U.S. federal courts are characteristically wary of overstepping their bounds when adjudicating cases involving foreign governments or issues and events occuring in foreign countries. That can pose a challenge for U.S. companies engaged in international business, especially with foreign governments. When such business dealings go sour, the ability to enforce contract rights in U.S. courts can be critical.
Recent decisions of the Eleventh Circuit and other federal courts of appeals should give comfort to U.S. companies that do business with foreign governments that they can enforce their contract rights in U.S. courts. Lawyers can help keep their clients’ disputes in U.S. courts by ensuring that their contracts include clauses protecting the right to do so.
The Eleventh Circuit’s recent decision in GDG Acquisitions, LLC v. Government of Belize, decided April 22, 2014, illustrates that point. The dispute arose from a deal in which International Telecommunications, Ltd. (Intelco) leased telecommunications hardware to the government of Belize.
The Facts
Although Intelco was actually a Belizean company, the deal was negotiated in Florida and Washington, D.C. It was financed by a U.S. bank located in Miami. The deal closing was in Miami, where the government of Belize also took possession of the equipment. A month before suit was filed, Intelco assigned its rights against Belize to GDG, a U.S. company owned by the founder and director of Intelco.
The lease agreement included (1) a choice of law clause specifying that Florida law controlled; (2) a choice of forum clause, in which the government of Belize “submit[ted] to the exclusive jurisdiction of” the federal and state courts in Florida and consented to suit in those courts; and (3) a clause in which the government of Belize waived objections to Florida forums and claims that such forums were inconvenient.
After the government of Belize neither returned the equipment at the end of the lease term nor continued making lease payments, GDG filed suit in the Southern District of Florida. In response, Belize contended that the minister who signed the lease agreement did not have authority under Belizean law to bind the government. It moved to dismiss the complaint on the ground that the suit should be adjudicated in Belize.
The District Court dismissed the suit based on the alternative grounds of forum non conveniens and the doctrine of international comity. On appeal, the Eleventh Circuit disagreed.
Forum Selection Clauses Control the Forum Non Conveniens Analysis
Regarding forum non conveniens, the Eleventh Circuit found fault in the district court’s failure to give sufficient weight to the forum selection clause in its analysis. Under the U.S. Supreme Court’s recent decision in Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 134 S. Ct. 568 (2013), a forum selection clause, if enforceable, “carries near determinative weight” in evaluating whether to dismiss a suit for forum non conveniens.
The Eleventh Circuit left it for the district court to decide in the first instance whether the forum selection clause was enforceable, as well as whether the clause is permissible or mandatory, i.e., whether the clause requires that litigation take place in Florida, or merely permits litigation in Florida but allows suit to be brought in other jurisdictions as well. The court of appeals made clear, though, that if the clause is enforceable and mandatory, it will “control except in unusual cases.”
A valid and mandatory forum selection clause will trump other forum non conveniens considerations such as where it would be more expeditious to litigate based on where witnesses and evidence are located. Even if litigation in another forum may be more convenient, enforcing forum selection clauses in international transactions is paramount:
This approach is consonant with the Supreme Court’s longstanding recognition “that privately bargained-for forum-selection clauses [are] a necessary component of the expanded international commercial relationships of our time.” Estate of Myhra v. Royal Caribbean Cruises, Ltd., 695 F.3d 1233, 1240 (11th Cir. 2012)
International Comity is Applied Sparingly When a Foreign Court Has Not Already Exercised Jurisdiction Over the Dispute
The Eleventh Circuit also rejected the argument that principles of international comity supported deferring to Belizean courts to resolve the dispute. There are two kinds of comity, the court explained.
In the first kind, U.S. courts consider whether to respect or enforce a judgment by a court in another nation. In such cases, comity favors generally recognizing and enforcing such judgments, so long as the foreign court was competent and the judgment was neither fraudulent nor violative of “American public policy notions of decency and justice.”
But it is more rare for U.S. courts to apply comity “prospectively,” i.e., to decline to hear a case when there has been no adjudication, and no litigation is pending, in a foreign jurisdiction. To apply comity prospectively, courts weigh the interests of the United States and the foreign nation in using a foreign forum as well as whether the foreign forum is adequate.
Comity rarely wins the day in that calculus. In fact, the Eleventh Circuit noted that only once has it ever “sustained the dismissal of a lawsuit” based on comity in such circumstances. That case involved a special situation where the U.S. government had reached an international agreement with the German government to resolve all Holocaust era claims through a private foundation set up to resolve all such claims. Due to that agreement, both the U.S. government and the foreign government had a strong interest in having the case resolved in a foreign forum.
But that was an unusual situation that does not support applying comity in a “garden variety” commercial dispute. That the government of Belize may now, as a litigant, claim to have a strong interest in litigating in its own courts does not make international comity appropriate.
Litigants Against Foreign Governments Have Recently Fared Well in the 2nd Circuit as Well
This favorable outcome for a private business in a commercial dispute against a foreign government comes on the heels of a successful effort to hold the government of Argentina accountable for defaulted bonds in the Second Circuit. NML Capital, Ltd. v. Republic of Argentina, like GDG, involved a forum selection clause and choice of law clause making litigation proper in the U.S. (New York) and the law of a U.S. state (New York) controlling.
The issue was not one of forum but of the power of a U.S. court to enforce judgments against a foreign sovereign. Thedistrict court imposed an injunction requiring Argentina to pay its debts to the holders of the defaulted bonds in parity with its payments to holders of later issued bonds as required by contract, despite that the Argentinian legislature had passed a law forbidding the government from making payments on the earlier bonds.
On appeal, the Second Circuit rejected Argentina’s argument that the injunction violated the Foreign Sovereign Immunities Act, under which U.S. courts cannot exercise control over the property of a foreign state. Although Argentina contended that the injunction effectively exercises control over its funds by requiring it to pay money to the bondholders, the Second Circuit held that the injunction was permissible. The determinative factor was that the injunction did not technically force Argentina to pay money to anyone — it merely required that if Argentina paid money to one group, it must also pay the other group on par. Argentina has filed a petition for certiorari asking the Supreme Court of the United States to overturn that ruling.
No doubt litigation arising from international transactions will continue to pose special challenges for litigants seeking relief in U.S. courts, particularly when foreign governments are involved. But, so long as international agreements are drafted so as to preserve the ability to litigate in U.S. courts, these cases illustrate that those obstacles can be overcome.