were indicted. And, in a class action lawsuit, Cargolux reached a settlement agreement of US$35.1 million.

Press Privilege not allowed in proceeding to compel disclosure for use in proceedings in a foreign tribunal

Edward Joffe — Tue, 18 Jan 2011 22:14:37 -0500

The Second Circuit considered an appeal of a proceeding under 28 U.S.C. § 1782 from an order of the United States District Court for the Southern District of New York (Kaplan, J.) compelling disclosure for use in proceedings in foreign tribunals. The appeal involved the application of the qualified evidentiary privilege for information gathered during a journalistic investigation, sometimes described as the “press privilege” or “journalist's privilege.”

Joseph Berlinger created a documentary film, entitled Crude, about a litigation being conducted in the courts of Ecuador at Lago Agrio (the “Lago Agrio litigation”) over allegations of environmental damage in Ecuador from petroleum exploration and extraction operations conducted by an affiliate of petitioner Chevron Corp. The district court directed Berlinger to produce to the petitioners the videotape footage constituting the outtakes of the film.

Petitioners, who sought and obtained the contested order of disclosure, are: 1) Chevron, which is a defendant in the Lago Agrio litigation, as well as a plaintiff in an arbitration in the Hague against Ecuador protesting the Lago Agrio litigation, and 2) Rodrigo Pérez Pallares (Pérez) and Ricardo Reis Veiga (Reis), attorneys employed by Chevron, who are defendants in criminal proceedings in Ecuador based on their actions in connection with the environmental litigation. They sought the disclosure for use in those criminal proceedings.

Berlinger contended that the district court abused its discretion in ordering production of the outtake footage. He argued that his investigative journalism recorded in the raw footage is protected from such compelled disclosure by the press privilege. He therefore asks that we overturn the district court's order.

The appellate court rejected Berlinger's contention. Given all the circumstances of the making of the film, as reasonably found by the district court, particularly the fact that Berlinger's making of the film was solicited by the plaintiffs in the Lago Agrio litigation for the purpose of telling their story, and that changes to the film were made at their instance, Berlinger failed to carry his burden of showing that he collected information for the purpose of independent reporting and commentary. Accordingly, the cannot say it was error for the district court to conclude that petitioners had successfully overcome Berlinger's claim of privilege.

[Chevron Corp. v. Berlinger, 2011 WL 102671 (2nd Cir. January 13,2011)]

Appellate Court Allows Suit to Proceed Against Alleged Russian Patent Infringer

Edward Joffe — Tue, 11 Jan 2011 16:18:18 -0500

Nuance Communications, Inc. ("Nuance") filed a patent infringement action against Abbyy USA Software House (" Abbyy USA") and two affiliates, Abbyy Production LLC (" Abbyy Production"), a corporation organized under the laws of the Russian Federation, and Abbyy Software, Ltd. (" Abbyy Software"), a corporation organized under the laws of the Republic of Cyprus. Abbyy Production and Abbyy Software filed a motion to dismiss for lack of personal jurisdiction and improper service of process, which was granted by the United States District Court for the Northern District of California without an evidentiary hearing or further discovery.

Because Abbyy Production purposefully directed activities at residents of California, because Nuances claims for patent infringement arise out of those activities, and because the assertion of personal jurisdiction was reasonable and fair, the Federal Court reversed the district court’s dismissal of Abbyy Production on personal jurisdiction grounds and ordered jurisdictional discovery as to Abbyy Software.

Concerning the service of process issue, the appellate court noted that the district court's granting of the motion to dismiss for failure to serve Abbyy Production in accordance with the Hague Convention was wrong since the record indicates that Nuance could not have done so. According to a Bureau of Consular Affairs circular published by the U.S. State Department on Russia Judicial Assistance, "requests sent [via diplomatic channels or] directly by litigants to the Russian Central Authority under the Hague Service Convention are returned unexecuted." J.A. 316. Further, the State Department warns that "in the absence of a direct channel for U.S. judicial assistance, U.S. courts and litigants will explore other methods to effect service of process," such as service via an agent of the Russian Federation. J.A. 317. This resulted because the Russian Federation "unilaterally suspended all judicial cooperation with the United States in civil and commercial matters in 2003." J.A. 316.

The appellees argued that service must have been attempted under the Hague Convention before alternative service methods can be employed, but the Federal Circuit disagreed and noted that under Rule 4(f)(3), federal courts have discretionary authority to direct service "by other means not prohibited by international agreements." And that Rule 4(f)(3) is not subsumed within or in any way dominated by Rule 4(f)'s other subsections; it stands independently, on equal footing." The Advisory Committee Note to Rule 4 explains that Rule 4(f)(3) is particularly appropriate where a signatory to the Hague Service Convention has "refused to cooperate for substantive reasons." On remand, the appellate court directed the district court to allow alternate service as it deems appropriate, including at least substitute service, pursuant to Rule 4(f)(3), of Abbyy Production by substitute service on Abbyy USA.

This case is another example of the flexibility (and common sense) courts take on the personal jurisdiction and service of process issues in the international arena.

[Nuance Communications, Inc. v. Abbyy Software House, 626 F.3d 1222 (Fed. Cir. 2010)]

UK NEW BRIBERY ACT CALLED FCPA ON STEROIDS

Edward Joffe — Sat, 01 Jan 2011 17:35:05 -0500

THE UK’s new Bribery Act, which takes effect in April, resembles the U.S. Foreign Corrupt Practices Act, which bars companies that trade on U.S. exchanges from bribing foreign government officials to gain a business advantage. The British law, however, is more sweeping than its American counterpart. The legislation applies to all companies based in in the U.K. England, Scotland, Wales and Northern Ireland, as well as foreign companies and individuals doing business in the UK. It has a global reach, applying to acts or omissions taking place anywhere in the world.
It goes beyond the FCPA by not just prohibiting illicit payments to foreign officials, but also bribes between private businessmen. It applies even if the individual who makes the payment doesn't realize the transaction was a bribe, legal experts say.

The law prohibits facilitation payments, or "grease payments," small bribes common in some countries to get mail service, phone hook-ups or other services that otherwise would be significantly delayed.

The law allows companies under scrutiny to avoid trouble by having an adequate compliance program. But British authorities haven't defined what constitutes an adequate program.
The Bribery Act, which replaces a jumble of British bribery laws and rulings, boosts the maximum penalty for bribery to 10 years in prison from seven, and sets no limits on fines.

Judge Delays Ruling In Puerto Rican Cabotage Antitrust Litigation

Edward Joffe — Mon, 13 Dec 2010 14:34:06 -0500

On November 8, 2010, the Court held a Final Fairness Hearing relating to the Crowley ,Horizon, Sea Star, Saltchuk Shapiro and Chisholm Settlement Agreements to which it previously granted preliminary approval. At the Hearing, both Objectors and Settling Parties presented their arguments regarding the fairness of the settlements, including the attorneys' fees requested. While hearing these arguments, the Court expressed that it had several reservations to address prior to resolving the ultimate issue of the fairness, reasonableness and adequacy of the settlements.

On Decmeber 7, 2010, the Court entered an order indicating that it needed additional information from Plaintiffs before ruling regarding the fairness, reasonableness and adequacy of the Settlement Agreements. The Plaintiffs have until January 8, 2011 to provide this information. A final decision is expected shortly thereafter.

Florida Man and Two U.K. Nationals Plead Guilty in Relation to Immigration Fraud Scheme Involving Florida Property Development Company

Edward Joffe — Mon, 13 Dec 2010 13:36:28 -0500

A Florida man and two U.K. nationals pleaded guilty Dec.10, 2010, to immigration fraud charges for their roles in a scheme to fraudulently procure visas from the U.S. Embassy in London through a Florida property development company called Royal Development. The guilty pleas were announced

Richard A. Murdoch, 54, of Florida, pleaded guilty to visa fraud and tax evasion in relation to the immigration fraud scheme. Hugh Morgan, 68, a U.K. national residing in Ontario, Canada, and Christopher A. Barrett, 49, a U.K. national residing in Florida, pleaded guilty to conspiracy to commit immigration fraud. Murdoch and Barrett pleaded guilty before U.S. Magistrate Judge David A. Baker. Morgan also pleaded guilty to conspiracy to commit immigration fraud in a separate but related case involving immigration benefit applications submitted to U.S. immigration authorities for a U.K. national named Michael J. Leggett. Leggett previously pleaded guilty to two counts of immigration fraud in relation to Royal Development and his own immigration benefit applications in the Middle District of Florida on Aug. 24, 2007. Morgan’s pleas took place before U.S. Magistrate Judge Gregory J. Kelly.

At sentencing, Murdoch faces a maximum sentence of 10 years in prison for visa fraud and five years for tax evasion; Morgan faces a maximum sentence of five years in prison for each conspiracy charge; and Barrett faces a maximum sentence of five years in prison for conspiracy to commit immigration fraud. Each defendant is also subject to a maximum fine of $250,000 for each charge. Morgan is scheduled to be sentenced on March 9, 2011, and Murdoch and Barrett are scheduled to be sentenced on March 10, 2011.

According to court documents, from approximately June 2003 to November 2006, the defendants conspired to commit immigration fraud through Royal Development, which purportedly sold Florida-based home construction companies to foreign nationals. The conspirators represented that the purchase of a company would enable foreign nationals to qualify for and obtain either a treaty investor (E-2) visa or intracompany transferee (L-1A) visa. Along with the sale of the companies, the conspirators generally represented that they would submit the required visa paperwork to U.S. authorities, help the foreign nationals run the company, and help the foreign nationals adjust to life in the United States. According to court documents, the conspirators required a payment of between $65,000 to $165,000 for the purchase of the company and the visa services. During the course of this conspiracy, Royal Development obtained over $2.4 million from the U.K. investors.

According to plea documents, Murdoch admitted that he knowingly presented required applications, affidavits and other documents that contained materially false statements to U.S. immigration authorities. In addition, Murdoch admitted that from approximately June 2003 to April 2006, Murdoch received approximately $536,593 in income from Royal Development for which he should have paid income taxes and that he intentionally failed to file his federal income tax returns for 2003, 2004, and 2005, by the respective due dates, because he was concealing his income from the IRS. The total tax due and owing on this taxable income to the U.S. government is $189,852. Murdoch also admitted that he used the taxable income from Royal Development for personal expenses such as hang gliding, cigars, and the purchase of a 1987 Porsche.

According to plea documents, Morgan and Barrett admitted that they knowingly presented required applications, affidavits and other documents that contained materially false statements to U.S. immigration authorities. In particular, Morgan and Barrett admitted that they knowingly prepared and submitted fraudulent immigration benefit applications for Barrett as well as Barrett’s adult daughter, enabling both Barrett and his daughter to fraudulently procure L-1A visas and come to and work in the United States.

UK Citizen Pleads Guilty to Conspiring to Bribe Nigerian Government Officials to Obtain Lucrative Contracts as Part of KBR Joint Venture Scheme

Edward Joffe — Mon, 06 Dec 2010 14:33:27 -0500

Wojciech J. Chodan, a former commercial vice president and consultant to a United Kingdom subsidiary of Kellogg, Brown & Root Inc. (KBR), pleaded guilty today to conspiring to violate the Foreign Corrupt Practices Act (FCPA) for his participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts, the Department of Justice announced. The EPC contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, were valued at more than $6 billion.

Chodan, 72, a U.K. citizen, was extradited from the United Kingdom to the United States on Dec. 3, 2010, and pleaded guilty today in U.S. District Court in Houston before U.S. District Judge Keith P. Ellison to one count of conspiracy to violate the FCPA. Chodan was originally charged on Feb. 17, 2009. Sentencing has been scheduled for Feb. 22, 2011. Chodan faces a maximum penalty of 60 months in prison on the conspiracy charge. As part of his plea agreement, Chodan agreed to forfeit $726,885.

KBR, Technip S.A. (Technip), Snamprogetti Netherlands B.V. (Snamprogetti) and a Japanese engineering and construction company were part of a four-company joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. Chodan admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. Chodan recommended and agreed to the joint venture’s hiring of two agents, Jeffrey Tesler and a Japanese trading company, to pay the bribes. During the course of the bribery scheme, the joint venture paid approximately $132 million to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. At crucial junctures preceding the award of EPC contracts, Chodan and his co-conspirators met with successive holders of a top-level office in the executive branch of the Nigerian government to ask the office holders to designate a representative with whom the joint venture should negotiate the bribes to Nigerian government officials.

Incoterms® 2010 - Webinars

Edward Joffe — Mon, 15 Nov 2010 16:41:08 -0500

On January 1, 2011 a comprehensive revision of ICC's Incoterms rules will come into effect. The new revision, the first in ten years, reflects the changes in international trade including the importance of cargo security and the adoption in 2009 by insurance markets of the revised Institute Cargo Clauses. The new rules also have been developed to take into account the continued growth of containerization and point-to-point deliveries.

I will be conducting a series of webinars providing a comprehensive review of Incoterms® 2010 with an emphasis on these changes.

Information about these programs is available at www.languageoftrade.org.

EU fines 11 air cargo carriers €799 million in price fixing cartel

Edward Joffe — Tue, 09 Nov 2010 14:02:35 -0500

The European Commission has fined 11 air cargo carriers a total of €799.445.000 for operating a worldwide cartel which affected cargo services within the European Economic area (EEA). Several known airlines are among the 11 undertakings fined, namely Air Canada, Air France-KLM, British Airways, Cathay Pacific, Cargolux, Japan Airlines, LAN Chile, Martinair, SAS, Singapore Airlines and Qantas. The carriers coordinated their action on surcharges for fuel and security without discounts over a six year period. Lufthansa (and its subsidiary Swiss) received full immunity from fines under the Commission's leniency program, as it was the first to provide information about the cartel.

"It is deplorable that so many major airlines coordinated their pricing to the detriment of European businesses and European consumers" said Vice President for Competition Joaquín Almunia adding:" with today's decision the Commission is sending a clear message that it will not tolerate cartel behaviour".

In setting the level of the fines, the Commission took into account the sales of the companies involved in the market concerned, the very serious nature of the infringement, the EEA-wide scope of the cartel and its duration.

All carriers were granted a 50% reduction on sales between the EEA and third countries in order to take into account the fact that on these routes part of the harm of the cartel fell outside the EEA. The Commission increased the fine for SAS by 50% for its previous involvement in a cartel in the airline sector (SAS/Maersk cartel, see IP/01/1009). All carriers received a reduction of 15% on account of the general regulatory environment in the sector which can be seen as encouraging price coordination. Four carriers were also granted a 10% reduction for limited participation in the infringement. As the fines on two companies would have exceeded the legal maximum of 10% of their 2009 turnover, the amount (before possible leniency considerations) was reduced to this level.

Lufthansa (and its subsidiary Swiss) received full immunity under the Commission Leniency Program, as it brought the cartel to the Commission's attention and provided valuable information. The fines of the following carriers were also reduced for their cooperation with the Commission under its Leniency Program: Martinair (50%), Japan Airlines (25%), Air France-KLM (20%), Cathay Pacific (20%), LAN Chile (20%), Qantas (20%), Air Canada (15%), Cargolux (15%), SAS (15%) and British Airways (10%).

This action comes as no surprise. Over the last several years a number of air carriers have paid fines in the US for violation of its antitrust laws.

Civil class action litigation has also been pending for a number of years.

CBP Proposed to Amend 19 CFR 111.24

Edward Joffe — Fri, 29 Oct 2010 11:10:59 -0500

CBP proposes to amend 19 CFR 111.24 to allow a broker, upon the client's consent in a written authorization, to share client (importer) information with affiliated entities related to the broker in order to offer non-customs business services to its clients. If brokers choose to share client (importer) information with an affiliated entity related to the broker, the changes to the regulation would potentially benefit the broker's client (importer) through the availability and access to additional non-customs business services. This rule also proposes to allow a broker to outsource its photocopying and scanning tasks to a third-party service provider, and to use a third-party messenger service provider for transport and delivery of client records. To the extent that brokers would use third-parties for copying, scanning and messenger services, the changes to the regulation would confer a benefit to the broker by allowing it to streamline its business.

The proposed amendments to the CBP regulations are set forth below:

Sec. 111.24 Records confidential.

(a) Client Records. The records referred to in this part and pertaining to the business of the clients serviced by the broker are considered confidential. Except as provided in paragraphs (b) and (c) of this section, the broker must not disclose the contents or any information connected with client records to any persons other than those clients, their surety on a particular entry, and the Field Director, Office of International Trade, Regulatory Audit, the CBP port director, the Immigration and Customs Enforcement agent, or other duly accredited officers or agents of the United States, except on subpoena by a court of competent jurisdiction.

(b) Disclosure to Affiliated Entity Related to Broker. Upon the client's consent in a written authorization to share client information outside the brokerage, a broker may disclose only to an affiliated entity related to the broker, information specified in the written authorization pertaining to the customs business of that client so that the affiliated entity may offer non-customs business services to the broker's client.

(c) Other Third-Party Service Providers--(1) Photocopying and Scanning Services. A broker may provide its clients' records to a third-party service provider for photocopying and/or scanning without violating the prohibitions set forth in the provisions of this part pertaining to confidentiality, provided that:

(i) The broker exercises due diligence in accordance with Sec. 111.29(a) of this part in the selection of the third-party service provider for photocopying and/or scanning by ensuring that its association with the third-party does not violate the provisions in Sec. 111.36(b) of this part; and
(ii) The broker enters into a non-disclosure agreement with the third-party service provider for photocopying and/or scanning that requires the third-party to keep the information contained in any records pertaining to the broker's client confidential.

(2) Messenger Services. A broker may provide its clients' records to a third-party messenger service provider for transport and delivery without violating the prohibitions set forth in the provisions of this part pertaining to confidentiality, provided that the clients' records are sealed in such a manner so that the third-party messenger service provider may not view, alter, or amend the documents to be delivered.

Kuehne + Nagel enters plea agreement for antitrust violations

Edward Joffe — Sun, 24 Oct 2010 11:37:49 -0500

Kuehne + Nagel International AG has entered into a plea agreement with the U.S. Department of Justice ("DOJ") to resolve allegations that it entered into illegal price fixing. Among other things, the criminal information identifies the "AAMS fee" which it charged its customers for prepaid shipments to the United States from Germany and Switzerland. That fee was for complying with the Bureau of Customs and Border Protection ("CBP"), mandate that CBP be notified of the contents and certain other information pertaining to goods being shipped to the United States by air as many as four hours prior to the arrival of the shipment in the United States. The notification was required to be made via an electronic data interchange system approved by CBP, known as the Air Automated Manifest System ("AAMS").

Other illegal fees included an "NES fee" charged to comply with requirements of the U.K as well as peak season surcharges imposed out of the Far East.

Under the plea agreement, Kuehne + Nagel will plead guilty to violations of the U.S. Sherman Act and will agree to pay a fine of approx. USD 9.865 million. The plea agreement closes DOJ’s investigation of Kuehne + Nagel and its subsidiaries regarding international air freight forwarding services. The plea agreement remains subject to court approval.

Inconsistent Forum Section Clauses Leads to Confusion

Edward Joffe — Mon, 18 Oct 2010 18:15:33 -0500

A recent decision of the English Court of Appeal rules that parties who have nominated different courts as having jurisdiction in multiple related agreements are stuck with the consequences.

Sebastian Holdings Inc ("Sebastian") entered into a 1992 ISDA Master Agreement and schedule with Deutsche Bank AG (the "Bank") for the purposes of trading equities. Later that year, Sebastian entered into a series of foreign exchange ("FX") agreements with the Bank, including a Prime Brokerage Agreement and Agent Master Agreement. The Prime Brokerage Agreement enabled Sebastian to enter into FX and related transactions with specified counterparties as agent for the Bank. The Agent Master Agreement, which also used the 1992 ISDA Master Agreement, provided for off-setting transactions to be entered into between Sebastian and the Bank.

In early 2008 the parties entered into further agreements, including a Master Netting Agreement that provided for a net termination payment upon termination of the Prime Brokerage Agreement and the ISDA Master Agreement. The fora for disputes designated in the various agreements were as follows:

ISDA Master Agreement and Agent Master Agreement: non-exclusive jurisdiction of the English courts.
Master Netting Agreement: exclusive jurisdiction of the English courts.
Prime Brokerage Agreement: non-exclusive jurisdiction of New York courts.

During October 2008 the Bank made margin calls totalling approximately US$436m after Sebastian had suffered heavy FX trading losses. The Bank subsequently closed out its positions with Sebastian and demanded payment of more than $120m under the Agent Master Agreement (for FX losses) and $125m under the Master Netting Agreement (for equities losses).

In November 2008 Sebastian issued proceedings in New York claiming damages of at least $750m from the Bank. Sebastian alleged, among other things, that it had agreed with the Bank to limit its exposure on foreign exchange trading to $35m and claimed damages for breach of the Prime Brokerage Agreement. In response, the Bank issued a claim in the Commercial Court in England in respect of approximately $250m it was owed under the Agent Master Agreement and Master Netting Agreement. The Bank denied that it agreed to limit Sebastian's exposure. Sebastian subsequently sought a declaration from the Commercial Court that it did not have jurisdiction to hear the Bank's claim.

Counsel for Sebastian argued that the court should presume that the parties intended any claim or dispute arising in respect of multiple agreements to be subject to a single jurisdiction. Counsel argued that this jurisdiction should be that specified in the contract at the "centre of gravity" of the dispute and the jurisdiction clauses in the contracts should be interpreted to give effect to this presumed intention. Counsel further argued that as all claims and disputes arose from FX trading, it must be inferred that the parties had intended that any claim be heard in the jurisdiction chosen in the Prime Brokerage Agreement, that is, New York.

The Court of Appeal disagreed and affirmed the decision of the Commercial Court and unanimously rejected Sebastian's claim even though such decision potentially resulted in a "degree of fragmentation in the resolution of disputes between parties to the series of agreements".

Six International Freight Forwarders will Plead Guilty to Price Fixing Charges

Edward Joffe — Thu, 30 Sep 2010 15:29:57 -0500

Six international freight forwarders have agreed to plead guilty and to pay criminal fines totaling $50.27 million for their roles in several conspiracies to fix a variety of fees and charges in connection with the provision of freight forwarding services for international air cargo shipments, the Department of Justice announced today. These are the first charges filed as a result of the department's antitrust investigation of the freight forwarding industry.

According to charges filed separately today in U.S. District Court for the District of Columbia, six companies-EGL Inc., a Houston-based company; Kühne + Nagel International AG, based in Schindellegi, Switzerland (K+N); Geologistics International Management (Bermuda) Limited, based in Hamilton, Bermuda; Panalpina World Transport (Holding) Ltd., based in Basel, Switzerland; Schenker AG, based in Essen, Germany; and BAX Global Inc., a Toledo, Ohio-based company-engaged in one or more separate conspiracies to impose certain charges or fees on customers purchasing international freight forwarding services for cargo freight destined for air shipment to the United States during various periods between 2002 and 2007.

Under the plea agreements, which are subject to court approval, the six companies have agreed to pay the following criminal fines: EGL, $4,486,120; K+N, $9,865,044; Geologistics, $687,960; Panalpina, $11,947,845; Schenker, $3,535,514; and BAX Global, $19,745,927. Each company has also agreed to cooperate with the department's ongoing antitrust investigation.

"The department's investigation uncovered six different conspiracies harming businesses and consumers in the United States and across the globe," said Christine Varney, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "Our investigation continues in this important industry."

According to the charges, the companies carried out the various conspiracies by, among other things, agreeing during meetings and discussions to coordinate various charges and fees on customers purchasing international freight forwarding services for cargo freight destined for air shipment to the United States. The six alleged conspiracies being charged today are:

A global conspiracy that took place from March 2003 to October 2007, to impose an Air Automated Manifest System (AAMS) fee on international air shipments of cargo to the United States, in which EGL, Geologistics and Panalpina and others participated;

A conspiracy that took place from July 2004 to October 2007, to impose an AAMS fee on shipments from Germany to the United States, in which K+N, Schenker and others participated;

A conspiracy that took place from March 2004 to October 2007, to impose an AAMS fee on shipments from Switzerland to the United States, in which K+N and others participated;

A conspiracy that took place from October 2002 to October 2007, to impose a New Export System (NES) fee on international air shipments from the United Kingdom to the United States, in which EGL, K+N, BAX and others participated;

A conspiracy that took place from July 2005 to June 2006, to impose a Currency Adjustment Factor (CAF) on international air shipments from China to the United States, in which K+N, Panalpina, Schenker, BAX and others participated; and

A conspiracy that took place from August 2005 to December 2007, to impose a Peak Season Surcharge (PSS) on shipments from Hong Kong to the United States, in which K+N, Panalpina, Schenker, BAX and others participated.

Each company is charged with price fixing in violation of the Sherman Act, which carries a maximum fine of $100 million per offense for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

En Banc Ninth Circuit Court of Appeal Dismisses Attack on Extraordinary Rendition Program

Edward Joffe — Mon, 20 Sep 2010 13:08:55 -0500

Plaintiffs alleged that the CIA, working in concert with other government agencies and officials of foreign governments, operated an extraordinary rendition program to gather intelligence by apprehending foreign nationals suspected of involvement in terrorist activities and transferring them in secret to foreign countries for detention and interrogation by United States or foreign officials. According to plaintiffs, this program has allowed agents of the U.S. government “to employ interrogation methods that would [otherwise have been] prohibited under federal or international law.” Relying on documents in the public domain, plaintiffs, all foreign nationals, claim they were each processed through the extraordinary rendition program.

Plaintiffs contend that publicly available information establishes that defendant Jeppesen Dataplan, Inc., a U.S. corporation, provided flight planning and logistical support services to the aircraft and crew on all of the flights transporting each of the five plaintiffs among the various locations where they were detained and allegedly subjected to torture. The complaint asserts “Jeppesen played an integral role in the forced” abductions and detentions and “provided direct and substantial services to the United States for its so-called ‘extraordinary rendition’ program,” thereby “enabling the clandestine and forcible transportation of terrorism suspects to secret overseas detention facilities.” It also alleges that Jeppesen provided this assistance with actual or constructive “knowledge of the objectives of the rendition program,” including knowledge that the plaintiffs “would be subjected to forced disappearance, detention, and torture” by U.S. and foreign government officials.
Plaintiffs brought suit against Jeppesen under the Alien Tort Statute, 28 U.S.C. § 1350, alleging seven theories of liability marshaled under two claims, one for “forced disappearance” and another for “torture and other cruel, inhuman or degrading treatment. Before Jeppesen answered the complaint, the United States moved to intervene and to dismiss plaintiffs' complaint under the state secrets doctrine. The district court granted the motions to intervene and dismiss and entered judgment in favor of Jeppesen, stating that “at the core of Plaintiffs' case against Defendant Jeppesen are ‘allegations' of covert U.S. military or CIA operations in foreign countries against foreign nationals-clearly a subject matter which is a state secret.” Plaintiffs appealed. A three-judge panel of this court reversed and remanded, holding that the government had failed to establish a basis for dismissal under the state secrets doctrine but permitting the government to reassert the doctrine at subsequent stages of the litigation. Jeppesen I, 579 F.3d at 953, 961-62. The Ninth Circuit took the case en banc to resolve questions of exceptional importance regarding the scope and application of the state secrets doctrine.

The government contended that plaintiffs' lawsuit should be dismissed, whether under the Totten bar or the Reynolds privilege, because “state secrets are so central to this case that permitting further proceeding[s] would create an intolerable risk of disclosure that would jeopardize national security.” The Supreme Court has long recognized that in exceptional circumstances courts must act in the interest of the country's national security to prevent disclosure of state secrets, even to the point of dismissing a case entirely. See Totten v. United States, 92 U.S. 105, 107, 23 L.Ed. 605 (1876). The contemporary state secrets doctrine encompasses two applications of this principle. One completely bars adjudication of claims premised on state secrets (the “ Totten bar”); the other is an evidentiary privilege (“the Reynolds privilege”) that excludes privileged evidence from the case and may result in dismissal of the claims. See United States v. Reynolds, 345 U.S. 1, 73 S.Ct. 528, 97 L.Ed. 727 (1953).

The En Banc Court, having conducted its own detailed analysis, concluded that the district court reached the correct result because dismissal is warranted even under Reynolds. It reached this conclusion because all seven of plaintiffs' claims, even if taken as true, describe Jeppesen as providing logistical support in a broad, complex process, certain aspects of which, the government has persuaded us, are absolutely protected by the state secrets privilege. Although the Court acknowledged that dismissing the case at the pleading stage was a drastic result and should not be readily granted, it believed that this dismissal was appropriate under the unique facts of the case. [Mohamed v. Jeppesen Dataplan, Inc., --- F.3d ----, 2010 WL 3489913 C.A.9 (Cal.),2010. Decided Sept. 8, 2010. Argued and Submitted En Banc Dec. 15, 2009.]

I reluctantly must agree with the Court. Although I have deep concerns about the propriety and legality of the Extraordinary Rendition Program as well as the potential for abuse, there are legitimate times when State Secrets must come into play. The En Banc Court made it clear that it made its own independent evaluation and this separate judicial scrutiny offers safeguards from an otherwise excessive executive branch.

Revised Himalaya Clause for Bills of Lading and other Contracts

Edward Joffe — Sun, 19 Sep 2010 09:04:06 -0500

The International Group of P&I Clubs and BIMCO have released a revised Himalaya clause.A Himalaya clause is a contractual provision intended to confer a benefit on an entity that is not a party to that contract. This benefit, in a contract of carriage such as a bill of lading, is to exempt, as far as possible, the servants, agents and independent contractors employed by the contractual carrier (carrier) from liability to other party(s) to the contract, such as the shipper, consignee or holder of a bill of lading or extend the same protection from liability enjoyed by the carrier.

The Himalaya clause takes its name from the English case concerning the P&O liner “Himalaya”. There the court decided that it was possible for P&O to incorporate a clause excluding its employees from liability into its ticket conditions - however, it had not done so. A consequence of the “Himalaya” case is that clauses in contracts of carriage developed to ensure, as far as possible, that liability attached only to the carrier – failing which, the carrier’s servants, agents and sub-contractors had the benefit of any limits, exemptions and defenses enjoyed by the carrier. Claims would, generally, be brought only against the carrier and not its servants, agents, and sub-contractors such freight forwarders and stevedores.

The following is the draft clause:

International Group of P&I Clubs / BIMCO Revised Himalaya Clause

(a) It is hereby expressly agreed that no servant, agent, direct or indirect sub contractor or other party employed by or on behalf of the carrier, or whose services or equipment have been used in order to perform this contract (such persons so employed, or whose services or equipment have been used, hereinafter termed “Servant”) shall in any circumstances whatsoever be under any liability whatsoever to the shipper, consignee, receiver or other party to this contract (hereinafter termed “Merchant”) for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on the Servant’s part while acting in the course of or in connection with the performance of this contract.

(b) Without prejudice to the generality of the foregoing provisions in this clause, every exemption, limitation, condition and liberty contained herein (other than Art III Rule 8 of the Hague/Hague-Visby Rules if incorporated herein) and every right, exemption from liability, defense and immunity of whatsoever nature applicable to the carrier or to which the carrier is entitled hereunder including the right to enforce any jurisdiction or arbitration provision contained herein shall also be available and shall extend to every such Servant , who shall be entitled to enforce the same against the Merchant.

(c) (i) The Merchant undertakes that no claim or allegation whether arising in contract, bailment, tort or otherwise shall be made against any Servant which imposes or attempts to impose upon any of them or any vessel owned or chartered by any of them any liability whatsoever in connection with this contract whether or not arising out of negligence on the part of such Servant. The Servant shall also be entitled to enforce the foregoing covenant against the Merchant; and (ii) The Merchant undertakes that if any such claim or allegation should nevertheless be made, he will indemnify the carrier against all consequences thereof.

(d) For the purpose of sub-paragraphs (a)-(d) of this clause the carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of the Servant who shall to this extent be or be deemed to be a party to this contract.

Court Allows Suit Against Spain for Nazi Stolen Art

Edward Joffe — Mon, 06 Sep 2010 09:36:36 -0500

As a case of first impression, the United States Appeals Court for the Ninth Circuit ruled that the expropriation exception of the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(3), applies even though the foreign state (against whom a claim is made) is not the entity that expropriated the property in violation of international law.

At the heart of the litigation was the Rue Saint-Honoré, après-midi, effet de pluie (the “Painting”), an oil painting by the French impressionist master Camille Pissarro. The Painting was originally purchased in 1898 by Cassirer’s great-grandfather, Julius Cassirer, a member of a wealthy Jewish family living in Germany. The Painting remained in the family for the next forty years. First passing upon Julius’s death to his son, Fritz, and later to Fritz’s widow, Lilly Cassirer.
In 1939, as persecution of Jews living in Nazi Germany increased, Lilly and her new husband sought official permission to leave Germany and take their possessions, which included the Painting. Before granting permission, the Nazi government appointed Munich art dealer Jakob Scheidwimmer as the official appraiser to evaluate the works of art that Lilly wished to take with her. After his appraisal, Scheidwimmer refused to allow Lilly to take the Painting out of Germany and demanded that she sell it to him for approximately $360. Because she feared she would not be allowed to leave Germany, she relinquished the Painting, knowing that she would never receive the funds she was promised. Scheidwimmer traded the Painting to another art dealer who, also persecuted by the Nazis, fled Germany and took the Painting to Holland. After Germany invaded Holland, the Gestapo confiscated the Painting and returned it to Germany, where it was sold at auction to an anonymous purchaser in 1943. The Painting surfaced at a New York gallery in 1952 and was then sold to a private collector in St. Louis. It was sold again in 1976 to an unknown dealer, who subsequently sold it to Baron Hans-Heinrich Thyssen-Bornemisza (the “Baron”), a resident of Switzerland and one of the world’s foremost private art collectors.

In 1988, Spain paid the Baron $50 million to lease his collection for ten years. Five years into the lease, Spain paid the Foundation approximately $327 million to purchase the Baron’s entire collection, including the Painting. Under the terms of the purchase, Spain provided the Foundation a palace in Madrid, free of charge, for use as the Thyssen-Bornemisza Museum (the “Museum”). In addition, the purchase agreement requires that the collection be exhibited at the Museum in Spain and sets limits regarding loans to other art institutions. If the collection is not used in accordance with the purchase agreement or if the Foundation ceases to exist, Spain will become the owner of the collection.

In 2000, Claude Cassirer, the grandson and heir of Lilly Cassirer, discovered that the Painting was on display in Madrid at the Museum. He petitioned Spain’s Minister for Education, Culture and Sports (who was also chair of the Foundation’s Board), requesting the return of the Painting. His request was denied. Cassirer never attempted to obtain the Painting through judicial proceedings in Spain.

On May 10, 2005, Cassirer filed suit against the Foundation and Spain in the Central District of California. On April 5, 2006, the district court reviewed, as a question of law, whether the expropriation exception to sovereign immunity in § 1605(a)(3) of the FSIA applied to a sovereign entity that was not alleged to have taken property in violation of international law. After receiving further briefing from the parties, the district court ruled that § 1605(a)(3) requires only that property was seized in violation of international law, not that the foreign sovereign itself violated international law.

On August 12, 2010 the Federal court of appeals for the Ninth Circuit affirmed. Cassirier V. Shyssen-Bornemisza Collection [06-56325; 06-56406]

FMC Investigates Chinese NVOCC for Misdescribing Cargo

Edward Joffe — Wed, 25 Aug 2010 02:53:40 -0500

The Federal Maritime Commission has announced an investigation into possible violations of
possible violations of Sections 10(A)(1) and 10(B)(2) of the Shipping Act of 1984 by Sinicway International Logistics Ltd. (Sinicway).

Sinicway is a company based in the People's Republic of China, providing service as a non-vessel-operating common carrier (NVOCC). Sinicway registered with the FMC as a foreign-based NVOCC in April 2009. Sinicway's reported address is 910 The Panorama, 53 Huangpu Road, Shanghai, PRC 200080. Sinicway currently holds itself out as a NVOCC pursuant to its
automated tariff No. 022155-001. Its tariff is maintained by Distribution Publications, Inc., and is published electronically at https://www.dpiusa.com. Sinicway currently maintains a NVOCC bond with Navigators Insurance Company, 6 International Drive, Rye Brook, NY 10573.

The FMC alleges that after registering with the FMC in April 2009, Sinicway originated and substantially participated in an ongoing practice of misdescribing cargo to the transporting ocean common carrier. With respect to those shipments apparently misdescribed, Sinicway was identified as the shipper signatory to various service contracts with ocean common carriers and as the person for whose account the transportation was being provided. Contemporaneous
documentation such as the commercial invoice or the NVOCC house bill of lading reflect that shipments declared to the vessel operator as ``bedding'' or ``household goods'' actually were loaded with garments or with miscellaneous other commodities. Due to the difference between
the rate Sinicway paid to ship the misdescribed goods and the rate at which the cargo should have moved under the various service contracts used by Sinicway, it appears that Sinicway obtained lower than applicable rates for these shipments, in violation of section 10(a)(1) of the Shipping Act.

The FMC also alleges that it also appears that for some of these same shipments, Sinicway
acted as a common carrier in relation to its NVOCC customers and issued its own NVOCC bill of lading. The electronic tariff published by Sinicway appears to indicate that only Cargo NOS rates were in effect since July 17, 2009. However, as indicated by Sinicway's invoices, the rate assessed by Sinicway to its NVOCC customers appears to differ substantially from its published Cargo NOS rates.

Accordingly, the FMC has ordered an investigation to determine

(1) Whether Sinicway International Logistics Ltd. violated section 10(a)(1) of the Shipping Act by obtaining transportation at less than the rates and charges otherwise applicable by an unjust or unfair device or means;
(2) Whether Sinicway International Logistics Ltd. violated section 10(b)(2) of the Shipping Act by providing service other than at the rates, charges, and classifications set forth in its published NVOCC tariff or applicable NSA;
(3) Whether, in the event violations of sections 10(a)(1), and 10(b)(2) of the Shipping Act are found, civil penalties should be assessed against Sinicway International Logistics Ltd. and, if so, the
amount of penalties to be assessed;
(4) Whether, in the event violations of section 10(b)(2) of the Shipping Act are found, the tariff(s) of Sinicway International Logistics Ltd. should be suspended; and (5) Whether, in the event violations are found, an appropriate cease and desist order should be issued.