The World in US Courts: Decisions Discussed in This Issue: Fall 2013

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Alien Tort Statute (ATS)

District Court Lacks Jurisdiction to Hear Claims for Human Rights Violations in Syrian Civil War

Ahmed-Al-Khalifa v. Bashar Hafez Al-Assad, 2013 U.S. Dist. LEXIS 115440 (N.D. Fla. July 1, 2013)

The district court for the Northern District of Florida concluded that it did not have subject matter jurisdiction over claims brought under the Alien Tort Statute and the Torture Victims Protection Act. The defendants were the heads of states of several countries, the Pentagon, the United States Congress, the Secretary General of the United Nations, and several multinational corporations. Plaintiff, a resident of Nigeria, sought injunctive and compensatory relief for human rights violations in Syria. Citing Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the court held that it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the United States, in the territory of another sovereign state.

Second Circuit Affirms Dismissal of ATS Claims for Sale of Cars to South African Government Under Apartheid Regime

Balintulo v. Daimler AG, 2013 U.S. Dist. LEXIS 17474 (2d Cir. Aug. 21, 2013)

The United States Court of Appeals in New York affirmed dismissal for lack of subject matter jurisdiction of a human rights violation claim asserted under the Alien Tort Statute. The defendants were South African subsidiaries of DaimlerChrysler, Ford, and IBM. Plaintiff, on behalf of a putative class of similarly situated South Africans, claimed that defendants aided and abetted violations of international law by selling cars to the South African government that were used to facilitate apartheid. Citing Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the court held that it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the United States, in the territory of another sovereign state. The court rejected plaintiff’s argument that allegations of steps taken in the United States to circumvent a sanctions regime were sufficient to bring the claims within the jurisdiction of US courts. Because the violations of international law occurred abroad, the court lacked jurisdiction over the claims.

Persecution of Falun Gong Members in China Not Actionable Under ATS or TVPA

Chen v. Honghui Shi, 2013 U.S. Dist. LEXIS 110409 (S.D.N.Y. Aug 1, 2013)

The District Court for the Southern District of New York dismissed for lack of personal jurisdiction and subject matter jurisdiction human rights violation claims asserted under the Alien Tort Statute and the Torture Victims Protection Act. Plaintiffs were members of the Falun Gong movement in China. The defendant, a Chinese government official and member of the Chinese Communist Party, was alleged to have orchestrated the persecution of Falun Gong members in China. Citing Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the court held that it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the United States, in the territory of another sovereign state. The court also held that it lacked personal jurisdiction over the defendant under New York State’s “long arm” statute, which confers jurisdiction on acts conducted in or affecting New York.

Anti-Falun Gong Propaganda Directed at US Insufficient to Confer Jurisdiction Under ATS

Chen Gang v. Zhao ZhizhenM, 2013 U.S. Dist. LEXIS 134510 (D. Conn. Sept. 20, 2013)

The district court for the District of Connecticut dismissed for lack of subject matter jurisdiction human rights violation claims asserted under the Alien Tort Statute and the Torture Victims Protection Act. Plaintiffs were members of the Falun Gong movement in China. The defendant, the former chief of state-owned media sources in Wuhan Province, was alleged to have aided in the persecution of Falun Gong members in China by disseminating propaganda that called for the torture of Falun Gong adherents. Plaintiff alleges that defendant specifically directed his propaganda at the United States through various websites. Citing the Kiobel case (discussed in a recent World in US Courts report), the court held that, despite these allegations, it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the United States, in the territory of another sovereign state. The court rejected plaintiff’s contention that the propaganda website was sufficient to overcome the presumption against extraterritorial application of domestic law.

District Court Lacks Jurisdiction Under ATS Over Claims Against US Company Accused of Conspiring with Colombian Paramilitary

Giraldo v. Drummond Co., 2013 U.S. Dist. LEXIS 103981 (N.D. Ala. July 25, 2013)

The district court for the Northern District of Alabama dismissed for lack of subject matter jurisdiction human rights violation claims asserted under the Alien Tort Statute and the Torture Victims Protection Act. Plaintiffs claim to be the legal heirs of individuals killed by a Colombian paramilitary organization as a result of an alleged agreement between the paramilitary and the defendant, a United States mining company, to provide protection for the company’s Colombian mines. Plaintiffs alleged that the US company conspired with and aided and abetted the paramilitary from the United States in violating international law. Reviewing the record, the court found no evidence that the defendant made decisions or took action in the United States in furtherance of alleged human rights violations in Columbia. Citing Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the court held that it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the United States, in the territory of another sovereign state.

District Court Has Jurisdiction Under ATS Over Claims Against US Citizen Accused of Conspiring to Persecute Homosexuals in Uganda

Sexual Minorities Uganda v. Lively, 2013 U.S. Dist LEXIS 114754 (D. Mass Aug. 14, 2013)

The district court for the District of Massachusetts denied a motion to dismiss claims for human rights violations under the Alien Tort Statute, holding that the court had subject matter jurisdiction to hear the claims. Plaintiff is an organization consisting of lesbian, gay, bisexual, transgender, and intersex individuals in Uganda. Defendant is a US citizen residing in Massachusetts who allegedly conspired with individuals in Uganda to persecute members of the plaintiff organization. The court held that Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), did not bar jurisdiction over the claims because he resided in and operated from his home in Massachusetts for the duration of the alleged conspiracy.

Money Laundering in US Banks Does Not Confer ATS Jurisdiction Over Claim for Wrongful Prosecution and Imprisonment in Ukraine

Tymoshenko v. Firtash, 2013 U.S. Dist. LEXIS 123240 (S.D.N.Y. Aug. 28, 2013)

The district court for the Southern District of New York dismissed for lack of subject matter jurisdiction human rights violation claims asserted under the Alien Tort Statute and RICO. Plaintiff is the former Prime Minister of Ukraine. The defendant, a substantial stakeholder in an international natural gas company, was alleged to have orchestrated the arrest, detention, malicious prosecution, and arbitrary arrest of plaintiff as a result of plaintiff’s unfavorable renegotiation of Ukraine’s natural gas contracts with Russia. The complaint also named US defendants who allegedly aided the racketeering scheme by laundering money, including through US bank accounts. Citing Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the court held that it lacked subject matter jurisdiction to hear the claims because they solely concerned acts and events that occurred outside the US, in the territory of another sovereign state. The court reasoned that the minimal US contacts alleged did not overcome the presumption against the extraterritorial application of domestic law.

Criminal Law

Collection of Evidence in Mexico Irrelevant to Determination Whether Application of Law Was Impermissibly Extraterritorial

10 Ring Precision, Inc. v. B. Todd Jones, 722 F.3d 711, 2013 U.S. App. LEXIS 14083 (5th Cir. July 11, 2013)

The Fifth Circuit affirmed the US Government’s partial use of electronic trace data collected by Mexican officials in a prosecution for illegal arms trafficking. The Court held, in part, that the presumption against extraterritorial application does not apply because the conduct of Mexican officials, using a US Government database, is a law enforcement activity that is not part of the determination whether the conduct in question was extraterritorial. As a result, the Court rejected the plaintiff’s arguments that the Gun Control Act only allows trace data from domestic criminal investigations.

[Editor’s Note: Compare the reasoning of this case with that in United States v. Stokes, discussed elsewhere in this report.]

Apprehension of Suspect in International Waters, Not Territorial Waters of Another Nation, Precludes Extraterritoriality Challenge

Ruiz Estupinan v. United States, 2013 U.S. Dist. LEXIS 98528 (M.D. Fla. July 15, 2013)

Cordobo-Rodriguez v. United States, 2013 U.S. Dist. LEXIS 102144 (M.D. Fla. July 19, 2013)

Defendant challenged his prosecution under the Maritime Drug Law Enforcement Act, claiming the United States has no jurisdiction over activities occurring in the territorial waters of other nations. Consistent with numerous other courts, the District Court for the Middle District of Florida rejected this argument because the defendant was not apprehended in territorial waters, but in international waters. Although it is correct that the US may lack jurisdiction over the territorial waters of another nation, application of the MDLEA to activities on the “high seas” is constitutional pursuant to the Piracies and Felonies Clause of the US Constitution.

Statute’s Express Coverage of Extraterritorial Conduct Supports Conviction

United States v. Bollinger, 2013 U.S. Dist. LEXIS 117156 (W.D.N.C. Aug. 19, 2013)

In a prosecution for engaging in illicit sexual conduct with a minor in Haiti, Defendant challenged the extraterritorial application of the criminal statute to conduct occurring in Haiti under the Due Process Clause of the Fifth Amendment. By its own terms, the statute applied to conduct occurring outside the United States. Because Congress clearly intended extraterritorial application of the law, and because the statute was drafted to combat “sexual exploration” trips by US citizens to foreign countries, the District Court for the Western District of North Carolina rejected the Due Process claim.

Wire Transfers from US Accounts Support US Jurisdiction

United States v. Oscar Varela Garcia, 2013 U.S. App. LEXIS 19229 (11th Cir. Sept. 18, 2013)

Defendant was charged with participating in a vast conspiracy to distribute cocaine and launder money. As part of the scheme, Defendant allegedly moved large quantities of drug proceeds from the US to Colombia in a series of transfers. Among other arguments, Defendant claimed the money laundering statute could not be applied to his extraterritorial cash transactions from the US to Colombia. However, the court of appeals disagreed, holding that because each cash transaction originated and was initiated in Miami the requirements for extraterritorial jurisdiction were met. Even if the shipments to Colombia were outside the government’s jurisdiction, the Court held, the transactions within Miami were punishable themselves under the money laundering statute.

Statute’s Applicability to Conduct of US Citizen Aboard Aircraft, Wherever Located, Defeats Extraterritorial Defense

United States v. Lawrence, 2013 U.S. Dist. LEXIS 17382 (5th Cir. Aug. 20, 2013)

Two Defendants challenged their convictions for conspiracy with intent to distribute for boarding an aircraft with illicit substances. Both Defendants challenged the extraterritorial application of the conspiracy statute, because although they had originally boarded in the United States, they had acquired the drugs in South America and transported them to the United Kingdom. The Court rejected the defense, concluding that the statute clearly envisioned extraterritorial reach because it applied to all US citizens aboard any aircraft without regard to geographic location.

Pursuant to the Supreme Court’s consistent precedent that drug smuggling statutes “have a broad sweep” and generally overcome the presumption against extraterritoriality, the court of appeals held that the presumption against extraterritoriality should not apply to statutes which are “not logically dependent on their locality.” Because the first defendant was a US citizen, the statute was constitutionally applied to her. And although the second defendant was not a US citizen, application of the statute did not run afoul of the Due Process Clause because the defendant resided in the US and the conspiracy was formulated and initiated in Texas.

Jurisdiction Exists Because Conduct Was Aimed at US Citizens, Even Though Conducted Outside US

United States v. Mostafa Kamel Mostafa, 2013 U.S. Dist. LEXIS 126928 (S.D.N.Y. Aug. 30, 2013)

Defendant was alleged to have conspired with foreign and US national co-conspirators to provide and conceal material support to terrorists. Among other arguments, the defendant moved to dismiss the indictment because there was an insufficient jurisdictional nexus between him and the United States and extraterritorial application would violate the Due Process Clause of the US Constitution. The defendant argued the “allegations central to this charge” took place outside of the United States and were aimed at different countries, such as the United Kingdom. However, the District Court held that there is no requirement that the defendant be present in the United States, or communicate with persons in the United States, or transact business in the United States. Instead, the jurisdictional nexus requires only that the conduct was calculated to harm American citizens or interests, which was satisfied here. Prosecution also did not violate the Due Process Clause, the Court held, because the defendant had fair notice of prosecution because it was “sufficiently clear that the conduct alleged [was] criminal” and was directed against US citizens.

Court of Appeals Affirms Virginia District Court Ruling That Defendant Was Guilty of Aiding and Abetting Piracy Even Though He Did Not Commit Any Acts “on the High Seas”

United States v. Shibin, 722 F.3d 233, 2013 U.S. App. LEXIS 14131 (4th Cir. July 12, 2013)

Facts

Shibin was convicted of 15 counts relating to his participation in two piracies. The first involved the seizure of a German merchant ship by Somali pirates who took the ship to Somali waters where Shibin boarded the ship, conducted the ransom negotiations, and participated in the torture of the ship’s crew. The second incident involved an American sailing ship where, again, Shibin acted as the Somali pirates’ negotiator, although he did not board the seized ship. Shibin was convicted of, among other things, aiding and abetting piracy, and was sentenced to two consecutive life sentences.

Shibin appealed his conviction, arguing that he could not be prosecuted as an aider and abettor of either of the piracies, as he did not commit any acts on the high seas, where, by definition, piracy occurs.

Analysis

The international definition of piracy is taken from Article 101(a) of the United Nations Convention on the Law of the Sea (“UNCLOS”), which provides that piracy consists of illegal acts of, among others, violence or detention that take place on the high seas, as opposed to territorial waters, which are defined generally as the waters within 12 nautical miles of a nation’s coast. Article 101(c) also includes within the definition of piracy “any act of inciting or of intentionally facilitating an act described in [Article 101(a)].”

The court of appeals concluded that, as opposed to Article 101(a), Article 101(c) does not limit the facilitating acts to conduct on the high seas, nor is there any conceptual reason to require such a limit. In coming to this conclusion, the court examined other types of aiding and abetting cases, noting that where the driver of a getaway car is charged with aiding and abetting bank robbery, there is no requirement that that person be inside the bank at any time.

The district court’s jurisdiction over these piracy crimes arose from “universal jurisdiction,” an international law doctrine that allows any nation “jurisdiction to define and prescribe punishment for certain offenses recognized by the community of nations as a universal concern.” The defendant did not dispute that piracy is subject to universal jurisdiction, although he did make that objection with respect to the non-piracy counts with which he was charged. The court again affirmed the district court’s finding that the particular US statutes invoked expressly criminalized extraterritorial conduct.

Use of Evidence Derived From Joint US-Thai Search in Thailand Not Extraterritorial Application of Statute

United States v. Stokes, 726 F.3d 880, 2013 U.S. App. LEXIS 16042 (7th Cir. Aug. 1, 2013)

Several years prior, after having been convicted for misdemeanor battery for indecently touching two minors, Defendant was permitted to move to Thailand. After receiving a tip years later, the Immigration and Customs Enforcement Service, in a joint operation with the Royal Thai Police, searched the Defendant’s home in Thailand, uncovering “thousands of images of Stokes’s sexual activity with Thai boys.” After the discovery, Defendant was extradited to the US and convicted in Florida of traveling in foreign commerce for the purpose of engaging in a sex act with a minor.

Defendant challenged the extraterritorial search of his home in Thailand as violating the warrant requirements of the Fourth Amendment of the US Constitution. The Court of Appeals affirmed the Defendant’s conviction. It concluded that, while not generally having an extraterritorial reach, the warrant requirements applied here because the evidence came from a joint operation between US and Thai authorities, rather than a search initiated solely by Thai authorities. As such, the Amendment’s “touchstone requirement of reasonableness” still applies. And since the search was reasonable based on Defendants’ prior conviction and the anonymous tip, the search was constitutional.

[Editor’s Note: Compare the reasoning of this case with that in 10 Ring Precision, Inc. v. B. Todd Jones, discussed elsewhere in this report.]

Court Denies Claim of Manufactured Jurisdiction in Case Lacking Physical Contact with the United States

United States v. Viglakis, 2013 U.S. Dist. LEXIS 118919 (S.D.N.Y Aug. 14, 2013)

Defendant Ioannis Viglakis, a Greek national, was charged with attempting to provide material support to a foreign terrorist organization. In various meetings in Europe and Central America, Viglakis allegedly agreed to provide a confidential informant with military-grade weapons that he was told would be used by the Fuerzas Armadas Revolucionarias de Colombia (“FARC”) to shoot down American aircraft. In his motion to dismiss the indictment, Viglakis argued that the undercover informant had manufactured jurisdiction by “gratuitously interposing” into their discussions the intended US targets of the weapons, which Viglakis argued was not relevant to the transaction for his purposes. Neither Viglakis nor any of the acts he committed to obtain the weapons had any connection with the United States. The court held that, because Viglakis took numerous steps in furtherance of a crime that he knew was specifically intended to harm Americans and American interests, there was no basis to assert that federal jurisdiction had been manufactured.

Intellectual Property (IP)

US Jurisdiction Exists for US Trademark Claim Where Foreign Violations Had Effect in US Commerce

In re Airwair Int’l Ltd. v. Vans, Inc., 2013 U.S. Dist. LEXIS 100120 (N.D. Calif. July 17, 2013)

Plaintiff Airwair sells shoes and boots under the Dr. Marten’s label. At issue in this case was certain US-registered trade dress for the “look” of a line of footwear. Airwair alleged that Vans was infringing and diluting its trade dress by allowing its licensee to distribute an allegedly infringing line of shoes in a variety of stores in East Asia, Airwair owned no trademark rights. Airwair asserted claims for trademark infringement, false designation of origin, trademark dilution and pursuant to various California statutory and common law.

Vans moved to dismiss for failure to state a claim. The court first considered whether the Lanham Act would apply to the extraterritorial conduct alleged in the complaint. Applying the three-part test announced by the Ninth Circuit in Timberland Lumber Co. v. Bank of America, the court concluded (1) that the required “effect on U.S. commerce” was satisfied by Airwair’s allegations that Vans U.S. had ratified its licensees activities and that travelers were bringing the allegedly infringing footwear into the US, where they were available for sale online to US consumers; (2) that there were sufficient allegations of commercial injury under the Lanham Act; and (3) that comity considerations, i.e., whether there was a sufficient link to US foreign commerce to justify assertion of extraterritorial jurisdiction over the interests of other nations, were satisfied.

Concluding that US trademark and unfair competition law could apply, the court went on to hold that Airwair had sufficiently stated claims under the Lanham Act and California law. It sustained the complaint in its entirety and denied Vans’ motion to dismiss.

No US Jurisdiction Where Trademark Claim Brought By Non-US Citizen and Trademark Was Not Registered in US

Gelicity UK Ltd. v. Jell-E-Bath, Inc., 2013 U.S. Dist. LEXIS 92236 (E.D.N.Y. July 1, 2013)

Gelicity is a UK company that sells bath products under the name GELLI BAFF, subject to an intent-to-use trademark application in the US. Jell-E-Bath is an Oregon company that sells home spa treatments in the US under the JELLYBATH trademark. Gelicity filed a declaratory suit for non-infringement and Jell-E-Bath filed a counterclaim for infringement.

Gelicity moved to dismiss Jell-E-Bath’s infringement claim on jurisdictional grounds. The trial court agreed, concluding that Jell-E-Bath had failed to sufficiently allege that “Gelicity . . .—who are United Kingdom domiciliaries—sold, transported, or advertised goods with the allegedly infringing mark in the United States.” The court went on to apply the three-factor Second Circuit test for extraterritorial application of the Lanham Act set forth in Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633 (2d Cir. 1956) and concluded that: (1) Gelicity is a UK, not a US, citizen; and (2) that because Gelicity had registered its mark in the UK, there were sufficient questions as to whether the US should proceed in exercising jurisdiction over this matter that could be left to a foreign court. Since the absence of two Vanity Fair factors was “fatal,” the court did not reach the third factor, which considers whether there is substantial effect on US commerce. The court dismissed the infringement counterclaims.

However, Jell-E-Bath offered to amend to add specific allegations of Gelicity’s use in commerce in the US, so the court granted leave to amend.

Damages for Trademark Violation Based on Infringing Activity on US Website Not Reduced Became Some Users Accessed Site Form Outside US

Myplaycity, Inc. v. Conduit Ltd., 2013 U.S. Dist. LEXIS 115598 (S.D.N.Y. Aug. 12, 2013)

Myplaycity develops and sells online games from its website. Conduit maintains an internet platform from which users can download “toolbars” that they can place on their browsers to facilitate access to other websites. Myplaycity entered into an agreement under which a Conduit created a toolbar branded with the registered Myplaycity trademark, with the parties dividing revenue from use of the games that the toolbar generated. Following a dispute Conduit maintained and obtained revenue from the Myplaycity toolbar without permission, thereby infringing Myplaycity’s trademark.

Myplaycity sued conduit for violations of the Lanham Act, among other things, and was awarded damages. After trial, Myplaycity was awarded damages. Certain of the users that downloaded the toolbar were located in the US and some were not. The court later held that the damages should not be apportioned based upon the location of the user. The conduct violating the Lanham Act was Conduit’s illegal offering of the Myplaycity toolbar on its US website, not downloading by the users. In other words, there was no relevant extraterritorial conduct.

No US Jurisdiction Where Servers Hosting Infringing Photographers Were Outside US, Despite Presence of “Thumbnail” Photos and Links on US Servers

Perfect 10, Inc. v. Yandex N.V., 2013 U.S. Dist. LEXIS 98608 (N.D. Cal. July 12, 2013)

Perfect 10 operates a website that publishes copyrighted thumbnail images of naked women and, for a fee, provides full-sized copyrighted versions of the same images. The Yandex defendants are a set of interrelated companies that operate the leading Russian search engine. Perfect 10 alleged that the Yandex defendants engaged in various direct, indirect, and vicarious acts of copyright infringement in connection with conduct that included hosting the copyrighted images, linking to third-party sites that hosted the copyrighted images.

The court concluded that copyright infringement in connection with such claims was to be judged based on the location of the servers on which the defendant committed the allegedly infringing acts and not the location anywhere in the world where a user might download the images. Full-sized images were hosted on servers in Russia, and the court concluded that such extraterritorial activity was outside the scope of the US Copyright Act. Thumbnail images were hosted on US servers, and these were found to be subject to the “fair use” defense as they were “transformative”—used in connection with web searches to direct the viewer to different content. In some cases, that other content included copyrighted full-sized images that were “in-line linked” to the Yandex servers and displayed as if they were part of the Yandex search results. This was found not to constitute direct infringement, and so the issue of “fair use” did not arise.

The court disposed of additional arguments by Perfect 10 that other factors weighed against fair use: that the Yandex search engines did not benefit Americans and so did not advance the policies of the copyright act, and that the existence of 40,000 copyrighted works at issue made Yandex’s use too substantial.

Racketeer Influenced and Corrupt Organizations Act (RICO)

No US Jurisdiction Where Mexican Defendants Allegedly Defrauded Mexican Victim, Despite Financing of Venture Provided by US Corporations

PetrÓleos Mexicanos and Pemex-RefinaciÓn v. SK Eng’g & Constr. Co., 2013 U.S. Dist. LEXIS 107222 (S.D.N.Y. July 30, 2013)

In a civil RICO racketeering case, Defendants moved to dismiss the RICO claims as extraterritorial because their alleged conduct to defraud the Mexican government took place in Mexico. Under governing law, the RICO statute does not apply extraterritorially because the statute is silent on extraterritorial reach, meaning the presumption against extraterritoriality applies. Here, the District Court for the Southern District of New York agreed with the Defendants that the claims were extraterritorial because “they allege a foreign conspiracy against a foreign victim conducted by foreign defendants participating in foreign enterprises.” Although American corporations were involved in the financing of the project, it was a Mexican corporation that was defrauded by another Mexican corporation. As such, the Court dismissed the RICO claims.

Securities

Questions Concerning Whether a Lead Plaintiff in a Securities Class Action Purchased Shares on a Domestic Exchange Do Not Bar the Certification of a Settlement Class

In re Crocs, Inc. Securities Litigation, 2013 U.S. Dist. LEXIS 122593 (D. Colo. Aug. 28, 2013)

Five class actions were filed against Crocs. Inc., its auditor, and several of its directors, officers, and managers, alleging the violation of the Exchange Act of 1934 and rules promulgated by the Securities and Exchange Commission. The cases were consolidated, and the district court appointed a Lead Plaintiff whose consolidated complaint was dismissed with prejudice. During the appeal of the case’s dismissal, the Lead Plaintiff and the defendants reached a settlement agreement and sought the court’s preliminary certification of a settlement class and preliminary approval of the agreement. Another plaintiff objected to class certification, arguing that the Lead Plaintiff lacked standing because its members purchased the subject securities on a foreign exchange. The challenging plaintiff argued that this created a unique defense against the Lead Plaintiff, which defeated the “typicality requirement” for class certification. The court disagreed, concluding that it did not have to determine whether the Lead Plaintiff lacked standing because such questions “implicate the merits of the dispute.” It also found that the fact that the Lead Plaintiff could be subject to a unique defense did not call into question whether it could adequately represent the interests of the class. Accordingly, the court concluded that allegation that the Lead Plaintiff purchased the subject securities on a foreign exchange were insufficient to defeat class certification for purposes of settlement approval.

Section 10(b) and Rule 10b-5 Do Not Apply to Extraterritorial Conduct, Regardless of Whether Civil or Criminal Liability is Sought

United States v. Vilar, 2013 U.S. App. LEXIS 18143 (2d Cir. Aug. 30, 2013)

Facts

A jury convicted defendants Alberto Vilar and Gary Tanaka for violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, in connection with material misrepresentations made to domestic and international investors through their investment advising firms. Vilar and Tanaka appealed their convictions to the Second Circuit, arguing that the conduct underlying their securities fraud convictions was extraterritorial and thus not criminal under Section 10(b) and Rule 10b-5. In response, the US Department of Justice argued that the extraterritorial limits on Section 10(b) and Rule 10b-5 actions do not apply in the criminal context. In the alternative, they argued that Vilar and Tanaka’s conduct was domestic.

Analysis

Citing recent Supreme Court precedent, the court of appeals noted that a presumption against extraterritoriality applies to a statute unless the statute clearly indicates an extraterritorial application. It further held that this presumption applies to civil and criminal statutes alike. The court found that Section 10(b) and Rule 10b-5 are no exception to this presumption, regardless of whether the provisions are applied in the civil or criminal context. Thus, it found that it would be “clear and obvious error” to apply Section 10(b) and Rule 10b-5 to extraterritorial criminal conduct. Nevertheless, the court found that there was no plain error in Vilar or Tanaka’s securities fraud convictions with respect to the territoriality of their conduct. Although the securities were not traded on a US exchange, the transactions in these securities that were the subject of the prosecution occurred in the US.

Question Whether Congress Overruled Supreme Court Presumption Against Extraterritorial Application of Securities Laws Left Unresolved

United States v. A Chicago Convention Ctr., LLC, 2013 U.S. Dist. LEXIS 109936 (N.D. Ill. Aug. 6, 2013)

The US District Court for the Northern District of Illinois addressed whether Section 929P(b) of the Dodd-Frank Act supersedes Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010), concerning the determination of whether a defendant’s conduct is domestic for the purposes of Section 10(b) cases brought by the US Securities and Exchange Commission (“SEC”).

Facts

The SEC filed an action against defendants Anshoo Sethi and two Illinois based companies, alleging the violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, in connection with the defendants’ alleged offer and sale of securities to over 250 Chinese investors. The defendants moved to dismiss the complaint, arguing that, under the “transactional” test set forth the 2010 decision by the Supreme Court in the Morrison case, the SEC cannot state a claim under Section 10(b) or Rule 10b 5, as the subject transactions were not domestic. In response, the SEC argued that Section 929P (b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) superseded Morrison and revived the “conducts and effects” test that had been previously applied by federal courts.

Analysis

Section 929P(b), which addresses transactional securities fraud actions brought by the SEC, states that “district courts . . . shall have jurisdiction over an action or proceeding brought or instituted by the [SEC] . . . involving (1) conduct within the United States . . . even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.”

The court concluded that a plain meaning interpretation of Section 929P(b) indicates that the statute addresses subject matter jurisdiction, rather than the substantive reach of Section 10(b) (which was addressed in Morrison). However, the court noted that this interpretation would render Section 929P(b) redundant and superfluous in light of other Dodd-Frank provisions. Further, it noted that the Congressional intent behind Section 929P(b) was to rebut Morrison’s presumption against extraterritoriality, and to revive the previously applied “conducts and effects” test. The court, however, declined to resolve these issues and held that the SEC’s complaint sufficiently stated a claim under both the “transactional” and “conducts and effects” tests. Thus, it denied the defendants’ motion to dismiss.

Personal Jurisdiction

Personal Jurisdiction Over Patent Claim Found Where Defendant’s Assertions of Jurisdiction Not Believed

Snap-On Inc. v. Bosch, LLC, 2013 U.S. Dist. LEXIS 139077 (N.D. Ill. Sept. 26, 2013)

Defendant Beissbarth GmbH, a German corporation, moved to dismiss Snap-On Inc.’s claims against it for patent infringement based on a lack of personal jurisdiction. Specifically, the plaintiff asserted jurisdiction under Federal Rule of Civil Procedure 4(k)(2), which provides federal personal jurisdiction over a defendant who has sufficient contacts with the US as whole but lacks sufficient contacts with any one state. To establish Rule 4(k)(2) jurisdiction, a plaintiff is required to show that while the US defendant is not subject to personal jurisdiction in any one state, the exercise of jurisdiction nonetheless comports with due process.

Beissbarth argued that this requirement could not be satisfied because it had conceded jurisdiction in Virginia. But the court rejected Beissbarth’s attempt to “play[] jurisdictional hide-the-ball” because Beissbarth had previously disputed jurisdiction. The court also found that Beissbarth’s burden of travelling to US was outweighed by the US’s interest in adjudicating an infringement of its patents.

“Passive” Website of Swedish Corporation Does Not Support US Defamation and Unfair Business Practices Claims
Presence of Local Subsidiary and General Commercial Activity Fails to Support Personal Jurisdiction for Transfer

Francis v. Bridgestone Corp., 2013 U.S. Dist. LEXIS 133161 (D.V.I., Sept. 18, 2013)

Defendant Bridgestone Corp., a Japanese Corporation, was sued in the US Virgin Islands by Plaintiff Troy Franciss for strict liability and negligence claims stemming from a car accident, allegedly caused by defective tires. Bridgestone filed a motion to dismiss, arguing that it had insufficient contact with the forum to support personal jurisdiction. Franciss conceded this, and sought to transfer the case to Florida. The Court noted that two requirements must be satisfied for a transfer: that the transfer be in the interests of justice and that the action could have been originally brought in Florida. Here, the Court sided with the Plaintiff on the first requirement, finding that a transfer was in the interests of justice because the Plaintiff properly brought suit where the accident had occurred and where he believed jurisdiction was proper. But, the Court found insufficient evidence of contacts to establish Bridgestone’s personal jurisdiction in Florida, such that the action could have been brought in Florida originally. Specifically, the court found Bridgestone’s general distribution of tires and the presence of a Florida subsidiary was insufficient.

Communication Directed to Forum at Time Different From When Claim Accrued Fails To Establish Personal Jurisdiction

Francounsel Group, LLC v. Dessange Int’l, 2013 U.S. Dist. LEXIS 142074 (D. Mass Sept. 13, 2013)

Plaintiff sued Dessange Int’l and DF Export, French corporations, for breach of contract among other claims. The case was dismissed for lack of personal jurisdiction. The Court held that the plaintiff could not rely on unsupported allegations of the Defendants’ connection to the US, but instead had to submit “affirmative proof.” Here, the plaintiff alleged that the Defendants’ had targeted a particular Massachusetts corporation for business, including sending communications over a period of years. Although the Court noted this conduct did “evidence[] a deliberate and intentional availment,” the record failed to contain any evidence that such conduct had occurred around the time the cause of action accrued. As such, the plaintiff failed to meet its burden to show purposeful availment of the jurisdiction and the Court lacked personal jurisdiction over the French defendants.

Users’ Downloading and Use in the US of Allegedly Infringing App Sold by Canadian Company Fails to Support Personal Jurisdiction

Intercarrier Communications LLC v. Kik Interactive, 2013 U.S. Dist. LEXIS 112715 (E.D. Va. Aug. 9, 2013)

Plaintiff Intercarrier Communications alleged Defendant Kik Interactive infringed its patent with its product, Kik Messenger, a mobile app. The Kik Messenger allows users to send texts, pictures, audio, and video messages over an internet connection, as opposed to a phone carrier’s data network. Although Kik Messenger is widely available, including in Virginia, Kik Interactive is headquartered in Canada. Plaintiff alleged Kik was subject to jurisdiction “in every single forum in which a user sends and receives a message with the Kik Messenger.” However, the Court rejected this premise, holding that a company does not consciously or deliberately target a forum by a user’s unilateral download and use. Furthermore, Kik’s Facebook and Twitter promotion of the product could not be construed as purposeful availment of a particular jurisdiction, even though it is widely available in that jurisdiction. As such, the Court held Kik’s conduct and broad marketing activities could not satisfy personal jurisdiction, resulting in the dismissal of the case.

Product Liability Suit Against French Manufacturer Fails Where Defendant Did Not Sell in US and US Marketing Was Performed by US Intermediary

Parker v. Analytic Biosurgical Solutions, 2013 U.S. Dist. LEXIS 104753 (S.D. W.Va. July 26, 2013)

One of thousands of similar cases, Ms. Parker, the plaintiff, suffered an injury as a result of the use of transvaginal surgical mesh. To recover damages for the injury, Plaintiff sued the manufacturer of the mesh, Analytic Biosurgical Solutions (ABISS), a French company. Defendant moved to dismiss, asserting a lack of personal jurisdiction. Although the Plaintiff argued the Defendant was subject to both general and specific personal jurisdiction, the Court held ABISS’s contacts with the United States were not sufficient for either basis of personal jurisdiction. ABISS did not sell or distribute to the United States, but instead used an intermediary, which purchased the product and then sold within the United States. Furthermore, ABISS did not direct any marketing or advertising to the United States for its product, all efforts were made by the US intermediary. As such, ABISS’s conduct took place exclusively in France with little contact, aside from contracts with intermediaries, in the United States. The Court granted the motion to dismiss.

Patent Infringement Claims Against Taiwan Company Dismissed Where No Evidence of Sales Into Forum State, but Discovery Permitted as to Marketing Activities
False Claims Act Case Could Proceed Against Jordanian Company that Was Long-Time US Contractor That Had Targeted Business with US Companies, and Where Company Employees Had Travelled to US for Business Meetings

United States ex rel. Barko v. Halliburton Co., 2013 U.S. Dist. LEXIS 94389 (D.D.C. July 8, 2013)

Plaintiff, a former civilian contractor in Iraq, filed suit against his former employer, its parent corporation, and another subcontractor, Daoud & Partners, under the False Claims Act, alleging the defendants engaged in a scheme to defraud the United States by inflating costs of laundry services on military bases. Daoud & Partners, a Jordanian company, moved to dismiss for lack of personal jurisdiction. The Court rejected Daoud’s motion, holding that the company had sufficient contacts with the United States such that it could reasonably anticipate being sued in US courts. Specifically, Daoud had worked as a subcontractor for the US government for over ten years, and its employees had travelled to the United States for business meetings. Because Daoud directly targeted American companies and did business with the US government, the Court found Daoud had purposefully availed itself of the United States, as a whole, which is sufficient under the False Claims Act.

 

Topics:  Anti-Bribery, Anti-Corruption, Compliance, Cross-Border, Foreign Jurisdictions, Jurisdiction, Minimum Contacts, Racketeering, RICO

Published In: Civil Procedure Updates, Criminal Law Updates, Intellectual Property Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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