Case of the Day: DRC, Inc. v. Republic of Honduras

The case of the day, DRC, Inc. v. Republic of Honduras (D.D.C. 2011), is an action to enforce an arbitral award made in Honduras.  It is also the first case of the day arising under the Panama Convention. (Why does the Panama Convention, rather than the New York Convention, apply? The FAA has an express provision providing that the Panama Convention prevails when “a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Inter-American Convention and are member States of the Organization of American States”).

DRC had a contract with the Honduran government to construct water and wastewater projects in the aftermath of Hurricane Mitch. According to Honduras, the contract provided that the U.S. Agency for International Development would pay DRC for its work.; USAID gave DRC a “letter of commitment” to that effect. After a dispute about payment arose, DRC sued the United States in the Court of Federal Claims. The United States then sued DRC in the District Court for the District of Columbia asserting claims under the False Claims Act (in particular, that DRC was guilty of fraud in the procurement and performance of the contract), and it moved to stay the case in the Court of Federal Claims on the grounds that the outcome there would depend on the resolution of the fraud question. That court granted the motion to stay. DRC unsuccessfully sought to dismiss the False Claims Act case. Thus there are now two pending cases between DRC and the United States–DRC’s claim for payment, which has been stayed, and the False Claims Act case, which is in discovery.

After the court denied DRC’s motion to stay the False Claims Act case, DRC demanded arbitration with the Honduran government for breach of the construction contract. The arbitration took place in Honduras. The tribunal awarded DRC $51 million in damages. DRC filed a petition in the Supreme Court of Honduras seeking “acknowledgment and execution” of the award (I take it this is the same as recognition and enforcement). DRC requested a sixty-day stay of the Honduran proceedings while the parties sought to settle the case, and the court stayed the case as requested. In parallel with the Honduran proceedings, DRC sought to enforce the award in the U.S. District Court, and Honduras sought to stay or dismiss the action.

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Gustavo Lamelas on the Judicial Assistance Statute

The March 2011 issue of the International Bar Association’s Arbitration News is out. Of particular interest in an article by Gustavo J. Lamelas of DLA Piper: The Evolving Standards for Extending US Discovery Assistance to International Arbitration. Lamelas notes that Intel Corp. v. Advanced Micro Devices has sparked “intense efforts to extend [the judicial assistance statute] to international arbitrations.” As he parses the cases, there are three basic approaches. The first simply holds that private arbitral tribunals are “tribunals” within the meaning of the statute, and thus that US courts can provide judicial assistance in aid of private international arbitrations. The second holds that only a public or quasi-public arbitration (e.g., a BIT arbitration) comes within the scope of the statute. The third adopts what he calls a nuanced “functionality” test. The core of Lamelas’s article is an examination of the functional approach. The article is helpful because it identifies what may be a trend in the case law, but Lamelas does not give a view as to the merits of the trend, which is unfortunate. I believe the trend is plainly unsound.

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Case of the Day: Johannes Baumgartner Wirtschafts-und-Vermögensberatung GmbH v. Salzman

The case of the day rejoices in the name Johannes Baumgartner Wirtschafts-und-Vermögensberatung GmbH v. Salzman (E.D.N.Y. 2011). The plaintiffs sued Ambiente GmbH, a German firm, and Peter Schmidt, Muhsin Karakurt, and Mehmed Kocabas, all of whom resided in Germany. The claim was for violations of RICO, securities fraud, conversion–you name it. The case of the day deals with the plaintiffs’ motion for default judgment against the German defendants. It doesn’t raise any interesting points of law. I’m reporting on it simply as an example of obtaining a default judgment in Hague Service Convention cases.

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Case of the Day: United Company Rusal v. Trafigura AG

The case of the day United Company Rusal, plc v. Trafigura AG (D. Conn. 2011), raises a fascinating question: do the federal courts have subject-matter jurisdiction of applications for judicial assistance under 28 U.S.C. § 1782? One might wonder how this question could even arise. The statute provides:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal …

But as we will see, the question is more substantial than it might appear at first.

Rusal is a major aluminum producer. It owned more than 25% of Norilsk, a nickel producer. Two subsidiaries of Norilsk sold some of their shares to an affiliate, Trafigura Beheer BV, and repurchased them at a profit a few days later. Rusal believed that Interros, a Russian investment firm that also owned a stake in Norilsk, had “orchestrated the sale and buy-back to place additional shares in the hands of Interros-friendly shareholders in an effort to subvert a cooperation agreement between Rusal and Interros and to force Rusal to sell its interest in Norilsk at an undervalued price.”

Rusal sued Trafigura Beheer in the Krasnoyarsk Territory Arbitrazh Court. It also sued the two Norilsk subsidiaries in St. Kitts and Nevis and began arbitration against Interros at the London Court of International Arbitration. Rusal sought judicial assistance in Connecticut to obtain discovery from Trafigura AG, a subsidiary of Trafigura Beheer, in aid of all three of these proceedings. Trafigura asserted that the court lacked jurisdiction.

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ADR Prof Blog

Prof. Michael Moffitt, associate dean at the University of Oregon School of Law, was kind enough to give a shout out to Letters Blogatory on his blog, ADR Prof Blog, and I’d like to return the favor. His blog (other contributors include Andrea Schneider, Sarah Cole, Art Hinshaw, Jill Gross, and Cynthia Alkon) covers all things ADR. In addition to original commentary, Mike’s recent posts bring material from around the web (SSRN and elsewhere) to light. Check it out!

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Case of the Day: Belmont Partners v. Mina Mar

The case of the day is Belmont Partners, LLC v. Mina Mar Group, Inc. (W.D. Va. 2010). It’s a perfect example of what should not happen in arbitration–the parties agreed to arbitrate, then settled, then one reneged on the settlement, then they sued each other in two countries.

The parties were both in the business of buying and selling “clean shell corporations.” These are corporations with “no sales, no liabilities, and no assets.” The idea, according to Mina Mar, is that the shares of “clean shell” companies “can be readily traded and private operating companies can merge with [them] and ‘go public.'” I have no comment on the propriety of this business!
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Case of the Day: Starski v. Kirzhnev

I chose the case of the day, Starski v. Kirzhnev (D. Mass. 2011), because it involves an area of international judicial cooperation we haven’t yet considered, namely, proof of the authenticity of a foreign official document so that it can be admitted in evidence in US proceedings.

Vietnam owed a debt to Russia. Starski had connections in the Vietnamese government, and Kirzhnev had contracts in the Russian government. Starski’s claim was that he had a contract with Kirzhnev under which Kirzhnev was to use his contacts to facilitate a debt-swap transaction between the two countries. Upon the occurrence of the transaction, Kirzhnev was to pay Starski a commission. The transaction went through, but Starski alleged that Kirzhnev never paid. He sued him for breach of contract.

Before trial, the parties sparred over the admissibility in evidence of what purported to be a copy of an official document from the Moscow City Court evidencing Kirzhnev’s conviction on charges of bribing an official, illegal border crossing, and forgery. Starski sought to use the document to impeach Kirzhnev’s character for truthfulness. The court held that the document was inadmissible.

The case was tried to a jury, which found that there was no contract between the parties. The court entered judgment on on the verdict for Kirzhnev. Starski moved for a new trial on the grounds that the court had erred by excluding the evidence of Kirzhnev’s supposed criminal conviction. The court denied the motion, finding, as it had previously, that the document was not properly authenticated.

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