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Forum Non-Conveniens , Comity, Antisuit Injunctions and Parallel Proceedings Author(s): Lawrence W. Newman and Nancy Nelson

Forum Non-Conveniens, Comity, Antisuit Injunctions and Parallel Proceedings Author(s): Lawrence W. Newman and Nancy Nelson

Source: Proceedings of the Annual Meeting (American Society of International Law), Vol.

90, ARE INTERNATIONAL INSTITUTIONS DOING THEIR JOB? (MARCH 27-30, 1996), pp. 62-

67

Published by: American Society of International Law

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Forum Non-Conveniens , Comity, Antisuit Injunctions and Parallel Proceedings Author(s): Lawrence W. Newman and Nancy Nelson

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International Litigation: Trends and Developments

The panel was convened at 2:25 p.m., Wednesday, March 27, by its Chair, Lawrence

W. Newman,* who introduced the panelists: Nancy Nelson, Vice President, Legal Affairs Office, Citibank, North America; Barton Legum, Debevoise & Plimpton, New York; and

Ronald E. M. Goodman, White & Case, Johannesburg, South Africa.

Forum Non-Conveniens, Comity, Antisuit Injunctions and Parallel

Proceedings

By Nancy Nelson**

My perspective here today is as a practitioner, not an academic. My professional focus

is practice and problem solving in many litigations that Citibank has across the world and in the United States and this is going to be the focus of my remarks.

By way of an overview of trends and developments, what we are seeing around the

world is more litigation in foreign countries that is not truly local in nature. It involves

either sophisticated commercial concepts in transactions or transactions that cross borders. It is not that there is litigation in particular places around the world involving particular

topics, but that, as economic and political events change, litigation is arising in countries

where before activity was not high. In the United States, for example, Citibank in the late

1980s had much litigation involving failed businesses. Then we worked with commercial real estate portfolios. Lately, we have had litigation concerning financial derivative prod ucts. With international matters, the same is true. Litigation follows significant events. For example, when Argentina worked out its debt, we saw litigation concerning the com

plexities of the "when and if issued" bond market. This was not something we would

have necessarily predicted, but if we really had thought about it, we could have seen it coming. When Taiwan opened its futures markets, we had litigation concerning the scope

of, and permissible activity under, the new futures laws. When speculative trading in Bombay came to light, we had litigation in India concerning securities transactions. These types of events are difficult but not impossible to predict. We need to pay attention to, and analyze, expansion in our businesses. I do know that there are particular worldwide

trends in litigation on particular topics. As usual, litigation follows expansion into markets

and developments in economic and political activities. There are some features common to litigation that crosses borders or involves parties that cross borders. I am going to speak about some of those features, focusing on the doctrines of forum non-conveniens and comity.

Forum Non-Conveniens and Comity

As U.S. companies are penetrating foreign markets, particularly in the emerging econo

mies, they are finding that not only are the local businesses subject to foreign court rules,

but also that some of their U.S.-based businesses may now be the subject of litigation in

foreign courts. This is much more troubling and difficult to predict. Consider some of these following situations: A bank in the United States issues a letter a credit in favor of

a beneficiary in India. The beneficiary of the bank forwards documents for collection, but

before the bank pays, the customer in the United States obtains an injunction preventing

payment. Then the Indian beneficiary goes to court in India where the bank has a branch

and is subject to jurisdiction. Who is to compel payment? There are contrary proceedings.

* Baker and McKenzie, New York.

** Legal Affairs Office, Citibank, North America.

62

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Wednesday, March 27: Afternoon 63

Here is another situation. A New York bank and its Indonesian customer are simultane

ously involved in litigation in an English court and Indonesia court over transactional losses in derivative financial products. The bank wins the English case and, almost at the

same time, loses the Indonesia case. Then what happens?

My last example involves a Korean defendant in a New York action. Unhappy with

the progress of that action, he institutes a suit in Korea on the same matter, initiating parallel proceedings. Clearly, the court has a big need to work out, internationally, some way of accommodating two different sovereign interests.

These situations, and many more like them, highlight the need for recognition and

proper application of the doctrines of comity md forum non-conveniens in courts around

the world. I shall discuss these doctrines as we apply them in the United States.

Comity. Comity concerns recognizing the validity of, and deferring to, the actions of a foreign court that is already or even subsequently dealing with the matter. This doctrine has come into play in a variety of situations, most frequently in giving effect to foreign

judgments (especially before most of the states adopted the Uniform Recognition of For

eign Money Judgments Act), but also in the context of overseas discovery (which Lawrence

Newman will talk about), or even in the acknowledgment that another court is better

situated to handle all facets of the matter. Comity is implicitly adopted in the U.S. Bank ruptcy Code, which provides ancillary proceedings to facilitate a foreign court's handling of a bankruptcy matter. The seminal case on adopting comity and describing it in the

United States is the case of Hilton v. Guyot, which annunciates the doctrine in a very

simple way.1 The U.S. Supreme Court in that case stated the following:

No law has any effect of its own force beyond the limits of the sovereignty from which

its authority is derived. The extent to which the law of one nation as put in force within

its territory, whether by executive order, legislative act, or by judicial decree, shall be

allowed to operate within the dominion of another nation, depends upon what our greatest

jurists have been content to call the comity of nations. Comity in the legal sense is neither

a matter of absolute obligation, on the one hand, or mere courtesy or good-will on the

other. It is the recognition which one nation allows within its territory to the legislative,

executive or judicial acts of another nation having due regard both to international duty

and convenience, and to the rights of its own citizens or of other persons who are under

the protection of its laws.2

This basic doctrine of comity has continued to dominate more recent U.S. judicial deci

sions, applying comity in the international context where it is becoming increasing impor

tant. It is very useful because it can provide flexibility to the U.S. court to fashion remedies

addressing the situations that I have been describing. I will talk a little more about it in a case study that I have at the end of my talk.

Forum non-conveniens. If the court does not refrain from acting on the grounds of comity, it may do so on forum non-conveniens grounds, which are much more defined

and delineated in U.S. law. In the United States, although the doctrine of forum non

conveniens has no direct federal statutory or constitutional foundation, the doctrine has

been repeatedly reaffirmed by the Supreme Court. We can see how important this doctrine

is in international litigation, for the inconvenience of litigation in one place or another

could be extremely great for the parties. The doctrine was derived from the broadening concepts of personal jurisdiction. At about the same time that U.S. courts were expanding

the concepts of in personam jurisdiction, in rem and quasi-m rem jurisdiction, they began

1 159 U.S. 113 (1895).

2 Id. at 163-64.

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64 ASIL Proceedings, 1996

to rely increasingly on forum non-conveniens principles to moderate the expansion of

jurisdiction.

The test that the U.S. courts apply today is set forth in the Supreme Court case called Gulf Oil Corp. v. Gilbert? As is typical of U.S. tests, it is one that is subject to a great

degree of interpretation and is to be applied by the court in the exercise of its discretion.

Nevertheless, they are factors that the court must scrutinize, both private and public. Those

factors are: (1) the ease of access to sources of proof in considering another forum;

(2) the availability of compulsory process until you get somebody to attend court; (3) the cost of obtaining attendance of willing witnesses; (4) practical problems involving effi ciency and expenses for trial; (5) judgment enforceability; (6) administrative difficulties

flowing from court congestion; (7) jury duty burdens; (8) the local interest in having

particular controversies decided in a home court as opposed to a foreign court; and (9)

the avoidance of unnecessary problems in applying foreign law. However, unless the

balance of these factors is strongly in favor of a defendant, plaintiff's choice of forum

would normally not be disturbed by a U.S. court. The courts give less weight to this factor

for plaintiffs who are not U.S. citizens. The forum non-conveniens determination is also

a matter of discretion for the court of first instance, and thus not easily overturned.

I should mention that the application of this doctrine presupposes that there is an ade quate alternative forum, and the courts look at this carefully. An alternative forum will not be adequate: (1) if it does not permit litigation of the subject matter of the dispute;

(2) if the plaintiff would be denied access to the forum either because of foreign governmen

tal actions or because of the plaintiff's lack of resources; (3) if the forum lacks personal jurisdiction over some or all of the defendants and therefore cannot fully adjudicate the

matter; or, finally, (4) if the forum is biased or unfair or not equipped to handle particular types of matters. U.S. courts, particularly in commercial centers, seem much more readily in favor of granting forum non-conveniens motions than they have in the past, especially if there is a clearly superior forum. Courts do this primarily through recognizing a wider

variety of foreign courts as being adequate. The level of scrutiny of foreign matters has

changed over the years, and the courts no longer look for replication of the U.S. or British legal systems. So, for example, courts in the United States have found courts in Australia,

India, Saudi Arabia and Brazil to be adequate when it comes to specific cases. I should

point out also that state courts apply state law in their own forum non-conveniens analyses,

with often quite different results from the federal courts. If there is any overall difference,

it tends to be that states seem to be less willing to dismiss suits in favor of another forum

and are more willing to hear cases.

Antisuit Injunctions and Parallel Proceedings

This brings me to what happens when a court has decided not to grant dismissal in

forum non-conveniens matters, and there is other litigation proceeding in another country

or another forum. Once a court has declined to dismiss a case on the grounds of comity

or forum non-conveniens, what will it do to protect its jurisdiction? Many parties ask courts to buttress their decisions with orders enjoining their opponents from proceeding in another forum. In the U.S. federal courts, the circuits are split on how stringent the

tests should be applied to decide whether or not to grant an injunction. Generally speaking,

the older cases in the Fifth and Ninth Circuits provide an easier test, although there is a recent case in the Seventh Circuit that also provides an easy test for the granting of an injunction.

3 330 U.S. 501 (1947).

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Wednesday, March 27: Afternoon 65

One of the earliest cases to address the issue was In re Unterweser Reederei.4 In that

case, the plaintiff brought an action against a German corporation in the Middle District of Florida. The defendant filed some motions, but then began a suit in the High Court in London. The plaintiffs moved for an antisuit injunction, and it was granted. The Fifth Circuit stated that such injunctions would be granted where the foreign litigation would do any of the following: (1) frustrate a policy of the forum issuing the injunction; (2) be

vexatious and oppressive; (3) threaten the issuing court's jurisdiction; or (4) prejudice

other equitable considerations. This gave the court a lot of maneuvering room. The court

ruled that the injunction was proper in this particular case because 4 'allowing simultaneous

prosecution of the same action in a foreign forum thousands of miles away would result

in inequitable hardship and tend to frustrate and delay the speedy and efficient determina

tion of the case."

The Ninth Circuit followed the Fifth Circuit in the case called Seattle Totems Hockey

Club, Inc. v. National Hockey League.5 It observed that the power of a federal district

court to enjoin parties from litigating in a foreign country should be used sparingly, but,

nevertheless, it found that adjudicating the issue of two separate actions would likely result

in unnecessary delay and inconvenience, and expense to the parties and witnesses. For this reason, as well as the reason that separate adjudications could result in inconsistent

rulings, the Ninth Circuit found that there was a basis for enjoining foreign proceedings.

The watershed came in 1984 in the District of Columbia Circuit in Laker Airways v.

Sabena, Belgian World Airlines, which was a battle between English and U.S. antitrust

policy.6 The Laker case began a change in philosophy toward applying a stricter test for

antisuit injunctions. The basis of the philosophy is that parallel proceedings are not in and

of themselves considered to be bad. In that case, three months after Laker Airways filed

an action in the District Court for the District of Columbia, defendants brought suit in the

United Kingdom and requested the British court to issue an antisuit injunction against Laker. Laker responded by moving in the District of Columbia District Court for its own

antisuit injunction. The court in the District of Columbia stated that parallel proceedings on the same in personam claim should ordinarily be allowed to proceed, at least until a judgment is reached in one, which could then be brought in as res judicata in the other lawsuit, essentially invoking a race to judgment?which might be interesting, considering

conditions and procedures in some countries. In fact, the principles of comity and mutual

respect found in the relations between courts in the United States was found to apply in

a parallel proceeding in other countries, and would affect exercise of jurisdiction in foreign

countries. So, even though denying an injunction could lead to an "embarrassing" race

to judgment, the court ruled that this factor alone does not outweigh the respect and

deference owed to independent foreign proceedings. The court held that injunctions could

be granted only to protect the jurisdiction of the enjoining court or to prevent the litigant's

evasion of the important public policy of the forum. The Second Circuit then followed the D.C. Circuit and adopted a more stringent injunction test in a case called China Trade

and Development Corp. v. M.V. Choong Yong.7 It stated that the initiation before a foreign

court of a suit concerning the same parties and issues as a suit already pending in a U.S.

court does not justify enjoining the party from proceeding in the foreign forum.

  • 4 428 F.2d 888 (5th Cir. 1970).

  • 5 652 F.2d 852 (9th Cir. 1981).

  • 6 731 F.2d 909 (D.C. Cir. 1984).

  • 7 837 F.2d 33 (2nd Cir. 1987).

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66 ASIL Proceedings, 1996

The trend toward limiting the granting of antisuit injunctions has continued in the

district courts. Courts have noted that international comity argues against antisuit injunc

tions and that when two sovereign courts have concurrent jurisdiction, one court will

ordinarily not be expected to interfere with the proceedings of the other. The courts have,

if anything, tended toward keeping their hands off of foreign proceedings and adapting themselves to the circumstances. The fact is that, while many courts still do not, on the

basis of comity or forum non-conveniens, refrain from adjudicating a matter, they also

rarely enjoin a party from proceeding with another matter, at least until such time as there

is a judgment. At the time there is a judgment, similar but different legal principles come

into play, including the concepts of res judicata as applied in a particular country or

enforcement of judgments. If a party wants to prevent the enforcement against it of a possible unfavorable foreign judgment, filing early and prosecuting the case vigorously in the United States is the safest way to do so. Conversely, if it does not want to have a decision from a U.S. court, it should proceed quickly to prosecute its action in a foreign

court.

Citibank has been involved in a fascinating case that illustrates some of these principles.

There is a group of related cases involving an Australian textile conglomerate, the Linter Group. In 1988, Linter tried to raise funds by coming to the United States and entering the markets with a junk bond issue. In connection with this debt issue, Linter requested its senior lenders, many of whom were branches or subsidiaries of U.S. banks, to release

guarantees securing the preexisting bank debt. Linter promised to give new guarantees as

soon as the junk bonds were issued and sold. So the banks agreed: they released their

guarantees, the bond were issued, and the guarantees were reinstated. However, none of

this was disclosed in the prospectus. A couple of years later, when the company went down the tubes, bondholders filed securities fraud claims against the company and its

officers and directors and all of the senior lenders, in the Southern District of New York,

in two suits, called Linter I and Linter II. Both of them alleged U.S. securities law viola tions. Judge Patterson dismissed the claims against the Linter company-related entity on

comity grounds?something you do not see happening very often. He did this because

there was a liquidation proceeding in Australia. He found that even though the Australian bankruptcy court might in fact allow the plaintiffs' claims to proceed outside of the bank ruptcy court in the federal court of Australia, the bankruptcy court's right to determine

how matters affected the company proceeding was paramount and should be respected. According to the bank's forum non-conveniens arguments, he applied the Gulf Oil test, and, quoting Judge Friendly, said courts should require positive evidence of unusually

extreme circumstances, and should be thoroughly convinced that material injustice is

manifest before exercising discretion to deny a citizen of this country access to the courts of this country. Nevertheless, he found that dismissing the cases on the grounds of forum

non-conveniens was appropriate in this case because the U.S. proceedings would require

the banks to proceed in two different suits, incurring extra costs and risking inconsistent

results. Since all the claims could be decided in a single proceeding in Australia, he

dismissed the cases. The Second Circuit affirmed, and the Supreme Court denied certiorari.

The cases proceeded in Australia, and the banks, in fact, brought in as third party defendants

the professionals involved in the issue including the U.S. and Australian law firms and

accounting firms that participated in the preparation of the prospectus. This seems to have

inspired the bondholders, who then brought another case in New York against the law

firm and a couple of the underwriters, in state court this time, and the law firm promptly

moved to dismiss on forum non-conveniens grounds and lost. The New York State Supreme

Court decided that those claims, since they involved U.S. parties on both sides of the

action and a fraudulent action that took place in the United States, should proceed in the

New York court.

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Wednesday, March 27: Afternoon 67

This brings us to an interesting piece of litigation that followed in Australia: the anti

anti-antisuit injunction application. In Australia, the law firm requested the judge to issue an order that would restrain the bondholder plaintiffs from seeking an order in New York

restraining the law firm from requesting the Australian court to restrain the bondholders!

After considering it in many days of argument, the federal court in Australia enjoined the

bondholders from proceeding in New York. It found that, if the New York proceedings

continued, inconvenience of three kinds would or might result: (1) administrative burden,

(2) interference with court processes, and (3) conflicting results. The court was especially

persuaded by the law firm's argument that, in order to defend itself appropriately in New

York, it would have to implead in the New York action all the parties of the Australian

action. It started to sound a bit unmanageable. The court said the granting of relief would

not impinge on comity because the injunction would not be granted for reasons of lack

of confidence in the ability of the New York court to do justice and because similar

antisuit relief is available in the United States, and any offense taken by a foreign court

is proportionate to the time and resources invested in the case by that court. Comparatively

little time and resources had been invested by the New York court in this matter, so the

Australian court applied a British case and elected to enjoin the bondholders from proceed

ing in the New York litigation. The case is now being tried in Australia with nothing

happening in New York. We will see what happens there, but the two courts are clearly

trying to balance their roles.

Obtaining Evidence in the United States for Foreign Proceedings

By Lawrence W. Newman*

The procedures for obtaining evidence in the United States for assistance in foreign proceedings is embodied in a section of the Federal Judicial Code, Title 28, Section 1782, which has certain state analogues that were enacted pursuant to recommendations of the

American Bar Association and the National Conference of Commissioners on Uniform

State Laws. There is a Uniform Act similar to Section 1782. It has been enacted in Arkan sas, the District of Columbia, Massachusetts, Michigan, Pennsylvania and the Virgin Is

lands. Section 1782 itself is, according to what shows up in the cases, the primary vehicle by which the obtaining of evidence has been sought in the United States, not pursuant to traditional letters rogatory, but at the request of parties or interested persons to foreign

litigations. I believe that there is probably a trend toward an increasing use of this sec

tion?in part, I suppose, because some of us have been talking about it in print. Section 1782 essentially says that the district court of the federal district in which a

person resides or is found may order this person to give testimony for a statement or to produce a document or other thing for use in a proceeding in a foreign or international

tribunal. This order may be made pursuant to a letter rogatory or upon the application of

any interested person. It goes on to talk about how this evidence may be obtained, and

the fall-back position is that it will be done in accordance with the Federal Rules of Civil Procedure. This statute, in its earlier versions, has been around for a long, long time. The original version of this statute was enacted in 1855; then it was replaced or amended later

in the nineteenth century, and most recently in 1964 following a proposal submitted to

the Congress by the Commission on International Rules of Judicial Procedure, which

Congress had created in 1958. It represents a significant departure in many respects from

its much more conservative predecessors. The earlier versions of this section required that

* Baker and McKenzie, New York.

For more on this topic, see Lawrence W. Newman and David Zaslowsky, Assistance to Foreign Proceedings,

in Litigating International Commercial Disputes 192-210 (1996).

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